Woes of the cargo industry

Published September 19, 2022

Pakistan’s cargo and freight forwarding industry remains in the limelight for its vivacity in serving the importers and exporters. Though the National Transport Policy 2018 and the National Freight and Logistics Policy (NFLP) 2021 set clear dogmas for the stakeholders, Pakistan International Freight Forwarders Association (PIFFA) has reported the economic pains of around 600 freight and logistics companies.

The shipping and freight industry is the fueling force behind the international economy. According to the United Nations Conference on Trade and Development, 80 per cent of the global trade volume is managed through sea routes. Transportation of technological paraphernalia, food commodities, raw materials, and general goods is impossible without apropos facilitation of the shipping network. But, alas! Pakistan’s freight forwarding industry has been facing turbulence since 2019.

Read: What Gwadar can learn from India's Mundra port

As per the World Bank’s latest statistics for 160 countries, Pakistan comes at 122nd place in terms of Logistics Performance Indicators (LPI), with Germany at the first rank and India at 44th. LPI mechanism broadly depends on six decisive parameters: customs clearance efficiency, uprightness of trade infrastructure, equitable shipment pricing, quality of logistics services, surety to track shipments, and consignment delivery standards. Surprisingly, Sudan and Congo demonstrate a bit higher LPI scores as compared to Pakistan. Revising the policies may take the industry up.

First, the performance of the Trade Development Authority of Pakistan bears a big question mark because the promotion of trade is subject to infrastructural developments.

As per the World Bank’s statistics for 160 countries, Pakistan comes at 122nd place in terms of Logistics Performance Indicators, lower even than Sudan and Congo

Secondly, Pakistan Customs appears responsible for not smoothening the clearance procedures. Unnecessarily elongated customs clearance procedures discourage the importers.

Thirdly, very few freight forwarding companies in the country have inducted operational shipment tracking systems. Finally, the non-existence of the shipment price determination system coupled with sky-rocketing fuel prices pushes the industry towards regression.

Let me take you to 2009 when Istanbul-Tehran-Islamabad (ITI) cargo train started. Its operations were suspended in 2011. Finally, it became operational in 2021. Where did the problem exist? Why did the policymakers gather no mass? Who was responsible for unnecessary delays? Apart from these questions, the project is less costly than the sea route, and the ITI cargo train takes just 14 days to complete a trip between the partner countries. Leaving this project unattended for a whole decade has added to the worries.

Difficulties faced by the cargo sector have gained momentum, especially in the wake of Covid-19. Large-scale suspension of international flights has played havoc with the aspirations of traders. According to the PIFFA’s survey in this regard, 71pc of the participating freight companies reported no benefit through incentives and relief measures offered by the government.

A massive loss of revenues was revealed by 96pc participants. Likewise, 70pc of the cargo companies either squeezed or suspended their operations during 2020-21. Moreover, around 77pc cargo businesses experienced cuts in overall sales volume. It left little liquidity with the freight forwarding units, leaving no room for rapid restoration of the industry.

While inspecting the substance of the National Freight and Logistics Policy 2021, a few gaps need to be bridged with concrete plans. No provisions have been included in the NFLP to cope with supply chain disruptions. Under this policy, the establishment of Pakistan Logistic Company was decided to promote the industry’s business.

The NFLP 2021 constitutes 124 recommendations for the ministries and divisions to realise the establishment of Pakistan Logistic Company, but the matter is still under consideration. Despite the availability of such policies, there is paucity of competent legislation relating to Pakistan’s cargo industry.

The engagement of a large number of parties in the logistics business poses yet another challenge. The freight forwarders are looking for some centralised control over the system, from booking the consignments to delivering to the right destination. There is no set mechanism for freight companies to trust the subagents, merchants, transporters, warehouse managers, and merchandise inspectors. Anything could happen with the commodities on the way!

Formed as a result of a merger of the National Shipping Corporation and Pakistan Shipping Corporation, the Pakistan National Shipping Corporation could greatly improve sea routes for the best dispensation of personalised and affiliated shipping services. The role of the Federal Ministry of Maritime Affairs, through the active participation of the Marine Academy, could contribute a lot to managing an integral part of the global shipping network that carries 11 billion tons of load each year. A specialised Sea Freight Security Force could be inducted to protect the interests of the parties engaged.

The industry could adopt the latest trends in pervasive freight routes — air, sea and road. However, under the current economic situation, the acquisition of Letter of Credit (LC) facilities from international banks has pestered Pakistani importers. The foreign banks are asking for hundred per cent cash margins for opening LCs. It shows the import volume will further squeeze, reducing the freight forwarders’ income in future.

Conclusively, an impeccable packaging mechanism, a regulated communication system, the induction of compatible software, and effective warehouse management could appease the apprehensions of the participants. On the same lines, the freight forwarders could set clear ley performance indicators to evaluate their operational performance. It would reinstate their position in the highly competitive global industry.

The author is a socio-economic analyst.
He can be reached at waheedurrehmanbabar@gmail.com

Published in Dawn, The Business and Finance Weekly, September 19th, 2022

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