Logistics is a key element for businesses. It’s a huge component of keeping up with customers’ demands. You can break down logistics into different parties such as second, third, fourth, and fifth-party logistics. In this article, we will focus on types of logistics and specifically second-party (2PL) logistics.
Types of Logistics
E-commerce has made a large contribution to logistics and the global economy. Without logistics, the concept of e-commerce would have never been possible to be implemented. There are several types of logistics.
First-party logistics (1PL)
First-party logistics is a company or individual who needs goods transported from one point to another. There is no middleman in 1PL providers. For instance, there is you, the manufacturer, and your retailer or customer who is receiving the goods.
Second-party logistics (2PL)
Second-party logistics is an asset-based carrier that is responsible for the method of transportation. 2PL is mainly used for shipping heavy or wholesale goods, primarily internationally. It is also used for trading purposes. 2PL is often referred to as a forwarder. For example, it could be an airline company that also offers freight services to get things from you to your customer.
Third-party logistics (3PL)
A third-party logistics is a supply chain that primarily concerns the transportation and delivery of different products but also includes various types of additional services as well. 3PL providers have been managing logistics for decades. They have expertise in how to make the shipping process simpler, quicker, and more cost-effective for the seller. They may or may not own their own trucks.
Fourth-party logistics (4PL)
Fourth-party logistics is a newer concept entering the market. It involves employing an overseer for managing an entire supply chain of a company. They’re often referred to as a Lead Logistics provider. 4PL providers are essentially consulting companies for many supply chains. They act as a head administrator for supply chain companies.
Fifth-party logistics (5PL)
Fifth-party logistics is also known as a logistics aggregator. 5PL involves a fully integrated logistics solution to encompass the whole supply chain from beginning to end through multiple outsourced service providers. This type of logistics is not asset-based. It usually works seamlessly across all disciplines. For 5PL to be successful, it requires integration of IT and computers to ensure real-time visibility.
Simply put, 2PL is a model where a business or consigner hires a private company to transport goods to a destination. A 2PL is an organization that is technically a carrier. They bring goods from a warehouse or manufacturer to the receiving party. For example, a dairy farmer may hire a 2PL provider to transport milk to their customers.
Every business regardless of the industry can use a 2PL provider. As a 2PL provider, you’ll be responsible for different tasks.
Loading and unloading items
This task is pretty self-explanatory. 2PL providers are responsible for picking up items for delivery from a warehouse and loading them onto the truck. The loading must be done in a way that aligns with customer expectations. A 2PL provider will generally work with the warehouse workers to ensure the goods are loaded safely and accurately.
Transporting items according to the bill of lading
The bill of lading is a legal document needed for shipping and logistics. It is a contract between the shipper, carrier, and consignee stating what goods are being shipped, where the shipment is coming from, how they should be handled during transport, and where the shipment is headed to.
A 2PL provider also has the responsibility of collecting and transporting all shipping paperwork back to the consignor. This may include inspection or customs paperwork, invoices, or returned items.
Advantages and Disadvantages of 2PL
Because every business is different, 2PL will work for some and not for others. Determining whether or not 2PL is right for your company will depend on your needs, risk tolerance, and transportation budget.
First, let’s take a look at a few advantages of 2PL. This includes lower costs, reduced complexity, and service-level agreement (SLA) guarantees.
One of the important components of 2PL is that you don’t have to purchase and maintain fleet vehicles. As a result, you also avoid hiring and managing drivers.
Assuming the 2PL providers are reasonably priced, this can save you enormous amounts of money over time.
Another advantage of 2PL is that a business can reduce complexity. It’s much simpler to outsource your shipping to a 2PL provider than it is to coordinate and schedule your own trucks. However, keep in mind that companies still need to plan and strategize when working with a 2PL provider.
Service-level agreement guarantees
Generally, 2PL providers sign an SLA or service-level agreement. This is a commitment between the service provider and the customer. SLAs are specific to the aspects of service such as quality, availability, and responsibilities. These aspects are agreed upon between the service provider and the service user. For example, a contract will be signed outlining specific arrangements made between the business and vendor. It’s the responsibility of the vendor to do their best to meet the contracted requirements. Otherwise, the vendor won’t get paid.
Second, let’s take a look at some disadvantages. These include more management, potential shipping delays, and increased risk.
One of the largest disadvantages of 2PL is that it requires more backend management. Someone will need to be a liaison between the warehouse and the contracted drivers. This requires rapid and accurate communication among all parties.
Potential shipping delays
Another downside to 2PL is that some SLA-backed companies drop the ball leaving their customers stranded. As a result, this could leave you scrambling to find other ways to get products to your customers on time. It would be wise to keep backup trucks on standby. You don’t want to have any angry or dissatisfied customers.
2PL providers have increased risk because it requires trusting an outside organization to transport their products to their customers. This includes working with warehouse personnel, obtaining paperwork, and going through customs and inspections.
Finally, logistics is an essential component of the supply chain. 2PL carriers are just one part of logistics. It is up to you to decide whether or not it’s the best transport method for your company.