ISLAMABAD: Around 70 percent of Afghan transit trade has been diverted through Iran due to lower costs, more attractive security deposit, and detention tariffs, as Pakistan is still facing severe challenge in reducing structural barriers for road transport that keep costs high, says the Asian Development Bank (ADB).
The ADB in its report, "CAREC Corridor Performance Measurement and Monitoring (CPMM) Annual Report 2019", stated that Pakistan took robust actions to improve the environment for transit trade, yet still faced severe challenge in reducing structural barriers for road transport that keep costs high.
The CPMM data reported modest improvement in total average transport cost, although slower average speed and still lengthy average border-crossing time due to customs control, and long waiting in line for Pakistan.
Torkham and Chaman border-crossing points (BCPs) continue as two of the most time-consuming nodes monitored by the CPMM. It further added that Afghanistan and Pakistan reactivated talks on the Afghanistan-Pakistan Transit Trade Agreement, 2010, which aims to attract transit from Central Asia to seaports south of Pakistan. Although Afghanistan has traditionally relied on Pakistan as a gateway to international shipping routes, recent trends indicate that 70 percent of Afghan transit trade is now diverted through Iran, a non-CAREC member country.
This shift has been driven by lower costs from foreign ports and more attractive security deposit and detention tariffs for transit containers from shipping lines that operate at Iran's seaports.
Only bonded carriers in Pakistan can work with Afghan truck operators, which drive up the cost of road freight transport as the bonded carriers are required to pay $32,000 to the Federal Board of Revenue as a guarantee deposit to receive an operating license.
These costs are then passed on through higher fees to the truck operators, ultimately reducing the attractiveness of the transit route.
Furthermore, diesel fuel in Iran ($0.06 per liter) is significantly less expensive than in Pakistan ($0.86 per liter), providing an additional edge in terms of cost competitiveness. In the absence of a formal agreement, shippers and carriers face uncertainty in transit procedures, it added.
The report further stated that the CPMM trade facilitation indicator (TFIs) reported longer average border-crossing time, although relatively unchanged average border-crossing cost.
Total average transport cost showed an improvement, but both measures of speeds showed that trucks did not move as fast compared to 2018. Average border-crossing time increased to 38.2 hours. The time to cross Chaman was 60.1 hours, ranked as the most time-consuming BCP in 2019; Peshawar took 45.8 hours, and ranked the third most time-consuming. These samples were estimated from commercial shipments carrying goods destined for Afghanistan as well as Central Asia.
Average border-crossing costs remained comparatively unchanged. Peshawar in subcorridor 5a averaged $319 to complete border crossing in 2019, while Chaman in subcorridor 5c was lower at $156.
Following the approval of its National Transport Policy in 2018, Pakistan embarked on a series of reform and initiatives to address structural inefficiencies and impediments, to increase exports through lowering cost and lead time of transportation.
One important reform was mutual agreement between Afghanistan and Pakistan in September 2019 for both sides to operate 24/7 at Torkham BCP.
Intended to increase bilateral and transit trade, border-crossing times were immediately shortened.
The CPMM data showed pre-agreement samples from July-August 2019 at an average time of 12 hours at Peshawar, and 19.5 hours at Torkham.
After 24/7 implementation, the average waiting time dropped to six hours in September and 8.6 hours in October at Peshawar, and 5.6 hours in September and 6.6 hours in October at Torkham.
Average waiting times post-agreement fell to 7.3 hours (Peshawar) and 6.1 hours (Torkham).
The Federal Bureau of Revenue (FBR) launched the national single window and authorised economic operator programme, to help speed up border clearance. Notwithstanding efforts to reform, Pakistan continues to face severe challenges: for example, road transport moves 94 percent of total freight in the country, yet it remains the second most expensive mode of transport (after air).
This was not helped by efforts of the Ministry of Communications in 2019 to introduce an axle load regime that set a maximum permissible weight limit for different types of trucks. Seen by transport associations and the trade community as yet one more structural cost (as more trucks would be needed to move the same amount of goods), further consideration of this policy has been pushed back to 2020.
The report recommended for implementation of the national single-window system and port community system (PCS) to reduce cargo dwell time in seaports.
The CPMM has consistently identified that container for Afghan transit trade experience significant dwell time in Karachi: implementation of a national single-window system, proposal for which has been drafted by Pakistan authorities and the PCS should considerably decrease dwell time.
It further recommended for adoption of an AEO programme.
The FBR and Pakistan Customs are developing an AEO programme, which will adopt risk-based management and improve the efficiency of cross-border trade.
Once established, Pakistan's AEO programme could explore opportunities for mutual recognition arrangements in the AEO with other CAREC member countries.
The CPMM information indicates the lack of well-designed parking areas at the BCPs as a contributory factor to obstruction of vehicles and delays.
Better parking area design and queuing systems could improve efficiency and speed up border crossing.
Pakistan does not yet have a domestic regulation on the international carriage of goods on road, which is a fundamental condition to implement the Carriage of Goods by Road (CMR).
This regulation should also recognise the role of insurers in underwriting a limited liability for road carriers.
This would standardize such practice in the country and formalize the treatment of claims.
Pakistan's over-reliance on road transport increases the cost of freight and is not sustainable.
Greater adoption of freight on rail and inland waterways would reduce freight costs and boost low-unit value exports such as agricultural produce.
Pakistan Railways created a freight transportation company that focuses on cargo and started freight train services between Karachi and Lahore.
Copyright Business Recorder, 2020
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