Pop quiz! Name the industry without which Pakistan’s falling trade will fall further. Hint: it contributes about 5-8 percent of the country’s GDP, according to various estimates and practically drives trade at home and abroad. In case you failed, the answer is ‘logistics’. But don’t blame yourself for being oblivious. For one, logistics still hasn’t been given the status of an‘industry’; and second, the majority of the industry is operating informally.
More than 95 percent of establishments in the transport & storage sector fall under ‘individual ownership’ status (as against partnership or corporation) and have a staff of 1-5 people, according the dated Census of Economic Establishment 2005. However, the future of this industry seems to be on the verge of change.
In recent years, there has been a noticeable growth in formal players, basically those entities that are registered with the Pakistan International Freight Forwarders Association that represents companies providing land, air, ocean and combined transport and other logistics services.
If things go as per plan, Pakistan could possibly see it’s first-ever logistics sector listings at the Pakistan Stock Exchange. Talking to BR Research, the respective CEOs of e2e Supply Chain Management (e2e) and Shakoor & Company Limited (SCL) have recently expressed their intentions to get listed on the bourse.
The industry’s revenues have been growing about 10 percent per annum in the past decade, according to Rana Asim Shakoor, the CEO of SCL, and he expects it grow 20 percent p.a. , as and when CPEC picks up in the next few years. And although Abid Butt, the CEO of e2e, has his reservations over the ‘CPEC potential’, even he thinks the logistics potential in CPEC’s power projects is “huge”.
“If there are power projects of $45 billion, easily 7 percent of that will be spent on logistics,” he told BR Research. Abid also finds agriculture-logistics a “very exciting” opportunity given the up to 40 percent wastages between farm and market. Another opportunity lies in Pakistan’s low trade-to-GDP ratio, which the country’s policy community is trying to fix by liberalising both ends of the trade, and by fixing sectoral governance to promote new sectors for exports.
But don’t get too excited just yet. This country has enough of unrealised “potential”, a word this column frequently opines is overrated, like talent is. In a recent sit-down with BR Research, Babar Badat, the chairman of Transhold Pvt Ltd and the incoming President of International Federation of Freight Forwarders Associations spoke of how Pakistan missed the opportunity for over twenty years.
“When the USSR finished, three countries had an opportunity: Turkey, Iran and Pakistan. Pakistan’s biggest advantage was that we had 600 containers from NATO going through the country daily – we should have leveraged that and moved forward into creating a strong transport industry. We couldn’t do it because there was no focal point,” Babar said.
Meanwhile, both Iran, which was lumped with sanctions, and Turkey “created their fleets overnight”. They invested in hard and soft transport infrastructure; they also brought long-haul trucks, selected good companies and gave those vehicles to them, whereas in Pakistan no infrastructure was established, nor rolling stocks developed.
Remember that this is a country where it took it 12 years of engagement with the government for it to sign the much-needed TIR convention. It signed the convention in 2015, and its implementation has only started just now, about six weeks ago.
In this country, 50–60 percent of HTV drivers have fake licences, which also includes senior drivers. And while the logistics industry is trying to resolve the issue for senior drivers for whom it can vouch for, it cannot, because three DIGs Traffic have been changed in the last twelve months.
This is also the country where the Ogra and the NHA had rolled out standards for the trucking industry to follow in 2009 and 2010, respectively. But neither were they put in force by either of the government bodies, nor the companies (even MNCs) or their contractors followed those laws voluntarily for the sake of employee and public safety.
It took the Bahawalpur oil tanker blast for the regulators to get into action. The industry is now scrambling over how to meet the standards in short time – and that’s only the formal players. The informal players couldn’t give two hoots about the laws that push international safety standards.
Meanwhile, the trucking policy, whose development Babar had led, lies unimplemented. The transport policy is being worked out in the P-Block, but no one knows for sure when that policy will come to light.
That ‘potential’ therefore might remain unrealised unless the government acts, and acts fast. It needs to establish a transport ministry, because business as usual – logistics companies dealing with seven ministries – will not reap fruits. At the same time, the transport policy needs to be rolled out.
Amongst other things, the ministry and the policy should nudge companies towards full service logistics for sector consolidation, touch upon ‘cradle-to-grave’ concepts of logistics, enforce standardisation, promote formalisation, and also facilitate production capacity enhancement in trucking, tanker and ancillary industries.
One final item: why all this has to be done fast. Because, as Abid says, even if Pakistan’s logistics industry beefs up overnight, the China-to-Gwadar logistics business will still likely go to the Chinese because the trucking decision is going to be made in China rather than Gwadar. This is just as in the case of Pak-Afghan trade and Afghan transit trade: the direction of trade ensured more business for Pakistani logistics firms than Afghanis. BR Research hopes PM Abbasi will at least get the policy out before his term ends.
(This column draws heavily on BR Research’s recent interviews with leading logistics industry players cited above. These interviews were published in the paper’s Brief Recording section Nov-27, Dec-4 and Dec-8, 2017).