What Is Second Party Logistics (2PL)? A Simple Introduction

by Vector | Mar 23, 2021 6:47:50 AM

What-Is-Second-Party-Logistics-(2PL)

When it comes to shipping and logistics, companies have more options than there are fast food courts on I-95. The hard part is determining which model is right for your business. It's possible to break down logistics into first-, second-, third-, fourth-, and fifth-party arrangements.

In this post, we’ll explore the meaning of a second-party logistics (2PL) operation. Keep reading to learn what 2PL is, the pros and cons of 2PL, what you can do to streamline 2PL operations, and more.

What Is 2PL?

A 2PL model is one where a business—or consignor—hires a private company to transport goods to a destination.

In this arrangement, the 2PL organization is technically a carrier. This means their job is to bring goods from a warehouse or manufacturing center to a consignee (in other words, the receiving party).

To illustrate, a clothing manufacturer might hire a carrier to transport clothing items from their manufacturing facility to stores. Additionally, a dairy farmer may hire a 2PL provider to transport milk to their customers.

Any way you slice it, just about any business—regardless of industry or size—can use a 2PL provider.

What Does a 2PL Provider Do?

A 2PL provider is typically responsible for the following tasks:

1. Loading and Unloading Items

The 2PL provider needs to pick up items for delivery at a warehouse and load 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.

2. Transporting Items According To the Bill of Lading

A truck should never be loaded or depart a facility without a bill of lading specifying exactly how the items should be transported. A bill of lading is a legally binding contract indicating what’s on board, where the items are going, and how they should be handled during transport.

3. Collecting Paperwork

A 2PL provider also has the responsibility of collecting and transporting all shipping paperwork back to the consignor. This may include inspection or customs paperwork, invoices, or returned items.

The Pros and Cons of 2PL

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, here are the advantages and disadvantages to using a 2PL shipping model.

Pro: Lower Costs

One of the best parts about using a 2PL model is that you can avoid purchasing and maintaining a fleet of vehicles. This also means you can avoid having to hire and manage drivers. This can save you a tremendous amount of money, especially over time—assuming partnering 2PL providers are reasonably priced.

Pro: Reduced Complexity

In addition to saving money, a business 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.

Pro: SLA Guarantees

Usually, 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 six trucks on rotation. The vendor will then be responsible for providing those six trucks and meeting all specified arrangements outlined in the contract. The business can then trust they will have service, knowing that the vendor will do their best to meet their contracted requirements. Otherwise, the vendor won’t get paid.

Con: More Management

One of the biggest downsides to working with a 2PL provider is that it can require extra backend management. After all, someone will still need to act as a liaison between the warehouse and the contracted drivers. This can require rapid and accurate communication among all parties.

Con: 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 do drop the ball and leave customers stranded every now and again. 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, it would be wise to keep backup trucks or per diem companies on standby. This way, they can act as a backup in case your regular shipping provider can’t meet expectations. Without a backup system in place, you may wind up in a pinch—leading to angry customers and lost revenue.

Con: 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—like working with warehouse personnel, obtaining paperwork, and going through customs and inspections.

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

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

How Vector Can Streamline 2PL Management

The trucking industry, like all industries, is going through an intense period of digital transformation. Companies are abandoning traditional paper- and spreadsheet-based management systems and replacing them with digital apps.

Vector specializes in helping companies modernize fleet management and partner communications, using cutting-edge tools and customizable mobile apps.

This can lead to a number of benefits, which we’ll briefly examine next.

Less Paperwork

Paperwork has many drawbacks. Paper can get lost or stolen, and it can take hours or days to obtain paperwork from a driver. This can lead to delays, customer service issues, and other bad outcomes.

A mobile app can enable instant data processing, eliminating the need for any onboard paperwork. This results in fast and accurate reporting and improved customer service.

Instant Communication

A lot can happen during the day that can affect shipping. For example, production or warehouse issues, changing priorities, weather, and traffic patterns can all affect deliveries.

As such, it’s important to have a mobile alert system set up to communicate with drivers and inform them about updates and changes throughout the day. Using a mobile app is a convenient way to get information to drivers and make sure they have the latest updates.

Customer Feedback Opportunities

One way to keep 2PL partners honest is to equip customers with mobile apps to submit feedback. This way, customers can get information back to the company in a way that's secure—without having to route information through a driver.

Using a mobile app for customer service is an excellent way to keep communication flowing with customers in a way that's private and convenient.

Vector’s Approach To Mobile Management

Vector makes it easy to create custom workflows that align with today’s digital, customer-driven environment.

You can use Vector’s apps for everything from mobile billing and image capturing to creating and managing driver workflows and more. Relying on Vector can revolutionize your shipping process, reducing costs and risks along the way.

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.

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