The growth in Indian economy in past few years has resulted in a huge market for logistics services. The logistics industry employs over 50 million people in India. An efficient logistics partner can help improve operational efficiencies for any business by cutting cost and delivery time. This ultimately translates to market share and profits for the business.
There are various different types of logistics business that one can start. These include third party logistics (3PL), couriers and freight cargo services, air cargo services and warehousing services. Any logistics company needs to look into the following aspects to be successful.
Funding and Investment
The first step that any logistics company would need to take is to seek investment. Amount of investment in logistics business will depend upon the services that you wish to start. A simple brokering and freight management service will require less capital compared to a 3PL service. For example, to setup a freight forwarding service in India, you will require a capital investment of about $1-$2 million USD. A pure 3PL service will require investments ranging from $10-18 million USD. Starting an Inland Container Depot (ICD) or Container Freight Station (CFS) requires investments running into several hundred million dollars (USD).
It is important to identify the niche services that you wish to target and prepare an investment plan based on it. Finding investment in logistics is relatively simpler in India because of liberal FDI norms and active interest shown by large private equity players.
Compliance and Registration
Second step is to obtain necessary registration and compliance certifications. Like with any business, Logistics services require certain registrations and Government compliance. In India, registration with International Air Transport Association (IATA), Air Cargo Agent Association of India (ACAAI) are very useful for freight forwarders. It may also be necessary to be part of industry forums such as CII Institute of Logistics to raise logistics industry related issues. Other important registrations in India include DGFT registration, Income Tax Dept, Registrar of Companies and related Government Departments.
Third aspect that one needs to look at is the business risk. In a developing economy like India, risk management plays a crucial role, more so for logistics business. Since the logistics business is very dynamic with multiple partners/vendors involved in the entire operation, risk of a claim is very high. It is important to cover liability by taking adequate amount of business insurance. Many large insurance companies in India offer such insurance plans. Serious liability issues arise from cargo damage, theft, injury, environment damage etc. While business insurances helps to address some of the liability concerns, they are not always very effective. For example, most Cargo and Property insurance in India will not cover inventory shortages as this is considered normal risk while running a 3PL business. Hence it is very important to understand the risks involved before executing any contract.
Customer Acquisition and Competitors
Acquiring customers is the key to running any successful business. If you wish to start a 3PL service, it would be helpful to study various industries/products and understand the logistic needs in such industries. Since India is primarily an export economy, there are many booming sectors such as Auto, Infrastructure, manufacturing and services. All these sectors require logistics services. Identifying weak areas and providing operationally efficient solutions is key to winning new customers in 3PL services. Once a regular Clientele is established, you can start investing in the infrastructure and creating solutions to address the broader market.
It is also important to understand your competition. Liberal FDI (Foreign Direct Investment) norms have made it easy for MNCs to enter Indian logistics sector. Such large players can invest heavily in infrastructure and marketing. Hence before entering any particular service, it is important to do a thorough research about your competition and focus on positioning yourself differently.