Why the rise of 4PLs is important to you

Strategic agreements with third-party logistics providers, or 3PLs, have become fairly common across the supply chain. However, as organizations face increasingly complex logistics environments and look for ways to address risk and drive efficiency, a concept that should be considered is 4PL.

While many are familiar with the concept of 3PL, 4PL, or fourth-party logistics provider, is a lesser-known term today. As shippers are actively seeking out 4PL service providers to form closer, more integrated and longer-term, value-driven partnerships, it’s critical for supply chain and logistics leaders to understand this newer concept and how it might provide value to their organization.

Intro to 4PLs

A fourth-party logistics provider is an outside transportation and logistics partner that delivers comprehensive planning and execution of all shipments for a client across the value chain. They have a strong focus on technology solutions to digitize end-to-end processes and develop data-driven logistics ecosystems.

There are various industry communities that offer 4PL services and these can be segmented into three distinct groups: 3PL market, technology vendors and integrators or consultancy. The services they commonly provide include:

Freight rate benchmarks and bids for all transportation modes

Carrier procurement, negotiation and contracting

Management reporting and interactive dashboard tools

Detailed analytics and reporting of service, cost and performance

Robust, continuous improvement programs

Multi-modal transportation planning and execution

Proactive shipment monitoring via web-based track and trace

Domestic and international shipment management

NVOCC and freight forwarder credentials

Brokerage and dedicated fleet-capacity management

Rail fleet management

BulkTainer ISO container fleet, and

Freight bill, audit and payment.

All forms of outsourcing logistics are expanding rapidly, but 4PL value is increasing at record-setting rates. As reported by GlobeNewswire, “the global 4PL Logistics Market was estimated at USD 57.65 Billion in 2019 and is expected to reach USD 84.43 Billion by 2026. The global 4PL Logistics Market is expected to grow at a compound annual growth rate (CAGR) of 5.5% from 2019 to 2026.”

Benefits of 4PL agreements

The benefits of a 4PL include having a single point of contact and access for all managed transportation activities across the supply chain, simplified logistics operations and execution, as well as end-to-end visibility and data access across operations. This access can provide a platform to connect all the mainstream logistics technology applications and processes, ultimately leading to better planning and customer experience.

Additionally, 4PL agreements can enable organizations to leverage agile planning and execution through increased levels of collaboration and integration, allowing them to better navigate the increasingly complex logistics environments. Companies can also manage risk through a single connected platform, which provides better protection from cybersecurity breaches.

Lastly, 4PL providers can help organizations increase flexibility through improved coverage and access to advanced networks, allowing better forecasting and capacity management and help ensure consistency across delivery networks, driving higher levels of customer service.

Future considerations

We are seeing many LSPs and 3PLs expanding into 4PL services. It’s a more lucrative line of work that allows them to make money by consulting on their clients’ supply chain strategies and selling access to logistics software in addition to freight fees.

The 4PL market argues that by consolidating end-to-end logistics services into one package, they can boost efficiency and lower prices. However, this consolidation leaves shippers with less choice and fewer companies controlling supply, which will ultimately hurt the consumer. While during good times this may provide cost and efficiency benefits to shippers, when crisis strikes, they may be left scrambling to find alternatives if the promise of 4PL does not come to fruition.

Matthew Beckett is a senior research director in the Logistics, Customer Fulfillment and Network Design Team at Gartner. Matthew has more than 25 years experience in the logistics and supply chain sector across multiple industry verticals and geographies. He has been responsible for large scale logistics operations at both a tactical and strategic level, and has led commercial, procurement and operational functions at a senior level. He can be reached at [email protected].

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