Over 95 percent of Pakistan’s freight transportation uses the country’s road network—which means, the country relies heavily on light and heavy commercial vehicles. This also means that production and sales of LCVs and HCVs serve as a pretty strong barometer for economic activity, or lack thereof. But stagnancy may also indicate that the largely informal and fragmented logistic and freight forwarding industry is continuing to use outdated fleets for goods transportation. Recent growth trends in commercial vehicle sales belie the CPEC vision that was fed in 2016—that it would create positively cascading gains in the commercial and logistic industry.
Sales improved during FY15 and FY17 after which they have become sluggish. Average monthly truck and LCV sales have reduced 48 percent and 30 percent respectively during the current fiscal year compared to 2018. There has been growth over the past few months since the country has materialized from covid-related lockdown but it is merely normalizing. Between Mar-20 and Jan-21, monthly sales went up 30 percent for LCVs, but have only just rebounded for trucks. Investments in new brands (JAC, D-Max, Hyundai Porter etc.) has also come into LCVs and pickups, not so much in trucks.
This should come as surprising specially after the new Axel Load regime that restricted the maximum loading of trucks which was going to increase the costs of freighters and as a side effect, also create demand for new vehicles on the road. This was needed because of the dilapidating road infrastructure in the country due to the overburden of vehicles –each extra kg of weight on the road multiplies the damage it incurs on the infrastructure. Roads then require a more frequent upgradation and maintenance which costs money. However, only incrementally new demand has been created indicating that the new regime has not contributed to fleet upgradation and/or replacement by a great degree.
Meanwhile, according to the country ranking on World Bank’s logistics performance index in 2018 (though it is fairly outdated), Pakistan fairs significantly behind in a) efficiency of the clearance process (i.e., speed, simplicity and predictability of formalities) b) quality of trade and transport related infrastructure (e.g., ports, railroads, roads, information technology) c) ease of arranging competitively priced shipments d) competence and quality of logistics services (e.g., transport operators, customs brokers) e) ability to track and trace consignments; and f) timeliness of shipments in reaching destination within the scheduled or expected delivery time. Shoddy and outdated vehicles are one of a prominent reasons for food wastage and increased carbon footprint, while an inefficiency in the logistic industry on the whole is a prominent reason why Pakistan cannot become a key player in global or regional supply chains.
With cement, steel and construction materials in high demand and a recovery in the retail industry, organic demand for transport vehicles should increase—with or without CPEC and SEZs taking off. But the production industry cannot have too high expectations until the transport industry massively upgrades and modernizes fleets. Perhaps, it is for this reason why players like Ghandhara and Master Motors have diverted investments into the segment and ventured into new models of passenger car production which is where they see larger growth trends materializing.