Pakistan Logistics

8/10/2019 Pakistan Logistics

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Strategic Logistics Management

Logistics and Pakistan


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Pakistans logistics is an important economicsector with significant growth and investmentpotential.

It is also a key driver for private sectordevelopment, economic growth and overalldevelopment.

There is a clear relationship between acountrys logistics performance, lead times andits export performance.


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In Pakistan, there it is a critical inefficiencies in

our logistics chain, resulting in a 45 percent

excess in export times compared to one of the

European country (Spain) and higher logistics

costs (35-40 percent of retail price compared to

22 percent in that country), leaving much room

for improvements in the sector.


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In Pakistan, there it should be a coordinationbetween government and the private sector to

improve logistics efficiencies. These include:

Establishing freight villages to serve as logistics hubs

Investing in reefer storage facilities to increase the

shelf life of perishable goods

Developing trading platforms for smaller and medium

size producers to sell their goods.


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A good way to measure a countrys logistics

expertise is the Logistic Performance Index (LPI),

an indicator compiled by the World Bank.

According to this index, Pakistan lags slightly

above the regional average and is clearly behind

the EU average. Pakistans biggest weaknesses

according to the LPI are in the Infrastructure

(2.37) and Customs (2.41).


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Country Overall LPI Country Overall LPI

UAE 3.73 Pakistan 2.62

EU 3.67 MENA 2.42

Israel 3.21 Morocco 2.38

Saudi Arabia 3.02 Egypt 2.37

Oman 2.92 Lebanon 2.37

Jordan 2.89 Syria 2.09

Tunisia 2.76 Algeria 2.06


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Pakistans Logistic Sector Size


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Composition and Characteristics ofPakistans Transport Market


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Logistical chain or ORANGES exporting to Europe

from PAKISTAN V/S SPAIN


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Due to inefficiencies at several points in the logistics

chain, citrus export times in Pakistan is Approx 27 days

longer than in Spain.

Although 55 percent of this time (15 days) is due toPakistans longer distance to the European destination

markets, 45 percent (12 days) is due to Pakistans lower

efficiency in the logistics chains.

In sum, inefficiencies in Pakistans logistics value chain

are responsible for a 45 percent excess time.


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There are opportunities to improve reliability,

lead times, and costs in the Pakistani citrus

export chain. These opportunities are at the

most critical points of the logistics chain, in

areas such as trucking, warehousing, customs,

and maritime services.


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Transportation Industry

Of Pakistan


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Road Transport

Pakistans freight transport is dominated by road

transportation. This is similar to most OECD countries;

however rail services play a bigger role in these countries

than in Pakistan

The biggest challenges faced by this industry is

Infrastructure and trucking regulations.

The dependence of Pakistani logistics chain on roadservices makes it even more vital for these problems to be

corrected to decrease export time and, thereby opening up

new markets for Pakistani exports.


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Road Infrastructure Assessment

In Pakistan, there are approximately 260,000 km of

roads, of which about 60 percent are paved.

The main artery in the country is the National Trade

Corridor (NTC), a 1,760 km long. Its length is less

than 1 percent of the total road network of Pakistan,

but it serves over 80 percent of the urban population.It is managed by the National Highway Authority

(NHA).


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Transit times of Pakistani road transportation is 3

times greater than Europe and East Asia.

A trip from Lahore to Karachi (1,260 km) takes about

2 days, while from Peshawar to Karachi (1,700 km)takes 3 days. The presence of non-motorized traffic

and even pedestrians reduces traffic capacity.

Operating conditions are further intensified by

extensive commercial activities located along theroads, poor physical condition of the roads, and lack

of traffic management in towns.


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Another feature of Pakistans road network is

its low density, which leaves several areas

underserved. This shows when comparing

Pakistans road density with that ofneighboring countries such as Bangladesh, Sri

Lanka, India or Afghanistan. In this

comparison Pakistan only is in a betterposition than Afghanistan.


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Road network size in km) in terms of a

countrys area in sq-km)


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Road Services Assessment

Weak road transportation services is one of the main

logistical challenges in Pakistan. Bottlenecks like a

large informal trucking sector and a lack ofrefrigerated vehicles, Pakistani perishable goods face

a higher logistics costs and lower shelf life, making it

more difficult to compete internationally.


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Not only is trucking the main way for moving

goods domestically, but it is also an essential link

in the Pakistani export chain for goods shipped by

sea and, to a lesser extent, by air. Truck loadsaccount for 206,404 million tons-km of goods per

year, about 93 percent of the countrys total.

For agricultural goods, there is no alternativetransport mean for transporting fruits and

vegetables out of rural harvesting areas.


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Despite its importance, the Pakistani road transport isimmature as a service sector. Absence of qualified

service providers is one of the main issue in providing

good logistics services.

Most providers have a small fleet, even with 2 trucks per

owner, means that most trucks are not owned by a formal

company, but by individual drivers. Moreover, many

trucks are in poor condition, with high average age, andthere is very few specialized vehicles with reefer devices

or refrigerated trucks available to transport perishable

goods.


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One direct consequence of the unreliable road

service available in the country is high

working capital requirements, as higher safety

inventories are needed. Producers of certaingoods are also forced to invest their resources

in non-core activities such as their own truck

fleet, which increases shipping-related costs.


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In summary, the trucking sector in Pakistan is

poorly regulated with about 70 percent of

trucks part of the informal sector. This

environment provides little appeal to largesophisticated operators and service providers

willing to enter the market due to low prices,

low margins and generally unfair competition.


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These problems are mainly caused due to a lack of

enforcement of rules on vehicle inspection, driving

license concession, overloading, and hazardous cargo

handling. Motor Vehicle Ordinance 1965, incorporating federal and

provincial amendments, is an old and outdated regulation

if compared with best practices from OECD countries

Obtaining a driving license in Pakistan is relatively easy.

There are no proper training schools, instructors,

equipped vehicles, or testing and licensing facilities.


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The National Highway Authority (NHA),which was created in 1991, focuses its activityin the planning, development, operation, repair

and maintenance of the national highways andother strategic roads.

However, the total length of the roads underNHA management only stands at 8,780 km,which accounts for about 3 percent of theentire road network in the country.


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Road Transport Recommendations

Regulate trucking industry

Increase the capacity of transportation used in

transferring perishable goods Provide incentives to renew trucking fleets

(Mexico and USA have worked on it )

Reshape the current insurance structure Improve the Operation of the National Trade

Corridor (NTC)


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Road Transport Recommendations

Expand the role of NHA

Benchmark with other transport regulatoryauthorities like:

Spanish General Directorate for Traffic (DGT)

The Finnish National Road Administration

(Finnra)

The Dutch Road Authority.


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Sea Transport


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Maritime transport accounts for 91 percent of

Pakistans international trade.

The main ports in Pakistan are Karachi, Qasim

and Gwadar. In 2006, 55.85 million tons of

cargo was transported through them.


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The port of Gwadar is in Baluchistan,about

460 km away from Karachi. It became

operational in 2008. It is a deep-sea water port,

being constructed with heavy investment fromChina. The government of Pakistan has

projected this port as the first link to China and

Central Asian republics, by providing themwith short access route to the markets in the

Middle East and Europe.


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Port infrastructure in Pakistan is overall in

good shape. Of course, there are aspects that

could be improved, such as the connection of

the Karachi Port with other transport means orthe custom and storage facilities


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Some of the KPIs that can be set by KPT are asfollow:

Port operational performance: Dwell time, transit times, loadingand unloading rates, and availability of daytime or 24/7 port

services. Availability of services to the ship: Bunkers, waste treatment,

power, towage, and mooring.

Availability of services to the goods: Reefer container service,

bounded warehouse, consolidation/de-consolidation, containers

depot, and agriculture and sanitary area.

Degree of intermodal and logistic integration: Access to landtransport including rail and road.

IT expertise: Tracking and tracing processes and IT.


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Rail Transport


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Rail Transport Rail has become a key transport mode for freight

in developed countries and could be used totransport a higher share of heavy non-perishablegoods.

Weak rail services in Pakistan fail to offer analternative to road transportation, as it has a poorinfrastructure and management issues.

Developing rail infrastructure has costadvantages, and is more environmentally friendlythan road transportation.


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Rail Infrastructure and Services Assessment Pakistans rail network is operated by the state-

owned Pakistan Railways (PR) under thesupervision of the Ministry of Railways. Itcomprises 8,163 km, of which broad gauge tracksaccount for 7,718 km and narrow gauge tracks forthe remaining 445 km.

It only has international active links with India.

However, plans exist to also establish a furtherconnection with China and other neighboringcountries


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The financial and operational performance of Pakistan

Railway is declining since last many years. Passenger

traffic since 2007-08, has declined from 230 trains to 92

trains per day, while freight trains has went down from96 to just oneper day.

Over aged infrastructure and rolling stock, sharp

increase in fuel prices (high speed diesel), depreciation

of rupee against dollar and substantially subsidizedrailway fare have led to an increase in the cost of

operations.


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Earnings of Pakistan Railway(2000-20008)


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Earnings of Pakistan Railway(2007-2013)


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Concept Pakistan Germany

Network size (km) 8,163 41,315

Country area (sq-km) 881,640 357,021

Pakistan-Germany rail network sizecomparison


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Pakistan Railways has lost a considerable

share of its private freight traffic because many

importers and exporters are not satisfied with

the railway services, and so urgentconsignments are usually transported by truck.


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Pakistan Railway is only used for a few

specific goods such as wheat, coal, fertilizer,

cement and sugar; it is hardly used for the

transport of perishable goods.


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Pakistan-Germany Rail network usage

Comparison


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The underlying reason for the current situation

is the total lack of competition within the

sector. In a context in which there are no

alternative providers in the market and there isno modern management techniques used in

Pakistan Railways


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Rail Transport Recommendations

Despite its poor track record, rail has commercial

potential and could play a valuable transport role in the

country. The main benefit of investing in rail transportis to reduce road traffic.

Government of Pakistan should promotepublic-private

partnershipsand should increase the number of double

railway tracks, its freight capacity and should close the

freight routes where PR is making no profits.


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Other Logistical Infrastructure

The main hindrances to the sector that need

coordinated efforts by the government and private

sector is to: Establish freight villages to serve as logistics hubs

Invest in reefer storage facilities to increase the shelf life of

perishable goods

Develop public trading platforms for smaller and medium

size producers to sell their goods


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Freight Villages

Freight villages are logistics concentration points,

developed at strategic locations, which provide

various logistics-related activities like

warehousing, packing, re-packing, break-bulk etc,

Freight villages can vary in size, from fewhectares to thousands of hectares, depending on

their functions. and truck parking.


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No such facilities exist in Pakistan. In fact, not even adowngraded version of such facilities exists. As a result, the

surroundings of the larger cities are congested with a rise in

disorganized parking and waiting areas.

In parallel, unlicensed workshops, service facilities and

spare parts outlets have emerged in such areas. This

combines with a widespread lack of metropolitan

regulations on specific timings for trucks to load, unloadand circulate inside metropolitan areas, contributing to

traffic jams and pollution.


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Reefer Storage There is a lack of reefer storage facilities in Pakistan.

These facilities require strategic location such as

freight villages. The lack of reefer storage facilities at

key locations for exports is particularly critical for

companies dealing with agricultural perishable goods.

Well-stored perishables have a longer shelf life, arebetter preserved, and are of higher quality and as a

result, they sell at higher prices.


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Fruits conservation temperature requirements andmaximum life

Source: University of California.


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Trading Spaces Logistics chains of perishables in Pakistan is full with

intermediariesthat add little value to the supply chain.

Because there are few public trading spaces to small farmers

to sell their goods so most of them are unable to sell towholesalers without going through an intermediary.

If farmers were able to capture a larger portion of the profit,

they would have more money to invest in new equipment and

be able to adapt to international harvesting quality standards

thus opening new markets for Pakistani goods, benefiting not

only the individual farmers, but the economy as a whole as

well.


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Development of Wholesale Central Markets

In order to eliminate intermediaries that add little value, it is

recommended to establish regional wholesale central markets.

The Spanish MERCAs model has proved very successful and is

regarded as a good practice. It is recommended to benchmark thismodel. Such a move is expected to generate the following positive

effects:

Price structure: Prices will be set more clearly, as the market will be more

transparent.

Product quality: Will be improved through better storage in shared commonfacilities.

Inspection: It will make quality procedures and checks easier to be enforced.

Accessibility:It will make easier for small producers to access large

retailers.


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Pakistan Logistics