Transportation and Logistics Industry
The Company has been in the diversified freight forwarding business for over 18 years. It provides air, local ground, messenger, courier transportation services and mailing. The industry segments from which the Company has derived the major part of its revenues has been printing, and financial services fulfillment. Both of these segments are prominent in the region, where the company is located. The business rose from a one-man operation to a prominent transportation and logistics company, which employs over 80 people in operations, administration, and as drivers. The latter group consists of dedicated, independent owners/operators with their own vehicles. This reduces the company’s overhead obligations and allows management to focus on developing the client base and diversification of services.
Transportation is the connecting link between all industries, and it suffered the consequences of a declining economy in 2009, which was already adversely impacted by the events of 9/11. To its credit the management team was able to prevent a steep deterioration in sales, holding at the $7.5 million level for the past three years. At the same time, both direct and overhead costs were held to historical averages, contributing a net annual profit of 7.0 % to 10.4 % in the last four years. This was substantially above the average 3.7 –5.5 % net profits for the trucking industry.
During the last four years, growth took the shape of strategic partnering with part ownership in affiliated transportation companies, established with the express purpose of complimenting the Company’s existing services. These affiliations strengthen the company’s position in the freight forwarding business by offering one-stop transportation capability to its customers. Of the two incorporated companies, one was set up with the express purpose of taking advantage of the minority business status, which offers yet another marketing hedge in the transportation business. These two companies have combined revenues of $2.4 million.
The improving economic conditions make this an ideal time to forge an aggressive growth path for the Company, supported by a sound financial foundation, an experienced team, recent restructuring and the addition of a sales force with solid networking capability in market segments that provide new avenues of growth.
The strategic plan sets out to realign the company with its past history of consistent growth and profitability, by determining an appropriate marketing mix and sales effectiveness that will drive revenues past the $10.5 million mark in the new fiscal year, at a 37.2% targeted gross margin. The strategic plan is to be matched by the implementation of a more accountable organization, improved financial and operational controls, and effective communications.
The company is on the verge of securing a very large international customer in the garment industry and has successfully launched a mailing operation, which places the company on a potential fast growth track.
In order to establish a successful strategy for future growth, more definition is required of sales goals per service type, and per industry segment – printing, financial services, garment, and pharmaceuticals – based on existing and new opportunities.
With the continuing strength of the economy in the last quarter spilling into the new fiscal year, the Company is in a good position to grow and gain market share through the development and implementation of the new market strategies and improved sales and organizational effectiveness. It is the belief of the management team that a well-established company with a superior marketing program can outdistance its competitors.
The Company’s target-markets from a customer type perspective are currently weighed heavily in printing and financial services fulfillment. The objective for the new year is to diversify to other industry segments so as not be overly reliant on an old industry, which is losing share to the electronic information media. However, the profit margins in the printing related transportation is close to the overall company average, and it is always easier to increase sales in a segment where the Company has shown historical strength.
Although the Company wants to diversify from printing, the goals for the next three years are to continue growing this segment, while at the same time increasing the contribution from others, like the garment, and pharmaceutical segments, to lower the relative percentage of contributions. Although the Company is planning to grow the business aggressively in the next three years, care should be taken to avoid over concentration of activity with one single client – as may be the case with the large offshore project that is presently under review.
The new mailing program for one of its top clients will bring their contribution to 40.7% of the total sales in this segment. A breakdown and comparison of sales per segment provides the basis for planning future growth. This must be tied to a definition of relative gross margin contribution from each segment: The increase in sales to the printing segment assumes a $370,000 contribution from the new sales representative and $520,000 from the growth in the fulfillment segment. The Company recently signed an agreement with its number one customer, that involves the allocation of the Company’s own dispatcher operating out of the customer’s shipping depot, using the Company’s trucking services.
Financial services fulfillment goals for the new year includes an additional $2.5 million in new mailing services for a major bank in the region. Other targeted growth opportunities include existing parts storage & distribution, toiletries, and adds high-end music, offshore companies with distribution requirements and the educational services segments. The new additions have been picked because of networking capabilities within these segments by the president and sales representative.
A table was created that breaks down sales into targeted markets defined by the type of activity by each customer. The market can also be identified by the services that are offered, and tied to the needs of the different customer segments. The forecast of revenues for the upcoming year is separated into four revenue streams, which reflect the different services provided by the Company. From a financial analysis of the past year, it is clear that local trucking activities produce an average gross margin of 43.0%. The international airfreight activity has the potential of adding substantial new revenues. An analysis of the gross profit for this revenue stream indicates that it is contributing 47.0%. The gross profit for the new offshore transportation project, which is going to be almost 100% airfreight, is only 10-12%, but with high volumes in the first year. The Company will focus on the service that produces the best profits. However, with the break-even at $6.5 million, any additional sales from new customers, even at low margins, are beneficial because the fixed costs are already covered by the existing client base.
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