Given the complexity of international logistics, a variety of intermediaries have come to exist to help mitigate their complexity. In this video, we explore how logistics intermediaries can aid and assist companies and managers to move goods and deliver services around the globe. There are four critical reasons that logistics intermediaries have become increasingly important for international businesses. First, global logistics networks have become increasingly complex and difficult for non-experts to comprehend. Secondly, logistics intermediaries have deep expertise and sophisticated tools beyond that of many businesses. Engaging intermediaries allows international businesses to focus on core competencies and to expend energy on their primary businesses rather than on auxiliary logistic services. Finally, due to the economies of scale and expertise, intermediaries provide logistic services with lower costs and better quality than internal efforts, thereby promoting better utilization of company assets. This first diagram on the right demonstrates the complexity of international logistics without an intermediary. Large companies, lines of communication can be very complex indeed. With logistics intermediary, this complexity is offloaded to the intermediary, greatly simplifying international operations. One of the complexities of international logistics that many businesses are more than happy to offload, is their production of global shipping documentation. When goods cross international borders, there's a plethora of required documentation. Common documents include proforma invoices used for the initial quote, which provide descriptions of goods, tariff classes, pricing, delivery terms, payment currencies, and incoterms. The commercial invoice which is the final invoice upon shipping are similar to the proforma invoices, but with negotiated details. Packing lists specify materials, customs information, safety information and the measurement system used such as the metric system; the English imperial system, or the US standard system. Certificates of origin indicate the exact origin of materials and products in a shipment. Shipper's letters of instruction include all information needed to successfully move a shipment. Bills of lading specify details of carriage contract between shipper and carrier. Dangerous good forms specify content, packaging, handling of dangerous Goods. Bank drafts authorize transfer of exported goods from the seller in exchange for the funds from the buyer, and other specialized documents such as country-specific documentation, fumigation and health certificates, trade agreement documents, and so on and so forth. Clearly, creating these many documents is time-consuming and labor-intensive. To help with the complexity of international logistics, a wide variety of intermediaries have evolved to help companies with their logistics needs. These intermediaries can generally be classified as follows. First party logistics providers are companies and managers that want to provide all logistic services internally. In other words, they want to do it themselves. Second party logistics providers or 2PL's focus on specialized and narrowed logistic services. Third party logistics providers or 3PL's, provide integrated customized logistic services such as transportation and warehousing. Fourth party logistics providers, 4PL's, work with multiple 3PL's for all logistics activities of a firm and help with high level of strategic decisions. Fifth party logistics providers, 5PL, provide systems oriented consulting by providing logistics management services, but don't own any assets such as warehouses or trucks, but simply provide advice. As we move from first party to fifth party providers, the breadth and integration increases and coordination with larger supply chain strategies also increase. If the distinctions between these levels of logistics intermediaries may seem a bit arcane, here's an example. To help with our understanding, consider the mundane logistic services available to you as a tourist or business traveler. If you plan a trip and do all the trip planning yourself, this corresponds to a 1PL logistics, in other words you do it yourself. If you hire a travel agency to make your routine airline reservations and maybe ground transportation, that would be 2PL. If you contract with a tour company for the complete trip including all transportation services, lodging, and meals, that would correspond to 3PL. If you need help planning with multiple trips to various regions of the world and require a single vendor to integrate various 2PL and 3PL tour providers, that would be 4PL. If you use a travel guru to strategically help you decide on the best trips for you and to advise you on how to achieve your broad travel goals and desires, that would be 5PL. Beyond these generalities, look at some of the services that these various logistics intermediaries provide. Second party logistics providers 2PLs, generally provide focused and specific services. They can include; international freight forwarders that consult and execute on all transportation matters, export packers that design and build packaging for export shipment, non-vessel operating common carriers that purchase capacity and consolidate shipments on vessels owned by other companies, customs brokers that expedite goods through customs, export management companies that go further to provide support for sales marketing financing as well as providing logistic services, and export trading companies go further still and purchase goods from an exporting company and then resell those products in foreign markets. The dividing line between various types and levels of the logistics providers are fuzzy in general, and especially between 3PL and 4PL providers. Pure 3PL providers provide standard services such as transportation, carrier selection, rate negotiation, fleet management, warehousing, cross docking, pick and pack services, distribution to customers, transport dispatching, delivery documentation, and shipment consolidation. A step up from standard providers are advanced providers, with services such as: inventory management, stock accounting, customs clearance, documentation, product assembly, packaging and labeling, product returns, maybe financing, retail delivery and setup, on-site training, and inventory tracking. Moving towards 4PL services are complete logistics providers with additional capabilities such as order planning, order processing, IT management, invoicing, duty payments, payment collection, real-time inventory, and just-in-time deliveries. Finally, integrated 4PL providers can deliver services such as: high level production planning, global sourcing, planning for multiple transportation routings, strategic supply chain consulting, and real-time monitoring of logistics networks. As you can see as we move from 3PL to 4PL services, more and more operational and management services are outsourced to an external logistics provider. Beyond 3PL and 4PL services are 5PL and even 6PL logistic services. 5PL services completely take over the logistics functions of an international business with end-to-end logistics control. 5PLs manage multiple supply chains, supply networks, and service providers. They may develop IT solutions to provide real-time logistics visibility, and can manage extensive e-commerce operations. In other words, 5PL logistics providers take total control of a firm's logistics needs. At the far end of the spectrum of logistics intermediaries, are 6PL service providers. 6PL providers are currently hypothetical, but are in the planning stages. 6PL will employ artificial intelligence to monitor the entire supply network, to identify trends and ordering patterns, generate demand forecasts, schedule goods for production, manage inventories and deliveries, and will identify and report anomalies. It'll be interesting to see how quickly these capabilities evolve. In Summary, logistics intermediaries are important contributors to efficient and effective global logistics in supply chain management. Logistics intermediaries offload logistics transactions, handle paperwork, provide expertise, and tame complexity. There is a distinct hierarchy of logistics intermediary services that broadly can be differentiated into; 2PL intermediaries that offer relatively simple focused services, 3PL intermediaries that handle the logistics of a single supply chain, 4PL intermediaries manage and integrate multiple supply chains, and 5PL intermediaries consult on integrating all logistics functions. [MUSIC]
