By 
Shipping and logistics is an industry that is part of our daily lives. Almost everything we use has traveled by truck, ship, plane, or rail to reach our lives. The industry can be confusing as the relationships between players can be complex. Freight shipping is also highly regulated, and many of its suppliers must have special permits and licenses to participate. In this article, we’re going to break down the LP jargon and explain what each LP level is responsible for. Once you understand what each level is responsible for, you can get a better idea of how complex the relationships can be and why the logistics sometimes don’t always make sense.
The PL stands for “Party Logistics” and these parties are usually ranked from one to three, but in recent years we have seen new service providers enter the game at tier four and even as high as tier five.
- first party logistics (1PL). Describes the actual beneficiaries of the cargo that can be the sender or the receiver. The party that makes the shipment or “supply” is usually classified as the consignor and the party that receives or “demands” is usually classified as the consignee.
An example of a consignor might be a manufacturing company that ships products to retail outlets for later sale.
An example of a consignee might be a restaurant that buys eggs from a local farm. The restaurant sends a delivery truck to the farm to collect the eggs.
With global markets, shipping is not that simple, many companies do not have the capacity to handle cargo movements over long distances. For example, let’s say a company outsources some of their manufacturing to China and has a retailer located in California, it may not make financial sense for them to buy a ship or plane to make delivery. Because the company does not have the resources to ship using their own assets, they outsource the services. This is where our other “PL”s come into the chain.
- second party logistics (2PL). It involves carriers that provide a transportation service on a specific segment of a transportation route. In some cases, due to terrain, ocean crossing, or multiple reasons, the 1PL cannot complete the move, so they would have to hire a 2PL, such as a shipping company, rail operator, air cargo company, or a trucking company that is contracted to carry out the move. cargo from an origin (for example, a distribution center or cross-dock) to a destination (for example, a port terminal).
- external logistics (3PL). It is a company that is hired to facilitate the movement of goods. Let’s say the shipper doesn’t own any trucks but needs to ship product from New York to Los Angeles. They hire a 3PL to handle the logistics involved in getting the items to Los Angeles, which could involve trucks, trains, air, and even temporary storage along the way. The 3PL’s job is to manage all aspects of cargo movement along the route.
In some cases, 3PLs may be asset-based. This means they own trucks, storage facilities, or other cargo management tools. However, many 3PLs are not asset based and employ subcontractors to move freight.
The Council of Supply Chain Management Professionals defines a 3PL as: “A person who solely receives, holds, or otherwise transports a consumer product in the ordinary course of business, but does not assume title to the product “.
- Third party logistics (4PL). This is a newer term, and some consider the term to simply refer to a non-asset-based 3PL. However, there are firms that specialize in managing the relationship between 3PL’s and 1PL’s, acting as consulting firms.
- fifth party logistics (5PL). Yes, 5PL really exists! However, it is not really a popular category. Companies claiming to be 5PL providers are often providers of electronic business services and do not actually control the movement of goods, but control the electronic networks that control the movement of goods.
As you can see, the logistics industry has a lot of players. It is important when booking any type of shipment that you know who you are contracting with and what type of coverage you have if your belongings are damaged or stolen.
It is always a good idea to ask for copies of operating authorizations and insurance documents.