Author: Extensiv May 30, 2023 7 Min READ

4PL Statistics You Should Know

7 Min READ
4PL Statistics You Should Know

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Driven by an increasingly complex post-pandemic supply chain and a growing market for digitalized manufacturing processes, fourth-party logistics (4PL) services are increasingly in demand.

As consumer demands and expectations have evolved, more companies are seeking customized solutions for their logistics needs. The long-time strategy of basing operations out of just one or two warehouses, like most third-party logistics (3PL) companies, is no longer enough to meet demand. This is creating a shift for 3PLs who must now look for more efficient and agile alternatives to meet customer needs.

See how Extensiv revolutionizes 4PL

The answer for many 3PLs is to move away from their own smaller-scale warehouse operations to more aggregated fulfillment networks. Instead of being operated by a single 3PL entity, these new warehouse opportunities band together multiple warehouses across a diverse geographic area to more cost-effectively—and more rapidly—address changing customer needs. In some cases, unlike single warehouse services, 4PLs can more efficiently meet fulfillment expectations and in many cases can do so as quickly as next-day.

First, what is a 4PL?

Unlike a 3PL that primarily handles logistics, a 4PL manages the entire supply chain for clients—everything from geographically dispersed warehouses to shipping and other needs. 4PLs are sometimes also referred to as lead logistics providers (LLPs) and manage supply chain needs for B2B, B2C, and even C2C operations. 4PLs generally manage multiple independently operated 3PLs, whereas a 3PL works directly with its clients, for example, ecommerce businesses and retailers, to oversee client fulfillment needs.

Many 4PLs employ advanced software and other technologies to optimize supply chain management so they can more effectively handle everything from managing multiple services providers and suppliers, to full control of all supply chain processes.

One of the primary benefits of working with a 4PL over a 3PL is that the 4PL can manage communications and other responsibilities for all of a client’s vendors across the supply chain. 4PLs are often great alternatives from medium- and large-sized businesses that may have more complex supply chain needs than smaller ecommerce businesses, which many 3PLs manage. By moving supply chain management from a larger retailer to a 4PL, companies are freed from fretting over supply chain issues and have more time to focus on products, services, and meeting consumer expectations.

Growing Demand for 4PLs

The shift from 3PL-centered logistics to the broader 4PL network is expected to continue and gain momentum in the coming years. In fact, the market is expected to nearly double in the next decade, growing from $49.84 billion in 2021 to nearly $90 billion by 2030. That’s a growth of just more than 7% CAGR in less than 10 years.

By 2030, according to the report, as many as 20,000 companies will likely use 4PL services, a 50% increase compared to the 10,000 using 4PLs in 2021. North America will likely be the second-fasting growing 4PL market, following Asia-Pacific, but leading Europe.

In 2021, the retail industry had the largest share of the 4PL market, which analysts expect to continue to lead during the next decade. One report indicates that ecommerce could grow more than 18% by 2026, serving as a driving factor behind 3PL and 4PL expansion during that time.

What does a 4PL Do?

4PLs offer a broader range of supply chain management services than a traditional 3PL. Think of a 4PL as a centralized control hub for all of a company’s supply chain needs.

For example, in addition to handling warehousing and fulfillment requirements like a 3PL, a 4PL may also develop logistics strategies for clients, handle freight sourcing, and even support business planning and project management. Also, unlike a 3PL that generally owns its own assets such as warehouses and transportation, 4PLs generally don’t and instead work with other companies that offer those services to meet customer supply chain needs.

Most 4PLs also manage all the software, applications, services, and other related technologies for supply chain management, for example, a warehouse management solution (WMS) alongside a network management tool or software that streamlines inventory management. They also use fulfillment networks to ensure they meet client expectations while utilizing their fulfillment network advantages.

4PLs may also offer other services beyond a 3PL, such as:

  • Managing customer communications
  • Coordinating vendor relationships across the supply chain
  • Sourcing new vendors
  • Executing inbound and outbound logistics
  • Providing access to a greater network of suppliers
  • Enabling cost-savings for supply chain operations
  • Improved supply chain efficiencies
  • Transportation via ground, air, or water
  • Real-time inventory visibility of products and materials
  • Data analytics across the supply chain for better data-driven business decisions

Who Uses 4PL services?

While some smaller ecommerce companies may see the benefits of using a 4PL, generally, larger businesses and retailers use 4PL services. In some cases, a 3PL that wants to continue its relationship with existing clients (but can’t meet all of their needs) may partner with other 3PLs to create a 4PL network or work with an existing 4PL to enhance service offerings.

Should I use a 3PL or 4PL?

If you’re a new or small-scale retailer, a 3PL may be able to meet all of your ecommerce warehouse and fulfillment needs. If you’re a larger enterprise, a 4PL may be a better choice, especially in terms of flexibility and scaling. You may also benefit from partnering with a 4PL if your company’s supply chain needs are becoming increasingly complex or challenging for your existing 3PL to manage.

Benefits of Working With a 4PL

There are a range of benefits ecommerce and retailers can gain from using 4PL services. For example:

  • Decreased supply chain management expenses
  • Improved customer experiences
  • Faster and more accurate product deliveries
  • Access to technologies that may otherwise be too complex or too costly to implement and manage (software, applications, robotics, autonomous vehicles, IoT, and RFID devices, etc.)
  • More insight into inventory needs without the hassle of tracking supply orders and restocking
  • More cost-effective product and supply procurement
  • Geographical storage in warehouses closer to customers
  • Expertise for warehousing, fulfillment, distribution, and freight
  • Improved supply chain visibility through all vendor tiers
  • Decreased overstocking and reorders
  • Access to more personnel and resources without having to hire more employees or increasing expenditures
  • Breaking down traditional data silos by providing comprehensive data analytics on everything supply-chain related, including tracking key performance indicators (KPIs) all the way through customized reports on everything from inventory and network performance down to individual stakeholder insight
  • Ability to create forecast models to keep up with industry changes

Overcoming 4PL Challenges and Looking Toward the Future

As the demand for 4PL services grows, logistics providers face a number of challenges. The most successful companies going forward will be those with insight into the emerging challenges and innovative solutions for them.

In the next decade, 3PLs that service a single contact for a company’s entire supply chain may experience a decrease in control of logistics processes, especially as supply chain networks grow and become more complex. On top of that, many 3PLs are already finding it challenging to find adequate skilled professionals to serve customer needs. That’s likely to only compound as more companies move toward expanded 4PL services.

And, in an uncertain economy where many fear a looming U.S. recession and continued increased inflation, the costs of supply chain management services are likely to continue to rise, making it difficult for ecommerce companies with tightened budgets to take full advantage of a 4PL’s services.

To overcome these challenges, 4PLs that rise to the top will be those who have made investments into automation and technologies to increase efficiencies and reduce costs. This goes beyond just product implementation. Clients are going to want to know you’re using these technologies to the best of their capabilities and you can do so better than the competition.

In terms of cost reductions, it may also be helpful for both 3PLs and 4PLs to give consideration to collaborating with other like-minded companies to reduce costs, for both internal and external operations.

While managing all of these challenges, successful 4PLs will also need to focus on improving customer service and establishing a brand and reputation that sets you apart from competition in this growing industry.

Optimizing 4PL Relationships With Extensiv

If you’re a 3PL expanding into 4PL offerings, Extensiv’s automation solutions can help you more rapidly make the shift while meeting existing and future customer needs. Extensiv solutions are perfect companions on your journey to build and execute a 4PL network.

So, how do you move forward in the 4PL market, while achieving maximum operational efficiencies? Here are a few ways Extensiv can help:

Fulfillment Marketplace: If you’re an existing 3PL with a small vendor reach, you’ll need access to a broader fulfillment network. Extensiv’s Fulfillment Marketplace is a great place to begin. The marketplace serves as a knowledge base to help you key in on which specific types of services you need while connecting you with the right vendors willing to partner to form a 4PL. This is an effective way to increase both your warehouse capacity and your geographic reach. Brands and retailers can also connect with other fulfillment partners for referrals about marketplace services.

Expertise and Consultation: Extensiv consultants are ready to help you on your 4PL journey. With extensive industry knowledge and backgrounds, these consultants are available to help you with each step, starting with conversations about your current needs and challenges, providing you a curated list of recommended network partners that can address those needs, assistance with requests for proposals (RFPs), and introductions to your new network partners.

Extensiv Network Manager: Network Manager is a great tool to help you build your 4PL network or expand your 3PL services into multi-warehouse capabilities. For example, with Network Manager you can:

  • More effectively manage customer relationships with automated and accurate outsourcing and billing for your fulfillment offerings
  • Get more visibility into your customer’s needs, everything from inventory to orders, and all related data across all of your network’s warehouses
  • Easily handle multi-facility fulfillment with automation including order routing and order management
  • Put your data to work for you with insight and analytics across the supply chain from client needs to end user delivery for better business decision-making
  • Manage decentralized inventory for greater supply chain control and reduce costs
  • Mature your fulfillment and supply chain strategies with reduced risks
  • Handle technical requirements, for example, billing and invoicing for all of your warehouses
  • Streamline communications across all of your facilities and with all of your customers and vendors
  • Expand your market share by identifying new customer opportunities

Once you’ve expanded your network, you can use Network Manager to build an ideal customer profile and analyze your existing customer needs to identify which could benefit from your new offerings.

Making the Move from 3PL to 4PL

As the supply chain continues to evolve and its dynamic becomes more complex, more companies are likely to move away from 3PL offerings to 4PL services. If you’re a 3PL, you’re likely already feeling the pressures of meeting changing customer demands, streamlining and automating operations, all while doing so more efficiently and at less cost.

As an existing 3PL, you already have the expertise and resources to evolve alongside your customer needs as a 4PL. By utilizing your knowledge and experience, coupled with the benefits of warehouse management technologies like Extensiv, you’ll be able to give your customers the visibility and agility they need for modern supply chain management. The shift to a 4PL can help you deepen your relationships with existing customers, but also increase your value-added services to expand further into a growing market.

For more information evolving into a 4PL, request a demo today.

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