Is There a Difference Between Contract Logistics and 3PL?

October 20, 2021

Outsourcing in the business industry became predominant when the benefit of cost-effectiveness was realized by companies. Companies can allocate funds to functions that deliver more productive yields such as shortened process workflow, competitive salaries, and increased task efficiency. Although there are risks associated with it, like data security and control challenges, the concept of outsourcing gave way for contract logistics providers and 3PL companies to enter the business scene.

Contract Logistics & 3PL

Contract logistics, as defined by Investopedia, is the process of outsourcing resource management tasks to a third-party company. This may be the reason behind it being used interchangeably with the term, 3PL. A contract logistics provider offers services that include designing and planning supply chains, facilities design, warehousing management, goods transportation, product distribution, orders processing, inventory management, and now rising as a trend is professional consultation. It is actually the same with a 3PL – third-party logistics company. When 3PL company and contract services provider is viewed from the perspective of services offered, there is no difference between them. If the term 3PL, however, will be used as a level of logistics, a clear line of differentiation is realized.

The Difference

Shifting the concept of 3PL as a logistics level among 1PL, 2PL, 4PL, 5PL, etc., the term becomes more of a part of contract logistics. You can even say that 3PL is the most common service a contract service provider offers. To understand better, let us take a look at other levels of logistics:

1PL First-party logistics – the manufacturer handles its shippings and warehousing needs

2PL Second-party logistics – the manufacturer outsources only the transportation aspect of the supply chain (ex. trucking companies)

3PL Third-party logistics – provider handles both outbound and inbound transportation as well as warehousing

4PL Fouth-party logistics – provider offers consultation services in terms of operational management

5PL Fifth-party logistics – provider offers consultation services along with shipping; an upgrade to both 3PL and 4PL

The Take-Away

Contract service providers, regardless of the level of logistics it offers, help make trade and commerce fulfill consumer needs. Manufacturers are not the only ones gaining advantage from outsourcing services to contract service providers, the consumers also reap the benefits of speedy deliveries, valuable products, and quality service.