Forecasts indicate that the demand for freight transport will grow in South Africa by between 200% and 250% over the next 15 to 20 years, according to the Department of Transport. Some corridors, such as those between Gauteng and Cape Town, which amount to 50% of all corridor transport, will grow even faster.
Whether you want to start a one-man business using a small truck to transport goods and offer services, launch a fleet of transport vehicles which travel the length and breadth of South Africa’s roads, or offer commuter transport from taxis to buses, starting a transport business can be tough.
It is a hard industry for start-ups not just because it is capital intensive, but because you need to be reliable.
Threats facing the transport business are not just crumbling and congested roads and highways, traffic fatalities and injuries, but financial issues as well. Don’t over indebt yourself.
Take it slowly and make sure that you have the necessary skills. While you might have the driving skills and licences, you also need financial and business skills.
Some of the areas you need to understand include the Traffic Act, operating cost estimates, licence fees, toll fees, maintenance and the escalation of fuel and other costs as well as vehicle performance formulae and terminology.
How easy is it to start a transport and logistics business?
According to a guide in Entrepreneur magazine, “How do I start a transport or logistics business?”, the transport and logistics industry is easy to enter, but the trick comes in sustaining the business.
The transport business has a ‘low barrier to entry’ at the bottom of the market, meaning that anyone with a ‘bakkie’ or a minibus can start offering transport services. This results in a flood of competition at the bottom end of the market.
In many instances the entrepreneur starts these businesses with little to no capital, relying instead on revenue derived from the business to cover all overheads from day one. This lack of capital curtails marketing activities that may result in decreased income.
With fierce competition, operators cut prices to survive barely making enough to cover their expenses. This naturally leads to a distressed business that is unable to survive.
In its guide, Entrepreneur highlights the importance of doing your homework before you start a transport and logistics company; do your homework. Work out how you will build a sustainable business. Seek out customers and contracts before you start the business because transport contracts don’t magically appear later on.
Where to find training to help you start
The Road Traffic Management Corporation provides regulated, professional training courses such as a National Certificate in Freight Handling.
SME Starter Kit
The Road Freight Association of South Africa (RFA) offers an SMME Starter Kit specially designed for Start-up Business which includes hints and tips on how to get into the transport industry, how to source contracts, how to calculate financial projections and other important information. Find it here.
The cost of financing a transport business is the biggest expense which has to be dealt with. Visit banks and other funders to see what different options are available when it comes to paying for vehicles. Getting funding is one of the most difficult things for any start-up to achieve.
Often start-up entrepreneurs make the mistake of trading from their personal bank account. This makes it harder to differentiate between your personal expenses and business expenses. It also doesn’t allow you to build up a credit risk profile for your business, which is an important factor should you ever want to approach a bank for financing. Rather, start trading as a business from the get-go by opening up a Business Current Account.
What are the ongoing overheads in a transport business?
One of the most important things to do in order to run a successful transport company is to understand your costs, according to Entrepreneur’s guide. Don’t take short cuts and remember quality controls and stringent maintenance to vehicles is crucial.
Besides capital outlay for equipment and vehicles, other expenses have to be considered:
- Garage or other facilities for vehicles stored at business premises
- Additional security features, such as immobilisers and tracking equipment
- Routine servicing and maintenance of vehicles
- Repairs for scratches, wear and tear (tyres) or accident damage
- Fuel costs
- Parking costs incurred for business use
- Toll charges incurred for business use
- Traffic fines
- Marketing and advertising programmes
- Salaries and benefits for staff
- Roadworthiness – by law, any vehicle using South African public roads has to be roadworthy. The responsibility of scheduling and taking a vehicle in for roadworthy testing rests solely on each individual vehicle owner.
- South Africa has a modern and well-developed transport infrastructure.
- The air and rail networks are the largest on the continent and the roads are in fair condition.
- The country's ports provide a natural stopover for shipping to and from Europe, the America’s, Asia, Australasia and both coasts of Africa.
- The transport sector has been highlighted by the government as a key contributor to South Africa's competitiveness in global markets. It is regarded as a crucial engine for economic growth and social development, and the government has unveiled plans to spend billions of rands to improve the country's roads, railways and ports.
- Ports are fairly well maintained, as are heavy-haul rail networks, while the Airports Company of SA provides world-class facilities.
- South Africa’s freight transport sector relies heavily on road transport, with 70% of total metric tonnes a kilometre being transported by road last year.
- High toll costs in South Africa, which are meant to ensure road infrastructure provision and maintenance, result in steeper operating costs and inflation.
- Labour unrest is resulting in low productivity, while union wage inflexibility is discouraging logistics firms from hiring entry-level staff.
- The industry recognises its critical role in the economy’s growth.
- Efficient movement of goods between a country’s centres of production and its shipping ports boosts competitiveness in international markets.
- Hike in petrol and diesel costs
- The infrastructure is deteriorating rapidly due to overloading and poor maintenance.
- The transport of bulk mining commodities, such as coal and manganese, and also fast-moving consumer goods, over long distances, is damaging South Africa’s roads, especially the corridors between Gauteng and Durban and Cape Town.
- The large number of accidents attributed to heavy trucks is problematic.
- Both road safety and road infrastructure are public concerns subject to strict regulation by governments, particularly when abused.
- Overregulation, road deterioration and high accident rates pose a significant threat to the long term sustainability and global competitiveness of the road logistics value chain.
- A lack of law enforcement and high levels of noncompliance by some road-freight users is contributing to poor road safety. This is driven by official corruption, inadequate policing, fragmented law enforcement agencies, and an inefficient penalty system for overloading.
10th Annual State of Logistics Survey South Africa, compiled by Imperial Logistics, the Council for Scientific and Industrial Research (CSIR) and Stellenbosch University, www.csir.co.za/sol
Road Freight Association