The State of Domestic Commerce in Pakistan Study 7 - An Overview of the Transport Sector

8/10/2019 The State of Domestic Commerce in Pakistan Study 7 - An Overview of the Transport Sector

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THE STATE OF DOMESTIC COMMERCE INPAKISTAN

STUDY

AN OVERVIEW OF THE TRANSPORT SECTOR

For

The Ministry of CommerceGovernment of PakistanNovember 2007

By

Innovative Development Strategies (Pvt.) Ltd.House No. 2, Street 44, F-8/1, Islamabad.


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Table of Contents

List of Abbreviations ............................................................................................................... iGlossary of terms .................................................................................................................. vAcknowledgments ............................................................................................................... vii

Executive Summary ........................................................................................................... 3

Section 1: Introduction .................................................................................................. 7

Section 2: Methodology ................................................................................................ 92.1 Road ...................................................................................................................... 92.2 Data Reliability ........................................................................................................ 112.3 Rail, Aviation, and Ports .......................................................................................... 11

Section 3: Transport Indices ....................................................................................... 133.1 Output index ............................................................................................................ 133.2 Weights for value added index ................................................................................ 163.3 Weights for price index ............................................................................................ 163.4 Tackling scarcity of data in future attempts .............................................................. 17

Section 4: Road transport ........................................................................................... 184.1 Output 184.2 Price, Cost, and profit margin estimates .................................................................. 18

4.2.1 Freight services ........................................................................................... 184.2.2 Passengers .................................................................................................. 20

4.3 Time estimates ........................................................................................................ 214.4 Characteristics of the Road Sub-sector ................................................................... 22

4.4.1 Road Network and Administration ................................................................ 224.4.2. Structure of the Road Sub-sector ................................................................ 234.4.3 Composition of the Freight Market ............................................................... 254.4.4. Financing and Contractual Arrangements .................................................... 27

4.5 Determinants of Growth in the Road Sector ............................................................ 284.5.1 Infrastructure Issues .................................................................................... 294.5.2 Competition .................................................................................................. 334.5.3 Regulatory Framework ................................................................................. 33

4.5.4 Governance Issues ...................................................................................... 354.5.5 Access to finance ......................................................................................... 364.5.6 Travel restrictions due to zoning and law and order situation ....................... 374.5.7 Owners Prior Experience & Skill Level........................................................ 37

4.6 Enhancing efficiency of road transport ..................................................................... 39

Section 5: Railways ..................................................................................................... 415.1 The PR network ....................................................................................................... 415.2 Share in the market ................................................................................................. 42

5.2.1 Value added in the rail sub-sector ................................................................ 445.2.3 Commodities carried .................................................................................... 44

5.3 Constraints to growth ............................................................................................... 46

5.3.1 The governance of PR freight ...................................................................... 475.3.2 Lack of a competitive environment ............................................................... 48


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5.4 Building on the strengths to enhance competitiveness ............................................ 48

Section 6: Aviation ...................................................................................................... 516.1 Aviation Network and Administration ....................................................................... 516.2 Freight and passenger handling .............................................................................. 526.3 The way forward ...................................................................................................... 55

Section 7: Ports ........................................................................................................... 567.1 Port administration, makeup and network ................................................................ 567.2 Costs 577.3 Port Clearance times ............................................................................................... 58

7.3.1 Customs clearance: ..................................................................................... 597.4 Potential avenues for improvement ......................................................................... 61

Section 8: Major Government Initiatives .................................................................... 62Section 9: Conclusion ................................................................................................. 65

Annex 1 ................................................................................................................... 69Annex 2 ................................................................................................................... 72


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List of Boxes

Box 1: Relative weights to compute output index ................................................. 14Box 2: Relative weights for value added index ..................................................... 16Box 3: Relative weights for price index ................................................................. 17Box 4: Interaction of road carriers with public sector representatives ................... 35Box 5: Major constraints at land borders ............................................................. 60


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List of Tables

Table 2.1: Sampling details ............................................................................................ 9Table 2.2: Interview details for rail, aviation, and ports sub-sectors .............................. 12

Table 3.1 Total, freight, and passenger indices............................................................ 14Table 3.2: Annual growth rates of transport output index and national GDP ................. 15Table 4.1: Total passenger and freight output for road.................................................. 18Table 4.2: Freight prices for major routes ..................................................................... 19Table 4.3: Freight transporter costs for major routes .................................................... 19Table 4.4: Profit margins estimates for freight carriers (PKR) ....................................... 20Table 4.5: Passenger fares for major routes (PKR) ...................................................... 21Table 4.6: Passenger transport cost and profit margin estimates (PKR) ....................... 21Table 4.7: Estimates of times taken for transportation .................................................. 22Table 4.8: Transport density estimates (2005) .............................................................. 22Table 4.9: Type of workers in the transport industry (%) ............................................... 24Table 4.10: Gap between business services required and used ..................................... 25Table 4.11: Mode of payment of transport deals ............................................................. 27Table 4.12: Average time to have credit cleared? ........................................................... 28Table 4.13: Respondent views on Various Contractual Statements ................................ 28Table 4.14: Cross-country comparison of rural accessibility ........................................... 30Table 4.15: Transport Access and Service Availability in Rural Pakistan. ....................... 30Table 4.16: Selected Human Development Indicators and Road Access (%) ................. 31Table 4.17: Start-up capital requirements for road transport enterprises ......................... 36Table 4.18: Major Problems in accessing credit (% of respondents) ............................... 36Table 4.19: Reasons for acquiring informal loan ............................................................. 36Table 4.20: Medium of learning management and technical skills .................................. 38Table 4.21: Level of education of enterprise owners ....................................................... 38

Table 5.1: Classification of PR lines (2004-05) ............................................................. 41Table 5.2: Pakistan Railways: Core and Non-Commercial Networks ............................ 42Table 5.3: Passenger volume revenue and fare............................................................ 42Table 5.4: Pakistan Railways: Freight Data .................................................................. 43Table 5.5: Pakistan Railways: Network Costs FY2004 (PKR million) ............................ 44Table 5.6: Pakistan Railways Basic Rate Scale for Freight Transport .......................... 44Table 5.7: Commodity Volume Carried ......................................................................... 45Table 6.1: Domestic Air Traffic of Passengers and Freight of Pakistan International

Airlines ......................................................................................................... 51Table 6.2: Aircraft Landing Charges at Various Airports in Pakistan ............................. 54Table 6.3: Aircraft Housing Charges at Various Airports in Pakistan ............................. 54Table 7.1: Cargo handled at Karachi Port and Port Qasim ........................................... 57

Table 7.2: Port Tariffs at KPT and Port Qasim .............................................................. 57Table 7.3: Free storage periods at KPT and Port Qasim ............................................... 60Table 7.4: Estimates of informal costs associated with custom clearance ..................... 61


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List of Figures

Figure 1: Plot of GDP growth against transport output index growth (%) ..................... 15Figure 2: Forecast for output index movement ............................................................ 16

Figure 3: Fuel costs relative to total cost (%) .............................................................. 20Figure 4: Type of Ownership in the truck industry ....................................................... 23Figure 5: Relative size of firms in the road industry ..................................................... 24Figure 6: Share of road freight trips by commodity type (%) ........................................ 26Figure 7: Reasons for Damage to Perishable items .................................................... 26Figure 8: Preference among available dispute settlement mechanisms ...................... 27Figure 9: Key Constraints to Growth ........................................................................... 29Figure 10: Perception of state of the road network (% of respondents) ......................... 32Figure 11: Average time lost due to condition of roads (hours/trip)................................ 32Figure 12: Reasons for not registering a transport enterprise (% of respondents) ......... 34Figure 13: Relative importance of constraints due to lack of education (% of

respondents) ................................................................................................ 38


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Innovative Development Strategies (Pvt) i

List of Abbreviations

ABAD Association of Builders and Developers

ADB Asian Development Bank

ADBI Asian Development Bank Institute

APCA All Pakistan Contractors AssociationATT Afghan Trade Transit

BAF Bank AlFalah

BCI Business Competitiveness Index

BOR Board of Revenue

CAA Civil Aviation Authority

CBM Cubic meter

CBR Central Board of Revenue

CDA Capital Development Authority

CIB Credit information bureau

CMR Contract for the International Carriage of Goods by Road

CPI Corruption Perceptions IndexCPIA Country Policy and Institutional Assessment

DFID Department for International Development

DHA Defense Housing authority

EDF Export Development Fund

EIU Economist Intelligence Unit

EOS Executive Opinion Survey

EPB Export Promotion Bureau

ESCAP Economic and Social Development in Asia and the Pacific

FBS Federal Bureau of Statistics

FCL Full Container Load

FDI Foreign Direct Investment

FIAS Foreign Investment Advisory Service

Ft Foot

FY Fiscal Year

GCI Global Competitiveness Index

GCR Global Competitiveness Report

GD Goods Declaration

GDP Gross Domestic Product

GoP Government of Pakistan

GOR Government Officials Residences

GRT Gross Register TonnageGST General Sales Tax

HBFC Housing Building Finance Corporation

HBL Habib Bank Limited

HDR Human Development Report

HFIs Housing Finance Institutions

IFC International Finance Corporation

IFS International Financial Statistics

IMF International Monetary Fund

ISAL Informal Subdivision of Agricultural Land

ISO International Standards Organization

IT Information TechnologyITU International Telecommunications Union
http://en.wikipedia.org/wiki/Gross_Register_Tonnagehttp://en.wikipedia.org/wiki/Gross_Register_Tonnagehttp://en.wikipedia.org/wiki/Gross_Register_Tonnage


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Survey Report on Domestic Commerce

Innovative Development Strategies (Pvt) ii

KBCA Karachi Building Control Authority

KDA Karachi Development Authority

KESC Karachi Electric Supply Corporation

KM(s) Kilometer(s)

KPT Karachi Port Trust

KSE Karachi Stock ExchangeLCL Less Than Container Load

LOA Length Overall

MCB Muslim Commercial Bank

MENA Middle East and North Africa

MOC Ministry of Commerce

MOD Ministry of Defense

MTDF Medium Term Development Framework

NBP National Bank of Pakistan

NCS National Conservation Strategy

NER Net Primary School Enrollment Rate

NHA National Highway AuthorityNIE Newly industrialized economy

NIT National Institute of Transport

NLC National Logistics Cell

NTN National Tax Number

NTRC National Transportation Research Center

NTTFC National Trade and Transport Facilitation Committee

NWFP North West Frontier Province

PASSCO Pakistan Agricultural Storage and Services Corporation

PEC Pakistan Engineering Council

PHDEB Pakistan Horticulture Development and Export Board

PIAC Pakistan International Airlines Corporation

PIDE Pakistan Institute Of Development Economists

PIHS Pakistan Integrated Household Survey

PKR Pakistani Rupee

PQA Port Qasim Authority

PR Pakistan Railways

PREF Pakistan Real Estate Federation

PSDP Public Sector Development Program

R&D Research and Development

REER Real Effective Exchange Rate

REITs Real Estate Investment TrustsRICS Royal Institute of Chartered Surveyors

SAI Social Accountability International

SBP State Bank of Pakistan

SKAA Sindh Katchi Abadis Authority

SME Small and Medium Enterprises

SPS Sanitary and Phytosanitary

SRO Statutory Regulation Order

Std Standard

TEP Total Factor Productivity

TEU Twenty-Foot Equivalent Units

TI Transparency InternationalTOR Terms of Reference


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Innovative Development Strategies (Pvt) iii

TSDI Transport Sector Development Initiative

TTFP Trade and Transportation Facilitation Program

UK United Kingdom

UNDP United Nations Development Program

US United States

USA United States of AmericaUSC Utility Stores Corporation

USD United States Dollars

WAPDA Water and Power Development Authority

WDI World Development Indicators

WEF World Economic Forum

WGI Worldwide Governance Indicators

WTO World Trade Organization


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Innovative Development Strategies (Pvt) v

Glossary of terms

Aadaa Transport hub/station

Bilty Local term for receipt given to the shipper upon booking any transport

consignmentMaal gari Pakistan Railways dedicated freight wagonPassenger-km Standard unit for measuring passenger output; it is calculated as the product

of the total number of kilometers traveled and the number of passengerstraveling the total distance

Ton-km Standard unit for measuring freight output; it is calculated as the product ofthe total number of tons carried and kilometers traveled


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Innovative Development Strategies (Pvt) vii

Acknowledgment

The IDS team owes a debt of gratitude to the officers of the Ministry of Commerce for their

guidance, assistance and feedback during the course of this study. Our special thanks go out,

in particular, to Syed Asif Ali Shah, Secretary; Mr. Naseem Qureshi and Mr. Ashraf Khan,

Additional Secretaries; Mr. Abrar Hussian, Joint Secretary; Syed Irtiqa Zaidi, Consultant andMr. Qaseem Subhani, Section Officer, for sparing their precious time and efforts for the

study.

We feel a deep sense of gratitude for the Minister for Commerce. Mr. Humayun Akhtar

Khan, who took out considerable time from his busy schedule to guide us. It was his sincere

and deep conviction which enabled us to conduct and compile this detailed and

comprehensive study on Domestic Commerce of our country. His apt guidance and keen

analytical oversight were extremely helpful in finalizing the study and formulating the policy

recommendations.

This study has benefited from comments received from the following:1. State Bank of Pakistan, Karachi.2. Federal Board of Revenue, Government of Pakistan, Islamabad.3. Planning and Development Division, Government of Pakistan, Islamabad.4. Trade Development Authority, Government of Pakistan, Karachi.5. (Management Consultants) Establishment Division, Government of Pakistan,

Islamabad.

6. Finance Division, Government of Pakistan, Islamabad.7. Pakistan Institute of Development Economics, Islamabad.8. NTTFC, Karachi.9. FPCCI, Karachi.10.Planning and Development Board, Government of Punjab, Lahore.11.Planning and Development Board, Government of NWFP, Peshawar.12.Planning and Development Board, Government of Sindh, Karachi.13.Planning and Development Board, Government of Balochistan, Quetta.14.Investment and Commerce Department, Government of Punjab, Lahore.15.Ministry of Communications, Government of Pakistan, Islamabad.16.Industries, Production & Supplies Initiatives, Government of Pakistan, Islamabad.17.Statistics Division, Government of Pakistan, Islamabad.


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1

AN OVERVIEW OF THE TRANSPORTSECTOR*

by

MOEED YUSUF

For detailed survey results, please see separate volume entitled Basic Statistics of the SampleSurvey Data.


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Innovative Development Strategies (Pvt) 3

Executive Summary

1. The transport sector plays a pivotal role in Pakistans economy, both in enhancing theglobal competitiveness of an economy as well as in ensuring efficient functioning of the

domestic commerce supply chain. It accounts for about 11 percent of the countrys Gross

Domestic Product (GDP), 17 percent of Gross Capital Formation, and 6 percent ofemployment. However, much of the economic gains from efficient transport services are lost

in Pakistans case due to the overall poor performance of the sector. According to some

estimates, the economy suffers a loss of 8.5 percent of GDP annually. Such a grave situation

necessitates the need to analyze various facets of the transport sector to identify the key

constraints causing efficiency losses. The need for such an analysis is further underscored by

the fact that demand for transport is expected to double by 2015, thus requiring significantly

higher levels of service.

Methodology

2. The analysis benefits from a review of existing literature and information gatheredthrough primary sources. Findings from literature have been used to complement primary

information. Therefore, rather than reporting existing literature and findings from primary

data separately, the report combines the analysis to present a holistic overview of each sub-

sector.

Transp ort Indices

3. The Laspeyres fixed-weighted index has been used to derive the results. Threeseparate indices have been generated: the total transport output index, the passenger output

index, and the freight output index. Relative weights for the index have been computed using

operating revenue estimates for passenger and freight services. No value added index could

be created owing to the lack of time series data on operating revenues and costs for the

transport sub-sectors. However, utilizing the sample data, relative weights have been

computed for the road sub-sector, using 2004-05 as the base year. Only weights for the road

sub-sector are generated to allow computation of a price index in the future. Reasons to

exclude rail and road, and for not being able to create an actual index are the same as those

stated in the discussion on value added weights.

Road transp ort

4. The annual growth in output rates for road transport closely approximate the increasein the total transport index, pointing to the overbearing importance of road transport for thesector as a whole. The mean prices of freight services for the major transport routes highlight

the substantial difference between inward and outward rates at the port city of Karachi.

Goods transported to other border towns do not experience such variations in transport

charges.

5. Transporter costs for goods per route are fairly low. The gross profit margins oninward routes are relatively high. Passenger fares (prices) are fixed and do not vary between

inward and outward traffic. Longer routes have substantially higher per passenger profit

margins. The mean times taken for any given route are much lower for passenger vehicles

than for commercial goods carriers.

6. Large numbers of individual owners providing for hire and reward servicesdominate the trucking industry. Survey results depict that the vast majority of businesses are


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organized as sole proprietorships. Majority of the businesses are small, employing less than

10 employees on average. Yet, vast majority of firms employ full-time paid staff. Only 8

percent of businesses surveyed had hired part-time personnel. None of these were large firms.

7. Firms in the road sub-sector have yet to fully embrace automation in their day-to-dayfunctioning. The make-up of the road industry does not incentivize automated services in any

way. There is a significant gap between business services required by a firm and the actualservices being used. Engineering, legal, marketing and insurance services were cited as being

highly sought after. While enterprises largely fulfill their engineering and to an extent, legal

needs, marketing, insurance and accounting requirements largely go unentertained. Word of

mouth is by far the most predominant marketing tool used by the transporters. Only a few

businesses use marketing agents. There is no organized database through which particular

transporters can be accessed.

8. The role of the local transport associations was greater than expected. Almost three-fourths of the firms included in the survey were found to be members of transport

associations. There is a lack of standardization in the quality of road transportation services.

Clients in general receive a level of service commensurate with the amount they are willing

to pay. Shippers of low-value goods are more price sensitive and depend on the less reliableservices of the spot market.

9. In the freight market the private sector is the dominant player and handles 95 percentof the total freight. Ballast, gravel, stone, cement, fruit, fertilizers and wheat are the most

important commodities in terms of tons transported by trucks . The transport volume of fruit

is the highest in terms of ton-kms. The countrys true potential to trade fresh foods is severely

undermined due to the lack of an adequate temperature controlled transport system.

According to survey findings, the incidence of loss or damage to perishable items is fairly

high. Lack of prevalence of insurance practices exacerbates the problems of transport related

losses in general. Cash is the predominant mode of payment in the road transport industry.

Only 33 percent of the enterprises buy their inputs on credit.

10. Various forms of contractual modes are functional in the industry as arrangements totransport goods. Companies based in Punjab typically engage in contract arrangements more

often Sindh based enterprises. Almost 50 percent of contracts are simply statements written

on plain paper and signed by both parties.

11. According to the survey results, 96 percent of transport enterprises observed anexpansion/improvement in their business over the last year. A greater proportion of passenger

services reported to have expanded. Infrastructure development and a competitive

environment are key drivers of growth. The most important constraints of growth according

to the survey include the taxation and regulation system (licensing, permits, etc), law and

order, lack of access to finance, quality of public services (electricity, communications), and

corruption. Others that are obvious from literature are the low education/skill levels ofenterprise managers and miscellaneous governance concerns.

12. Given the road sub-sectors overwhelming importance in the transport industry,policy measures that manage to correct current constraints would impact the overall economy

tremendously.

Railways

13. Pakistan Railways (PR) is a subordinate department of the Ministry of Railways. It isgoverned by the Railway Act of 1890. Rail accounts for less than 10 percent of the total

passenger traffic in the country. In the freight business, rail has an even lower and stagnant

market share. Out of the total transport output of approximately 123 billion ton-kms in thecountrys transport sector, rail accounts for a mere 5 billion ton -kms.


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Domestic Commerce In Pakistan: An Overview Of The Transport Sector

Innovative Development Srategies (Pvt) 5

14. Major commodities carried by Pakistan Railways include petroleum and other non-dangerous hydrocarbon oils (18.1 percent), chemical manures (9.9 percent) and railway

materials and stores (17.4 percent). A major reason for the steep decline in rails importance

as a freight carrier is the loss of oil transport as a major commodity. The growth in ATT

activity, which provided significant business to PR, has slowed down. This is partly due to

trade flows being diverted to Iranian facilities due to cumbersome procedures at Karachi butmore so because of a shift from rail to road as the preferred mode of transport of ATT goods.

The NLC now gets priority on this front. The railway plays an unimportant role in

transporting agricultural produce, it does not have any specialized containers to carry

agricultural goods and given the frequent delays, clients often prefer road to carry such goods

despite the lack of temperature-controlled road transport.

15. There are many constraints to growth. The organizations management culture is non-commercial and thus functional efficiency has always been a low priority. Like most other

mega-organizations in Pakistans public sector, PR suffers from tremendous political

interference both in deployment of personnel and in day-to-day management. Lack of a

principal focus on commercial viability has meant that PR has primarily remained a

passenger railway services. PRs infrastructure and rolling stock have become aged anddecrepit. The PR is a monopoly. Being the only rail service in the country, no competition is

faced from within the sector. Lack of any compulsion to orient the service with market

realities is thus obvious. A direct outcome of these shortcomings and perhaps the most

significant constraint for PR is the inability to provide guarantees in terms of time needed for

consignments to arrive at the destination.

Aviation

16. The aviation industry is unique in that the pace of transportation offered by it cannotbe matched by any other sub-sector. It constitutes a miniscule share of the transport sector. In

2004-05, 6.94 million passengers traveled domestically by air out of which 0.08 million were

transit passengers. A total of 1.76 billion passenger-kms were flown. In addition, a mere

116,202 tons of cargo and 10,412 tons of mail were hauled. A total of 36.94 million ton-kms

were performed. These low volumes are despite the steady increase in air cargo traffic over

the years, save a minor decline during the 1990s.

17. Most of the aviation industrys shortcomings stem from a highly bureaucratic anddiscretionary regulatory authority, which has discouraged the industry from developing into a

truly competitive one. There is a need to allow civil aviation experts to take up key decision-

making positions in CAA, and to depute experts in MOD to deal with civil aviation in the

country. Such a development may allow better use of the existing liberal policy to allow new

passenger and cargo operators to enter the market.

Ports

18. It is impossible to reflect upon the transport sectors impact on commerce withoutdealing with the entry (for imports) and exit points (for exports) for the countrys external

trade. Efficiency of trade flows and that of the transport sector are complementary. Pakistans

1,100 km long coastline opens to the Arabian Sea. Karachi Port and Port Qasim are the two

major international ports. Other ports are relatively insignificant.

19. Port Qasim is operating as a landlord port, primarily serving the steel, petroleum, andchemical industries. Karachi Port Trust (KPT) is also making progress towards converting

itself into a landlord port. The total cargo volume handled by the two ports in 2003-04 was43.26 million tons. At the Karachi port, the total port traffic increased from 20.5 million tons


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in 1991-1992 to 27.5 million tons in 2003-04. The total port traffic at Port Qasim rapidly

increased from 7.2 million tons in 1991-92 to 15.6 million tons in 2003-04, representing an

annual growth rate of 6.7.

20. Both the KPT as well as Port Qasim Authority (PQA) run on excessive profits. PQA,for example, accumulated a net financial surplus amounting to PKR 1.08 billion at the end of

FY 2003-04. Port entry costs on average are 5-9 times higher than other countries in theregion. However Port entry costs on average are 5-9 times higher than other countries in the

region. The high costs are despite the fact that there is significant private sector involvement

at the ports.

21. Private sector involvement has ensured that the ship-shore handling speeds at Karachiare in line with those at efficient international ports for all categories of cargocontainers,

bulk cargoes and general cargo. Despite the efficient ship-shore handling, overall container

dwell times in ports stand at 11 days on average. The major factor behind excessive times is

the tardy customs clearance process, which suffers from tremendous operational bottlenecks.

22. The main need with regard to port management is to instill a more commercialapproach in management and operations decisions. The ports have made progress in

modernizing internal procedures, at least at the ship-shore handling level. Now there is a needto work towards creating robust down-stream linkages to integrate the entire commerce

supply chain.

Major Government Initiatives

23. The government remains cognizant of the multifaceted problems confronting thetransport sector. The irony is that majority of macro level initiatives undertaken by the

government often end up remaining mere visions. The lack of on ground impact is clear from

the fact that as many as 80 percent of our survey respondents said they were not aware of any

major public sector initiatives to improve the functioning of the transport sector.

Conclusion

24. It needs to be understood that while the road, rail and aviation industries arecompetitors, maximum gains will be realized not by altering the market share of one sub-

sector vis--vis the other, but by ensuring that each sub-sector attains the primary market

share in commodities it is most efficient at transporting. Ideally, policy makers ought to focus

on devising incentives for each service to capitalize on its respective comparative advantage.

25. This report concludes that there are three major factors that determine the degree ofefficiency in each sub-sector. The biggest constraint afflicting the rail and aviation sectors is

the perverse governance protocols. The second major determinant of performance is thedegree of competition in the sub-sector. Finally, the transport sector is no exception to the all-

pervasive problem of the policy-implementation disconnect across Pakistan. The presence of

up-to-date and dynamic legislation is a necessity. The transport sector suffers from highly

dated legislations, which have little meaning under the present scenario. The interplay of the

three factors: bureaucratic governance, degree of competition and implementation

performance end up determining the output of the transport sub-sectors.


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Section 1Introduction

1. Pakistan attributes its recent macro economic success to its export-led model of economicgrowth. The transport sector plays a pivotal role, both in enhancing the global competitiveness of

an economy as well as in ensuring efficient functioning of the domestic commerce supply chain.

Literature on global trade and domestic commerce highlights the multifaceted links between acountrys economicgrowth and the performance of the transport sector1. This study is part of a

combination of eight sectoral studies covering the entire ambit of commerce activity in Pakistan.

The objective of these undertakings is to understand the dynamics of each of the major sectors

impacting commerce as well as to analyze the interplay between various components of the

commerce supply chain. The study focuses on the transport sector in the country, covering the

road, rail, aviation and ports sub-sectors.

2. Pakistans transport sector already plays a major role in the national economy. It accountsfor about 11 percent of the countrys Gross Domestic Product (GDP), 17 percent of Gross Capital

Formation, and 6 percent of employment2. It also receives 12 to 15 percent of the annual Federal

Sector Development Program allocations3. Notwithstanding, much of the economic gains from

efficient transport services are lost in Pakistans case due to the overall poor performance of thesector. According to some estimates, the economy suffers a loss of 8.5 percent of GDP annually.4

Such a grave situation necessitates the need to analyze various facets of the transport sector to

identify the key constraints causing efficiency losses. The need for such an analysis is further

underscored by the fact that demand for transport is expected to double by 2015, thus requiring

significantly higher levels of service.

3. In this report, we have conducted an analysis of the road, rail, aviation, and ports sub-sectors, identifying each ones relative importance and major weaknesses and strengths. We

develop indicators of the sectors growth, outline the structure and make-up of each sub-sector,

identify the various institutional and governance concerns relevant to the functioning of the

sector, and emphasize factors that are constraining or driving its growth. Much of the discussion

in the report is focused on the road sub-sector, which is warranted, given that road transportconstitutes an overwhelming majority of the sectors output.

4. Section 2 presents the methodology for the analysis. In section 3, an output index isdeveloped for the transport sector. Sections 4, 5, 6, and 7 are devoted to an analysis of the road,

1 C. Carnemark,. Some Economic, Social and Technical Aspects of Rural Roads, ESCAP workshop on ruralroads, Dhaka, 10-23 January, 1979.

2 World Bank, Pakistan Transport Sector: Overview, (accessed on 30November, 2006).

3 Government of Pakistan, Pakistan Economic Survey 2005-06 (Islamabad: Finance Division, Economic AdvisorsWing, 2006).

4 Government of Pakistan, Annual Plan 2006-07(Islamabad: Planning Commission, 2006).


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rail, aviation, and ports sub-sectors. Section 8 highlights major macro level transport related

initiatives undertaken by the government in the recent past.


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Section 2Methodology

5. The analysis benefits from a review of existing literature and information gatheredthrough primary sources. Findings from literature have been used to complement primary

information. Therefore, rather than reporting existing literature and findings from primary data

separately, we have combined the analysis to present a holistic overview of each sub-sector.Qualitative information was readily available on the road (freight) and rail (passengers and

freight) sub-sectors, but was scant on aviation and ports. To the contrary, sufficient quantitative

data to conduct the required statistical analysis was only available for rail. Virtually no detailed

data sets existed for road transport, a fact that necessitated undertaking an extensive survey

exercise. Our report has ended up adding tremendous value to previous knowledge. This is

especially true with regard to institutional and governance dynamics of the entire transport sector,

and quantitative estimates of price, margin growth, and other relevant indicators for road services.

Below, we detail our methodology for each sub-sector:

2.1 Road

6. A detailed structured questionnaire was prepared and a survey conducted in 14 locationsacross Pakistan. Our sample size was 100, divided among freight and passenger carriers. The

sample size and locations were determined with the help of national level industry data acquired

from the Federal Bureau of Statistics (FBS). The final sample was both representative and

significant at the national level.

Table 2.1: Sampling details

Location No. of structured questionnaires

Freight services Passenger services

Punjab

Faisalabad 8 5

Lahore 15

Multan 3 2

Okara 4 3

Rawalpindi 4 5

Gujrawala 2 4

Sindh

Karachi 5 10

Hyderabad 4 2

Nawabshah 3 2

Sukkur 4 2

Continued


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Location No. of structured questionnaires

Freight services Passenger services

NWFP

Peshawar 4 3

Abbotabad 4 2

Balochistan

Quetta 4 3Federal area

Islamabad 4 1

Total 68 44

Sigma total 112Source: Primary data analysis

7. A staged sampling procedure was implemented. To begin with, FBS estimates wereused to identify the proportion of respondents coming from freight and passenger services.

The higher number of respondents from the freight industry is an indication of its greater

relevance to commerce activity in the country. The FBS also identified the specific

cities/towns for the survey. Within each identified location, respondents were selected using

the snowballing technique, keeping in mind the need to conduct the exercise in multiple

markets within a selected city as well as to ensure variation among the size of the firms

interviewed. A random sampling technique was not feasible, as no universe for the transport

sector exists for any of these locations. Moreover, the diversity of the selected locations and

the transient nature of most transporters (especially those without any physical hub) would

have made mapping a cost-prohibitive exercise.

8. Information requested from the respondents covered all aspects of the stipulated termsof reference for the report. Specifically, we tracked information on the following:

Skill and education level

Structure of the firms Ownership details

Size of the firms

Type of vehicles

Level of automation

Employment details

Firm expansion

Estimates of price, cost, profit margin,and volume for both passenger and

freight services

Time estimates Share of revenue from various services

Regulatory framework

Competition in the industry

Asset information

Availability of capital and financing Use of credit

Investments

Banking and accounting procedures

Constraints and drivers of growth

Road infrastructure

Role of the government

Zoning restrictions

Rent control

Contractual arrangements

Payment arrangements Property rights

Law and order

Losses and dispute resolution

9. The quality of the data obtained from the above exercise was fairly weak. This iscommon for most transport surveys of this nature in Pakistan. The fact that an overwhelming

majority of the road transport sector forms part of the informal economy prompts transporters

to avoid providing insights into information relating to prices, costs, and revenues. While we

managed to obtain enough information on governance and institutional concerns to conduct a

5 The sigma total is higher than the sample size since 12 respondents dealt both with passenger and freightservices.


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robust statistical analysis, the survey revealed little on the volume, costs, profit margins, and

revenues of individual enterprises. Since this information was critical for our analysis, we

ended up using an existing primary data set collected from transporters of coniferous timber

for 2004-05 and 2005-06. The data contains variables dealing with price, costs, and profit

margins for the major timber routes in the country. The sample size for the data set was 62,

which was representative of the timber industry in Pakistan. A total of 5 hubs of timber tradein the country were surveyed. As with the data set collected specifically for the domestic

commerce exercise, respondents for the timber survey were selected through snowballing.

10. A statistical analysis was conducted on the primary data using the SPSS software.Basic descriptive statistics for all variables included in the survey questionnaire and cross-

tabulations for several indicators were generated. The entire data set was treated at various

levels of aggregation. We used three base variables: passenger services, freight services

carrying agricultural goods, and freight services carrying all other (non-agricultural)

commodities.6 Analysis was conducted for the aggregated national data, as well as at the

provincial level (for Punjab and Sindh only). These statistics have formed the basis for the

discussion of the road sub-sector in this document. We have tried to highlight variations

among our base variables and/or among provinces where appropriate.

2.2 Data Reliability

11. The actual response ratio is much lower than expected. A number of sensitive fieldsin the questionnaires were left unanswered. Out of the total sample, NWFP and Balochistan

only contributed 9 and 6 responses respectively. While these results are included in the

aggregated data at the national level, provincial data generated to capture inter-province

variation was limited to Sindh and Punjab, where the respective number of observations were

34 and 50 respectively. Neither of the domestic commerce survey, nor the timber industry

data set distinguishes between various types of vehicles, a shortcoming that impacts most of

the quantitative estimations. Moreover, data on passengers does not generate any information

on for-hire and rental transport. The entire road passenger analysis is thus confined to

commercial services. Also, no information regarding tax regimes was obtained. In fact, we

had to drop tax related variables after the pre-test.

12. Data on prices, costs, and profit margins is always to be interpreted cautiously, giventhe propensity of respondents to exaggerate costs and underestimate profits. Indeed, we have

recorded a number of instances of net losses, which clearly are a result of false responses.

Moreover, while we collected information for a total of 204 transport routes though the

domestic commerce survey, the number of observations and the extent of data for minor

routes were weak. We ended up dropping information for these routes. In the final analysis,

we have only included the major transport routes for commercial goods and passenger trafficin the country. The final selection of routes is entirely a function of the extent of information

available for each one of the major routes.

2.3 Rail, Aviation , and Ports

13. Sections on the rail, aviation and ports sub-sectors primarily draw on secondaryliterature. Information from key informant interviews was only utilized to substantiate

existing information and fill any gaps. Owing to the small number of interview respondents,

information from secondary literature was treated as sacrosanct wherever the two sources of

information tended to contradict each other. Interview respondents were selected purposively,

6 Any enterprise found to be carrying agricultural goods majority of times was considered an agriculturaltransporter.


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using relevance of respondents to the required information as the selection criteria. The table

below details the number of interviews conducted for each sub-sector.

Table 2.2: Interview details for rail, aviation, and ports sub-sectors

# of interviews Location

Rail 8 Lahore, Islamabad

Aviation 3 Karachi

Ports 11 Karachi, Lahore


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Section 3Transport Indices

14. Before this study, no indices of the transport sector existed in Pakistan. This is largelya result of lack of required data to develop such indices. While overall output figures exist,

the per unit prices, operating revenues and expenditures, and value added figures are missing

for one or the other sub-sector. Data on road transport, which is the mainstay of the sector, isthe most scant. In some cases, while data exists, it is not disaggregated to the necessary level.

While we have managed to prepare an output index, only weights have been computed for the

value added and price indices since no time series data for value added and prices for

previous years is available.

3.1 Outpu t index

15. We have used the Laspeyres fixed-weighted index to derive our results7. Threeseparate indices have been generated: the total transport output index, the passenger output

index, and the freight output index. Relative weights for the index have been computed using

operating revenue estimates for passenger and freight services. Data was available for rail,but had to be computed for road. The aviation sector has not been factored into the index.

While data on the operating revenue of the air sub-sector is available, but it does not

differentiate between domestic and international output. Data on price per unit, the other

necessary variable to calculate relative weights (in the absence of revenue information) is

altogether missing. Nonetheless, since aviations total share in the transport sector is less than

one percent, its omission should have no significant impact the final index.

16. To compute the weights for road, we calculated the price per passenger-km and ton-km for passengers and freight services respectively from the primary data. Mean values for

number of passengers and tons were used to calculate the per unit price wherever such entries

were missing in the primary data. Then, using published output figures for each of the two

services, we arrived at their respective operating revenues (see annex 1 for an illustration ofthe methodology used to compute per unit price estimates).

The formula for the Laspeyres index is as follows:

X

PQ

PQ

PQI ii 0

00

01

= 033022011

1PQPQPQ

X

7 The Lapeyres index is frequently used for intermediate sectors of the economy. Pakistans CPI is alsocalculated using this index.


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=3

03

2

02

1

01 QX

PQ

X

PQ

X

P

= 332211 QWQWQW

where,

I= Index

P0= Base year price

Q0= Base year output

Q1,Q2, Q3= Outputs in other years

W1,, W2, W3= relative weights in the respective years

The relative weights computed for each sub-sector are provided below:

Box 1: Relative weights to compute output index

RoadPassenger 0.5101Freight 0.4146

RailPassenger 0.0452Freight 0.0301

Total 1.00

17. Using time series data on passenger and freight output for the road and rail sectors,the following indices were generated. The base year was taken to be 2004-058.

Table 3.1 Total, freight, and passenger indices

18. The transport output index has grown steadilyover the past decade. The total, freight and passenger indices track extremely closely with

each other. This points to the similar growth patterns of the passenger and freight services.

Overall growth rates for transport were consistently high in the late 1990s. The year 2000-01

saw a drastic decline. Since then, growth has picked up gradually. Yet, the rate of increase in

the transport index since 2000-01 is much lower than average growth in the late 1990s.

8 While it is not usual to consider the last year computed in an index as a base year, we did not have therequired data for any of the previous years.

Years TotalOutputIndex

PassengerOutputIndex

FreightOutputIndex

1995-96 67.28 66.67 68.77

1996-97 71.16 70.60 72.55

1997-98 75.49 74.90 76.97

1998-99 80.36 79.76 81.84

1999-00 85.30 84.64 86.98

2000-01 90.33 89.66 92.02

2001-02 91.10 90.14 93.51

2002-03 93.45 92.96 94.68

2003-04 96.59 95.94 98.20

2004-05 100.00 100.00 100.00

60

65

70

75

80

85

90

95

100

1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05

Total Transportation Index Passenger Transportation Freight Transportation Index


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19. A very interesting relationship is witnessed between the output index and nationalGDP growth. In the late 1990s, when GDP growth rates

had plummeted, the transport sectors output growth was at

its peak. The situation has reversed completely since 2000-

01, where GDP growth rates have accelerated but increases

in the transport index have slowed down. The relationshippoints to a lag in the movement of the transport index in

comparison with GDP growth. An analysis of the GDP

growth trends since the late 1980s suggests an average lag

of 3-5 years. Two complete cycles can be identified in the

past two decades. Relatively high growth rates in the mid

to late- 1980s and early 1990s were reflected in the

transport index post-1993-94 (not shown in the index). The

slump in GDP growth from 1996-97 to 2000-01 does not

impact the transport index till 2001-02. Also interesting is

the fact that the duration of an economic upturn or downturn in the past two cycles has been

approximately the same as that of the upward and downward movements of transport output.

Figure 1: Plot of GDP growth against transport output index growth (%)

0

1

2

3

4

5

6

7

8

9

10

1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05

Growth Rate GDP Growth

20. The trend in the increase in the output index can be used to predict future growthpatterns. We conduct a simple forecasting exercise for the transport sectors output index till

2009-10. Two estimates are provided, the first without considering the lag, and the second

with the lag factored in. Forecasts are made separately for the total, passenger and freight

indices. While a static average of the last three years has been taken to forecast growth of the

total and passenger indices (without lag), for the freight index, a moving average of the lastfour years has been used to compensate for the fluctuation in the past trend. Our forecasts

suggest that passenger services are likely to grow at a faster pace than freight services. Such a

trend is already underway, as confirmed by our survey results. The majority of the enterprises

transporting both goods and passengers have witnessed an increased share of revenues

flowing from passenger services in the past three years. Owing to minor difference in per unit

prices between freight and passenger carriers (see discussion on prices in section 3), this

could reasonably be expected to be a result of increased passenger volumes.

21. The dotted line in the chart below represents the potential change in the forecastedgrowth trends were the lag element factored in. It has only been depicted for the total

transport index. The higher forecast comes from our expectation of an upturn in the transport

sector within the next two years. This is borne out of the fact that national GDP growth rate

Table 3.2: Annual growth ratesof transport output index andnational GDP

(%)

YearOutputIndex

growth

GDPgrowth

1996-97 5.8 1.7

1997-98 6.0 3.5

1998-99 6.4 4.2

1999-00 6.2 3.9

2000-01 5.9 2.0

2001-02 0.8 3.1

2002-03 2.6 4.7

2003-04 3.4 7.5

2004-05 3.5 8.6


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have been remarkably high since 2002-03. Given the average lag of 3-5 years, one should

witness an accelerated positive movement in the output index in the near future. The lagged

line has been included in the chart simply to indicate the higher growth trend. It has not been

calculated precisely. Time series data stretching back at least 5-6 complete economic cycles

is required to conduct such an analysis.

Figure 2: Forecast for output index movement

60

70

80

90

100

110

120

130

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

Total Transportation Index Passenger Transportation Index Freight Transportation Index

3.2 Weights for value added index

22. No value added index could be created owing to the lack of time series data onoperating revenues and costs for the transport sub-sectors. However, utilizing our sample

data, we have computed relative weights for the road sub-sector, using 2004-05 as the base

year. Both rail and aviation have been eliminated since cost estimates disaggregated by

passenger and freight services were not available. For road, total per annum revenue and

equivalent costs were calculated using per trip revenue and cost estimates and adjusting for

the number of trips conducted in a given year per route. The revenue and cost estimates (on a

per-km basis) were used to derive relative weights. These are provided in the table below:

Box 2: Relative weights for value added indexRoad

Passenger 0.5285Freight 0.4715

Total 1.00

23. As for the output index, the relative weight for passenger services comes out to be higherthan that for freight. However, the difference is quite small, suggesting comparable value added

potential of freight and passenger services.

3.3 Weights for price index

24. Only weights for the road sub-sector are generated to allow computation of a price indexin the future. Reasons to exclude rail and road, and for not being able to create an actual index are


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the same as those stated in the discussion on value added weights. For the price index, the per km

price for passenger and freight services is calculated using the sigma total of the price and

distance traveled in our sample. The variation in tonnage and passenger volumes has not been

considered owing to the lack of variation in our sample (with respect to unit passenger and freight

volume). Weights for the price index are reported below:

Box 3: Relative weights for price index

RoadPassenger 0.5379Freight 0.4621

Total 1.00

25. The weights are higher for passenger services in this case as well. However, thedifference is even smaller than for the value added index. This is consistent with our per unit

price estimates for freight and passengers generated from the sample data (see section 3). These

have turned out to be similar.

3.4 Tackling scarc ity of data in future attempts

26. The indices computed should be interpreted cautiously. Data sets have been combined,and in places mean values have been used to fill missing data. Lack of variation in the load

factors of timber carriers (price and cost data has come from the timber industry data set) would

have also skewed the weights slightly, although the impact is likely to be small. Moreover, the

lack of accuracy of data on loaded weights, number of passengers, and the operating hours, might

also have raised the error percentage marginally.

27. Since the domestic commerce survey is planned to be an annual exercise, there is a needto ensure that all relevant information is gathered annually. Nationally representative figures for

revenues, costs, per unit prices, tonnage, average number of passengers by vehicle type, and othersuch variables needed for computing indices must be collected. A much larger data set should be

gathered, with a proportionate mix not only between freight and passenger services, but also

among the various sub-sectors within each service. It would be highly interesting to have a

detailed index that distinguishes among agricultural, industrial and other commodity carriers.

Passenger services could also be divided into inter-city and intra-city transport. Other such

disaggregations could be thought of. Collecting such information will allow for the formulation

of comprehensive time series data set over the years. Such data could also be used to generate

other indices such as tonnage, among others.

28. Data on rail and aviation is also incomplete. Aviation data must be differentiated bydomestic and international services. Currently, no such data exists for operating revenue and

costs. In fact, only Pakistan International Airlines Corporations (PIAC) statistics are readilyavailable, but those too are at an aggregated level. Moreover, there are no estimates for the per-

unit price for domestic aviation services in the country. The same is true for rail, although rail

services do provide operating revenues, prices and total output figures that are disaggregated for

freight and passengers. No information is available for equivalent disaggregated costs however.


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Innovative Development Strategies (Pvt)18

Section 4Road transport

4.1 Output

29. Road transport constitutes the backbone of Pakistans transport system. The road sub-

sector comprises 96 percent of the total freight services and 90 percent of the total commercialpassenger services in the country9. The following table provides the overall ton-kms and

passenger-kms traveled by road over the past decade. The annual growth in output rates closely

approximate the increase in the total transport index discussed earlier, thus pointing to the

overbearing importance of road transport for the sector as a whole. The similar pattern of growth

for passenger and freight industries over the stated period is also obvious.

Table 4.1: Total passenger and freight output for road

Year Passenger traffic(Million Passenger-km)

% change Freight(Million Ton-km)

% change

1995-96 154,566 5.8 79,900 5.5

1996-97 163,751 5.9 84,345 5.6

1997-98 173,857 6.2 89,527 6.11998-99 185,236 6.5 95,246 6.4

1999-00 196,692 6.2 101,261 6.3

2000-01 208,370 5.9 107,085 5.7

2001-02 209,381 0.5 108,818 0.2

2002-03 215,872 3.1 110,172 1.2

2003-04 222,779 3.2 114,244 3.7

2004-05 232,191 4.2 116,327 1.8Source: Government of Pakistan, Pakistan Economic Survey 2005-06.

4.2 Price, Cost, and pro fit margin estimates

4.2.1 Freight services

30. An analysis of thepricestatistics on commercial goods transport shows some interestingfeatures. The mean prices for the major transport routes highlight two facts worth noting. First,

there is a substantial difference between inward and outward rates. For example, the inward

movement from Karachi to Lahore costs PKR 57,000, while the mean outward charge for the

same route is PKR 27,500, an amount less than half of the inward costs. Second, such a

difference is only applicable to the port city of Karachi. Goods transported to other border towns

like Quetta, from where part of the trade between Pakistan and Afghanistan and the Afghan

Transit Trade (ATT) facility flows, does not experience such variations in transport charges. The

mean charges for Quetta-Lahore and Lahore-Quetta for instance, are almost the same. In absolute

terms, the per ton per km prices in Pakistan turn out to be extremely low.

9 Government of Pakistan, Pakistan Economic Survey 2005, 2006.


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Table 4.2: Freight prices for major routesPKR

Routes Mean price Price/ton/km

Peshawar to Rawalpindi 7000.00 1.14

Peshawar to Lahore 8945.00 0.57

Peshawar to Karachi 18666.67 0.30

Peshawar to Quetta 22666.67 0.38

Lahore to Karachi 27500.00 0.58

Karachi to Lahore 57000.00 1.19

Lahore to Quetta 40000.00 0.90

Quetta to Lahore 41000.00 0.92

Karachi to Rawalpindi 58000.00 1.38

Source: Primary data analysis

31. It is important to mention that our results are somewhat lower than existing estimates. To

some extent, the difference could be attributed to our data set being specific to softwoodtransport, where load factors on average are higher than other industries. Still, our estimates are

realistic for two-axle and three-axle rigid trucks, which constitute two thirds of the entire truck

industry. In order to confirm the accuracy of our findings, we conducted a simple verification

exercise in Rawalpindi, Lahore, and Jehlum, and found out estimates to be fairly precise for

trucks carrying weights between 35 and 50 tons.10

32. Transporter costsfor goods per route are fairly low as well. What is interesting to note isthat even in the case of costs, there is a marked difference between inward and outward traffic

from and to Karachi. While counterintuitive, such a scenario is largely a result of the additional

costs associated with heavily-loaded vehicles traveling inward. As the majority of the outward

traffic moves with lower load factors, bribe costs, permit fees, overloading fines, and fuel costs

are lowered substantially. Among the various costs incurred on all routes mentioned, data

suggests that on average, fuel costs constitute a staggering 63.49% of the total costs incurred per

trip. This proportion has increased in recent years owing to the hike in fuel prices.

Table 4.3: Freight transporter costs for major routes11

PKR

Routes Mean cost Cost/ton/km






Quetta to Lahore 18000.00 0.40

Karachi to Rawalpindi 40000.00 0.69


10 We simply contacted a handful of transport services in the three cities to get price quotes for the routesincluded in this analysis. The cities were not selected through any sampling procedure since our objective

was only to roughly confirm our estimates.11 The routes mentioned here are less than those mentioned in table 4.2 (prices) since we could not acquire

complete information for all routes.


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Figure 3: Fuel costs relative to total cost (%)

0%

10%

20%

30%

40%

50%

60%

70%

Fuel costs Other costs


33. Naturally, the gross profit margin reflects the trends in the prices and costs of freighttransport. Consequently, the profit margins on inward routes are relatively high. Margins on

relatively shorter routes such as Peshawar-Rawalpindi, and outward routes are substantially

lower. The profit/ton/km for outward routes is minimal. On the Peshawar-Karachi (outward)

route, the profit/ton/km is lower than the profit margin for the Karachi- Rawalpindi (inward)

route by a factor of 17.

Table 4.4: Profit margins estimates for freight carriers (PKR)

Routes Mean profit margin Profit/ton/km






Quetta to Lahore 23000 0.52

Karachi to Rawalpindi 18000 0.31


4.2.2 Passengers

34. Passenger fares (prices)are fixed and do not vary between inward and outward traffic.The per passenger fares reflected here are mean values for a variety of transport vehicles12.

However, as the data shows only buses with seating capacity of more than 30 were captured

in the sample. This is because most of the routes we have considered are above 400 kms in

distance and thus involved larger vehicles. The price/passenger/km estimates fall within the

lower and upper bounds of the price/ton/km for freight for the same routes. However, there is

less variation in per unit passenger fare estimates across routes than was witnessed for

freight.

12 While ideally one would have liked to see these differentiated by seating capacity of vehicles, we have notmanaged to obtain information at such a disaggregated level.


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Table 4.5: Passenger fares for major routes (PKR)

Routes

MeanPrice/Passenger

MeanPrice/Passenger/Km

Karachi To Rawalpindi 1000 0.64

Karachi To Muzafarabad 1000 0.59

Peshawar To Lahore 250 0.57Quetta To Karachi 500 0.70

Rawalpindi To Lahore 220 0.80

Rawlapindi To Peshawar 75 0.45Source: Primary data analysis

35. Our costestimates have clearly suffered from respondent bias, as at least two routesare showing a net operating loss. The only reasonable estimates available are those for

Karachi-Rawalpindi, Karachi-Muzaffarabad, and Rawalpindi-Lahore. Per passenger costs

incurred by transporters as a percentage of the per passenger fares charged are much lower

for longer routes. Consequently, the longer routes have substantially higher per passenger

profit margins. This is reflected in the figures for profit margins/passenger/km.

Table 4.6: Passenger transport cost and profit margin estimates (PKR)

Costs Profit Margins

RoutesMean

Cost/Passenger Cost/Passenger/KmMean

Profit /PassengerProfit

Margin/Passenger/Km

Karachi To Rawalpindi 515.83 0.33 484.127 0.31

Karachi To Muzafarabad 571.43 0.03 428.57 0.25

Peshawar To Lahore 273.81 0.63 -23.81 -0.05

Quetta To Karachi 714.29 1.00 -214.29 -0.30

Rawalpindi To Lahore 150.79 0.55 69.21 0.25

Rawalpindi To Peshawar 70.71 0.42 4.285714 0.03Source: Primary data analysis

4.3 Time estimates

36. As is to be expected, the mean times taken for any given route are much lower forpassenger vehicles than for commercial goods carriers. The former is higher by a factor of

1.5-2 for most routes. The average speeds of passenger vehicles fall in the range of 55-71

km/h, although the estimate for the Karachi-Rawalpindi route seems somewhat exaggerated

given the poor condition of the roads in Sindh. Speeds of freight carriers average between 28

and 40 km/h. In absolute terms, these are extremely low. Our findings conform with existing

estimates which point to Pakistans transportation times over long distances to be twice as

long as the equivalent times in Europe or East Asia 13. Average speeds for freight carriers in

Pakistan are lower by a factor of 2 to3 than in Europe, where speeds approximate 80-90

km/h14. The Karachi-Rawalpindi route registers the highest average speeds for goods

transport as well. This is despite the fact that traffic density on the N-5, the major transport

13 World Bank, Unlocking Pakistans Potential, Presentation on the Indus Trade Corridor, 2005. 14 World Bank, Pakistan Transport Sector: Overview,

(accessed on 16 August, 2006).


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link between Punjab and Sindh, is one of the highest in the country 15. This anomaly begs

further investigation.

Table 4.7: Estimates of times taken for transportation

Passenger Goods

Routes Distance

Meantime/route

(hours)

Averagespeed(km/h)

Mean time /route(hours)

Average speed(km/h)

Karachi To Rawalpindi 1567 22 71.23 38.67 40.53

Karachi To Muzafarabad 1709 27 63.30

Rawalpindi To Lahore 275 5 55.00

Rawalpindi To Peshawar 167 3 55.67 5.75 29.04

Peshawar To Lahore 436 7.5 58.13

Lahore to Karachi 1292 45 28.71

Lahore to Peshawar 436 11.25 38.76


4.4 Characteristics of the Road Sub-sector

4.4.1 Road Network and Administration

37. Currently, Pakistans road network is 258,340 km in length. Approximately 165,762km are of the high-type variety and the remaining 92, 578 km are of low-type variety16.

Nearly 60 percent of the network is paved17. There are 14 National Highways (8,600 km), 5

motorways (767 km), and 2 Strategic Roads (207 km)18. The motorways and highways

comprise only 3 percent of the total road network. However, 80 percent of the commercial

traffic is dependent on them19. The 1,760 km Karachi-Lahore-Peshawar (M9/N5) serves as

the main domestic artery.20 With regard to inter-city transport, the road section between

Rawalpindi and Lahore along N-5 has the heaviest traffic.

Table 4.8: Transport density estimates (2005)

National Highway Code RoadSection

Traffic volume(No. of

Vehicles)

Increase2005/1995

(%)

Composition (%)

Car Bus Truck

N-5

Peshawar-Rawalpindi 12,827 1.31 39.1 25.2 35.7

Rawalpindi-Lahore 17,287 1.56 47.7 17.9 37.4

Lahore-Multan 8,080 1.01 28.6 16.1 55.3

Multan-Sukkur 6,814 0.75 9.8 9.6 80.6

Sukkur-Hyderabad 7,332 N.A. 19.6 12.0 68.4

N-25

Hub-Khuzdar 1,733 1.17 16.1 21.2 62.7

Khuzdar-Quetta 3,813 1.32 21.3 26.3 52.4

Continued

15 Japan International Cooperation Agency (JICA), National Transport Research Centre and Ministry ofCommunications Government of Pakistan, Pakistan Transport Plan Study in the Islamic Republic ofPakistan. Final Report, Nippon Koei Co., Ltd. Almec Corporation, 2006.

16 Government of Pakistan, Pakistan Economic Survey 2005-06.17 Japan International Cooperation Agency, 2006.18 Ibid.19 Government of Pakistan, Pakistan Economic Survey 2005-06.

20 Asian Development Bank, Proposed Multitranche Financing Facility and Loan to Islamic Republic ofPakistan: National Highway Development Sector Investment Program, Report and recommendations of thePresident to the Board of Directors, Project No. 37559.
http://www.finance.gov.pk/survey/sur_chap_05-06/14-transport%20communication.pdfhttp://www.finance.gov.pk/survey/sur_chap_05-06/14-transport%20communication.pdfhttp://www.finance.gov.pk/survey/sur_chap_05-06/14-transport%20communication.pdfhttp://www.finance.gov.pk/survey/sur_chap_05-06/14-transport%20communication.pdf


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National Highway Code RoadSection

Traffic volume(No. of

Vehicles)

Increase2005/1995

(%)

Composition (%)

Car Bus Truck

N-35

Hasanabdal-Abbotabad 8,112 1.46 44.7 34.0 21.3

N-40

Lakpass-Noshki 916 1.66 18.7 27.0 54.4N-50

D.I.Khan-Zhob 238 6.46 22.7 23.9 53.4

N-65

Hacobabad-Sibi 2,997 1.03 14.7 21.1 64.2

N-70

D.G. Khan-Loralai 1,392 1.31 11.7 17.8 70.4

N-55

Peshawar-D.G.Khan 7,452 1.36 33.4 31.7 34.9

D.G. Khan- Jacobabad 1,924 1.09 11.7 23.5 64.8

Jacobabad-Hyderabad 1,353 0.49 30.6 39.5 29.9Source: Japan International Cooperation Agency, 2006.

4.4.2. Structure of the Road Sub-sector

38. Large numbers of individual owners providing for hire and reward servicesdominate the trucking industry. Survey results depict that the vast majority of businesses are

organized as sole proprietorships. Partnerships, while less prevalent, are a more favored mode

of organization, especially of enterprises that transport non-agriculture commodities. Most

partnerships consist of enterprises being run by two individuals with a few businesses having

as many as four to five partners. Modalities for sharing of profits vary between distributing

profits according to size of investment of each partner and dividing gains equally. Majority of

the firms opt for the former. The mean percentage share of the biggest partner comes out to

be 32 percent. Property rights do not appear to be a problem. Ninety-three percent of therespondents stated that the ownership of their vehicles was clearly defined.

Figure 4: Type of Ownership in the truck industry

85%

1%

11%

2%1%

Proprietorship(sole/one owner) 1 Partner 2 Partners 4 Partners 5 Partners

Source: Primary data analysis.


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39. Majority of the businesses are small,21employing less than 10 employees on average.Yet, vast majority of firms employ full-time paid staff. Only 8 percent of businesses surveyed

had hired part-time personnel. None of these were large firms. An interesting revelation is the

relatively low number of family workers in transport enterprises, a highly unusual situation

for an industry that is predominantly informal in nature. The few family workers that are

present are crowded in small enterprises transporting freight. Passenger services tend not tohave family workers.

Figure 5: Relative size of firms in the road industry

0%

10%

20%

30%

40%

50%

60%

70%

Small Medium Large


Table 4.9: Type of workers in the transport industry (%)

Small Medium LargeFull Time 51.1 90.5 100.0

Part Time 7.6 9.5

Full time family workers 30.5Part time family workers 10.7

Total 100.0 100.0 100.0Source: Primary data analysis

40. Firms in the road sub-sector have yet to fully embrace automation in their day-to-dayfunctioning. Hardly any enterprises currently use either a website or e-mail to interact with clients

and suppliers. A very small proportion of the firms use a computer regularly as part of their work.

This is interesting given the relatively high level of education of transport owners (see section on

owners previous experience and skill level). It points to the fact that the make-up of the road

industry does not incentivize automated services in any way. Arguably efficiency gains are

comprised due to lack of automation.

41. There is also a significant gap between business services required by a firm and the actualservices being used. Engineering, legal, marketing and insurance services were cited as being

highly sought after. While enterprises largely fulfill their engineering and to an extent, legal

needs, marketing, insurance and accounting requirements largely go unentertained. Less than a

quarter of the firms develop an annual financial statement to summarize the operations of the

establishment. Companies engaged in transporting passengers are relatively more particular in

preparing financial statements. Punjab based enterprises turn out to be more organized than firms

in Sindh, as the per firm usage of such services is much higher in the province.

21 Small=1025 employees


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Table 4.10: Gap between business services required and used

Needed(% of respondents saying yes)

Used(% of respondents saying yes)

Engineering Services 63.4% 61.5

Legal Services 51.2% 41.0

Marketing Services 43.9% 26.8

Insurance Services 43.9% 20.5Accounting Services 22.0% 5.1

Managementconsultants

19.5% 12.8

InformationTechnology Services

2.4% 0


42. Most transporters have no marketing mechanism to speak of. Word of mouth is by far themost predominant marketing tool used by the transporters. Only a few businesses use marketing

agents. Majority of these are passenger services. As for the clients, most of them usually end up

contacting the concerned transporter directly. Use of agents or transport addas(hubs) is not as

common. This could be a result of a client being more comfortable with a previously triedtransporter, or a way to avoid the small fee transport agents change for acting as middlemen.

Responses were categorical in pointing to the absence of any organized database through which

particular transporters could be accessed. However, many respondents maintained that large

companies have an advantage due to a greater human and financial capacity. On an optimistic

note, most enterprises are conscious of the need to streamline the communication modalities by

developing standard operating procedures for the industry.

43. Interestingly, the role of the local transport associations turns out to be greater thanexpected. Almost three-fourths of the firms included in the survey were found to be members of

transport associations. A higher proportion of Punjab based enterprises tend to be members of

transport associations than their counterparts in Sindh. Transporters of agricultural commodities

are more active in associations in their area of operation as compared with transporters of non-

agricultural goods and passenger services.

44. The largely traditional patterns of organization of the transport industry are obvious fromthe above discussion. Such an industrial structure results in the lack of standardization of the

quality of road transportation services. Existing literature suggests that clients in general receive a

level of service commensurate with the amount they are willing to pay. Shippers of low-value

goods are more price sensitive and depend on the less reliable services of the spot market. Clients

shipping higher value goods usually tend to have formal arrangements22.

4.4.3 Composition of the Freight Market

45. As mentioned, road transport caters to 96 percent of freight traffic. The private sector isthe dominant player and handles 95 percent of the total freight23.

Documents

The State of Domestic Commerce in Pakistan Study 7 - An Overview of the Transport Sector