Logistical Services - UK - October 2016
“The decision to leave the EU will not only affect the UK, but also global supply chain models. The referendum result will be a test of the agility and resilience of global supply chain models amid a period of significant change and uncertainty for the EU.”
– Lewis Cone, B2B Analyst
This report will explore the following key questions regarding logistical services in the UK:
- What are the key determinants driving the industry?
- Has the industry recovered alongside the economy after the financial crisis? If so, how has it developed and changed since?
- How have government schemes influenced market demand and supply?
- How have regulations and the threat of climate change changed the industry’s approach?
- What are the key issues the industry needs to address to diversify its service provision and continue to compete globally over the long term?
- What does the future hold for UK logistical services?
The industry revolves around four main components: 1PL, 2PL, 3PL and 4PL. Some industry experts argue that a fifth component has also emerged: 5PL, which involves broadening operators’ scope to e-business.
First Party Logistics (1PL) concerns beneficial cargo owners, which can be the shipper (such as a manufacturing firm delivering to customers) or the consignee (such as a retailer picking up cargo from a supplier). They dictate the origin (supply) and the destination (demand) of the cargo, with distribution an entirely internal process assumed by the firm. With globalisation and the outsourcing and offshoring of manufacturing, distribution services that used to be assumed internally tend be contracted to external service providers.
Second Party Logistics (2PL) concerns the carriers providing a transport service over a specific segment of a transport chain. It could involve a maritime shipping company, rail operator, or trucking company hired to haul cargo from an origin (such as a distribution centre) to a destination (such as a port terminal).
Third Party Logistics (3PL) involves the outsourcing of all or much of a company’s logistics operations to a specialised company. The term was first used in the early 1970s to identify intermodal marketing companies (IMCs) in transportation contracts. Contracts for transportation had previously featured only two parties: the shipper and the carrier. When IMCs entered the picture as intermediaries that accepted shipments from shippers and tendered them to rail carriers, they became the ‘third party’ to the contract - the 3PL. The definition has now broadened to the point that every company offering some kind of logistics service for hire calls themselves a 3PL. Preferably, these services are integrated or bundled together by the provider. Services provided include transportation, warehousing, crossdocking, inventory management, packaging, and freight forwarding.
Fourth Party Logistics (4PL) differs from 3PL in the following ways: a 4PL organisation is often a separate entity established as a joint venture or longterm contract between a primary client and one or more partners; a 4PL organisation acts as a single interface between the client and multiple logistics service providers; most aspects of a client’s supply chain are managed by the 4PL organisation itself; and it is possible for a major thirdparty logistics provider to form a 4PL organisation within its existing structure. 4PLs have also been referred to as ‘lead logistics providers’, while a new crop of companies has emerged who are actual transportation companies. A 4PL is sometimes described as ‘a nonassetowning service provider’, but their role is to provide broader scope managing of the entire supply chain.
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