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What Is a Third-Party Logistics Provider?

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  • Written By: H. Terry
  • Edited By: Jenn Walker
  • Last Modified Date: 02 December 2016
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A third-party logistics provider (3PL) is a firm that can be contracted to manage all or part of an organization's supply chain. This type of provider might be responsible for managing the transportation, storage, packaging, and distribution of finished goods, or be placed in charge of managing a combination of these functions. They may or may not own the assets they coordinate, such as trucks or warehouses. Many companies have their own logistics teams and resources, but it is sometimes more cost effective to employ a third-party logistics provider to handle parts of the supply chain.

In general, most or all parts of a supply chain can be supported by a large third-party logistics provider. The service packages these providers offer are usually customizable and can be tailored to the demands of a particular market or organization. A company is typically not required to use all of a 3PL's offered services, but might be encouraged through discounts or other promotions to use its range of services more extensively.

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3PLs can be contrasted with three other categories of logistics providers: first-party (1PL), second-party (2PL), and fourth-party (4PL). A 1PL is a company, or one of its partners within the supply chain, that handles its own logistical tasks and does not outsource. A 2PL owns the assets that it uses to provide a service for another company, such as a courier service that uses its own trucks, trains, ships, or planes to transport goods. The defining characteristic of a 4PL is that it offers consulting services that can help managers handle their own logistics in a more efficient way. Unlike a 1PL, a third-party logistics provider must serve another company; unlike a 4PL, it must be directly in charge of managing operations for another company; and unlike a 2PL, it does not necessarily own all of the assets it manages.

It is possible for a logistics provider to belong to several of the above types. A freight forwarder could be both a second and third-party logistics provider at the same time. A courier, on the other hand, is always considered a 2PL because it must, by definition, own and operate its means of transportation. The primary responsibility of freight forwarders, by contrast, is to coordinate the transport of a company's goods from point A to point B. This responsibility is why a freight forwarder is called a third-party logistics provider; if it also happens to own some of the means of transportation it uses, it might also be called a second-party logistics provider.

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