How to start a logistics business? – Detailed Guide
How to start a logistics business
The Indian economy has grown tremendously in the past few years resulting in a huge market for logistics services. Over 50 million people in India are being employed by the logistics industry. Operations of any business can be improved significantly by cutting cost and delivery time due to having an efficient logistics network . This would eventually results in profits and market share for the business. The different types of logistics business that an entrepreneur can start are as follows.
- Courier and freight cargo services
- Air cargo services
- Warehousing services
- Third party logistics (3PL)
The following aspects need to be considered for any logistics company to be successful.
Registration and Compliance
It is essential to obtain the necessary registration and compliance certifications. As with any business, logistics services require registrations to be obtained and also government compliance. In India, the following registrations are mandatory. Freight forwarders need to get registered with International air Transport Association (IATA) and Air Cargo Agent Association of India (ACCAI). It is also necessary to be a part of industry forums such as the Institute of Logistics so that issues raised to logistics industry may be raised. Other important registrations in India include Income Tax Department registration, DGFT registration, Registrar of Companies and other departments.
IndiaFilings suggests the following registrations for a logistics business:
- Private limited company registration
- Import export code
- VAT Registration
- ESI or PF Registration
- Trademark registration, in case of unique brand name.
A logistics company would seek investment as the first step. The amount of investment in the business would depend on the services that the company intends to do. For instance, setting up a freight forwarding service in the country would require a capital investment of about Rs. 12 Crore. A brokering and freight management service would require less capital compared to a third party logistics company. A 3PL service company would require investments to the tune of Rs. 65 Crores to Rs. 100 Crores. Starting a Container Freight Station (CFS) or an Inland Container Depot (ICD) requires investments running into several hundred Crores. Hence it is essential to identify the services that one needs to target and prepare an investment plan based on the same. Due to liberal FDI norms, it is relatively simpler to find investment in logistics in India. Interest in the sector shown by large private equity players would also help get funding.
Business risk is another aspect that needs to be looked into. Risk management plays a huge role in a developing economy like India, especially for the logistics business. Since the business is very dynamic with many vendors and partners involved in the entire operations, the risk of a claim is extraordinarily high. It is essential to cover liability by taking adequate amount of insurance for the business incase things don’t go according to plan. Insurance plans which are suitable to such businesses are offered by many such insurance companies in India. Cargo damage, theft, environment damage, injury etc. can cause serious liability issues and although such business insurances enable the business to address some liability issues, they are not always very effective. It is important to understand the risks involved before executing any contract. For example, many cargo and property insurance companies in India would not cover inventory shortages as this is considered to be normal risk while running a third party logistics business.
Engaging clients well is the key to any successful business. A thorough study of various industries/ products and understanding logistic needs in such studies is essential if the entrepreneur wishes to start a third party logistics company. There are many sectors booming currently such as infrastructure, auto, services and manufacturing as India is primarily an export economy. All these sectors would need logistics services. Providing operationally efficient solutions and identifying weak areas is key to winning new customer in third party logistics services. Once a regular clientele is established, infrastructure investment can be focused upon as well as creation of solutions to cater to the outside market.
As liberalisation of FDI (Foreign Direct Investment) norms have made it easier for multinationals to enter the India logistics sector, it is imperative to understand the competition that the business faces as such these capital heavy players can invest heavily in marketing and infrastructure. Hence it is important to do a complete research on the competition and to focus on the company’s positioning in the market.