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Why consider…the transport sector?



Transport is a diverse sector covering hauliers and taxi firms, couriers and removals companies. MoneySense for Business tells you what you need to think about when starting your own business in the transport sector.

 

Introduction

Transport is a diverse sector covering hauliers and taxi firms, couriers and removals companies. It can offer opportunities for part-time cab drivers who simply want to earn a little extra cash at the weekend, or to ambitious SMEs who plan to develop a local removals firm into a regional or national concern. The scope of professions and business models makes it a popular option for self-starters. You may be attracted to a business that allows you to work flexibly and independently, and may not require you to retrain before you begin to earn money.

Haulage and removals have been hit hard by recent economic conditions, for example, while couriers and taxis are faring better.

People and products will always need to be moved around, but the recent recession and factors such as increased fuel costs and Vehicle Excise Duty have had a serious impact on the sector, and these must be taken into consideration before deciding to start any transport business. Haulage and removals have been hit hard by recent economic conditions, for example, while couriers and taxis are faring better. Consider market conditions carefully for your chosen profession, adapt your business plan accordingly and be flexible about which profession offers the highest rewards, and you will give yourself the best chance of business success.

In brief


The pros and cons

Training may not be necessary - most UK adults hold a driving licence, which will allow you to drive vehicles up to 3.5 tons.

As with any start-up, the positives and negatives will depend on personal as well as business matters. Here are a few points to consider if you’re thinking of launching in the transport sector:

Pros

  • Additional income ‘Man with van’ and taxi driving can provide an extra way to earn money while in other employment
  • Training may not be necessary Most UK adults hold a driving licence, which will allow you to drive vehicles up to 3.5 tons
  • Flexible working People and products need to be moved at all times of day and night, meaning you may be able to fit your transport business around family and other commitments
  • Specialist services Having a USP or specialism, such as a motorbike taxi firm, 24/7 courier service or office removals, can help you attract business in lean times and charge a premium for your service.

Cons

Buying/leasing, running and maintaining a vehicle is expensive.

  • Maintenance costs Buying/leasing, running and maintaining a vehicle is expensive
  • Professional expenses You will need to include the relatively high costs of insurance and specialist licenses in your business plan
  • Lack of demand The recent recession has impacted on the transport sector, leading to a fall in demand across some areas of the industry, especially haulage and removals
  • High fuel prices and duty The cost of fuel and Vehicle Excise Duty has risen sharply in recent years, reducing profit margins across the transport sector
  • Labour costs Rising labour costs caused by new employment legislation, combined with cheaper labour from Europe, has hit the UK transport sector hard.

The statistics

The average gross salary of those working across the sector was £20,680 in 2008.

There were 83,000 active businesses in the Transport & Storage sector in 2008, with 8,000 business births and the equivalent number of deaths in the same year, according to the Office for National Statistics. The average gross salary of those working across the sector was £20,680 in 2008.

Figures from the Road Haulage Association (RHA) show that there are around 52,000 haulage businesses in the UK, operating around 425,000 vehicles (most businesses operate five vehicles or fewer). Two-thirds of operators are ‘third party’ businesses (which carry other companies’ freight); the remaining third are ‘own account’ businesses (firms large enough to run their own logistics divisions). Together, they carry 80% of all domestic freight.

Haulage in particular has suffered from a combination of rising costs, falling demand and competition from other EU countries. According to the Department for Transport, road freight activity fell by 12% in the first quarter of 2009 compared with the same period in 2008; 9% in the second quarter; and by 7% in the third quarter. This downturn has affected third-party businesses before ‘own account’ businesses. Profit margins across the haulage industry are 2-3%.

According to figures from Taxi Register, 32% of the population uses a taxi at least once a month; up from 16% in 1980.

Other areas are also experiencing tough trading conditions. Many smaller coach firms are being bought up and consolidated into larger companies, having been hit by high vehicle and running costs, and a lack of younger drivers entering the profession. Success in the removals business is closely linked to that of the housing market, which has meant troubled times for many firms since the decline of the property market in 2008.

However, it isn’t all bad news. Specialist firms (whether that’s international removers or refrigerated freight carriers) have generally been able to maintain rates and secure work despite the downturn. Taxi firms have benefited from a changing customer profile (students, schoolchildren and couples supplementing the usual business and senior citizen fares) and strict drink-drive legislation. According to figures from Taxi Register, 32% of the population uses a taxi at least once a month; up from 16% in 1980. And the rise in internet and mail-order shopping has led to increased demand for courier services.

Business models

Business models across the transport sector generally depend on whether you own or lease your vehicle, and whether you work independently or as a subcontractor for a larger organisation.

As a licensed driver you can choose not to invest in a vehicle, but instead drive one owned by someone else to whom you pay a fee.

Driver-only services

Often used by taxi drivers. As a licensed driver you can choose not to invest in a vehicle, but instead drive one owned by someone else to whom you pay a fee. This could be a weekly rent with all takings going to you, or you might keep a proportion of takings. Before signing a contract you will need to check who is responsible for the cost of fuel and vehicle maintenance. Taxi drivers can become Hackney carriage drivers (black cabs), picking up passengers that hail them in the street or at taxi ranks, although this option is best for busy towns and cities. The alternative is to operate a mini cab or private-hire vehicle, which is booked by phone or via a cab office.

Removals firms may decide to hire a lorry from a removal truck hire company, rather than investing in a vehicle upfront. If you choose this option, make sure you have the right licences. You will need an LGV licence to drive a truck weighing 3.5 tons; for a vehicle over 7.5 tons, you will need a Certificate of Professional Competence.

Owner-driver

This model is used across the sector, from hauliers to taxi drivers and couriers, who generally pay for fuel and vehicle maintenance costs. You may operate as an independent business; subcontract your services to another firm, such as a haulage company or removals firm; and/or hire out your vehicle to another driver in return for a weekly fee or a share of their takings (haulier, taxi driver).

Fleet operator

Taxi and courier firms; haulage companies; removers. Rather than running your business from a single vehicle, whether that’s owned, leased or hired, you may decide to operate a business using a number of vehicles. You could operate a taxi firm, providing jobs to taxi drivers who subscribe to your radio circuit; a despatch service might own a fleet of vehicles or subcontract owner/drivers; removals or haulage firms may own and maintain a number of lorries, or subcontract owner-drivers to work for them.

Money matters

Overall, the cost of running a lorry rose by 3.1% in 2009, compared with the previous year.

It makes sense that the biggest expenditure in the transport sector would come from owning and maintaining a vehicle, and buying the fuel to move it from A to B. According to the RHA, fuel accounted for 30.6% of the cost of owning and running a truck in 2009; vehicle and depreciation costs were 11.7% of the total; and repairs and maintenance were 10.9%. Overall, the cost of running a lorry rose by 3.1% in 2009, compared with the previous year.

Purchasing a vehicle

There are two main options when it comes to obtaining a vehicle – the first is to buy one; the second is to hire or lease one. The cost of your vehicle will depend on your profession. For example, a new black cab can cost between £25,000 and £27,000, although second-hand models are available from as little as £1,500. A well-maintained saloon car suitable as a private hire vehicle may cost from around £6,000, although you should be aware that getting taxi insurance and an operating licence may be difficult if the car is more than 10-years-old.

Hire purchase is a common way to spread the cost of buying a new vehicle.

A motorbike, bicycle or van suitable for courier work may cost from a few hundred pounds up to several thousand – it depends on how much you can afford to pay out when you start up. For example, a five-year-old pre-owned Iveco Daily Panel Van can cost between £3,500 and £4,700 on www.wisebuyers.co.uk. Coaches and trucks will be a bigger expense. A 10-year-old, used DAF truck can cost from around £10,000, depending on the model, while a new Optare Solo EV electrically-powered bus will set you back £70,000.

Hire purchase is a common way to spread the cost of buying a new vehicle. Interest and VAT will be calculated on the purchase price, and the total will be payable in instalments. Leasing is common in the haulage industry. Vehicles are leased for a minimum period; once that has expired, you can continue to use the vehicle by paying an annual rental fee. Contract hire allows you to lease a vehicle for a fixed period, with maintenance undertaken by the hire company.

Fuel costs

These are highly volatile and can account for between 25-30% of operating costs for hauliers, and a significant proportion of outgoings for other businesses in the transport sector. According to the RHA, a price rise of two pence per litre on the price of diesel will add around £1,000 per annum to the cost of running a 44-ton truck.

Licences for taxi drivers can cost from £25 to £200, while the necessary licence for your car will cost from £75 to £300.

Licences and insurance

These are essential to operating in the transport sector and (after your vehicle and fuel outgoings) will be one of your biggest costs. Licences for taxi drivers can cost from £25 to £200, while the necessary licence for your car will cost from £75 to £300. An operator licence costs around £250. Anyone planning to drive a vehicle weighing more than 3.5 tons will need training to pass their LGV driving test, at a cost of between £600 and £1,000.

The RHA found that insurance costs rose for hauliers by 10% in 2009. Motor Insurance and Employers’ Liability Insurance are legal requirements for any vehicle, while Goods in Transit Insurance is expected from any firm that carries another person’s goods. For removers, the cost of this will be worked out on your projected yearly revenue and the number of moves you expect to carry out – for more information go to www.movingetc.co.uk

Other costs

Premises for the transport sector may be significantly less than other sectors. A taxi or courier firm can be run from your home or an inexpensive rented office, especially if passing trade isn’t a significant factor in attracting business. Warehousing and depot costs (either purchase or rental) are also much lower than office or retail space, ranging from around £2 to £7.50 per square foot, depending on location.

Taxi firms will need to invest in radio equipment, which costs around £170, as well as a licence from the Radio Licensing Authority, ranging from £75 to £200 per year.

Costing and pricing

Generally, costs in the transport sector will be charged on a job-by-job or hourly basis – the price of a taxi fare, delivery of a parcel, the fee for moving the contents of a house, etc. You may be able to negotiate a weekly or monthly retainer or fee for clients who regularly use your services. When working out your rates, factor in the time it will take you to complete the job (including planning and preparation) and the distance you will need to travel. For taxi firms, your licensing authority will set the fares that you can charge.

Sources of funding

The funding available to start-ups in the transport sector is generally that available to all new businesses. This should provide you with start-up costs as well as working capital to help you establish your business.

Personal investment

Most businesses need to provide some money for start-up costs – it can be hard to attract other funding without it. Sources include savings, inheritance, redundancy payments and equity from remortgaging your home. However, you will need to be aware that if the business fails, you are likely to lose this personal investment.

Overdrafts and loans

Your bank may be able to provide you with additional finance. In order to obtain either an overdraft or a loan, you will need to provide your bank with a good business plan, security (such as personal assets) and, if possible, a proven track record in business.

Equity investment

An option for larger start-ups, as it depends on attracting an individual or institution to invest money in your business in return for a stake in the company. If you want to cancel the arrangement, you will need to buy back your company stake from the investor and factor in an additional sum to provide a suitable level of return on the investment.

For smaller start-ups, investment from a family member or friend may be an option, although this should always be made official with a contract, to avoid fallouts later.

Grants

Your Regional Development Agency (RDA) and Business Link can provide you with information about grants and support services available to you locally. You may also be able to secure a loan from Peer Group Lenders, such as the Ethnic Minority Enterprise Network.

Government support

The Government’s Solutions for Business scheme can help if you have been refused funds from a bank or other investor. This includes Small Loans for Business, Finance for Business, Grant for Business Investment and the Enterprise Finance Guarantee. These initiatives are in England only; other support is available in Scotland, Wales and Northern Ireland.

Common pitfalls

Here are some common pitfalls you’ll have to look out for in the transport sector:

  • Underestimating costs To make your transport business viable, you will need to factor in ‘unbillable’ hours (time spent invoicing, administration, marketing, etc) when working out how much you need to charge clients
  • Keep an eye on outgoings While some upfront and ongoing expenses are obvious – fuel, tyres, vehicle maintenance – it can be easy to overlook costs such as depreciation. Truck prices and depreciation costs rose by 4.8% in 2009, according to the RHA.
  • Seasonality Many transport firms are affected by peaks and troughs in business, which can lead to cashflow problems. For example, the domestic removals market is busiest between late spring and early autumn; couriers tend to be most in demand in the run up to Christmas.

Moneysense top five

  • Put a credit control system in place Check the credit worthiness of new clients if you’re subcontracting your service to them or agreeing an ongoing contract; negotiate payment terms up front; and follow up invoices.
  • Separate invoices Putting all your jobs for a single firm on one invoice can lead to hold-ups in payment – a query on one will lead to the entire payment being delayed. Improve your cashflow by filing separate invoices for each job.
  • Analyse accounts Go through your management accounts with your accountant to analyse what jobs are profitable and which are not – you may find out that a client who is responsible for a large amount of your turnover is actually costing you money.
  • Write terms and conditions Being clear with customers about what your insurance covers can prevent costly and time-consuming claims if damage to goods occurs in transit.
  • Budget for a buffer fund The seasonality of the transport businesses, as well as the recent downturn within the sector, mean a buffer fund of at least six months’ earnings can protect your start-up when business is slow.

How I did it

Taxi driver: ‘How I started my one-man taxi firm’

In 2009, Bruce Induni started his one-man taxi firm, The Flying Boot, specialising in taking walkers to and from the start of their routes in the Dorset countryside.

‘I’m a keen walker and the idea for The Flying Boot came to me a couple of years ago, when I was walking with my wife. Many routes in Dorset are linear, so there’s always a problem for ramblers about how to get back to their starting point. I’d run a business in the 1980s, so I knew I was competent with the financial admin of doing my accounts and cashflow projections. I took my business plan to the business advisor at my bank and was granted a loan to launch my idea. As well as my past experience, one of the reasons I secured funding was my business USP and local knowledge – I can give my clients a good experience, as I know all the local walking routes and the best pubs to stop off in for lunch on the way.

‘Taxi driving is a single-asset business, and that’s your car. The Flying Boot needs a larger than average car because of the walking equipment people carry. I spent £19,000 on buying the right vehicle and around £600 on licenses and registration. The AA reckons it costs 50p per mile to run a car, which includes variable costs like fuel, tyres and insurance. I’ve decided to charge my customers £1 per mile, to factor in depreciation on my vehicle and my profit margin. This is less than the local authority rate set for taxis on the meter, but I had to be aware of local market rates. And my charges do include a premium for the specialist service I offer. To pay myself £25,000 to £30,000 per year, I need to work around 30 to 40 hours per week, although I have to factor in that the business is seasonal – there are far more walkers in the summer than the winter months.

‘Marketing my business is an ongoing job. I’ve established relationships with local B&Bs and advertised on websites. By far the most important relationship I have, though, is with my local garage. I could have bought my car cheaper out of the area, but part of my deal was that they would offer me prompt repairs and services for my car. When you’re working in the transport sector, the backup you have for your vehicle is of primary importance.’

Removal company: ‘Advising the removals sector’

Jane Finch is an independent consultant to the removal industry and founder of Moving Etc. Her previous experience includes running domestic, office and multinational removals firms.

‘Moving Etc. offers a recommendation and networking service to professional movers registered with a trade association, as well as providing advice for people moving home on how to organise their move and the best company for the job. From my 20 years’ experience in the removals sector, and the comments of removers on the Moving Etc. network, I would say that these are the basic set-up and running costs for anyone starting a removals firm’:

  • Operator’s Licence for a heavy goods vehicle (training, purchase, time and fuel): £1,500
  • Operator’s Licence funding requirement (the sum required as cash savings before you will be granted a licence): £8,000
  • Vehicle (basic removal van): £3,000
  • Kit and packing materials: £400
  • Parking/garaging: £100 per month
  • Goods in Transit, Public Liability and Employers’ Insurances: £250 per month
  • Freephone phone number and call forwarding: £60 per month
  • Website, PC and broadband: £600
  • Marketing material/business cards: £150
  • Advertising: £1,500
  • Tax and contingency fund for vehicle: £1,000
  • Preventative Maintenance Inspection: £150
  • Accountancy fees for setting up and registering the company: £250
  • Bank account deposit: £100.

Useful links

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