How to Start a Logistics Company
Did you know that the term ‘logistics’ originated in the army and referred to the movement of troops, equipment, and supplies to a field?
Today, of course, the term is used to describe any business’ process of coordinating the flow of goods and moving a resource from one place to another.
Logistics is undoubtedly a growing industry in the US. According to Statista, it generated a staggering US 1 trillion in revenue across the North American market in 2020.
Starting your own logistics company in this economic environment is a promising opportunity for someone who is well organized, understands transportation, and can juggle resources and projects well. But for your logistics company to succeed, we highly recommend you do comprehensive market research and, based on that, develop a detailed business plan and budget. Here are some points to consider.
Business Overview
The logistics industry links producers to consumers. It focuses on a cost-effective and efficient way (including packaging and storage) to transport and deliver resources.
Logistics forms part of supply chain management. Where supply chain management refers to a company’s entire network outside of an organization, logistics deals with the flow of resources within one company.
Logistics can be segmented based on transport (rail, road, water, or air), end-use (retail, manufacturing, healthcare, government, public utilities, etc.), and region. The industry is also divided into freight brokers and 3rd Party companies (3PLs).
Industry Summary
In statistical reporting, logistics often gets lumped with transportation, although logistics has a somewhat broader application. With that in mind, this transportation industry report for 2021/2022 provides excellent insights into the industry’s performance and segmentation and supplies valuable data for any future business plan.
Based on net revenue (2021), the leading logistics companies in the US are UPS Supply Chain Solutions, closely followed by GXO. On the other hand, C.H. Robinson is the top transportation brokerage and 3PL company with net revenue of $1.8 billion.
As a subset of logistics, US freight packing and logistics services are a $3 billion industry, employing well over 26,000 people, according to IBISWorld. In this segment, CEVA Logistics AG and Deutsche Post AG are the most prominent players in the US.
Related Industries
Industry Trends
This is an industry that is fast evolving. The explosion of e-commerce into the market, the changes in shopping behavior, and the new global reach of many smaller companies significantly impacted the logistics sector. As a result, it has given rise to logistics technology and software advances, transportation and packaging solutions, shipping efficiencies, and warehousing automation.
The logistics sector continues to grow. According to a recent market analysis by Allied Market Research, this is mainly due to:
- a booming e-commerce industry that is increasingly outsourcing their logistics operations
- The emergence of last-mile logistics. The term refers to the final step of the distribution process. Consumer expectations of same-day delivery and the delivery of perishable goods have given local transport and delivery services an enormous upswing.
- With the rise of online purchases, returned merchandise has also increased the demand for logistics services. In 2020 alone, consumers returned over $420 billion worth of goods.
Target Market
In short, your target market is any business that needs help with the flow of goods.
Narrowing down your market segments is a necessary process. It will influence the size of your workforce, transportation mode, and the necessary certifications.
Decide whether your services will be offered locally, regionally, or internationally. What producers are in your area, and what kind of product or resource needs transportation? Would you need special packaging or storage facilities? Will you offer logistics services locally, regionally, or even internationally. Do you want to set up your logistics business as a freight broker or a 3rd party logistics company?
Checklist for Starting a Logistics Business
If you’re considering starting a logistics business, there are a few key steps you’ll need to take to get started. Here is a checklist of the essentials to get started.
Step 1: Write a Business Plan
A business plan is a roadmap for your logistics business. It will outline your business goals, competitive analysis, strategies, and how you plan on achieving success. Additionally, the business plan will include a marketing plan and financial projections to research the potential feasibility of the business.
Not only will a bank or investor require you to have one, but multiple studies have shown that a solid business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Name the Business
Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 3: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a logistics business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
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Step 4: Select Your Location
Your logistics business will need a suitable location that is accessible to your customers and clients. Make sure to consider the size and layout of your space when choosing a location.
Step 5: Apply for Business Licenses and Permits
Like any business, a logistics business owner will likely need to obtain a variety of business licenses and permits in order to operate. The types of licensing will vary based on how the business will transport goods. Licensing will be required from federal and state agencies, along with your local government. A few of the common licenses include:
– Department of Transportation if traveling on roads
– US Federal Maritime Commission if importing or exporting by water
– US Department of Transportation is shipping via air
A few other agencies to be aware of that may impact the delivery of cargo include the Federal Motor Carrier Safety Administration (FMCSA), Transportation Security Administration (TSA), and the Customs and Border Guard Administration (CBP).
Related: Common business licenses, permits, and registrations by state
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a logistics business is another. The startup cost for a new logistics business is pretty high, which makes funding difficult. Banks are typically going to want the borrower to have good credit and be able to invest 15-25% of their money towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Plan in Place
There are several marketing strategies you can use to market your logistics company. some common marketing strategies include using social media, print advertisements, and online directories. make sure to target your marketing efforts toward your target audience.
Whatever marketing tactics you choose, make sure you are targeting your ideal customers and creating a strong call to action.
Related: Low-cost ideas to market a new business
Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.
Step 9: Get Business Insurance
There are a variety of insurance policies available to businesses, and the type of insurance you’ll need will depend on the specific business activities your logistics company engages in. Some common types of business insurance for logistics companies include property insurance, liability insurance, workers’ compensation insurance, and vehicle insurance. Make sure to consult with an insurance agent to obtain the necessary insurance coverage for your business.
Step 10: Hire Employees
When hiring employees for your logistics business, it is important to consider the skills and experience they will need in order to be successful in the role. Some common positions in a logistics company include warehouse workers, truck drivers, customer service representatives, and salespeople. Be sure to conduct thorough interviews and check references before making any hires.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system for your logistics business is critical to your business’s long-term success.
Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
There are a variety of accounting systems available for businesses, and the specific system you’ll need will depend on the size and structure of your logistics company. Some common features of accounting systems used by businesses include invoicing, tracking expenses, and preparing financial statements. Make sure to consult with an accountant or bookkeeper to determine which system is right for your business.
StartingYourBusiness.comHow much does it cost to start a logistics business?
There are some serious start-up costs and running expenses involved when setting up a logistics company. We can’t stress enough the importance of developing a detailed business plan with a budget. You will likely need it to present to potential funders as well.
There are so many variables, though, that giving you a definitive budget is impossible. So instead, please consider these budget points relating to potential variable and fixed costs.
– Purchasing a fleet of vehicles – It might make sense to look at second-hand or even leasing options.
– Warehouse and warehouse management software for the storage of goods
– Fleet and equipment maintenance
– Fuel costs – variable costs
– Other transportation costs (sea, rail, air)
– Software for inventory management and tracking the shipment of cargo
– Paying for permits and certifications – start-up and ongoing costs
– Paying insurance for fleet and drivers, contents, and liability – this is heavily dependent on the size of your company, the nature of your logistics services, and your location.
– Hiring staff. There is a continued shortage of qualified truck drivers, but you may also need packaging and warehouse staff.
– Investment in software to support your logistics workflow, accounting, HR, etc.
– Leasing of warehouse space, potentially a coolhouse for perishable goods.
How profitable is a logistics business?
According to Indeed, the average base salary for a logistics manager in the US with 10+ years of experience is $75,000. Top salaries can be as high as $112,00 plus profit share. Your salary will, however, depend on the existing supply and demand for logistics services, the region you are in, and the pricing and type of your services offered.
Are there grants to start a logistics business?
It’s extremely rare to find a grant to start a logistics business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What skills are needed to run a logistics business?
Business management experience
When starting a logistics company, operations and business management skills are a definite advantage. It will support managing staff, correctly pricing your services, scheduling your fleet, and adhering to all necessary regulations. Taking specific business classes may be a great way to help you with these skills.
Excellent organizational skills
A positive customer-focused attitude and discipline are essential to running your logistics business successfully. In addition, you will be juggling your transportation, cargo, staff, carriers, and schedules to be able to handle the delivery of goods when and where required.
Things don’t always go to plan; the logistics sector is no different. Resources might be delayed or required in another place altogether. Being able to pivot and adjust operations easily will be an excellent attribute.
Don’t forget to set aside time to look after your business administration, take time for quotes, and keep on top of invoicing.
Stay up to date and on top of trends
The logistics sector is going through unprecedented changes. This is mainly due to a digital transformation, the automation of many processes, and evolving customer expectations.
We recommend you stay up to date with the latest industry trends and innovations in software, automation, and technology. In addition, make sure you understand all regulations applicable to your business. Especially requirements relating to overseas delivery can change relatively quickly and drastically.
What is the NAICS code for a logistics business?
The NAICS code for a logistics business is 541614, which is classified under Process, Physical Distribution, and Logistics Consulting Services.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
Resources:
Logistics and Transportation Industry Associations
American Logistics Association
Logistics and Transportation Organisation of North America
Final Thoughts
Starting a logistics company is a serious business.
But with proper planning, entrepreneurial spirit, and a finger on the pulse of the industry and the market, it can be a rewarding business opportunity. There is room to start small, test the waters, and build the company alongside a growing customer base and demand. This sector is booming and is expected to grow.
