Shakeel Ahmed is the Chairman of Pakistan International Freight Forwarders Association (PIFFA) and runs his own logistic
Shakeel Ahmed is the Chairman of Pakistan International Freight Forwarders Association (PIFFA) and runs his own logistic company called News Logistics. The association represents the freight and logistics industry in Pakistan and is home to about 600 freight forwarding and logistic companies. BR Research sat down with Shakeel to talk about the industry structure and some of the challenges it is facing, particularly as the industry is now expected to play a vital role due to CPEC. Below are the edited excerpts from the conversation.
BR Research: Tell us about the industry — what does the freight forwarding business entail?
Shakeel Ahmed: There are about 2,500 logistic and freight forwarding companies in Pakistan— out of which about 600 are members of PIFFA. Our role goes beyond shipping companies that transport cargo from one port to another. Freight forwarders provide end-to-end solutions to customers facilitating trade through sea, air, road transport systems and a combination of these modes. In some cases, our job starts long before loading begins at the ports such as for ex-factory shipments. Other services include space booking, packing, labeling, multi-modal transportation, warehousing, custom clearance, and consolidation of shipments where freight is consolidated by putting together multiple shipments.
BRR: Give us an example of a typical freight forwarding job.
SA: There are different levels of work we do. We can take an example of Free On Board (FOB) shipments where multinational companies have different suppliers available in Pakistan. They appoint freight forwarding agents whose job is to collect shipments from these suppliers, take them to the warehouse, do prescribed quality checks, labeling, packing etc. The agent then brings the shipment to the port and hands it over to the shipping line who transports the cargo to a designated port. The freight forwarder has destination agents in different ports who receives the cargo, takes it to the warehouse and delivers to the customers. Some customers require long term warehousing— taking partial delivery of goods required immediately and storing the inventory in the warehousing and storage services offered by us.
Similar services are offered by logistic companies for local companies requiring inland transportation. Sometimes, customers may require value-added services such as cold storage which becomes part of the supply chain.
BRR: What is the structure of the industry—how many of the companies are large logistic companies offering complete value chain solutions and how many are SMEs?
SA: We are working with stakeholders to carry out a survey on the logistics industry. The objection is to obtain latest statistics on logistic and freight forwarding industry, its contribution to the GDP, and employment generation. One estimate is that the industry provides 20,000 direct jobs.
I can tell you that within PIFFA, our members comprise of about 40 percent corporate whereas 60 percent are sole proprietors or partnerships which are typically categorized as SMEs. We have several local as well as multinational players. Large logistic companies such as Agility, Raaziq, and others offer inland distribution and complete supply chain solutions to their clients.
BRR: How many of your members provide completely supply chain solutions?
SA: It is not necessary that every freight forwarder would provide complete supply chain solutions—of the 600, 35-40 companies cater to value added needs. Regarding land transportation of cargo, some member companies have fleet of trucks while majority hire vehicles from the market. Some companies own and operate handful of vehicles and have an association called Fleet Operators Association of Pakistan.
BRR: Do you have some idea about the capacity of fleet operators in the country?
SA: Land transportation is an ancillary service provided by our members. We, however, know that there are about 200,000 trucks operating in the country, most of them owned and driven by individuals with less than 5 trucks. The truck fleet is mostly outdated and requires substantial investment. In recent years, corporate fleet operators have established trucking fleets that range from 50 to 500 vehicles. However, such entities are far and few.
BRR: To date, Pakistan has not introduced a transport or logistics policy, though one has been in the works for several years and we hear that it will be approved any day now. With CPEC taking off, is a transport policy not an urgent need?
SA: Indeed. In Feb, the National Assembly passed a bill titled ‘Pakistan Courier and Logistics Regulatory Authority Bill 2018 (PCLRA) to regulate the industry and establish Pakistan Courier and Logistics Authority. However, out of a total of 11 members, nine are government officials whereas only two belong to the private sector. Pakistan Post Office (PPO) enjoys a permanent seat on the board of PCLA.
A host of stakeholders from logistics, freight forwarding, courier companies, shipping and cargo agents, CSF terminal and port operators should have been consulted and involved in drafting of the legislation. The role of private sector remains unclear when it comes to CPEC.
There are many flaws in the PCLRA bill that violate constitutional rights to do business and for this reason, we and the rest of the stakeholders have registered our concerns.
BRR: Would you say freight forwarding and logistic companies are well-prepared in catering to CPEC?
SA: CPEC plans to link Western China to Gwadar Port, and is a cornerstone of the ambitious China’s One Belt, One Road strategy; a 65-nation strong initiative that aims to create a modern Silk Road connecting the world’s second-largest economy with Central Asia, Europe and Africa. It is China’s lifeline for the next 200-300 years that will connect it to the world and save costs.
The nearly $60 billion investment includes expansion of the Gwadar port and construction of an airport, Gwadar city, and power plants. Special economic zones (SEZs) are also planned along the road and rail links networks.
For Pakistani traders, it is unclear what benefits may be reaped from Gwadar until Pakistanis are also be permitted to set up industries in the port city or receive similar tax breaks and incentives from the government as the Chinese.
To date, there is no progress on this front. There is no denying that there will be development because of the road and rail infrastructure. If the government is more transparent in disclosing the details of its agreements with China, perhaps logistics companies can prepare better.
Our knowledge is that Chinese trucks will travel down to the Sust border where the Pakistani logistic companies will take over the cargo meant for Gwadar. But none of the businesses right now are fully aware what role they would play in this activity as the government has not disclosed the project or taken logistics sector fully onboard.
BRR: Do you think freight forwarders, fleet operators and SME logistic companies have the financial capacity to replenish their fleets that do not fit the quality standards?
SA: Yes, this is one of the major concerns. To capture business opportunities, smaller logistic companies and contractors will require financing as the existing fleet cannot be used and will have to be upgraded to adhere to Euro standards. The cost of these vehicles is very high. We have submitted a proposal to the State Bank of Pakistan (SBP) that freight and logistics service providers should get soft loans that other SMEs in the country are allowed so we may grow and expand our operations, build warehouses, buy new vehicles, or upgrade obsolete vehicles. We have submitted few proposals and we are waiting to hear from the regulator.
BRR: Are there any international standards for logistics companies that local companies can adhere to?
SA: PIFFA is Pakistan’s representative at the International Federation of Freight Forwarders Association (FIATA), Zurich and a good number of our members are also individual members of FIATA. The association prescribes its members to adopt international standards.
BRR: What is the future of trade with Pakistan becoming a signatory of TIR convention?
SA: About 69 countries are signatories to TIR Convention that guarantee safe transportation of cargo across the counties. From Pakistan, we can take shipments to Afghanistan, Iran, Turkey, China, Central Asia by road under the TIR Carnet. The carnet is the customs document that allows sealed road transport of shipments under TIR regime. This is basically a customs guarantee —suppose a cargo leaves from Turkey to Pakistan under TIR, it will move past different countries borders without having to pay duties and taxes at each stop; which will be payable at the destination. The cargo container will remain sealed and the documentation will be accepted by all countries in transit.
ICC Pakistan has been designated as the National Guaranteeing and Issuing Organization in Pakistan. Any transport company meeting the requirements will be registered by ICC Pakistan who will issue the carnet.
With CPEC, significance of TIR has compounded. Cargo moving say from China through Pakistan under TIR convention or from the rest of the world through Pakistan to Western China, Afghanistan and CIS will substantially increase trading activities and boost our trucking sector as well.