C. F. Lynch & Associates

Back to Basics

By Clifford F. Lynch

Transportation & Distribution, July 2000

The year 1999, more so than any other in recent memory, brought us a wretched excess of buzzwords and terms. We have spent so much time thinking out of the box about the paradigms of globalization in the new millennium that we have not had time to push the envelope in the development of our E-commerce business models.

During a performance evaluation, when Dilbert was asked what he had accomplished, he responded, "Well I have used my empowerment to create a new paradigm, and I teamed across functional boundaries to improve quality. I dare say I was customer-focused and market-driven. I proactively found excellence in the midst of chaos. I re-engineered my core processes and embraced change." To the boss' question, "Was that sarcasm?" Dilbert replied, "To be honest, I don't know either."

Logistics and supply chain management always have been fairly straightforward disciplines; but in recent years, we have been plagued with the excessive, and arguably incorrect use of the terms third party, third party logistics, and 3PL. One warehouse company even went so far as to advertise 3PL logistics services. Now, before we can even define clearly this concept, we have the uneasy spectre of fourth parties lurking on the horizon. Since the latter term has been copyrighted by a leading consulting firm, however, presumably we can discuss it only in hushed tones in alleys and stairwells.

Contrary to most popular opinion, the term third party was first used to describe shippers' agents. The Hub Group, founded in 1971, was one of the early third parties, as were companies such as National Piggyback Corporation and Alliance Shippers.

Usage of this term was logical since it properly described the interjection of a third party into the transportation contract. For example, if a company (Party Number 1) wished to ship a trailer in intermodal service over a rail carrier (Party Number 2), it could deal directly with the carrier or arrange for the transportation through a shippers' agent (Party Number 3). This was advantageous since because of the volume involved, the cost of the transportation utilizing the shippers' agent usually was less than if the transaction had been handled directly with the carrier.

Motor carriers, warehouse companies, and railroads were known and referred to by their own competencies. To do otherwise would have caused enormous confusion. Suppose that, using the above example, Party Number 1 had utilized a contract warehouse company to distribute its products and a shippers' agent (Party Number 3) to arrange for the transportation. Would the warehouse company be Party Number 4, or possibly Number 1?

"To be honest, I don't know either."

In the 1980's, the term third party logistics became widely used to describe any provider of logistics services; and in most cases, was not a proper use of the term.

Now, to complicate matters further, we have the fourth party that is described as assuming functional integration that has been atypical of a traditional third party arrangement. And, as if that were not enough, recently a fifth party was suggested to integrate the integrators.

Before we get hopelessly lost in this morass of semantics, perhaps it would be helpful to simply return to clear and basic terms. When a firm outsources a logistics function, or group thereof, it simply is contracting with another firm that has the requisite service offerings and expertise. If we referred to that company as what it is; i.e., a logistics service provider, then the relationship would be much clearer. Whether the provider furnishes motor carriage, warehousing, order fulfillment, or freight bill payment services, the term logistics service provider remains constant. If one prefers acronyms, LSP does not assault the senses or twist the tongue, and is easy enough to decipher.

While there may be a need for another entity to help coordinate the various functions, rather than reach for another "level of party," why not call them integrators, facilitators, or consultants.

In a recent article in American Shipper, Larry Sur suggested the term contract logistics be substituted for third party logistics. He stated, "You contract with someone else. It's you and them."

This comment, beautiful in its simplicity, says it all.

In a more recent development, a logistics educator has questioned the right of the consultant to copyright the term fourth party logistics since he used it first some time ago. As logistics and supply chain managers, we should go back to basics. Coordination and management of our functions in today's environment is challenging enough. It affords little time to learn or interpret a new language.

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