Contract logistics – service providers for logistics – 80% of all larger companies use them!

Efficient outsourcing of logistics services – with dynamic logistics

In the face of ever-increasing competition and the resulting pressure for continuous productivity gains, outsourcing non-core business areas has become a top management priority. This often includes logistics, whose processes are increasingly being outsourced, at least partially, to external service providers. As a result, the specialized logistics services sector has experienced rapid growth in recent decades. In Germany, for example, revenue from outsourced logistics services now exceeds €100 billion.

Contract logistics providers combine a range of logistical tasks into a service package tailored specifically to their clients' needs. Their services often extend beyond simply transporting and storing goods. Due to their specialization, these providers develop significant industry- and client-specific expertise. This knowledge enables them to perform the services more efficiently and cost-effectively than the client company could otherwise.

In the Anglo-American world, these contract logistics providers or suppliers of external logistics solutions are known as third-party logistics providers (3PLs) or full-service providers. This term has now also become established in Germany. Building upon the original 3PL providers, further service approaches have developed, which we will present below in their various forms.

According to a study by Capgemini from the USA, approximately 80% of all larger companies now use the services of a third-party logistics provider.

Related to the topic:

• Improved networking between business development and logistics managers and planners (3PL & 4PL)
• Kuehne + Nagel – Statistics and Facts

Where are the largest logistics regions in Germany?

Besides the Ruhr area and the classic cities of Hamburg, Bremen, and Frankfurt am Main, regions like Ulm, Mannheim, and Halle are also included. Of course, Cologne, Munich, Berlin, and the Baltic Sea coast should not be forgotten. According to one study, 35 percent of respondents stated that the Ruhr area is the most dynamic logistics region. Another study, however, indicates that the most dynamic logistics region is the Leipzig-Halle area.

What is dynamic logistics?

How we secure the infrastructure of our key industries will be crucial for the future! In Germany today, key industries include the automotive industry, construction industry, food industry, chemical industry, electrical industry, energy production, mechanical engineering and shipyards.

If we want to maintain and further expand the standards of our key industries in the future, we need dynamic logistics that can react quickly and flexibly to market changes. First and foremost, we are thinking of modern IT. Today's complex transport processes are simply inconceivable without modern software.

The following factors also play a crucial and important role in dynamic logistics:

• Digital Intelligence (Digital Transformation, Internet Access, Industry 4.0 and Internet of Things)
• Intralogistics/Logistics (Full automation, mobility of goods and people)
• Autonomous power supply (CO2 neutrality, planning security, environmental safety)

Related to this:

• Solar systems with photovoltaic solutions for freight forwarding companies and contract logistics

They will be crucial for the future in how we secure the infrastructure of our key industries!

Market share of leading companies in contract logistics in total worldwide revenue

Contract logistics – Logistics service providers – PDFs for download

What types of logistics service providers are there?

The classification of logistics service providers into different sectors is rooted in historical development. Their range of services and solutions extends beyond traditional freight forwarding: for example, they offer customer-specific warehousing, order picking, assembly, and invoicing.

Differentiating logistics service providers from one another and from other service companies can be done in numerous, sometimes inconsistent, ways. One possibility is to categorize logistics service providers according to their range of services. This can include, for example, distinctions based on transport, process chain development, supply, order processing (including production and distribution), and disposal.

A second, very common way of differentiating logistics service providers is by classifying them into operational, coordinating, and strategic services, as well as the use of fixed assets, so-called logistics assets. These providers are referred to as "service providers" and are hierarchically structured into areas ("party logistics"), starting with first-party logistics and going up to fifth-party logistics service providers.

First Party Logistics Service Provider (1PL)

For decades, companies handled their logistics processes almost exclusively in-house. These companies are classified as First Party Logistics Providers (1PLs). Here, the majority of core logistics activities, the so-called transport, handling, and storage services (TUL services), are carried out by the companies themselves. This requires suitable storage facilities, an in-house fleet of vehicles, and the necessary personnel to perform the tasks. However, with increasing specialization and the outsourcing of entire departments, this rigid approach has become less rigid. This is primarily due to the costs incurred by companies for maintaining their own logistics services. With the emergence of large logistics service providers, partners quickly developed who could offer the required services more cheaply and quickly – a major reason why the proportion of companies handling all logistics internally has steadily declined since the late 1970s.

1PL concept: This refers to a solution where companies largely handle their own logistics. They only book additional services from external companies in special cases, such as the handling of international transport.

Second Party Logistics Service Provider (2PL)

With the trend toward outsourcing logistics services to external providers, which began in the 1980s, the industry continued to grow steadily. The main reason for this was the Lean Management, which spread from the USA and Asia to Europe. This approach allows companies to focus on their core competencies and seek service providers for downstream processes, including those in logistics. These companies, which offer the aforementioned TUL services, are known as Second Party Logistics Service Providers (2PLs).

This includes, for example, freight forwarders, warehousing and transshipment companies, shipping companies and providers from the CEP industry (operators of courier, express and parcel services), all of which have the necessary resources (warehouses, means of transport, employees).

2PL concept: Clients who do not want to handle parts or all of their logistics using their own facilities and resources choose the 2PL concept. Here, the required individual and combined services are purchased from, or provided by, various 2PL service providers. The goal is to reduce the client's own logistics costs while simultaneously accelerating processes through the expertise of companies specializing in their respective services.

Third Party Logistics Service Provider (3PL)

Third-party logistics (3PL) providers are external logistics service providers with a holistic business approach. Like second-party logistics (2PL) providers, they have their own infrastructure. However, unlike second-party logistics providers, 3PL providers manage their customers' entire logistics chain, not just individual segments. Furthermore, 3PL providers handle tasks such as returns management, financial services, and IT support for their clients.

Three PL service providers evolved from 2PL service providers to so-called system service providers in the 1990s, when they began to take on additional tasks besides organizing the flow of goods and information for their customers. Beyond simply handling goods, customers now receive far more intensive support from their service provider. These sometimes highly complex solutions ensure close collaboration between provider and customer and, due to their close integration, are usually designed for the long term.

Advantages of using external 3PL providers for companies:

• Due to their specialization, the providers work much more efficiently, enabling clients to reduce their logistics costs by an average of 10 percent, according to surveys, due to the high cost and time savings, while delivery times can be reduced by 30 percent.
• In addition, companies can significantly reduce the capital originally tied up in logistics due to the lower fixed costs.
• Furthermore, the increased flexibility with regard to fluctuations in production or demand gives companies greater scope for action.
• Customers benefit from the industry expertise of logistics service providers. These providers have usually built up global networks that the customer can use to their advantage.

3PL concept (contract logistics): Clients who want to outsource a large part of their inter-company logistics on a long-term basis choose the 3PL concept. The goal is to streamline their own processes and transfer the outsourced tasks to an external service provider for a defined period. Controlling and management tasks are handled jointly by the client and the 3PL service provider.

Fourth Party Logistics Service Provider (4PL)

Unlike 3PL providers, 4PL providers do not own their own resources in areas such as transportation, warehousing, or handling. Instead, 4PL providers make their expertise available to the companies that commission them. Fleet management is one service frequently used by 4PL clients. The core competency of a 4PL provider lies in the planning and control of logistics processes on the client's side. They are thus seen as a system integrator, acting as an intermediary between their clients and other logistics service providers to ensure the coordination and organization of all business processes within the value chain. In this respect, a 4PL provider acts as a neutral coordinator between the client and the various service providers, striving to optimize the interaction of all parties involved. Due to the complex structure of these processes, which nowadays can only be managed with high-performance software and hardware, 4PL providers must have a very sophisticated IT infrastructure.

The demand for this concept arose from a broader outsourcing trend aimed at transferring planning and control functions from companies to a fourth, neutral party. This party, acting on behalf of the client, optimizes the company's logistics chain, including the selection of 3PL service providers. Acting as a kind of general contractor, the 4PL provider thus assembles all service components of the logistics chain in a process-optimized manner.

The approach of placing a neutral intermediary between customers and 3PL providers has the advantage for the former that, depending on the requirements, the optimal package is put together for them from across the range of various service providers.

Fifth Party Logistics Service Provider (5PL)

Providers in this category focus on supply chain management and specialize in offering systems-oriented consulting services to their clients. This includes supporting the coordination and expansion of internal supply chains and supplier networks, where 5PL providers ensure that the complex processes within these networks are managed efficiently. As with 4PL providers, the core service lies in providing consulting services.