‘CPEC is the seed for logistics industry’s growth’

An interview with Nawabzada Zaheer Barakzai, Chairman Mega Movers Pakistan

Nawabzada Zaheer Barakzai is the Chairman Mega Movers Pakistan. He is an experienced entrepreneur having more than one decade of profound experience of Logistics & Supply Chain Management systems.

Barakzai has core specialties in the arena of Logistics, Container Terminals & Shipping Industry. He is a regular writer & speaks on trade & logistics industry matters at various local & international forums. Chinese Economy, Business conditions, Development of Chinese trade & CPEC related international & strategic economic prospects are his core specialties. He holds a Masters Degree in International Marketing from the University of Surrey UK.

He is the 11th Chief of Barakzai tribe from Balochistan province. BR research recently sat down with Barakzai to discuss affairs surrounding Pakistan’s logistics industry, especially in context of CPEC, Gwadar, and the new government. Below are edited excerpts of the conversation.

BR Research: Pakistan’s logistics industry has failed to adapt to modern day changes. What in your view is the core reason for the state of the industry?

Zaheer Barakzai: The logistics industry is the backbone of any economy in the modern world. Pakistan is facing a very serious issue, as there is no formal logistics and supply chain industry. Everything happens haphazard.

The biggest challenge that Pakistan faces today in logistics is the fleet management. The environmental problem is one of the many issues that the current state of logistics industry has given birth to.

BRR: What does it take to formalize and channelize the whole logistics industry to modern standards?

ZB: The logistics industry should be formalized but the ministry of transportation is not very active. We have transportation ministries at both federal and provincial levels, but they are unaware of what needs to be done to correct the situation. They have been directionless for quite some time.

BRR: Has the advent of CPEC not changed things for the logistics industry, because we have been consistently told that success of CPEC will hinge upon the logistics industry?

ZB: With the new arrangement of CPEC, there is no doubt that the role of logistics becomes more vital than ever. In China and Far East, logistics has been developed as a separate entity and industry. Fleet, which is the backbone of logistics, plays the key role in the overall efficiency of movement of trade goods.

If the overall fleet is outdated, the cargo movement gets hampered, environment gets affected, and fuel consumption goes bad. We do not have modern fleet in Pakistan. Whatever vehicles you see in Pakistan are all outdated.

BRR: When you see that the fleet in Pakistan is informal, why has it stayed informal for over decades? Is it because the government has not treated logistics as in industry or is it that the private players are now willing to formalize themselves?

ZB: Logistics can be divided into two broad segments. The first one is the big five names, who have considerably modern fleet, and advanced ways of moving goods. The second is the informal logistics market, which owns around 75 percent of the market share, and you do not have any control on that. More than half the trucking fleet has been operating since Ayub Khan’s era - you can well imagine the efficiency loss that comes with such outdated fleet.

The need is to formalize the ministry itself and gradually do away with the obsolete fleet. The small businesses need to be regulated and be brought under the tax net. This may create a disruption in the short term, and impact those involved in the small informal segment, but the long term benefits are worth taking the step. The logistics industry is in dire need of immediate reforms. I have never come across a policy document encompassing affairs surrounding logistics industry. There is no data on logistics in Pakistan, and we faced difficulty conducting feasibility reports for of our projects.

Logistics is very closely related to road network and infrastructure, which was not very comprehensively built up, until the last government. In the CPEC arrangements, new road networks are being built, and if we do not formalize our logistics industry, we will lose the game. The cargo that is going to be flown in our out of Pakistan, if you do not cater your clients properly, you will lose clients and won’t be able to sustain. Eventually, they will bring their own logistic companies with modern fleet, to replace the local logistic firms.

BRR: What exactly is the shortage and potential in the wake of CPEC arrangements, especially in the trucking segment?

ZB: There is a need for at least 25000 40 feet vehicles of modern fleet today. Currently, we are at best sitting around 4000 modern vehicles.

BRR: So what is stopping the major formal players in the industry to tap that potential?

ZB: Government support is lacking, and so is the financing support – and these two are the reasons why the logistics industry has not been able to transform from informal to formal. Only a very few banks are now open to project financing for logistics. A few years back, even that was not there because of the stamp of being largely informal.

A few banks have now realized the potential, but there is still a long way to go. If the felt is updated, it will benefit Pakistan beyond the logistic industry, as the vehicles will be made in Pakistan.

BRR: What exactly are you referring to when you say the government support is lacking? Is it on the policymaking?

ZB: Policymaking, vision and direction all have to come from the government, which is lacking. We have ample cargo load to cater for, the real problem is the facilitation of the whole process, which is the government’s job. The government should seriously thin about developing dedicated logistics park to give a much needed boost to the industry.

We, Mega Movers Pakistan, are the first company in Pakistan to introduce the concept of Logistics Park. The Shahdadhkot Inland Container Terminal (SICT) is not just another container terminal; it is a logistics park on 90 acres, on which we have warehousing, terminal business complex, fuel stations, motels, workshops, and towing system. This is a $82 million project.

BRR: What is the incentive there for the informal sector to modernize and formalize?

ZB: When everything is revolving around CPEC, why can there not be a Logistics Development Bank in Pakistan and facilitate small companies? Sell the obsolete fleet, let the businesses put 30 percent of the equity, let banks mortgage the vehicles and they will remain the ownership of the banks.

BRR: Would this also mean added cost? Could that result into considerably higher prices across the industry?

ZB: The prices in logistics industry depend on availability all over the world. If we put 10000 modern fleet in the market, they will be completely utilized. Yes, the trade quantum maybe down right now – but our general cargo is still moving across Pakistan.

BRR: Is your assessment of 25000 additional modern fleet based on the thriving success of CPEC in the future?

ZB: This figure is based on just 75 percent of the total value of CPEC related goods movement. When Gwadar Port becomes fully operational, we expect 55000 containers everyday to flow back and forth between China and Gwadar. I am quoting this number from a very credible source in China.

However, there are many companies with ample demand even without the CPEC in equation, such as big MNCs and fertilizer sector and many other avenues.

BRR: Considering that CPEC’s success would eventually be gauged by the success of Gwadar, how far is it from being what it is promised to be?

ZB: Gwadar will be operational when the connectivity is completed. As of now, it is 80-85 percent done. Our project is located on the M8 motorway, which is the central CPEC route. Of the 180 km of total route, 35 km is still pending, and we have been hearing since 2016 that it will be done soon, but it remains pending. We are again hearing that this route will be completed in the next two months.

BRR: Is it the only thing that is stopping Gwadar Port to be fully operational?

ZB: Gwadar Port is operational as of now, but bringing the cargo is another issue altogether. I will give you the example of Port Qasim in Karachi, which was facing the same situation that Gwadar faces today. The government took the initiative, offered incentives, and Port Qasim was up and running.

Terminal handling is not the issue at Gwadar Port right now; the real problem is moving the cargo from there to Karachi or any other place. The biggest challenge is road connectivity. The only available route right now is the coastal highway, which is not feasible being 650 km long. Why would anybody send it via Gwadar when Karachi Port could be used? Once the connectivity is there, freight will be considerably cheaper and all the other incentives will then come into play. We have been in frequent discussions with the COPHC on generating the cargo load. COSCO Shipping is going to play a vital role in generating cargo load – they have their own cargo and if it moves its load that will take care of 30 percent of the total load and the rest of shipping lines could then move swiftly. By 2022, things should be clearer in my view.

BRR: Has the new government been responsive to your suggestions? Do you see more clarity in terms of logistics in general and CPEC in specific?

ZB: With the new government, things are looking a bit dicey; they say one thing in the morning and another in the evening. I have felt that they are trying to do things but they are not very clear themselves as of now.

BRR: Is there no semblance of clarity on logistics only or CPEC also falls in the category?

ZB: Both. In broader context, we are always talking of CPEC, of which logistics is a smaller but a vital part. Things are on hold under this government, and being reviewed on CPEC matters. The government is trying to involve the whole socio-economic aspect under CPEC projects. To me, this is not the real essence of CPEC. The next two to three months are very important and will define the intentions of the government, whether they will go completely on the back foot or not.

BRR: Do you think there is a need for a separate ministry for logistics?

ZB: We should instead have a separate ministry for CPEC, and logistics should be handled under that ministry. We already have a ministry for transportation. The real issue is running the affairs of the ministry. In the last government, we started to believe that the government is realizing the importance of logistics and the need to be treated as an industry. The realization has happened – we have to keep pushing. I am willing to give the government another two to three months to better understand their direction. To me, CPEC is the seed for growth of logistics in the country. If CPEC goes to a backburner, logistics will never rise. When we are pushing on making the industry formal, it is all because of CPEC.

This phase is for SEZs, Chinese industry will move over here, the government will have to support the local industry to move into the SEZs. This is the phase of Greenfield projects in the private sector. I believe that 2022 onwards is the time, when things will be moving in Gwadar. Till then, the focus should be on completing the Greenfield projects and the SEZs.

BRR: Tell us something about your own Shahdadhkot Inland Container Terminal (SICT) project?

ZB: Our project is at 35 percent of construction level as of now, and we expect to complete the project by the third quarter of 2019 or in the beginning of 2020. Our fleet size would be 500 40-feet vehicles, in the logistics park spread over 900 acres that offers end-to-end logistics solution. Mega Movers Pakistan is the largest private sector investor in Pakistan’s terminal and logistic facilities.

Due to our strategic partnerships and various MoUs with COPHC and Gwadar International Terminals, SICT will play a very vital role in the success of Gwadar port. We are an inland extension of COPHC, and ours is the only facility available on the M8 motorway. Our container terminal will have capacity to handle around 120000 containers. Our fleet of 500 vehicles will be dedicated to Gwadar related operations.

We are also building a cold storage facility on around 30000 square feet in the same logistics park. This could be very successful in Gwadar because of the fisheries industry there.

BRR: It would be fair to say that your success depends on Gwadar. If it succeeds you succeed, if it comes down you come down along?

ZB: Whenever we speak, we speak of Gwadar and CPEC. There is absolutely no doubt about that not only our success, but the future of Pakistan’s logistics industry and that of the country’s economy, also go hand in hand with what happens in Gwadar and CPEC.

BRR: Do you see Chinese coming up with their own logistic companies to operate in Pakistan?

ZB: There is no harm in it and it could be on joint venture basis. It will be win-win for Pakistani companies to have joint ventures with Chinese logistic companies, as bulk of the volume will be coming from China. We should be very open to this idea of joint ventures with reputable Chinese firms. They are more technologically advanced, informative, advanced and groomed than us.

BRR: Why is that end-to-end logistics is not a big thing in Pakistan?

ZB: There are multiple reasons such as opportunities in the market, financing solutions, and government’s role. The financing facilitation plays a key role which is not there, and same is the case with government’s facilitation role.

BRR: Do you see any policy on logistics coming out form Islamabad anytime soon?

ZB: From my ten days spent in Islamabad recently, I do not think the government is even thinking on these lines.

BRR: But you still see Gwadar buzzing with activity by 2022.

AB: If things are not moving in Gwadar by then, that will mean things are not moving in CPEC. And if CPEC fails to take off, your only friend left will be the USA. China is playing a very important role in the future economy of Pakistan, this needs to be very clear in everyone’s minds. If we do not make right decisions and do not take right initiatives at the right time, it will be our loss.