Start a Road Freight Company – Part 1

Road freight is the process of transporting goods via road compared to air and sea. Today we will look at starting a domestic (within SA) road freight business.

Business Model
The current road freight industry in SA is dominated by companies that move bulk freight.

The road freight business model firstly can be divided into business to business (B2B) or business to consumer (B2C) models, I won’t be looking into the business to government (B2G) as we don’t cover work with the government.

It can then be further categorised, depending on the model, the most popular B2B business model is to take over the transporting requirements of large companies, helping the company fulfil its logistics (warehousing and distribution needs) – many companies don’t actually own the trucks that move their products from say warehouse to stores. This is usually long term contracts. This model is the most popular when people are looking to enter this business as it ensures long term income and can apply to any almost industry.

There are also once off or less frequent business in the B2B road freight sector such as office removals or a large order comes in and it is more economical to hire a large truck than to use smaller delivery vehicles such as when you are importing goods and need to transport those goods to your warehouse.

On the business to consumer side, road freight is often utilised for people who are moving to transport their furniture and other large items.

Some trucks operate within a single province while long-distance truckers will do cross-country trips often driving through the night.

Then there is a third sector I want to look at, and that is to take over the role that has traditionally been filled by the post office, instead of bulk freight, move smaller packages using road freight.

Moving smaller packages using road freight

The small package moving (courier) business (when sending to other provinces) does not use road freight (with the exception of the post office ordinary mail), they instead use a road-air hybrid. This means that the courier collects the parcel from sender takes it to the airport where it is loaded in the cargo section of the (passenger) plane and taken to destination province, where it is collected by a colleague or affiliate and delivered to the receiver.

This is the predominant way that packages are delivered in SA today effectively taking the incompetent post office out of the equation. The post office does not need to be officially privatised for private companies to take over the local postal service as most companies will not risk their reputation by using the post office. And that is where I am going today: look at taking over the role that has traditionally been fulfilled by the post office.

This is simply another way to make money from the lucrative government incompetence industries: healthcare, security, education, courier and the next boom industry: renewable energy and independent power producing.

The fact of the matter is most people don’t even think of the post office anymore when packages need to be delivered, in my view the post office should instead stick to simpler things like paying out old age grants etc. no CEO can help them and no PR can help them they are the government hospital of the logistics industry and not even fluff pieces by clickbait factory Business Insider will help them.

While there are still some services they only they can offer most often processing of international packages (customs) most people pay the courier premium to avoid dealing with them at all. The post office is a goner when it comes to delivering parcels, they can’t even keep their website online (so people can track parcels).

The problem(s) that needs to be solved
Courier Costs
The main problem in SA at the moment with regards to private couriers is that it is expensive. This is why for example the e-commerce industry won’t boom the way it has in countries where there is an affordable and reliable post office. A lot of people don’t want to pay R100 just to have a small parcel delivered or have to order above a certain amount to be eligible for free shipping.  In countries where e-commerce is really successful it mimics real shopping, in other words, I can buy goods online, even just one small item and it should cost me the amount in petrol it would have taken me to get to and from the shops – or at most double to factor in the time saved. For e-commerce to boom in SA, courier costs need to be reduced closer to R50 than R100 for small parcels < 1kg.

While efficient for overnight parcels, the road-air hybrid has some disadvantages, it is expensive for larger parcels, air cargo has strict restrictions as to what can be transported on a passenger plane and the cost means that couriers can only be so competitively in South Africa as they have the airline to pay still as well as the fuel costs to collect and deliver the parcel.

Work available for small business truck owners
Truck owners in SA used to have it good; there was an abundance of long term lucrative trucking contracts available. Those days are past, the economy has ground to a halt, due to government incompetence and corruption businesses are closing left right and centre, mining companies are leaving, most of the smelters have already left. In fact contracts, these days are often worthless as more and more business owners emigrate they simply liquidate the company leaving the truck owners contracted to the company unprepared as what to do next.

This has created the need for truck owners to look at other ways to make money, but it has also opened up a market for potential truck owners as both trucks and other machinery can be picked up for much cheaper in such environments. Liquidation auctions, especially construction companies are also at a high – a great place to pick up trucks or machinery. Many large companies in SA is in on death’s door including the 127-year-old Tongaat Hulett. so keep an eye for out some great equipment coming into circulation.

Is it possible to start a road freight business moving small and large parcels effectively taking over the role of the post office completely?

The main goal to take over the role of the post office is to ask is it possible to move a package via road from Cape Town to Musina cheaper than road-air courier and still make a profit? Can you bring down the cost for transporting smaller items such as envelopes and documents? Can you charge a similar price to the post office’s ordinary mail?

Let’s look at the post office’s 2019-2020 rates for an ordinary mail domestic parcel (counter to counter):
R56,80 for the first kg – R7,65 for each additional kg or part – of a kg. This service is considered to be the most economical way to send a parcel, but with the post office you have no guarantee of it arriving on time or at all.

Like most courier services it is based on volumetric weight:
The greater of the actual mass or the volumetric mass (length by width by height (cm) divided by 5000).

Is it possible to transport parcels at that rate using a truck? Yes it is barring a few important caveats for small businesses:
Drop off and collection points
Most formal road freight businesses today own warehouses or depots in the province(s) where they operate. In order to offer a cheap service for smaller packages, you cannot go collecting and delivering door to door. So an option or place should be made available where parcels can be dropped off and collected from a depot.

Firstly look at how companies are working around this:
Paxi uses Pep shops as collection and delivery points.
Pargo uses “parcel points” partners that have signed up to act as pickup points to collect deliver parcels situated at convenient points close to the receiver.

DSV has taken a different approach by using lockers situated at petrol stations. The downside here is that it is mainly for smaller parcels:

They have been growing their network of collection points a key requirement in this business:

PostNet has probably come the closest to offering a replacement to the post office (using a franchise model). They have a large network of walk-in shops, they offer a PostNet2PostNet service in the same vein that the post office has a counter-to-counter option, hell they even offer post boxes (and a few other services and products such as packaging materials etc.). The problem with PostNet is that they are relatively expensive.
Let’s look at their PostNet2PostNet service; while this offers a value close to the post office when you look at 5kg, the problem is that it is a minimum R99 for the first 5kg (then R20 for every kg above that)

Here is how that compares to the post office:

Weight Post Office    PostNet
< 1kg R56.80 R99
1-2kg R64.45 R99
3-4kg R72.10 R99
4-5kg R79.75 R99
5-6kg R87.40 R119

In the 4-5kg range is where PostNet offers the best value and they have a faster delivery time (2-3 days).

Now onto the main question how can a small business truck owner get involved in the domestic road freight industry by offering a replacement to the post office ensuring a constant supply of work?

It depends on the capital available. If you have been paying attention to the examples above it is essential to have a collection and delivery footprint

In part 2 I will look further into a workable business model, building a distribution network, other examples as well as best vehicles to use etc.

See Also
Start a Furniture Removals & Delivery Business
Start an Inner City Courier / Parcel Delivery Service

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