About Logistics Business
The logistics business organises the movement of raw materials, finished goods, and data from the supplier to the customer. This activity involves several elements: organizations, people, activities, and information.
The recent growth in India's e-commerce industry demands excellent and reliable logistics services. Earlier, the country's logistics business grew by roughly 10.7% each year. Due to the increased use of door-to-door services, this industry has experienced rapid growth since the first quarter of the global pandemic.
This industry calls for a lot of hard work. To succeed in the market, one must stand out from their competitors and provide value. Here, we share a guide to help you thoroughly plan for your own logistics chain company before you take the leap.
Adopt a logistics business model
A logistics business helps other businesses cut down on transportation expenses and their time away from actual business. It removes the burden from the suppliers having to ship themselves. 3PL companies (third-party logistics) have three standard business models: Broker model, Gainsharing model, and Commission-based model.
Broker model
In this model, the logistics companies function as brokers for their clients. It is one of the most common business models in this industry.
The logistics company purchases a lot of shipping space at a particular transportation company. This space is sold to clients who can now serve their customers from there, while the broker logistics company makes money from the rents.
This model is straightforward and profitable. However, you are required to make a significant initial investment to buy up a lot of shipment space in bulk. If you do not wish to spend a considerable sum upfront, consider the two other models below.
Gainsharing model
Here, the logistics company offers to handle their client's transport operations more efficiently. In return, a minimal fee is all that the logistics company asks of its customers.
Ventures that want to get into the field with a small investment benefit significantly from this model. The profit margin is healthy but relatively lower than that of the broker model.
Commission model
In this case, the logistics company works with other large shipping companies and shares their workload. The company does the delivery on their behalf and receives a commission. Additionally, it may also use the resources of the shipping company.
People who don't wish to invest much in infrastructure and equipment find this model suitable.
Draw up a business plan
Once you have ascertained which model your logistics company would be based on, draw up a business plan.
Determine how much investment you are ready to put into your business. Choose whether you will take out a loan or self-fund your business. Create a budget that clearly outlines details of how much funding will go towards each part of the set-up. Finances are crucial in any business, so take your time in preparing the budget, especially in the early stages.
The next step would ideally be to research your logistics business' legal aspects. These are a bit complex and will be addressed in a separate section below.
With legal aspects out of the way, you need to analyze all your existing competitors in the market. Find out where your competitors lack and if you can fill that space. This approach makes it possible to position yourself well on the market and succeed.
Look for lacunae in the current logistics market
Across the country, there are several prominent players in the logistics business. The startup scene in this field is booming, with new companies and unique ideas disrupting the market daily. This doesn't imply that there is no scope for new businesses to enter this field. Despite the many improvements, many gaps and problems persist.
It is recommended that you do rigorous research, identify some existing problems for customers and devise ideas that would help solve them. For instance, individuals face difficulties with returning shipments. Damaged packaging during shipment is also a significant issue. If your innovative idea can help solve any of these issues, consider it a breakthrough. Your name will immediately gain recognition in this industry.
Address legal matters
A logistics business serves different states and countries, complicating legal matters. The company must adhere to different rules at various locations. You need to be familiar with the laws of all the states and countries you cater to.
Your business has to be classified as either a sole proprietorship, a partnership, or an LLP firm, and then registered with the Ministry of Corporate Affairs. You must also register with the Air Cargo Association Of India and the International Air Transport Association to use airway transport for your business. These are government recognized associations, that include all the other logistics companies that use airways as a mode of transportation, and are regulatory bodies.
The logistics business in India is covered by several government acts that regulate this sector and give it legal status. In 1993, the Parliament of India passed the Multimodal Transportation Of Goods Act. It was later amended in 2000 to make some improvements. As a result of the Act, logistics operators and goods owners have access to the same uniform system. As an operator in this business, you must be registered as a Multimodal Operator.
Additionally, we recommend you read some other Acts mentioned below for this business to familiarize yourself with the laws in this system before you begin your operations.
- Carriage of Goods by Air
- Carriage of Goods by Sea
- Carriage of Goods by Land
- The Railways Act, 1989
- Carriage by Road Act, 2007
Determine assets and software for purchase
Making initial investments in some assets is necessary before starting a business. The logistics business involves a range of assets that you need to own before you can operate smoothly. You can buy or lease trucks, mini-trucks, warehouses, equipment or land. In the broker model of logistics business, you must also acquire shipping space from large transportation companies.
In addition to that, all businesses have automated their operations in some way these days. Automation saves a lot of time and effort. The hard truth is that without automation systems you may be left behind by competitors in the logistics industry.
Divert some funds towards buying good CMS software. They will manage your transportation, inventory, security, and tracking in one place, thereby eliminating errors and saving time. If possible, use e-CRM software to keep track of your customers' data and engage with them regularly.
Some software that can help you in managing your logistics business are:
- Dataman ERP
- Uneecops
- Zepo Courier
- EFleet Admin
- Fleetx
Gather funds for your logistics business
Earlier, we discussed how finances are the most crucial part of any business, including logistics. This section will give you a brief overview of how to obtain funds and use them efficiently.
In logistics, capital investment is high and can reach Rs 30 lakhs. You can arrange these funds yourself, but it is not recommended if your business is brand new. Cash needs to be kept in reserve to cover any emergency.
Our recommendation would be to obtain a business loan at the best interest rates possible and one that allows you to pay over a long period. Lending institutions now disburse loans within 48 hours of approval. We recommend that you prepare a comprehensive business model and then present it to your lending institution for quicker approval.
Additionally, keep a separate book for your business finances. You will need to track all of your expenses and revenues. The CMS software mentioned above can help you with efficiently managing bookkeeping.
Tips to make your business stand out
Packaging
Packaging is an essential part of any logistics business but poses a significant problem for many existing firms. Business owners who provide suitable packaging for their goods to ensure that they remain safe during transport are appreciated by their customers. Brainstorm ideas with your team to make your packaging better than that of your competitors.
Return
Customers are generally dissatisfied with the service provided by logistics businesses when they return goods. The process involved is dreadful and causes many a headache. Address this with a specific and feasible return policy. One that ensures that the process is as quick as possible. You will be able to cement some positive impressions about your brand in your customers' minds.
Go digital
It is now vital to make yourself visible on search engines to gain maximum exposure as a business. Every time a customer needs anything, they search for it on the web. Create a business website that highlights all your services and costs. Your website should include a call to action button so that you can connect with potential customers. Ensure that your business is listed on various listing websites such as JustDial for faster recognition.
Collaborate
You can also make business deals with various businesses in your area to take your logistics business to the next level. Show them how you can beat their existing logistics partner in price and service. Regular collaborations with other businesses will help grow your business steadily and effectively.
Indifi Business Loan Fees & Interest Rates For Logistics Business
Following are the business loan fee & interest rates for logistics business.
| Customized Interest Rates | Starting @1.5% PM |
| Processing Fees | 3% |
| Loan Tenure | up to 3 years |
| Pre-closure Charges | 4% |
| Eligibility Criteria | > 5L Turnover in last 6 Months |
| Loan Amount | ₹ 50,000 – ₹ 1 Crores |
| Installments | Monthly |
Conclusion
The logistics business is a vast industry with many opportunities to explore. Success is possible in this industry for anyone with proper guidance, vision, and planning. As door-to-door deliveries and e-commerce take firmer root in India, the demand for logistics is growing every year.
Logistics businesses require a substantial investment initially since the cost of equipment, warehouses, and software is high. Nevertheless, if you follow the steps mentioned above and get everything right, in every likelihood you will get a good return on your investment.
FAQs Related logistics business
- How to start a logistics business without extensive infrastructure?
Without investing much, a commission-based model is an appropriate choice for this business. Big shipping companies typically outsource to small logistics companies to reduce their workload. Therefore, you can work with them and use their infrastructure and earn a commission once the job is complete.
- Do I need a license for each state in which I intend to operate?
In reality, you must get the initial registration certificates only from the place where your headquarters is located. Besides that, you will only need to pay sGST in every state you pass through to transport goods between states. You will be able to operate without any problems if the abovementioned legal requirements are met.
- What should I do if there is some issue concerning my shipments outside my state?
You can hire a representative in each state. They will oversee your shipments that enter that state, taking care of any problems that might arise along the way. It becomes necessary as the slightest of delays in shipping can negatively impact your reputation.
