Road transport is growing, world wide due to the unreliability of railway companies. In many regions, road transport has supplanted rail transport.
Trucking associations form the backbone of the industry, in countries such as the United States.
Notwithstanding the escalating costs related to trucking, such as fuel and maintenance. Companies consider road transport to be the most viable, mode, to transport their goods to various regions.
Due to demand in this industry many individuals consider a transport or trucking business, as a means of self-employment. A word of caution though, to those budding trucking contractors, be vigilant of all those corporations offering haulage contracts. The industry is cut throat and difficult.Many haulage contracts turn out to be disasters!
A bank will gladly finance a truck, on the strength of a contract, but only if the truck repayments can either be guaranteed by the corporate sponsor, or if the revenue derived from contract is three times more than the truck repayment.
Insurance, such as Public Liability Insurance and Goods-in-Transit is compulsory, and would in most cases be enshrined in a contract. Budget appropriately.
Even brand new trucks will loose value, and require regular maintenance. Many smaller transport operators don't create reserves, such as a "Truck Replacement Fund". An amount equal to 20% of the cost of the truck should be invested with such a fund, annually. The fund can be accessed after five years, to either use as a deposit on a new truck, or refurbish an existing one.
For used truck purchases, a Maintenance Fund should be created. Regular wear-and-tear, leads to unexpected breakdowns. Some banks can tailor such funds specifically for the truckers needs.
A monthly cost breakdown with the Replacement and Maintenance Fund as first and second priority respectively is made. Is then followed by the truck repayments, insurance, salaries (drivers and owner), fuel costs, and toll fees. If the rate payable by the corporate sponsor cannot cover these minimum costs, do not consider the contract.
Transport Rates:
Will the corporate sponsor, pay a rate per mile, rate per ton, or rate per kg? Rate per miles, will not be profitable if the trucker covers short distances. A 14-ton truck covering short distances needs a rate per ton, to at least break even. If it's a huge truck, covering long distances, the three components recommended above will have to be factored into the pricing.
Will the corporate sponsor pay thirty days after invoice? If one invoice is generated for a thirty-day period, it effectively means that the transport contractor will have to wait 60days for settlement.
A phasing in system can be negotiated, to ease the cash flow constraints on the truck operator. It works as follows:
If an invoice for a transport of an operator is 0 000, for a month, the corporation can pay $ 70 000, COD, (70%) and allocate 000(30%) to 30 days. The following month the COD rate drops to 50%, and the operator is paid his 30-day portion of the invoice. 50% is deferred to 30 days. In the third month the COD rate drops to 30%, and the operator receives his 30day payment of 50%. After the fourth month the contractor would be completely in a 30days invoicing system. This method has been applied successfully, by our firm, but is dependent on the generosity of the corporate sponsor.
Trucking can be a financially rewarding business, but any entrepreneur considering this route should do thorough research about this industry, before contemplating a transport contract.Draw up a business plan, before you take the plunge.
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Our firm specialises in small business consulting, including cashflow management, business formation and entrepreneurial advice to an international small business community.
Sean Goss
website: http://www.sgafc.co.za
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