In this article, Atipriya Gautam who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses How to start a transport or logistics company. Process, compliance, best practices and relevant law.
How to start a transport or logistics company. Process, compliance, best practices and relevant law.
What is a logistics firm
A logistics firm is a company that stores and delivers the products of other businesses. Whether shipping, conducting air transportation or trucking a successful logistics company will need to have some means of freight transportation at its disposal; this makes a start-up logistics firm an expensive investment. A logistics firm is an organization that delivers and stores the products of different organizations. They may have expertise in the import and export of products all through the country, or may focus on ground transportation within the states.
- The scope in the transport and logistics industry is varied – from a one-man show using a small truck to transport merchandise and offer services, to an armada of transport vehicles which venture to every part of the country. Road transportation includes commuter transport from taxis to bus transportation.
- It can be an intense industry and there are numerous dangers confronting transport businesses yet in the event that one can take care of business, one can build an effective business.
- It is a hard industry for new businesses not on account of it being capital intensive, but rather on the grounds that one needs to be reliable. just because it is capital intensive, but because you need to be reliable. Credibility is critical for any transport company as any organisation requiring transport services needs to know that they are not going to be let them down.
- Dangers confronting the transport business are not just crumbling and congested roads and highways, traffic fatalities and injuries, but financial issues as well. One should not over indebt oneself. Take it gradually and ensure that you have the necessary skills. This not only means having driving skills and licences, but also financial and business skills.
- It is advisable to have mentorship before embarking into this industry. Some of the areas you need to comprehend include the laws, operating cost estimates, licence fees/permit expenses, toll charges, maintenance, fuel prices and other costs as well as vehicle performance methods.
- The transport and logistics industry is a simple business to enter, however, the trick comes in sustaining the business. The transport business has a ‘low barrier to entry’ at the base of the market, implying that anybody with a minibus can start offering transport services. This results in a surge of rivalry at the base end of the market.
- In many instances the entrepreneur starts these businesses with little to no capital, depending rather on revenue derived from the business to cover all overheads from the first day itself. This absence of capital curtails marketing activities that may result in increased income.
- With fierce competition, administrators slice costs to survive barely making enough to cover their expenses. This naturally leads to a distressed business which is unable to survive. Before starting a transport and logistics company, one must do the homework well. One must work out on how to build a sustainable business and seek out customers and contracts before starting the business because contracts do not appear magically later on. Getting funds is one of the most difficult things for any start-up to achieve. If a business owner walks into a bank and asks for a loan to start a transport business, the chances of a positive response are rare.
Some of the vital points to keep in mind which are beneficial in establishing a flourishing logistics and transport business are as follows:
Experience and Credibility in the Industry
- Before starting a logistics company, it is wise to gain experience in the industry by working in logistics. Such experience helps in comprehending the intricate details of the business. In addition, working in the industry will helps to establish networks with companies that may represent future clients. Building up credibility in the industry is the basis for any start-up because customers need to trust that your firm will store and deliver their products smoothly and efficiently.
Exploit Your Experience and Connections
- One should establish a firm in a market where they have business relationships and relevant knowledge. For example, if the bulk of your connections or work experiences are in one industry, it shall be beneficial if you will reach out to clients in that industry. If you have connections to or knowledge of certain regions, open a firm that specializes in export to that region.
- The principle official step of starting a logistics firm is obtaining capital. Keeping in mind the end goal to do as such, one should draw up a business strategy to persuade potential investors that you can make your company turn a profit. Incorporate all associations that you already have in the logistics industry, who are willing to give you their business. Commercial banks are a potential capital source for start-ups.
- After obtaining the necessary capital to start the logistics firm, one needs to purchase loading equipment and vehicles capable of moving substantial amount of cargo. Due to the costs related to these kinds of purchases, it is advisable to rent the equipment until the business starts to turn a profit.
Protect your credit record
- If one does not have a good credit record, none will want to loan money to start a business, especially commercial banks. It is essential to regularly communicate with your bank, and use the accounts responsibly. By having a good credit profile, you are over the first hurdle.
Find out what documents the bank needs
- Contact the bank and find out about the formalities and paperwork that is needed before applying for a loan. It always makes a good impression when you are organised.
Show the bank you have the expertise
- Before approaching the bank, one must be able to show that they have the necessary expertise to run a business by producing a well-constructed business plan.
Security is required
- One will need security (personal surety and or assets) to cover the loan amount that is required. It is beneficial to show the bank realistic cash flow projections and balance sheets for two to three years.
Consider government funding
- There are a variety of government funds and policies that have been created to empower entrepreneurs to establish new enterprises. However, solutions are customised after assessing the potential return of the venture and level of risk.
A partner could be the solution
- If one does not have a deposit and cannot get approval for financing, one may consider taking a partner who may be able to provide the necessary capital.
- If one is unable to get funding, then renting instead of purchasing a vehicle could be a good option to begin the business on a modest scale.
To determine the target-market the first step is to do proper research that will help in defining the customers. It is this collection and the analysis of information about the customers and probable competitors that will help in planning the marketing strategy. Some of the areas to look into are:
- They require their raw materials to be delivered to their workshops or factories.
- Farmers use road freight haulers to transports their animal feed and chemicals such as fertilisers and pesticides, while livestock and agricultural products are transported by road.
- They need their stocks to be delivered to their warehouses or wholesale outlets.
- Refuse or waste removal, furniture and office movers.
Advertise your services
- Advertising in the local newspaper, or listing in the classified section of community newspapers. Another successful avenue is advertising on social media.
- Apply your business name, logo and contact details on to vehicles so as to raise awareness when vehicles are out on the road.
- Join associations or organisations so that you can network with companies operating in the area.
With a specific end goal to be fruitful in getting business contracts you need to show that you have experience in the business and that you can offer your business in view of high standards of business principles and morals. Guarantee that you can offer a superior service that nobody else can. On the off chance if you have a history in the business, it makes it considerably simpler to win contracts.
- Speak to proprietors of comparative organizations and make yourself known. The best wellspring of data you can discover around a range of business, is different entrepreneurs.
- Make contact with organizations, for example, producers, manufacturers, wholesalers and retailers to check whether you can tender for work to deliver their products.
Be watchful with whom you work with as most of these brokers do not work morally. When working as a small transport business, one can approach transport brokers and secure contracts through them. Before accepting an agreement through a broker, discuss about the terms of the agreement, so as to have correct and balanced governance set up. A broker can take up to 20% of the agreement value. “Be careful about who you work with in the brokering business as it is not well regulated and it is wise to ensure that they are reliable and upstanding.
How to get onto a suppliers list?
Winning contracts takes diligent work and it takes a lot of networking to create solid connections in the industry. Dependability is another critical viewpoint.
- Offer an exceptional service: Keep in mind, there are such a variety of organizations offering a similar service and one needs to provide an incentive to an organization so that they utilize your services. The way around this is to find out about your opposition and offer something they do not, for instance, quicker turn around times, brilliant service or extremely competitive rates.
- Piggybacking: Often an established transport organization will be unable to meet their contractual commitments on account of unanticipated conditions. Offer to pick-up any overflow and sub-contract the delivery. It’s often a last minute business however makes a decent chance to substantiate yourself as a reliable supplier.
- Sub-contracting: One way for smaller operators to secure contracts is through sub-contracting. Subcontracting happens when a transporter contracts to a third party and not the principal and not to the vital. The subcontractor subcontracts with an established transport organization which has the contract with the principal but maybe does not have the ability carry out the contract.
Starting a logistics and transport business in India
For a start-up a business in India, courier industry is one of the fasted growing markets. Despite the rise of the e-commerce business in India courier industry is growing day by day. The Indian courier industry size in the year 2015-16 was approximately of Rs.14,000 crores. As a premium segment, the courier industry is a small but significant segment of the logistics industry. It is one of the fastest growing segments of the industry and it is expected to grow at 17% per annum to Rs. 20,000 crores in the next three years.
The different kinds of logistics business that one can start are as follows:
- Courier and freight cargo service
- Air cargo services
- Warehousing services
- Third party logistics (3PL)
The entrepreneurs have two options for starting a Courier Business in India:
- Setting one’s own Logistics and courier company, or
- Taking a franchise from reputed and well established courier company
Setting one’s own logistic and courier company
Setting up one’s own Courier Company in India requires a lot of money to initially to setup the network. There are many small players in India which are doing good but the reputed foreign companies are well established in the logistic business. For starting a courier company in India one have to raise the funds from the investors. One has the option of setting up a private limited company in India and then raise the funds through investors by allotting the shares of the company.
The top 10 Courier Companies in India which are well-established in the industry are as follows:
- Indian Postal Services: established in 1774 and more than 1.5 lakh post offices.
- DHL Express India Private Limited: established in 1969 and has a global presence in more than 200 countries.
- Blue Dart Express Limited: established in 1994 and is a subsidiary of DHL.
- First Flight Courier Limited: established in 1986 & has around 1200 domestic offices.
- Fedex India: established in 1973 and has its distribution offices in 220 countries.
- DTDC Courier and Cargo Limited: established in 1990 and hold reasonable market share in courier service in India.
- TNT Express: established in 1974 and have a presence in more than 190 countries.
- Gati Limited: established in 1989 and has a strong market presence in south Asia and Asia pacific region.
- Overnight Express Limited: established in 1987 & Serving more than 2800 location in the country.
- The Professional Courier Network Limited: established in 1987 and has twenty regional offices and more than 2000 serving locations.
Apart from above mentioned big logistic companies, there are a lot of start-ups, for instance, Delhivery which started from scratch and at present, it is one of the most established e-commerce logistics player in India.
Checklist for starting a courier business in India are as follows:
- A lot of money from the investors through angel or venture capital or other sources.
- Setup a legal entity as private limited company in India.
- Apply for the proper tax registration such as service tax.
- Build up a team and invest in the service quality and trainings.
- Build a good network.
Taking a franchise from reputed and well established courier company
Due to the absence of assets everybody cannot open their own courier company and even a large number of the successful logistics start-ups learned about the courier or logistics industry by taking the franchise from different companies and after understanding the market, went ahead with their plans.
At present, we have a considerable number of courier or logistics business franchise opportunity in India where one can begin from a small amount of capital.
One simply need to require the following things to apply for a courier business franchise in India:
- a legal entity setup with the proper tax registration & license.
- a small space for opening the franchise with the agreement.
- a small security deposit which shall vary and depend upon the courier company.
- financial credentials like bank statements or bank passbook.
- approval letter from the courier head office.
- logistics agreement between the franchise and company.
Some of the established courier Company franchise opportunity in India are:
- Indian Speed Post office Franchise Opportunity
- DHL Express Franchise
- DTDC Franchise
- First Flight
The development in the Indian economy in recent years has brought about an immense market for logistics services. The logistics industry employs over 50 million people in India. A productive logistics partner can help enhance operational efficiencies for any business by cutting expense and delivery time. This ultimately leads to market share and profits for the business. There are various types of logistics business that one can start.
However, any logistics company needs to look into the accompanying viewpoints to be successful,
Funding and Investment
The initial step that any logistics company would need to take is to look for investment. Amount of investment in logistics business will depend upon the services that one wishes to begin. A simple brokering and freight management service will require less capital compared to a third party logistics service. For instance, to setup a freight forwarding service in India, one will require a capital investment of approximately 12 crores. A pure third party logistics service will require investments ranging from 65-100 crores. Starting an Inland Container Depot (ICD) or Container Freight Station (CFS) requires investment of several hundred crores. It is critical to recognize the specialty services that one wish to target and accordingly formulate an investment plan based on it. Finding investment in logistics is moderately less complex in India in light of liberal foreign direct investment (FDI) norms and active interest shown by huge private equity players.
Compliance and Registration
The next step is to obtain necessary registration and compliance certifications. Just as other businesses, logistics services also require certain registrations and Government compliance. In India, registration with International Air Transport Association (IATA), Air Cargo Agent Association of India (ACAAI) are very useful for freight forwarders. It may also be beneficial to be part of industry forums such as CII Institute of Logistics to raise logistics industry related issues. Other important registrations in India include Directorate General of Foreign Trade (DGFT) registration, registration with the Income Tax Department, Registrar of Companies and related Government Departments.
The following registrations are suggested for a logistics business:
- Private limited company registration
- Import export code (IEC)
- VAT (value added tax) registration
- Employee’s state insurance (ESI) or PF registration
- Trademark registration, when there is a unique brand name.
The third aspect that one needs to look at is the business risk. In a developing economy like India, risk management plays a significant role, more so for logistics business. Since the logistics business is extremely dynamic with various partners/vendors involved in the whole operation, danger of a claim is very high. It is vital to cover the obligations by taking adequate amount of business insurance. Numerous insurance companies in India offer such insurance plans. Serious liability issues may arise from cargo damage, theft, injury, environment damage etc. While business insurances help to address a part of the liability concerns, they are not generally very effective. For instance, most Cargo and Property insurance in India will not cover inventory shortages as this is viewed as ordinary risk while running a third party logistics business. Consequently, it is imperative to comprehend the risks before executing any contract.
Connecting well with the customers is the key to any successful business. An exhaustive study of different industries/products and understanding logistics needs in such studies is fundamental if an entrepreneur wishes to start a third party logistics company. There are numerous sectors booming as of now, for instance, infrastructure, services, auto and manufacturing as India is basically an export economy. Each of these sectors would require logistics services. Identifying weak areas and proving operationally efficient solutions is key the key to forming customer base in third party logistics services. Once a standard customer base is established, infrastructure investment can be focused upon as well as formation of solutions to cater to the outside market.
Due to the liberalisation of foreign direct investment (FDI) norms it has become easier for multinationals to enter the Indian logistics sector, it is imperative to understand the competition that the business faces as these capital substantial players can invest intensely in marketing and infrastructure. Henceforth, it is critical to do a thorough search on the competition and to focus on the companies positioning in the market.