Key Differences Between 3PL and 4PL Logistics

The nearshoring trend has brought a surge in logistics services across the supply chain in Mexico. Many industries have experienced unprecedented expansions driven by proximity to final consumer markets. Penetration of such services is relatively low compared to other developed economies, with the most sought-after logistics services being 3PL and 4PL. 

To better grasp the difference between both applications is perhaps the very first stage to understand what is better or more efficient to a specific company in order to optimize its supply chain management.
 
The 3PL service is basically warehouse management executed by a specialized third-party. Here, the client essentially maintains its supply chain oversight, but outsources distribution center administration to an external enterprise. There is a broad range of services and different specializations across 3PL logistics. The most common are merchandise consolidation, distribution, picking/packing, cross-docking, carrier fulfillment, and inventory management. 
Such services are usually tailored to specific client needs, and 3PL selection usually involves geographic location, access to main roads or manufacturing hubs, warehouse management systems, and proximity to next supply chain stages. 

On the other hand, the 4PL service model offers a more strategic approach across the board. Usually, the 4PL party becomes the supply chain manager of its client and typically includes transportation, procurement, and storage, both before and after the 3PL stage. It is essentially an integrated solution for specific client needs that has the 3PL service embedded in most cases. 

Efficient 4PL providers engineer, implement, manage, and monitor several stages of the supply chain backed by asset-based operations, asset-light platforms, automation, talent, and scale. According to the Council of Supply Chain Management Professionals, 4PL is defined as “a supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.”

According to a Mordor Intelligence report, the size of the 3PL market in Mexico in 2023 totals US$24.3 billion and is expected to reach US$33.7 billion by 2028, which implies a 6.75% compounded annual growth rate. Such growth has been and will continue to be fueled by increased commercial flow and trade between the United States and Mexico as a result of the nearshoring trend and the updated USMCA Agreement. 

Recent decentralization and fragmentation have led to increased complexity of logistics activities across several industries. Furthermore, the evolution of supply chains has been much more sensitive in consumer trends, especially after the COVID-19 pandemic, the penetration of the e-commerce channel, just-in-case inventory approach, and more flexibility to adjust to more dynamic demand patterns. 

At TRAXIÓN, management understood the importance that such services were going to gain in the future. That is why in 2016, the company acquired one of the leading 3PL operators in Mexico, Sistemas Integrales de Distribución, an enterprise headquartered in Queretaro, in the heart of the Mexican Bajio region, better known for its strong footprint in several industries, including automotive, aerospace, medical devices, consumer products and agro. The region is also located in the center of the country and has many logistics connections to the northern markets, Mexico City’s metropolitan area, and the western manufacturing hubs of Guadalajara and Aguascalientes.
 
Today, TRAXIÓN operates more than 812,000 square meters of 3PL warehouse (more than 8.7 million square feet), which places the company as one of the top managers of this service in Mexico. Since TRAXIÓN became a publicly traded company in 2017, it has multiplied its 3PL operations by 2.8 times from 1Q17 to 3Q23. It has also expanded extensively into northern markets such as Monterrey, Saltillo, and Nuevo Laredo, and recently established 3PL operations in Laredo, Texas, for a leading e-commerce player, where merchandise is consolidated before being imported and distributed into Mexico.

This growth has been driven by increased penetration of such services, very strong commercial muscle, and state-of-the-art technologies that render superior value-added services, positioning TRAXIÓN within a very special niche, one step ahead of the competition and clients’ needs. Retail, consumer goods, e-commerce, electronics, and pharma are among the most relevant industries the company serves.

Perhaps the most significant competitive advantage of TRAXIÓN, which also represents the highest barrier of entry, is the use of modern technologies. It has been one of the main pillars on which the company was founded in 2011, and by far the key differentiator. 

Following that premise, TRAXIÓN created its 4PL arm in early 2020: TRAXIÓN LOGISTICS, under the rationale of rendering high value-added logistics, mainly relying on cross-selling among its client base.

TRAXIÓN LOGISTICS´ DNA is based on high-tech, talent, digital platforms, customer leverage, and applying decades of know-how in logistics, transportation, and mobility. The rationale behind creating such a specialized logistics arm was to be a one-stop shop so that clients just hire one company to manage the supply chain stages instead of having to work with five, six or seven different providers.
 
Since then, TRAXIÓN has become increasingly more “sticky” for its clients, which have also evolved and become more sophisticated and sensitive to level of service rather than price.

For TRAXIÓN, 3PL and 4PL services still have tremendous expansion potential in the next few years. Logistics and transportation is a US$128 billion industry in Mexico that will continue to penetrate as the nearshoring trend evolves. 

For the company, the use of the most modern technologies will be the key growth accelerator, since this is precisely what will enable TRAXIÓN to continue to render the highest level of service while becoming increasingly more efficient.