Shipping and Logistics is an industry that is part of our everyday lives. Most everything we use has traveled by truck, ship, airplane or by railroad to make it into our lives. The industry can be a confusing one as the relationships between the players can be a complex. Freight shipping is also very regulated and many of its suppliers must hold special permits and licenses to participate. In this article we are going to break down the PL lingo and explain what each level of PL is responsible for. After you have an understanding of what each level is responsible for you may get a better idea on how complex relations can be and why logistics sometimes is not always logical.

The PL stands for “Party Logistics” and these parties generally ranked from one to three but in recent years we have seen new service providers enter the game on level four and even up to level five.

• First Party Logistics (1PL). Describes the beneficial cargo owners which can be the shipper or receiver. The shipping or “supply” party is usually classified as the consignor and the receiving or “demand” party is usually classified as the consignee.

One example of a Consignor can be a manufacturing company that sends products to retail outlets to then be sold.

An example of a consignee could be a restaurant that buys eggs from a local farm. The restaurant send a delivery truck to the farm to pick up the eggs.

With global markets, shipping is not as simple, many companies do not have the ability to handle freight movements over long distances. For example let’s say a company outsources some of its manufacturing to China and they have a retailer located in California, it may not make financial sense for them to buy a ship or airplane to make the delivery. Because the company does not have the resources to make the shipment using their own assets they outsource the services. This is where our other “PL’s” enter the chain.

• Second Party Logistics (2PL). Involves the carriers that are providing a transport service over a specific segment of a transport route. In some cases because of terrain, crossing oceans or for multiple reasons the 1PL cannot complete the move, they would then need to hire a 2PL such as a maritime shipping company, a rail operator, air freight or a trucking company that are hired to move cargo from an origin (e.g. a distribution center or cross dock) to a destination (e.g. a port terminal).
• Third Party Logistics (3PL). Is a company that gets hired to facilitate the movement of freight. Let’s say the consignor does not own any trucks but needs to ship product from New York to Los Angeles. They hire a 3PL to take care of the Logistics involved in getting the items to Los Angeles, which could involve trucks, trains, air, and even temporary warehousing along the way. It is the 3PL’s job to manage all aspects of the freight movement along the route.

In some cases 3PL’s may be asset based. This means they own trucks, warehousing facilities, or other freight management tools. However, many 3PL’s are not asset based and employ sub-contractors to move the 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 who does not take title to the product.” 

• Fourth 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 does really exist! However not really a popular category. Companies who claim to be 5PL providers are usually Electronic Business Service Providers and don’t really control freight movement but control the electronic networks that control freight movement.

As you can see, the logistics industry has many players. It is important when booking any kind of shipment that you are aware of who you are hiring and what kind of coverage you have if your belongings get damaged or stolen.

It is always a good idea to ask for copies of operating authorities and insurance documents.