There is strength in numbers. We all know this to be true, and the same applies to third-party logistics (3PL) warehouses. However, the strength I’m describing here is not derived from individual workers in a single warehouse, but from the collective of multiple 3PLs, each working together as a single entity to create a network of 3PLs, commonly known as a fourth-party logistic (4PL). In this model, multiple warehouses can act as nodes and share inventory of the customer/brand to expedite fulfillment times and costs and deliver to the end user in as efficient time as possible.
According to a report from Facts and Factors, the global market value of the 4PL industry was valued at $57.3 billion in 2021 and is projected to grow to $71.3 billion by 2028. It’s worth noting that this figure represents a compound annual growth rate (CAGR) of 3.92% between 2022 and 2028. We’ve seen the 3PL industry soar during the pandemic, and the 4PL industry is the next logical step of growth in the logistics industry as a whole.
Why are 4PLs Needed?
Everyone wants to be able to fulfill orders like Amazon Prime. And if brands want to compete with this behemoth marketplace, they’ll need 3PLs to assist them in shipping orders with the same lightning fast two-day, next day, or even same-day delivery time. But if an end user places an order on the opposite side of the country from where your warehouse(s) are located, then for that single 3PL, fulfilling on that delivery promise becomes a much more daunting task.
But what if the inventory was split across multiple regions and warehouses? What if the order wasn’t placed across the country but in the same city as the warehouse? Suddenly the fulfillment issue is much less daunting.
In that example, if that 3PL didn’t have a warehouse in every region, one solution could be purchasing another warehouse in the desired region/market. This would most certainly be a costly and timely endeavor. However, there’s a much simpler answer too. If they joined up with another 3PL in the desired region, they could create a 4PL network and split the inventory across multiple warehouse nodes. They would then partner with this other 3PL and treat the 4PL network as an extension of their own warehouse, fulfilling orders as they come through and routing them to the corresponding regional node or warehouse.
The growing popularity of this model is due to its efficiency and cost-effectiveness as compared with traditional methods (such as in-house logistics).
Capitalize on the 4PL Trend
In a future world of omnichannel fulfillment, customers will expect brands to fulfill their orders from multiple channels at any time. It is here the 4PL network will reign as the dominant option for many 3PLs. However, to seize this opportunity, 3PLs will need to consider several factors beforehand.
Considerations before creating or joining a 4PL Network:
- Necessity to create a 4PL due to customer expectations/requirements
- High order volume to ensure best rates in global shipping, transportation, and carrier networks
- Pricing services are consistent across every 3PL in the 4PL network
- Software integrations in place to manage orders from across the network
While there is much more to discuss when looking into the venture of creating a 4PL network, all of those are dependent on the initial premise that you are already 3PL that deals in fulfillment with large inventory turnover. For a deeper dive at the considerations needed, take look at this article explicitly discussing these considerations before building out a 4PL network.
It’s no secret that logistics is one of the most competitive industries in the world today. The ability to supply goods quickly and efficiently is essential if you want to stay competitive, but not all businesses can pull it off. If you are looking for a better option than what your current model can deliver on, 4PLs are the evolution needed to take your logistics business to the next level, which is why the continued rise of 4PLs is one of our top trends in the 2023 State of the Third-Party Logistics Report. Be sure to download and read the report for all our trends of the year, or catch our webinar covering the report if you prefer.
If you’re a 3PL looking to create their own 4PL Network, check out our Extensiv Network Manager and request a demo. If you’re looking for a 3PL Partner, head over to our Fulfillment Marketplace to find a list of approved 3PL vendors that will help you fulfill orders in the exact region and vertical you require. There is strength in numbers, and for 3PLs, there will be no bigger strength than a collection of 3PLs working together in a 4PL network.