Establishment of a cargo transportation company

Transportation expenses are always one of the most important components of the production cost of any service or product, and no entity of economic activities can do without organization of transport support. Each enterprise solves the transport issue in its own way, but for most firms the optimal variant is organizing their own motor fleet or establishing a transport company.

Recently Intesco Research Group has developed a business plan for establishing a cargo transportation company. The initiator company is included in a group of companies the activities of which are related to production, processing, sales and shipment of oil and cereal crops, products of animal industry and oils.

Establishment of a transport company was caused by a necessity of transport support for transportation of elevator products on the market, limited to several regions. According to the project, the activities of the transport company were to encompass the market of Saratov, Ulyanovsk, Samara, Voronezh, Volgograd, Orenburg, Penza, Tambov regions and the Republic of Mordovia, as well as West Kazakhstan region of the Republic of Kazakhstan. In addition to cargo transportation, another item of the transport company’s income was rent of motor vehicle fleet by outside organizations and companies.

Competitive advantages of the transport company’s location

The initiator company selected the location of the transport company at the distance of about one kilometer from the village of Orlovskoye, Markovsky district, Saratov region. The competitive advantages of such a location revealed by analysts of Intesco Research Group were the following:

• the Р226 regional-significance car road crossing the village of Orlovskoye, the towns of Volzhsky and Engels, between Samara and Volgograd;
• proximity (radius of 500 km) of car roads of international federal and regional significance, including: М5, М32, Е38, Р158, Р228, Р224, А151 and others;
• proximity of an elevator complex (the complex, construction of which was the subject of analysis of another Intesco Research Group’s business plan development pproject, is located at the distance of one kilometer from Orlovskoye, Markovsky district, Saratov region).

On the whole, during business planning, emphasis was made on the successful location of the company, which provided a high level of availability of services for a large consumer market.

Maximum cargo transportation volume

The calculations showed that, with the company running at its full capacity, the maximum volume of cargo transportation was to be the following:

• transport services for the company’s own needs - 1 200 000 t*km per month;
• transport services for outside companies and organizations - 1 000 000 t*km per month;
• rent of vehicles by outside companies and organizations - 75 m*days per month.

Project investment structure

For project implementation the rated investment volume was to be 46.912 million rubles, with the following investment structure: 11% - company’s own funds, 89% - loans, and with further investment structure:

The loan security (principal amount and interest), according to the established agreement terms, was the purchased vehicles and equipment.

Project effectiveness estimates

The annual discount rate in calculating project effectiveness rates was 12%. Calculations of effectiveness rates gave the following figures:

• net cash flow – 57.294 million rubles;
• net present value – 31.185 million rubles;
• simple/discounted pay-back period – 2.41/2.77 years;
• profitability index – 1.68 units;
• internal rate of return – 43.8%;
• breakeven point – 82% or 4.313 million rubles per quarter. 

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