Digitization is giving rise to the 4PL

A new trend is growing in logistics as more companies look to 4PLs to manage their entire supply chain. (Photo: Shutterstock)

A new trend is growing in logistics as more companies look to 4PLs to manage their entire supply chain. (Photo: Shutterstock)

While not new, technology is lowering barriers and offering new opportunities for 4PLs to optimize supply chains

The increasing digitization of freight transportation  is opening the door to a new kind of management company within the supply chain: the 4PL.

Third-party logistics (3PL) providers have been successfully managing companies’ operations for years. But with new data streams and technologies such as blockchain that will allow disparate systems to operate in a single, unified and trusted chain, the rise of the 4PL may be upon the industry.

What is a 4PL? According to Penske Logistics, a 4PL, sometimes referred to as a lead logistics provider (LLP), “assume(s) many of the same roles as third-party logistics (3PL) providers, but have much broader responsibility and accountability in helping the customer reach its strategic goals.”

“Accountability and control help differentiate a 3PL from a 4PL,” explained Andy Moses, senior vice president of global products for Penske Logistics, in a blog post. “As a 4PL, we become a trusted advisor, and the customer becomes reliant on our data to drive them forward.”

The introduction of 4PLs are not new – they have been around for some time – but their mainstream use is growing, due in large part to advances in technology. Previously, different software systems and goals made it difficult for one party to control an entire supply chain. That is changing.

“Will truck makers become transport managers? And will shippers become 4PL providers? Will digitalization lead to a tectonic shift in the balance of power and reset the interrelationships in logistics?” asks Frauke Heistermann, chief digitalization officer for Siemens Postal, Parcel & Airport Logistics GmbH, in a new AXIT white paper on the subject. “That’s a safe bet, since the time seems ripe for a new (or newly appreciated) business model: Only a few years ago, 4PL providers still occupied a mere niche market in the shadow of the big logistics companies. Today, potential new players in this segment are finding a new and promising approach for their idea in the tools offered by cloud-based platforms and transport management solutions.”

In the near future, Heistermann suggests a 4PL will be able to monitor data for all parties involved - shipments, tracking, documents, freight costs, customs, dangerous goods, transport packaging, transit times, schedules, telematics and sensor data, pallet and container data, even data specific to real-time monitoring of the supply chain such traffic, weather, labor strikes, and environmental disas­ters.

“The new 4PL providers can conquer the market using the power of modern IT while exposing themselves to only minor risk. The software required to manage all the various stakeholders was once a barrier, but all that has changed: Register, customize, and you’re good to go – including end-to-end visibility,” Heistermann says.

Heistermann surmises that more 4PLs will enter the market as software advances have lowered the bar for entrance, but the industry will also see more logistics departments leverage their expertise and become 4PLs in their own right.

“For many, [logistics] serves as a tool for customer retention and customer satisfaction, and its impor­tance is enhanced by service factors such as quality and reliability,” she says. “Logistics is also a major cost factor, however, special trips, costly express deliveries, wasted resources, and excessive complexity drive up expenses. The question for shippers, then, is whether they wish to build up or expand their own logistics expertise or instead outsource it to part­ners such as 4PL providers.”

And it is data and the expanding use of technology that will drive this trend.

“The integration of various partners, which used to take weeks or even months, is no longer such a daunting task thanks to today’s integration tools. Trucks, pallets, contai­ners, and the like – equipped with strong and sophisti­cated sensor technology – will someday actually report proactively and share their data without the need for any integration and without requiring any specific systems or people,” the paper notes.

The Blockchain in Trucking Alliance (BiTA) believes that blockchain technology will be the backbone of connecting various systems and partners in the supply chain. As more data flows, and as 4PLs prosper, it is likely they will benefit from this technology to connect everyone involved.

While not addressing blockchain specifically, Heistermann describes one of the possible scenarios blockchain could being used for.

“Truck manufacturers are equipping their vehicles with smart telematics, sensors, and software,” she writes. “This will eventually allow them to offer their own trans­port capacities and compete in the traditional carrier marketplace. Shipping systems and trucks will then communicate directly about shipping demand and transport capacity without the need for carriers as the middlemen. The smart systems work together to automatically suggest free capacities that meet the needs of the shipper. Rating portals and user communities bring transparency to the quality of ser­vice so that this factor can be taken into account in the selection process.”

Heistermann goes on to suggest that truck makers may become the carriers themselves with the 4PL handling everything else. She notes that 4PLs could reduce risk, waste, complexity and improve the overall environmental profile of moving freight through more effective end-to-end management.

“What was once a black box that kept shippers from managing their entire supply chain is now filled with state-of-the-art software offering end-to-end visibility,” the paper concludes.