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Corporate, Investing & Regulation :
How to make money through haulage business in Nigeria
(15.01.10 )
 
 
Truck
 
By Anaekwe Everistus Nnamdi   

BRIEF DESCRIPTION OF THE BUSINESS:

Haulage involves the transportation of goods by road and railway. It is very important to the socio-economic development of any nation and if the vision 20: 2020 of the present administration is to be achieved, the government would have to develop the  

transportation system. An efficient transport system is an essential component in the production and distribution of goods.
 
Since the collapse of the rail system in Nigeria, road haulage business has assumed a wider dimension and has become the most utilized way of intercity movement of goods and services. Goods usually conveyed include petroleum products, building materials, containers, solid minerals, agricultural products and other finished products.
 
MARKET ANALYSIS OF THE PROJECT
The market analysis of the project would be viewed under the following:
1.Country Background
2.Market Review
3.Projected Demands
4.Competition
 
Country Background:
Nigeria has one the fastest growing economies in the African continents. The country is located 50 degrees north of the equator covering an area of about 923,968 square kilometers. It has boundaries with the following countries/locations: North - Republic of Niger, South - Atlantic Ocean, East - Republic of Cameroon and West - Republic of Benin.
 
Nigeria's major exports are crude oil, rubber, cocoa, sesame seed, solid minerals, cotton, hides and skin etc. The country is aggressively developing her tourism sector. Nigeria can currently boast of over one thousand (1000) 3 star hotels and 5 star hotels scattered in different parts of the country.
 
The banking sector had witnessed rapid growth until the meltdown in the financial market. But regulatory measures are repositioning the banks for even higher growth from 2010. The country has 24 commercial banks and hundreds of micro-finance banks for wider access to funds for short, medium and long term development projects to small, medium and large enterprises.
 
The transport sector is also receiving a major boost from the various tiers of government. Currently, more than twenty shipping lines do business in Nigeria. The country's domestic water ways is also aggressively being developed especially with the recent dredging of the lower River Benue. The country has network of roads linking the thirty-six states to each other though the state of the roads is at various stages of disrepair. Also, over twenty international and fifteen domestic airlines do business in Nigeria.
 
Market Review:
Since the collapse of the rail system in Nigeria, more emphasis has been given to road transportation. The haulage market is national. With a population of over 140 million people, an estimated annual national population growth rate of 3.2 per cent and an average economic growth rate of 6 percent in the past five (6) years, Nigeria has a large, expanding and sustainable market for haulage business.
 
In the northern part of the country, the products readily conveyed are agricultural produce and solid minerals while in the southern part of the country, the products readily transported are petroleum products and other finished products through the commercial and economic nerve centres of Lagos, Abuja, Kano, Kaduna, Port-Harcourt Aba etc.
 
Nigeria has remained a strong member of various international organizations such as the Economic Community of West Africa States (ECOWAS) which allows for the free movement of people, goods and services amongst member countries hence deepening the market opportunity in the haulage business.
 
Project Demand:
Persons and companies usually in need of haulage services include multi-national, manufacturing companies, exporters and importers amongst others.
 
Generally, in Nigeria opportunities exist in the lifting and transportation of petroleum products, granite from quarry site, sand from rivers and finished products from industries and these has led to a broad classification of the haulage industry into three categories, namely:
1. Tanker-Trailer/Trucks
2. Tipper
3.Cranes
 
Tanker- Trailer/Trucks: They vary in size, shape and capacity and these also affect the use to which they are put. Tankers are usually used in the transportation of petroleum products. The size also reflects the use to which the truck might be put, such as kerosene and diesel delivery. Trucks for home delivery are smaller than those used by filling stations. The trailer can also be used to convey agricultural products from the North to the South. If the entrepreneur intends to use the truck in the transportation of petroleum product, he/she would have to register with the National Union of Petroleum and Natural Gas Workers (NUPENG).
 
Tippers: Tippers are used in the transportation of granites and sands from the quarry site and lakes respectively for use in the construction industry. To be involved in the business, you have to be registered with the quarry site you intend to lift the products from.
 
Cranes: Cranes are used in the lifting and transportation of heavy duty equipment like generators, transformers, containers, PHCN poles and other such heavy duty equipment. Cranes comes in different design, capacity and use. We have the 20 tons cranes - crane that can carry 20 tons and below weight of load. The self loader (which can load itself) and the low bed cranes are used in the transportation of other earth moving equipment like excavators and graders.
 
There are three (3) basic ways of entering the haulage market and they include:
As an Independent Operator
As a contractor or Sub-contractor
Leasing of truck to Haulage companies
 
Independent Operator: As an independent operator, you operate your truck and seek for contract from the multi-nationals and other interested parties on your own and get paid for deliveries made.
 
As an independent operator, you would do your own maintenance and repairs. You will also employ your own driver(s). You can decide to employ a manager who would scout for goods and also do the day to day running of the business.
 
As a Contractor or Sub- Contractor: As a contractor with a multi-national or manufacturing company, you have decided to place your fleet with the company and they would manage it for you, secure the drivers and undertake the maintenance and repairs. The company will pay you every month an agreed amount ranging between N400,000 to N600,000.
 
Of course, you have to be registered with the company.
 
As a sub-contractor, you are coming under a contractor in that company to register your fleets as their own. The contractor will pay you an agreed sum after taking its commission.
 
It is important that you study the terms and conditions of the contract with your lawyers before going into this agreement.
 
Leasing of truck to Haulage Companies: Leasing out the truck to a haulage company is same as being a contractor with a multi-national .The only difference is that this time you are going to be dealing with a haulage company instead of a multi-national though the terms and condition might not be different.
 
Again it is important to go with your lawyer.
 
A lot of haulage companies exist that wants to go into partnership with truck owners.
 
Competition
The entrepreneur would meet strong competition from companies already in the business, especially when the entrepreneur wants to be a contractor.
 
For first time operator with relatively small start-up capital, it is better to lease the truck to a haulage company. However, if you have the funds to compete in the market, go independent.
 
FINANCIAL ANALYSIS OF THE PROJECT
Just like it would be difficult to place a fixed amount as the start-up requirement, it would be difficult also to state for sure how much to be made from the business, because it depends on the method of management the entrepreneur wants to employ.
 
The start-up capital required would depend on whether you are buying a brand new trailer, second hand popularly known as "Tokunbo" or buying a trailer head and refurbishing the engine. The cost of a brand new trailer ranges from N15 million to N20 million, depending on the brand and capacity. The cost of a second hand trailer ranges from N6 million to N7 million.
 
However, since the entrepreneur would be buying the truck personally, the start-up capital would depend greatly on his/her negotiation skills.
 
The money to be made from the business depends greatly on the management style the entrepreneur wants to adopt. If the entrepreneur choices to lease out the truck, he/she can be making N400,000 - N600,000 monthly after deducting expenses. If a trailer travels from Lagos to Kano, a fee between N180, 000 to N200, 000 per trip is charged. But if it is within Lagos, between N40, 000 to N80, 000 is charged, depending on the distance and the product the truck is transporting. If it is a petroleum product, the fee is usually high.
 
Tippers used in the transportation of granites and sand charge between N30, 000 - N35, 000 per trip.
 
The business of haulage basically involves the movement of finished/semi-finished products which sometimes are dangerous if wrongly handled. Petroleum products can cause widespread destruction if accidental combustion occurs, especially in transit. The state of disrepair of the road in the country can lead to accidents and lost of product. This has been one of the reasons why petroleum tanker drivers go on strike at one time or the other. A situation where drivers tend not to tell their true location is also one of the challenges associated with the road haulage business in Nigeria but these can be controlled by installing GPS tracking device in the trucks.
 
The future of road haulage business in Nigeria looks bright; especially with respect to government policy on deregulation of the downstream sector of the petroleum industry which if properly managed would in the long run increase petroleum product availability. This will translate to a bigger market for the haulage business. Of course the assumption is that efficient rail system is a long-term prospect in Nigeria. The recent increase in power generation capacity of the country though below the 6000 megawatts promised by the end of December 2009, would help to increase efficient use of the installed capacity of most of our industries. Hence they would be able to produce more goods that would require haulage.
 
Haulage business give high return on investment and the investor can recoup his/her investment within 1-2 years with minimal participation in the day to day running of the business.
 
It is important that the government develops infrastructures like road, power, telecommunications and other sectors of the economy as these would deepen the haulage market in Nigeria. The deregulation should be well implemented so that in the long run we can transport refined petroleum products to neighbouring West African countries.

*Please note that as at the time of writing this article the local currency exchange rate is about N150/$1.

Anaekwe Everistus Nnamdi is a solid mineral and agricultural produce consultant. You can reach him on +234 (0)708 253 0855, (0)803 378 2777 or aenventures@gmail.com

 

Disclaimer: This is not an invitation for any investment. Financial Nigeria International Limited does not guarantee accuracy of information provided above. The opinion expressed is that of the writer.

 
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