A contract transport business focuses on the movement of goods and people while being contracted to a specific company.
What is contract transport and why do companies use it?
In order for a company to move goods or staff from one place to the next they need a vehicle and a driver. A vehicle needs to be maintained, a driver has to be compensated and what happens when the driver falls ill?
Why companies outsource transport and distribution
The reason that companies outsource their transportation is to avoid all these problems so that is why they hire a contract transport company. More importantly by outsourcing transport their get to focus on their core business, yes transporting their goods to their clients is important and so is transporting their staff home late at night. But by taking transportation out of the equation they can run their businesses more efficiently.
Goods: A farmer transporting produce to market, the farmer already has 100 other things to deal with: crops, machinery etc. managing a whole fleet of trucks is not in the farmers best interest. Same thing can be said for a furniture manufacturer; even furniture retailers outsource the delivery of their goods.
People: A fast food outlet in a mall that closes late at night – too late for staff to take public transport. Staff needs to get home, but it is not really economical for the shop to purchase a vehicle, fuel and pay the driver to take one shift home at night.
It goes without saying that you will need a vehicle, a proper vehicle for the purpose, and a professional driving permit (PDP). PDP is not just for transporting people. If you dealing with a large company they will demand that you or your drivers have a PDP even if you moving cooldrinks.
Now here is where this business gets tricky, very tricky. This is not a business that is lucrative driving A to B without its risks. Large companies that outsource transport have done their math and if they have decided not to own their own vehicles there is a good reason for that. Distributing products across a volatile country like South Africa is not a joke: robberies, hijacking, labour disputes, pot holes, it is not surprising that companies often outsource this and make it someone else’s problem. That is why you can stand outside the delivery area of large companies and see the stickers on the door “owner driver” or “independent contract driver” or “something-something enterprises” instead of the owner of the cargo.
The business that you are being contracted to will agree to compensate you in a way that suits them. It could be per kilometer, per load, per crate, per couch, per whatever. Now you can be sure that whatever metric they come up with will benefit them, you have to see if it works for you if not you must be willing to walk away.
Know your expenses.
If you don’t know where this is going by now is the fact that you have to get your pricing right. Let’s operate under the assumption you are an owner driver. So what are your expenses?
If the vehicle is financed then you have that expense, but the most common is the cost of fuel. And the trap most independent drivers’ fall in is they look at this cost when sizing up profitability. The thing is there are some hidden expenses that have to be taken into account. One of the most important is insurance, both for the vehicle and for the load. Then there is maintenance, while maintenance is an invisible cost it has to be treated no differently than a fuel cost because every kilometer you drive adds wear and tear to the vehicle. Only once you have taken all this costs into account then can you work out your expenses, salary and the profit you need to make in order to make this a sustainable business.
This industry often attracts people that used to be a driver for a company before and thought they would be better off to work for themselves and build up a fleet of vehicles and they are unable to make a success of their business. Many people who fail in this business do so because they still have the mindset of an employee, which is the total opposite of being self-employed. When you are an employee you are mollycoddled by labour law and the fact that the company will do anything to keep their vehicles on the road. When you are self-employed you are just another contractor that can be easily replaced if you are not sticking to your service agreement and any problem with the vehicles is yours.
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