Logistics is a complex part of a business that many companies, especially the smaller ones, outsource. Everything from managing inventory to warehousing items can be done by third-party providers, instead of manufacturers or retailers. The reason is it cuts costs and, quite frankly, makes their business operations easier. As eCommerce continues to boom and the barrier to entry remains low, creating a transportation or logistics business could be your next great idea.
So, whether you’re considering opening up a small local package delivery business or picturing your future as an international shipping magnet, every logistics business has to start somewhere. Here’s what you need to know about how to start a logistics business today.
What is a logistics business?
Logistics companies help their clients move goods from one place to another. Some cover the entire journey from pick-up to delivery to the end-user, while others help with part of the process—such as transportation, warehousing, packaging, shipping, or even disposal.
While the logistics industry might seem like a product of the internet age, the truth is companies, governments, and individuals have been moving stuff around since pretty much since the dawn of time. Before it was big shipping rigs and long-haul truckers, it was railroads, and horse and buggy.
This industry plays a real role in almost everyone’s life. Whether you’re a home decor dropshipping business or an individual ordering something from Amazon, logistics is the unsung hero that makes sure things get to where they need to be quickly and efficiently.
Types of third-party logistics companies
Logistics is a large umbrella term for any service that helps get goods from their point of origin to the point of consumption (and beyond). These companies plan, implement, and control the movement and storage of goods and services, on behalf of their original providers. A single logistics company might handle all aspects of the supply chain function, or they might simply handle one piece.
Freight carriers or transportation companies
Freight companies are involved in the actual movement of goods from A to B. They will typically specialize in local, domestic or international movement, depending on what kind of transportation they provide and goods they service.
Examples of freight companies include:
- Trucking companies: Both short and long-haul truckers (and everything in between) play a big role in getting a product to where it’s going, especially on the first and last legs of a freight’s journey.
- Rail services: Train transportation is the most efficient way to move goods across land because they can offer fast service and can often move bulk goods at lower costs.
- Ocean freight carriers: Freight movement via the ocean is a popular choice for lower budgets that can deal with flexible arrival due to the considerable amount of time it can take for a ship to move across international waters.
- Air freight carriers: Air transportation companies can move goods internationally or domestically. Moving freight through the air is considerably faster than via the ocean, but it’s often more costly.
Carriers are often third-party logistics providers sub-contracted by freight forwarders to handle a specific part of a freight’s journey. A single shipment from Japan could make its way to Canada via ocean liner, get picked up by truck at port and dropped off at a train station. From there, the railroad can take it swiftly across the country where it will be collected by another truck to be dropped off at a retail store.
Even though each of these transportation companies work separately but together to move goods fast and efficiently, they are often separate companies. This means each logistics firm specializes in a specific form of transportation.
Freight forwarders
Freight forwarding companies play a more consulting role in the logistics industry. They don’t get involved in moving goods or services themselves, instead they help their customers find the most efficient and affordable way to get their products where they need to be.
Forwarders can also help deal with complex pieces of moving goods like customs and import/export paperwork, coordinating efficient handling and delivery, and negotiating lower courier rates. These functions can be handled in-house but are often contracted to a forwarder because they can handle the process smoother and at a cheaper cost, even considering their fee.
Warehousing companies
When your goods arrive somewhere but have to wait to be sent somewhere else, they need a place to stay—like a hotel, but for your goods. Warehousing companies provide a safe space for goods to wait to be shipped out for the next stage of the process.
Amazon is a good example of a warehouse provider. While they house their own goods, they also offer the option for Amazon sellers to ship their goods to Amazon and have them housed and shipped along with their Prime service. This helps smaller businesses that don’t have warehouses of their own cut costs.
Distribution management companies
While there are many companies that handle a portion of the distribution process, distribution management companies handle the entire thing for their clients. From finding vendors and suppliers, to manufacturing, packaging and shipping goods. It’s the bigger, more comprehensive version of a freight forwarder.
Every company that makes and sells goods adopts some form of distribution management strategy to make the process easier and more efficient. But those that contract to a management company remove that process from their plates and take a more hands-off approach on the logistics experience.
Logistics technology companies
While a logistics tech company might be a bit more technology-driven than logistics based in the minds of many, they still serve an important purpose.
Companies in the logistics technology space aim to solve a particular problem that can ultimately help make the entire process more effective, efficient, and cheaper. Examples include inventory management, reverse logistics (AKA returns), and shipping and receiving software.
Why start a logistics business?
Logistics businesses come with a high potential for profitability but to start, you’ll need a reasonable capital investment. The potential to profit often outweighs the initial expense. Unlike a game development company where there are also upfront costs but the likelihood of profit can vary, logistics companies make money, they simply do.
There is a large prospective client market for the logistics industry, there are thousands of customers out there—anyone who needs to move goods from A to B could be on your roster. Plus, the retention rate is high—it can be really expensive to replace a provider of that magnitude, so as long as the logistics experience is good and the job is done, you should be able to develop a predictable income stream from long-term clients.
Most logistics businesses also have a simple business model that’s flexible and ready-to-scale. You can start with driving a single truck and move your way up to transportation mogul when you’re ready. Or grow from a one-person package delivery service to a small fleet of drivers and become a local Amazon Delivery Service Partner. Because of the variety of business types, the industry has incredibly low barriers to entry—you just need to define your business model, build a plan, and be ready to work hard.
Disadvantages of logistics businesses
It’s not all butterflies and rainbows though, and there are a few downsides to running a logistics business. These types of industries tend to have high employee turnover, making staffing an issue, along with higher overhead expenses and lower margins.
There is also a much longer sales time when it comes to developing business. This means your sales machine really needs to continue to move, even if you have a full client roster. Finally, security issues, including data and product loss, plague all modern businesses.
How to launch your logistics business
1. Decide on your logistics niche
The first step to starting a logistics company is picking your niche. There are a lot of choices out there, so it’s important that you choose the best one for you based on your skill set, interests, and budget.
Budget is a major consideration in logistics—there is a big difference in the start-up costs of a trucking company and an ocean freight shipping firm. You could pay more than a million dollars for a second-hand ocean freight carrier, whereas a single long-haul truck can be snatched up for $200,000.
Beyond that, you need to determine where you’ll operate. Are you local? National? International? This will dictate the kinds of licenses and paperwork you’ll need.
With the increased reliance on online shopping, logistics is a popular industry. But you still need to build yourself a solid business plan before you get started. Especially if you need to access funds.
The possibilities are nearly endless, but there’s a logistics option for almost any budget, skills, and interest. Some ideas include:
- Owner/operator of a trucking operation: This is a great choice for the budding entrepreneur who wants to have more autonomy in their working life but isn’t ready to start a full-fledged firm yet.
- Local courier services: Ideal for those interested in labour-focused logistics and want to remain in a large urban area. You can go for something with lower overhead costs like a court-running service (delivering paperwork to and from the court) or go big with a FedEx-style operation.
- Freight-forwarding services: If administration, attention to detail, and negotiation are your strengths, then a business arranging the best deal with the most efficient service might be for you.
Whether you want to be a single-person corporation or you want to build something bigger, there’s a solution for you.
2. Get your finances in order
With your plan in place, you need to get your finances in order. You’ll need some serious budgeting skills or access to someone who can provide them.
The amount of money you’ll need, along with what you can expect to make annually, will depend on the type of services you plan to provide, and your current resources. Running a one-man trucking business is very different from becoming a shipping magnet.
3. Obtain the proper licences
You want to legally operate your business. That means you’ll need licences and a legal business set-up. You’ll need to think about things like document management, taxes, and payroll.
The exact things you’ll need to run your business will depend on what niche you’re in and the jurisdictions you’re operating in. It’s important to point out that you’ll need to be fully licenced in all the jurisdictions you’re planning to operate in. That means if you’re providing international services, you need to look into border crossings and operating in multiple countries.
You’ll also need to figure out whether you want to operate a corporation or as a sole proprietorship. Considerations like tax benefits and liability need to be thought about.
4. Create a business plan
Building a solid business plan is an incredibly important part of starting a business. While there are plenty of businesses that get started without one, going at it without a roadmap is a great way to get lost.
Don’t overthink your business plan, simple is best. Use planning as an opportunity to grow your business on paper—decide how you’ll make your money, get clients, and figure out what kind of help you’ll need.
A business plan is also key if you’re planning to get business funding. Many logistics companies need a good chunk of change to get off the ground, and your business plan will help to secure that.
5. Get clients
Marketing is critical to the success of all businesses, everyone needs clients in some shape or form. But developing a business in the logistics industry can be a lengthy process—it’s not as simple as throwing some money at Facebook Ads and waiting for the leads to roll in.
Contracts and partnerships in the logistics and transportation industry tend to be of high value. This means you need an in with the companies that require those services and a way to prove you’re the best choice to fulfil their requirements and meet their budget.
Because this process can be time-consuming and might require face-to-face sales talks, start sooner rather than later. You can also consider approaching freight forwarders as potential clients as well.
3 common logistic company start-up mistakes to avoid
Here are three common mistakes you should avoid when starting your logistics business.
1. Forgetting about neighbouring jurisdictions
When freight gets delivered across a border—interprovincial or international—the rules and regulations of both jurisdictions must be met. For example, if a truck is headed from Calgary, Alberta to Mexico City, Mexico, a direct route will mean travelling across two international borders, and at least 10 different provincial or state borders.
As the business owner, it’s your responsibility to ensure that everything is properly licenced and coded so you’re not violating any rules, otherwise you could find yourself in some legal hot water.
2. Skipping the insurance
No start-up entrepreneur should breeze past the insurance section of the business. But if you are in transportation and logistics, this big no-no can turn into a catastrophic mistake if something bad happens.
When you run a transportation and logistic business, you need to think about the implications of handling someone else’s freight, having drivers on the road, and even passengers on board. Insurance is important.
3. Not using contracts and waivers
Contracts and waivers are there to protect you and your business, and not using them is a fast way to harm your business. From unpaid work to unfulfilled promises and increased liabilities, not having waivers and contracts in place can quickly cost you a lot of money. Plus, they simply make everything look more professional.
Get starting planning your logistics business today
Is running a logistics business in the cards for you? If you’re ready to jump on this business opportunity, there’s never really been a better time to step into the entrepreneurial space (except maybe when they were creating lightbulbs and toasters for the first time, but that ship has long sailed).
Whether you’re ready to start your life as a supply chain consultant or are itching to plant the seeds of a local transport business, Ownr can help you take the next step.
This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.