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Obstacles faced by the logistics industry

Published on 26th Jan, Edition 4, 2015

 

Pakistan being primarily an import-based country and is highly reliant on logistics to move goods from one part of the country to another. There are many companies from multinationals to private limited to general contractors who are involved in the logistics industry. It is estimated that value of Pakistan’s logistics sector includes transportation and warehousing is US$530 million. Almost 91 percent of transportation is done through road. The biggest obstacle in Pakistan is poor road and rail infrastructure. Rail infrastructure is surrounded with commercial activity, pedestrian movement, no gates or signals to indicate upcoming trains, which pose a hazard. It is estimated that Karachi alone has more than 4,500 katchi abadis most of which are situated adjacent to railway tracks. Railway service by large is also weak, plagued with corruption and dishonestly. Logistics is big business and high revenue making avenue provided the country has an enabling environment for it to grow. Almost every logistics company in Pakistan expands the number of fleet per year, looking at the domestic opportunity.

According to IFC World Bank Logistics Performance Index (LPI), Pakistan’s score is 2.83 of 5. World Bank also ranks Pakistan as the 72nd country in the world on the LPI Index. LPI is based on efficiency of the clearance process (speed, simplicity and predictability of formalities) by border control agencies, including Customs; quality of trade and transport related infrastructure (for example, ports, railroads, roads, information technology); ease of arranging competitively priced shipments; competence and quality of logistics services (such as transport operators, customs brokers); ability to track and trace consignments; and timeliness of shipments in reaching destination within the scheduled or expected delivery time. LPI is important as it reveals, as per research that each reduction of lead time by 10 percent, export of a country increases by 4.3 percent.

Logistical support in Pakistan is more expensive than neighboring countries. Despite the fact that fuel prices are on its all-time low, charges have not reduced. Inefficiencies in the system from the point of origin to the point of discharge results in accumulation of cost. One of the factors in Pakistan is poor documentation and delays when it comes to clearance and shipment of goods. Each bottleneck adds to the overall cost of transportation. These delays become crucial when it comes to perishable items. Additional cost includes the “bhatta” mafia and policemen who would find a way to extort money from the transporters.

We have already highlighted poor road infrastructure, the main artery which connects North to South is National Trade Corridor (NTC) and carry 80 percent of all logistics traffic resulting in bottlenecks. There is an acute need to improving other road links between cities, which diverts traffic or need for construction of another highway, which connects parts of the country. In addition, poor management, commercial activity, pedestrian movement delays the speed with which traffic moves. In order to avoid the traffic, transporters often choose to travel at night and are able to cover great of distance. There is poor adherence to law no checks and balances when it comes to the service quality of the transport vehicle, insurance , drivers experience , license etc.

 

With strategic location of the country, 91 percent of international trade in Pakistan is done through sea route. Main ports include Gwadar, Karachi and Port Qasim. Almost 50 percent traffic is routed through Karachi, 40 percent through Port Qasim and remaining through Gwadar. With an estimated increase in shipments by 10 percent each year, there is a need to increase the number of cranes and container terminals at all three ports. Similar to PNSC being the largest shipping company in Pakistan, there is a need for establishing more companies help support trade business. Marine transport and port operations partly adhere to international standards; hence there is need for improvement.

As discussed previously, rail transportation is inundated with corruption and mismanagement. Where rail is the easiest and most cost-effective way for transportation, it is one area, which is the most neglected. Schedules are often not adhered to, hence there is a common belief that regular road transportation is faster than rail. There is a need to improve delivery, tracking, handling of the cargo and scheduling to avoid delays. Currently there is no focus on such activity. Where the government plans to privatize railway, it is unlikely any foreign investors would invest.

One would be surprised to learn that there are 139 airfields in Pakistan. Air transportation is not used frequently for cargo due to the cost element, higher than regional players and limitation of fleet. PIA is the only airline operating locally where regional airlines which include Emirates SkyCargo are and DHL have a strong presence domestically. Due to low traffic, airlifting of goods takes longer than regional players which automatically results in delays. There are no companies in Pakistan involved in air freight other than PIA. To improve air logistics, there is a need to improve efficiencies, tracking technology, infrastructure, reduction in overhead cost along with fuel prices and encouragement of more players to opt for air transportation.

Development of infrastructure will not only help traders, importers and exports, most of all the farmers. There is where the government needs to intervene and improve the system. One such suggestion is to create freight villages, which are hubs for storage and link each city through a centralized location. This benefits small players in reduction of storage and transport cost. Freight villages are popular in Europe and successful. In addition, each major city must have a trading facility, similar to stock exchange where buyers and sellers and meet and sell their produce. Farmers will be able to sell directly to intermediaries and obtain higher profit. The government can also host programs/trainings to guide and discuss with transporters how to improve the system. Despite the challenges, the logistics industry is a sound business and likely to grow with demand of the country.

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