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.
If you’re considering starting a logistics company but are unsure of where to start, you’re in the right place. In this guide, we’ll provide you with an overview of the business, steps to get started, and answers to common questions.
A logistics company is responsible for the transportation of goods from one location to another. This involves managing the movement of raw materials, finished products, and other inventory through various channels, including air, sea, and land.
A logistics company helps streamline this process by coordinating the transportation, warehousing, and distribution of goods. As a logistics company owner, you’ll oversee all these processes, from coordinating with suppliers and carriers to managing staff and maintaining equipment.
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The logistics industry is a massive global market that’s projected to continue growing in the coming years. In the US, the logistics services industry is projected to generate $6.8 billion in 2023 and, over the last five years, increased at an average of 10.4% annually. This growth is being fueled by the rise of e-commerce and globalization, which have increased demand for faster, more efficient shipping and delivery services. While this means there’s plenty of room for growth in the industry, it also means that competition is fierce, so it’s important to have a solid business plan and strategy in place.
This industry is highly competitive, with major players such as DHL, UPS, and FedEx dominating the market.
Steps To Start A Logistics Company
Step 1: Research the Market
One of the most important steps when considering whether to start a logistics company is researching the market. This research will help you gain a better understanding of the industry and identify any gaps or opportunities that your business can capitalize on.
The first task in researching the market is to identify your niche. Logistics is an umbrella term that covers a wide array of services. To identify your niche, consider your expertise, interests, and the resources at your disposal. For instance, if you have experience in international trade, you might choose to focus on international shipping. Similarly, if you have contacts within certain industries, you may want to offer specialized logistics services tailored to those sectors. By defining your niche, you can better target your efforts and assess the demand for your services.
Once you’ve identified your niche, the next task is to define your target market. This involves identifying the specific industries or customers you want to serve and understanding their needs, pain points, and preferences related to logistics services. For example, if you’re targeting e-commerce businesses, you’ll need to understand their needs for efficient, reliable, and cost-effective delivery services. If you’re focusing on industries like manufacturing or agriculture, you’ll need to understand their requirements for warehousing and transportation of raw materials and finished goods.
After defining your target market, it’s time to assess the competition. Start by researching the offerings, pricing, and customer base of logistics companies in your area. Look at their strengths and weaknesses to identify any gaps or opportunities in the market. For example, if most companies are focusing on large-scale operations and neglecting small businesses, this could be an opportunity for you to fill this gap.
Step 2: Write a Business Plan
Once you have conducted market research and gained a better understanding of the potential for your logistics business, the next step is to create a business plan. A business plan serves as a guiding document that outlines the key aspects of your company, charts your path to success, and helps you secure financing if needed.
Related: How to write a business plan
Step 3: Secure Funding
Once you have determined there is a market for your logistics company and completed your business plan, the next step is to secure the necessary funding. Funding can be one of the most challenging aspects of starting a business, but there are several options to consider.
The first source of funding to assess is self-funding. Before seeking outside funding sources, take a look at how much personal savings you have available to finance your business. If your personal savings are not enough to cover all the startup costs, you will need to explore other funding options.
One common source of funding is through lenders. Lenders typically require borrowers to invest between 15% and 25% of their personal funds towards the total project cost and have a good credit score. Additionally, they may ask for collateral as security for the loan. In some cases, if a bank feels that the loan is too risky, they may use an SBA (Small Business Administration) loan guarantee to mitigate their risk.
Friends and family can also be a potential source of funding. However, it is important to put agreements in writing to avoid misunderstandings or conflicts down the line. Clear agreements can help maintain healthy relationships while ensuring proper repayment terms for all involved parties.
If your funding needs are relatively low or credit isn’t available through a traditional lender, consider exploring microloans. Some microloan programs not only provide funding but also offer valuable business training and support. These programs can be particularly beneficial for entrepreneurs starting a small logistics company.
Another option to consider is seeking funding from angel investors. Angel investors are typically interested in unique or innovative business ideas that have high growth potential. Accepting angel investment means that the investor will become a part owner of your business, so it’s important to carefully evaluate the terms and implications before proceeding.
Step 4: Register the Business
To legally establish a logistics company, it’s important to navigate through a series of steps to ensure compliance with various regulations. The processes can differ from state to state, but here are the general things to consider:
Choose a business structure: First, decide on the type of business structure that will work best for your logistics company, such as a sole proprietorship, partnership, LLC, or corporation. Each structure has different legal and tax implications.
- Sole proprietorship: Simple to set up and requires less paperwork, making it cost-effective for someone starting alone. However, it offers no personal liability protection.
- General partnership: Similar to a sole proprietorship, but for two or more people going into business together. Again, there’s no liability protection, which could be risky for a logistics business.
- Corporation: A more complex structure offering liability protection. It’s an independent entity, meaning personal assets are typically safe if the company runs into legal issues. This structure has more rules and regulations to follow.
- Limited Liability Company (LLC): Combines the simplicity of a sole proprietorship with the liability protection of a corporation. It’s a popular choice for many businesses due to its flexibility and protection.
Related: Comparison of business structures
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:
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Obtain 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), the Transportation Security Administration (TSA), and the Customs and Border Guard Administration (CBP).
In addition, there will likely be a variety of general registrations needed before opening. This could include a business license, seller’s permit, and Employer Identification Number (EIN).
Step 5: Set Up Operations
Starting a logistics company involves careful planning and making important decisions, one of which is establishing operations. This next step takes all the ideas and planning done so far and puts things into action.
The first task in setting up your logistics operations is finding a suitable location. The location of your logistics company can significantly impact its efficiency and cost-effectiveness. It should be strategically located, with easy access to major transportation routes for road, rail, air, or sea transport, depending on the nature of your operations.
Consider factors such as proximity to your target market, availability of skilled labor, and local infrastructure. Additionally, consider the cost of land or rental prices in your chosen location. While a central location may offer operational advantages, it could also come with higher costs. It’s important to strike a balance between operational efficiency and cost-effectiveness.
Once you’ve secured a location, the next step is to purchase the necessary equipment. This could include vehicles for transportation, warehouse equipment like forklifts and pallet jacks, and software systems for managing inventory, tracking shipments, and streamlining operations.
Step 6: Hire Staff
Hiring employees is the next step in starting your logistics company. As an employer, you’ll be responsible for various tasks, including defining job roles, conducting interviews, managing payroll, and ensuring compliance with labor laws. Moreover, there are several legal requirements that you need to fulfill before you can start hiring. Here’s a brief overview:
Obtaining an Employer Identification Number (EIN): An EIN is a unique number assigned by the IRS to businesses for tax purposes. You’ll need this number to report taxes and other documents to the IRS, and to record your employees’ income and tax information.
Employment eligibility verification: Before hiring an employee, you must verify their eligibility to work in the United States. This involves completing an I-9 form for each employee, which requires reviewing acceptable forms of identification provided by the employee.
State reporting: Each state has different reporting requirements for new hires. Typically, employers must report certain information about their new employees to a designated state agency shortly after the date of hire.
Worker’s compensation insurance: Most states require businesses to carry workers’ compensation insurance, which provides benefits to employees who suffer work-related injuries or illnesses.
Labor laws: Employers must comply with various federal and state labor laws, covering areas such as minimum wage, overtime pay, workplace safety, and anti-discrimination.
Step 7: Prepare to Launch!
As you prepare to start your logistics company, there are several important steps to take care of before launching. While some of these details may vary depending on your specific needs and circumstances, there are some common loose ends that you’ll need to tie up. A few of these may include:
Securing business insurance: Depending on the nature of your logistics company, you will need different types of business insurance coverage to protect your business assets and liabilities. For instance, you may need liability insurance, cargo insurance, and workers’ compensation insurance. Research the insurance requirements specific to your business.
Setting up bookkeeping: As you get your logistics company up and running, it’s important to keep your financial records in order. Set up accounting software and systems to handle daily transactions, taxes, and financial statements.
Opening a business bank account: It’s important to keep your business finances separate from your personal finances. Open a business bank account that will help you better track all business income and expenses.
Creating a marketing strategy: Creating a marketing strategy is essential to let potential customers know about your new business. This could include creating a professional logo and website, using social media platforms, email marketing, SEO, and paid advertising.
Common Questions When Starting A Logistics Company
How much does it cost to start a logistics company?
While the total cost to start a logistics company will depend on factors like location and scale of operations, an approximate range could be anywhere from $50,000 to $500,000 or more. Here is a breakdown of some estimated costs to help you plan.
Initial deposits for the location: Renting or leasing a facility for your logistics company usually requires an initial deposit. This amount can vary depending on factors like location, size, and lease terms. As a rough estimate, you may need around $5,000 to $10,000 for initial location deposits.
Business registration and licensing: The cost of obtaining necessary licenses and permits can vary widely depending on your location and the nature of your operations. However, you can expect to pay anywhere from $200 to $1,000.
Vehicle fleet: If your logistics company involves operating a fleet of vehicles, the cost will depend on factors such as the number of vehicles, their condition (new or used), and the type of vehicles needed. As a rough estimate, purchasing or leasing a commercial vehicle can cost anywhere from $30,000 to $100,000 or more per vehicle.
Insurance: Insurance for a logistics company covers potential liabilities related to accidents, damages, and losses during transportation and warehousing. Initial insurance costs can range from $2,000 to $5,000.
Technology and software: Logistics companies heavily rely on technology and software solutions to manage operations efficiently. Expenses in this category can include computer systems, inventory management software, fleet tracking systems, and other specialized tools. Depending on your needs, costs can range from a few thousand dollars to tens of thousands of dollars.
Marketing and advertising: To attract customers and promote your business, you’ll need a marketing strategy and a budget for activities like creating a website, designing a logo, distributing marketing materials, and running advertising campaigns. As an initial cost, allocating around $2,000 to $10,000 for marketing and advertising expenses can be a reasonable estimate.
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?