Logistics/Supply Chain/freight business

Advertisement


Question
QUESTION: I was thinking of starting a air freight business considering that its a 130 billion dollar industry and was wondering if it would be a profitable idea. I would pay my own certified pilots. I wanted to buy my own A330-200F but after seeing the price I quickly changed my mind (78million).I have 21million to start my business up. I was thinking of leasing a cargo plane a boeing 337, a airbus A330-200F, or c5 galaxy. I understand that the lease is a couple hundred thousand a month but that 21mn should take care of that?So is this a good idea investment or no and how long would it take for me to make money?Whats the earning potential.

ANSWER: Hi and Good day

Thanks for the query. Its real interesting to note that you want to become an entrepreneur in the freight and logistics space.

The air freight business is large in nature, and only large freight and logistics companies control most of the market share. The main reasons being barriers to entry in terms of high initial cost of ownership, large network, last mile delivery capability, experience and expertise etc. Further more in air freight the measure is mostly FTK in billions (Freight Tonne Km).

All the airlines handle passenger and cargo and are the main players in the air freight industry. Other than airlines logistics companies like fedex have their own freighters and operate them.

If you are looking at air freight seriously, you may look at starting at a regional level freighting to start with, say you connect two parts of US only with limited fleet and allow co-loading from other players/ logistics companies so that there is traction..

To become a large player, it will need a huge investment, people, network, technology, fleet etc. Currently in the long routes, the entire air freight has shifted to US - Europe - Asia sector which accounts for more than 60% of FTK's every year. So typically you see long hauls happening due to high value shipments, just in time, made to order etc and movement of manufacturing hubs to low cost countries. So there is an opportunity here is short pickups and deliveries or like some kind of consolidation centre and connect it to the major airline hub

There are multiple ways to start the business and air freight business typically requires atleast 4 to 4.5 years for a decent RoI to happen, you need to sustain till then. There is definitely a good earning potential as typical net margins are between 8% and 15% depending on cargo, sector, delivery type etc

If you need more information, please feel free to connect with me

Thanks and wish you the best

regards
Shaju

---------- FOLLOW-UP ----------

QUESTION: Interesting, so I should stay in the US. So there would be no need for giant 747s and I would be able to use smaller twin jet planes reducing the cost. I wanted to start a trucking company because there is a HUGE demand for truckers and I thought I could make money. I was thinking of say 100 trucks but thought that air freight would be more profitable.I just want to make the most money for my investment but the airplane freight sounds more interesting and would make profit the fastest.How should I go about this regional air freight business thing?

Answer
Hi and Good day

At the outset my apologies for the late reply as I was traveling.

The regional air freight business is quite good is developed nations like USA where the price point is comfortable for shippers as well and there could be a definitive reductions in supply chain cost even after air freighting the cargo.

In order to go about a business like this you need to quickly start off with a business plan, which covers

1. Market size in terms of players, market value, growth rates, services offered, price points, segmentation etc

2. List down the entry parameters like cash, ownership/ lease of fleets, regulatory/ compliance factors, resources, technology etc

3. Go to Market/ execution plan in taking off the business from plan to earning money

4. Talk to a few customers, partners, friends in your network who are knowledgeable in this business or similar kind of business to get a complete understanding and specifically the problems/ issues they faced setting a build a business of this kind

5. Create a project income statement detailing all the investments, marketing/ people costs, technology costs, infrastructure, assets etc and project it with very conservative numbers for income and high range values for expenses and get a 3 year project done

If you do the above, you shall start getting into the right path and then you can look at evaluating the entire work in terms of an investor than an entrepreneur and still you see its wise to go for this - suggest take it up

In parallel, you can also deploy a consultant who can do all this for you, maybe look at knowledgeable free lance/ independent consultants - as they may not charge very high but can deliver

Thanks and please feel free to connect for more support/ information

regards
Shaju Madhavan
shaju.madhavan@gmail.com

Logistics/Supply Chain

All Answers


Answers by Expert:


Ask Experts

Volunteer


Shaju Madhavan

Expertise

Questions related to Logistics/ Transportation & SCM. B2B services/ Online Freight Exchanges/ IT Solutions like TMS/ WMS and Inventory Softwares. Technology applications like GPS based tracking solutions. Logistics services related questions like distribution planning and optimization, cost reduction & six sigma, inventory reduction & accuracies, WH design etc. In additions, questions on technology, B2B, B2C, Startups, ERP, Development and implementation, Merger & Acquisitions etc can also be queried.

Experience

17 years of experience in Project Management, Logistics/ Transportation and SCM in India. Direct Implementation experience include - Logistics Business Consulting (Warehousing, Fleet Management, Distribution etc) - Inventory Management and Inventory Accuracies - Distribution, Network, Fleet Optimization - RFID, Barcode implementations - Business Plan, Business case, Startups, Advisory - Demand Planning & Forecasting - Supply Chain Design - 3PL/4PL services - Indian Logistics space - Cost reduction & Six Sigma - Logistics Contracting - IT enabled Logistics BPR - Logistics IT solutions like TMS/ WMS etc - Technology Applications deploying GPS/ GIS based applications - MR and MI reporting in this space

Organizations
- Thermax Ltd - indiatransportal.com - one of the first b2b for transportation in India - infreight.comn - b2b and online freight exchange - Infreight Logistics Solutions Ltd - Consulting/ Technology and Operational Solutions Company

Publications
http://www.businessgyan.com/me/smadhava

Education/Credentials
Graduate Engineer with executive general management from IIM, Bangalore

©2016 About.com. All rights reserved.