What Is Second Party Logistics (2PL)? The Function It Plays

From the humble beginnings of self-handled operations in 1PL to the advanced technological marvels of the 5PL, the logistics industry has come a long way. But amidst this progress, there’s a star player that truly stands out: 2PL logistics.

Whether it’s unpredictable weather or unforeseen disruptions in the supply chain, 2PL rises to the occasion and navigates through obstacles with finesse. Sure, that sounds promising but is it really the right choice for your business? That’s what we’ll be exploring in our today’s guide.

Here’s a snappy breakdown of what we’ll cover:

• What is 2PL and what functions does it perform
• Some of its major advantages and disadvantages
• How does 2PL fare against 3PL
• A quick overview of 4PL and 5PL
• How Vector helps in 2PL management

What Is 2PL?

2PL is a strategic partnership between two businesses where one business outsources its transportation services and logistic needs to the other. Unlike First Party Logistics (1PL) where a company manages its own logistics operations, 2PL arrangement has a dedicated logistics provider stepping in to handle and manage different parts of the supply chain logistics for the client.

One interesting aspect of 2PL providers is that they own the assets needed to carry out their logistics services. These assets typically include trucks or cargo ships, as well as warehouses or distribution centers. This ownership allows them to maintain and optimize their assets specifically tailored to your requirements

2PL revolves around the idea of specialization and expertise. Companies understand that running a smooth and affordable supply chain requires a deep understanding of logistics intricacies. This includes things like warehousing, inventory management, order fulfillment, and transportation. This is where 2PL steps in. It offers all-around logistics services to optimize the movement of goods and make operations more efficient.

What Does a 2PL Provider Do? 6 Key Functions

In the logistics industry, a 2PL provider is typically responsible for the following 6 major tasks:

01

Loading & Unloading Items

The 2PL provider picks up items for delivery at a warehouse and loads them onto trucks in a way that aligns with customer expectations. In many cases, this will require working with warehouse personnel to ensure all items are loaded safely and accurately.

02

Transporting Items According To The Bill Of Lading

When a 2PL provider receives the items for transportation, they carefully review the bill of lading to ensure accurate and compliant handling. This includes verifying that the goods match the information provided and that any special requirements or restrictions are taken into account.

03

Warehouse Management

A 2nd party logistics provider takes charge of the warehousing for smooth operations and proper handling of goods. They use their expertise to optimize the storage space and systematically arrange inventory.

The provider is responsible for various tasks within the warehouse like:

• Receiving incoming shipments
• Inspecting the goods for any damage
• Carefully documenting the inventory

04

Collecting Paperwork

A 2PL provider is also responsible for collecting and transporting all shipping paperwork back to the consignor. This paperwork includes documents like inspection reports, customs forms, invoices, or even returned items.

05

Customs Clearance & Compliance

A 2PL provider collaborates with relevant authorities and prepares the required documentation, like customs forms, invoices, and shipping records. They ensure that all the necessary information is accurate and complete. 

These providers act as a liaison between the consignor and customs officials. They submit the paperwork, pay applicable customs duties or fees, and facilitate the necessary inspections or examinations as required. This ensures that goods meet the legal requirements of the destination country and helps avoid delays or penalties because of non-compliance.

06

Customs Clearance & Compliance

After your package leaves the distribution center, it goes through different destinations until it reaches you. The 2PL provider takes care of all the details to ensure that your package arrives safely and on schedule.

2PL providers are experts at handling last-mile deliveries. They plan the best routes, coordinate trucks and trailers, and make sure your package gets to you on time. They use special tracking systems and transportation management systems to keep an eye on your package’s progress.

Weighing The Benefits & Drawbacks: Explore 2PL Potential

Customers often want to know whether 2PL is right for their organization.

Every organization is different. The answer for your company will depend on your needs, risk tolerance, and budget. There are advantages and disadvantages to using a 2PL model, and what works for one company might not necessarily work for another.

With that in mind, let’s discuss the advantages and disadvantages of using a 2PL shipping model.

Powerful Advantages Of 2PL: Unlocking Efficiency & Flexibility

Here are some major benefits of 2PL that will amplify the transformation that 2PL can bring to your logistics operations. This will help you gauge if the benefits outweigh the potential costs of implementing 2PL.

01

Lower Costs

One of the best parts about using a 2PL model is that you won’t need to purchase and maintain a fleet of vehicles. This also means you can avoid having to hire and manage drivers, saving you a tremendous amount of money over time.

02

Reduced Complexity

In addition to saving money, you can reduce complexity by using 2PL providers. It’s much easier to outsource shipping to a 2PL provider than it is to coordinate and schedule your own trucks. That said, companies still need to plan and strategize when working with a 2PL provider. But, generally speaking, it’s a lot easier than doing it all using in-house resources.

03

SLA Guarantees

In most cases, 2PL providers will sign service-level agreements (SLAs) essentially outlining exactly what the customer can expect. For example, a business may sign a contract to have 6 trucks on rotation. The vendor will then be responsible for providing those 6 trucks and meeting all specified arrangements outlined in the contract.

04

Access To Specialized Expertise

When you work with a 2PL provider, you get to benefit from their specialized knowledge and skills in specific areas of logistics. They have a deep understanding of the challenges and requirements involved and they know how to handle them effectively.

Having access to their specialized expertise can be a huge benefit for your business. You can rely on their knowledge to optimize processes, improve efficiency, and tackle any logistics issues that may arise. This lets you make smarter decisions and improve your overall supply chain performance.

05

Scalability & Flexibility

2PL providers give you the flexibility to scale up or down as your business demands change. If you experience a surge in orders or need to handle a larger volume of goods, a 2PL provider can quickly adapt and allocate the necessary resources to accommodate those changes.

Similarly, if your business experiences a temporary slowdown or seasonal fluctuations, a 2PL provider can help you scale down your logistics operations accordingly.

With 2PL, you don’t have to worry about fixed commitments or getting tied to a specific level of logistics capacity. You can adjust your logistics services based on your current requirements, ensuring that you have the right amount of support at any given time.

06

Improved Customer Service

2PL providers have expertise in logistics operations. They know how to efficiently handle transportation, warehousing, and other logistics tasks. This ensures that your customers’ orders are processed and delivered in a timely and efficient manner.

2PL providers have advanced technology and systems in place. These tools let them track and monitor shipments, providing real-time updates to both you and your customers. This visibility keeps your customers informed about the status of their orders, contributing to a positive customer experience.

Understanding The Disadvantages Of 2PL To Overcome The Challenges

While 2PL logistics brings many benefits to your logistics operations, keep in mind that it also has possible downsides and challenges that come with it. Get to know what these are so you can take proactive steps and come up with strategies to overcome these obstacles. Let’s see some of the common disadvantages of 2PL and discuss how you can tackle them head-on.

01

Potential Shipping Delays

Unfortunately, not all companies live up to their contracted agreements. SLA-backed shipping companies are helpful, to be sure. But some companies drop the ball and leave customers stranded now and then. This could leave you scrambling to find alternative ways to get products to customers on time. It’s not pleasant. But it happens often.

For this reason, if you use 2PL agreements, keep backup trucks or per diem companies on standby. This way, they can be a substitute in case your regular shipping provider can’t meet expectations. Without a backup system in place, you may wind up in a pinch – causing angry customers and lost revenue.

02

Increased Risk

A 2PL model carries increased risk. After all, it requires trusting an outside organization to transport your products to your customers. In addition, it requires trusting another organization with customer-facing responsibilities.

Add it all up, and it’s very difficult to enforce your policies and requirements on partnering companies. Usually, you’ll need to make some concessions.

For the best results, work with a trusted vendor that will act with your best interests in mind. The right partner will treat your customers as their own.

2PL vs. 3PL: Decoding The Differences For Effective Supply Chain Management

Both 2PL and 3PL offer valuable services but their approaches and capabilities differ significantly. Let’s uncover these differences and see where second-party logistics trumps third-party logistics.

01

Scope of Services

2PL: In a 2PL arrangement, logistics services are typically limited to transportation management, warehouse operations, and related activities. They specialize in specific parts of the supply chain like transportation coordination, freight forwarding, customs clearance, and warehouse management.

3PL: On the other hand, 3PL providers offer a wider variety of services that cover warehousing and distribution services, order fulfillment, inventory management, and sometimes even value-added services like packaging, labeling, and reverse logistics.

02

Level Of Control

2PL: With 2PL, you have more control over your entire supply chain operations. You’ll work closely with the 2PL provider, which means you can directly oversee and make decisions. This control allows you to align your logistics processes with your own unique needs, use your preferred systems and technologies, and seamlessly integrate them into your existing operations.

3PL: In 3PL supply chain solutions, you have less hands-on control over your logistics operations. You depend on the expertise and abilities of the 3PL provider to handle different parts of the supply chain. While this can lighten administrative burdens, it also means less immediate visibility and control over critical processes.

03

Cost Savviness

2PL: The cost structure in 2PL logistics solutions is usually more transparent and straightforward. You have more say in choosing carriers, negotiating rates, and allocating resources. This gives you the flexibility to optimize costs according to your specific needs and budget.

3PL: Third-party logistics providers have a more complex pricing structure as it often includes bundled services and a wider range of responsibilities. While this can be convenient, you should be cautious and assess whether the bundled services are cost-effective and align with your budgetary needs.

04

Industry Expertise

2PL: 2PL providers often focus on serving specific industries or niche markets. Their expertise in those industries helps them understand the unique challenges and needs of their clients. This specialized expertise contributes to more effective logistics management in those particular sectors.

3PL: 3PL providers have experience working with clients from different industries, giving them exposure to a wide range of sectors. This enables them to bring insights and best practices from different industries, fostering cross-pollination of ideas and potential innovation. However, their expertise may not be as finely tuned to specific industry nuances as a specialized 2PL provider.

05

Control Over Customer Experience

2PL: In 2PL, you have a direct say in shaping the customer experience at every supply chain step. You can set your standards, quality control measures, and customer service guidelines to ensure consistency and meet the unique expectations of your customers. This control allows for a more personalized and branded experience.

3PL: On the other hand, 3PL gives you less direct control over the customer experience as the 3PL provider becomes the face of logistics operations. While reputable 3PL providers prioritize customer satisfaction, the level of control over the entire customer experience may be lower compared to a 2PL arrangement.

Evolution Of Logistics: The Rise Of 4PL & 5PL

4PL, or fourth-party logistics, represents a shift towards more strategic and holistic supply chain management. In 4PL relationships, companies engage a specialized entity that acts as an orchestrator. They don’t own any assets but they select and manage multiple logistics service providers, like 3PLs, transportation companies, and warehousing facilities.

Fifth-party logistics pushes the boundaries of logistics even further. Companies partner with an entity that not only orchestrates logistics operations but also provides innovative solutions and strategic guidance. Their key responsibility is to bring together multiple stakeholders, including manufacturers, suppliers, distributors, and other logistics partners.

5PL providers use advanced technologies, data analytics, and industry expertise to optimize supply chain processes. Their role extends beyond day-to-day logistics operations. A 5PL provider focuses on long-term supply chain strategies, like network optimization, risk management, sustainability, and continuous improvement initiatives.

As relatively new concepts, 4PL and especially 5PL are still in the early stages of adoption and implementation. While they hold great promise for revolutionizing logistics operations, only time will tell if they will truly be successful.

The effectiveness and acceptance of these advanced logistics models will depend on various factors, like industry demands, technological advancements, and the ability of businesses to adapt to the evolving landscape. As the industry continues to evolve, we eagerly await the outcomes and impact of 4PL and 5PL in shaping the future of logistics.

How Vector Can Streamline 2PL Management

In the world of logistics, managing a 2PL operation can be quite challenging. However, with Vector’s Yard Management System (YMS), these complexities can be streamlined, making the entire process smoother and more efficient. Let’s explore how Vector’s YMS can benefit your 2PL management.

01

Simplified Yard Operations

Vector’s YMS provides an easy-to-use platform for streamlined workflows. It eliminates the need for manual paperwork and minimizes the chances of errors. With a click of a button, you can convert all paper documents into digital versions and upload them to the cloud.

02

Seamless Yard Entry & Exit Processes

One of the key challenges in 2PL management is coordinating the entry and exit of vehicles in the yard. Vector streamlines this process by automating gate operations and self-service check-ins.

It captures relevant data which ensures accurate and timely record-keeping. This automation reduces congestion at the gate, minimizes dwell times, and improves overall throughput.

03

Optimal Yard Space Utilization

Vector’s YMS provides real-time visibility of available space so you can allocate parking spots or dock doors based on predefined rules and priorities. This way, the system minimizes the time spent searching for the appropriate dock, reduces congestion, and ensures efficient yard utilization.

04

Enhanced Visibility & Control

With Vector, you get comprehensive visibility across the yard with real-time updates on vehicle movements and yard activities. With this information, you can make informed decisions, resolve bottlenecks promptly, and proactively address potential issues.

05

Improved Warehouse Management

Vector’s YMS provides real-time visibility in the inventory movement across the yard. When you integrate it with other systems, like warehouse management or transportation management systems, Vector’s YMS reduces discrepancies and improves warehouse operations.

Conclusion

The concepts of 1PL, 2PL, 3PL, 4PL, and 5PL reflect our innate desire to constantly evolve, improve, and meet the ever-changing demands of a dynamic world. It demonstrates the progression of the supply chain industry to cater to the growing need for specialized expertise, efficient operations, and strategic partnerships.

2PL logistics serve as a vital bridge between self-handled operations and fully outsourced logistics. It gives you the necessary transportation and logistics services while allowing you to maintain control and customization.

With Vector’s YMS, you can streamline and optimize your yard management processes and take your 2PL services to new heights. Our advanced technology empowers you to efficiently track, manage, and coordinate the movement of trucks and trailers within your yard.

Experience the power of Vector and revolutionize your 2PL operations. Contact us now to schedule a personalized demonstration.

This post was written by Justin Reynolds. Justin is a freelance writer who enjoys telling stories about how technology, science, and creativity can help workers be more productive. In his spare time, he likes seeing or playing live music, hiking, and traveling.