An Assessment of Opportunities and 2009 IFC Constraints in the Logistics Industry in Pakistan

8/12/2019 An Assessment of Opportunities and 2009 IFC Constraints in the Logistics Industry in Pakistan

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Pakistan LogisticsConstraints Analysis

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MENA LogisticsAn Assessment of Opportunities and Constraints

in the Logistics Industry in Pakistan

2009

Idom Consulting

31/7/2009


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Pakistan LogisticsTable of Contents

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Table of Contents

1. Objective and Methodology ....................................................................................................................................... 5

2. Executive Summary .................................................................................................................................................... 6

3. The Logistics Sector at a Glance .......................................................... .............................................................. .......... 8

3.1 Importance of the Logistics Sector ................................................................. ................................................... 8

3.2 Composition and Characteristics of Pakistans Transport Market .................................................................. 10

3.3 Where in the Value Chain Are Logistical Weaknesses?................................................................................... 11

4. Road Transport ......................................................................................................................................................... 14

4.1 Road Infrastructure Assessment .......................................................................................... ........................... 14

4.2 Road Services Assessment .............................................................................................................................. 15

4.3 Road Transport Recommendations ................................................................ ................................................. 17

4.3.1 Improve the Operation of the National Trade Corridor (NTC) ............................................................... ..... 17

4.3.2 Improve Regulation of the Transport and Trade Sector ............................................................................. 18

4.3.3 Support Incentives for the Renewal of Fleets in the Freight Transport Sector ........................................... 19

4.3.4 Reshape Current Truck Insurance Schemes .......................................................... ...................................... 19

5. Maritime Transport .................................................................................................................................................. 20

5.1 Maritime Infrastructure Assessment .............................................................................................................. 20

5.2 Maritime Services Assessment ............................................................. ........................................................... 21

5.3 Maritime Transport Recommendations ......................................................... ................................................. 22

5.3.1 Liberalize the Maritime Transport Industry .......................................................... ...................................... 22

5.3.2 Quality Assurance Programs ....................................................................................................................... 23

6. Rail Transport............................................................................................................................................................ 25

6.1 Rail Infrastructure and Services Assessment................................................................................................... 25

6.2 Rail Transport Recommendations ........................................................................................ ........................... 26

6.2.1 Promote PPP Initiatives for the Development of the Rail Network ............................................................ 26

6.2.2 Introduce Modern Management Techniques in Pakistan Railways Freight Division................................. 27

7. Air Transport ............................................................................................................................................................. 28

7.1 Air Infrastructure and Services Assessment .............................................................. ...................................... 28


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7.2 Air Transport Recommendations .................................................................................................................... 29

7.2.1 Pun in Practice Vision 2030 Policies........................................................................................................ 29

8. Other Logistical Infrastructure .................................................................................................................. ................ 30

8.1 Freight Villages ................................................................................................................................................ 30

8.2 Reefer Storage ..................................................... ................................................................. ........................... 31

8.3 Trading Spaces ................................................................................................................................................ 31

8.4 Logistical Infrastructure Recommendations ................................................................................................... 31

8.4.1 Development of Public-Private Trans-Freight Stations and Reefer Storage Areas ..................................... 31

8.4.2 Development of Wholesale Central Markets ........................................................ ...................................... 32

9. Cross-Cutting Issues ...................................................... ................................................................. ........................... 34

9.1 Logistical Education ........................................................ ................................................................. ................ 34

9.2 Customs and Inspection .................................................................................................................................. 35

9.3 Recommendations .......................................................................................................................................... 36

9.3.1 Develop Logistic Training Modules ............................................................................................................. 36

9.3.2 Develop IT in Logistics Awareness Program: How Useful Is IT In My Supply Chain?............................... 36

9.3.3 Customer-Oriented Approach in Customs ............................................................ ...................................... 37

10. Conclusion and Going Forward ................................................................ ............................................................ 39

11. Annex ............................................................ ................................................................. ...................................... 40

11.1 Acronyms......................................................................................................................................................... 40

11.2 Bibliography .................................................................................................................................................... 42

11.3 List of Interviewees ......................................................................................................................................... 43

11.4 Projects Summary ........................................................................................................................................... 44

11.5 The Logistics of Citrus ..................................................... ................................................................. ................ 45


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Tables Index

Table 1: Logistics Performance Index (LPI). Source: Doing Business, World Bank. ............................................................ 8

Table 2: Road network size (in km) in terms of a countrys area (in sq-km). Source: own analysis. ................................ 15

Table 3: Current projects in road infrastructure. Source: Ministry of Transport.............................................................. 15

Table 4: Current projects in maritime infrastructure. Source: KPT & PSA International. ................................................. 21

Table 5: Pakistan-Germany rail network size comparison. Source: Pakistan Railways, Eurostat and BMI. ..................... 25

Table 6: Pakistan-Germany rail network usage comparison. Source: Pakistan Railways, Eurostat and BMI. .................. 26

Table 7: Current projects in rail infrastructure. Source: Ministry of Railways. ............................................................ ..... 26

Table 8: Fruits conservation temperature requirements and maximum life. Source: University of California. ............... 31

Figures Index

Figure 1: LPI vs. GDP-PPP per capita. Source: Doing Business, World Bank. ...................................................................... 9

Figure 2: Pakistans Logistics Performance Index (LPI). Source: Doing Business, World Bank........................................... 9

Figure 3: Pakistans Logistic Sector Size. Source: Pakistan International Freight Forwarders Association estimation. ... 10

Figure 4: Transport mode split in terms of tons-km transported. Source: Business Monitor International + Eurostat. .. 10

Figure 5: Orange exports value chain. Source: own analysis from Doing Business and Trading across Borders data. .... 11

Figure 6: Orange exports lead times. Source: own analysis, Doing Business and Logistics Performance Index. ..... ........ 12

Figure 7: Orange exports price structure. Source: local experts + interviews with orange exporters. ............................ 12

Figure 8: Pakistan National Motorways. Source: National Highway Authority (NHA)...................................................... 14

Figure 9: Container traffic at Pakistani ports (in 000 TEUs). Source: Drewry Consultants. .............................................. 20

Figure 10: Duration of customs procedures. Source: World Bank. .................................................................................. 35


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Pakistan LogisticsObjective and Methodology

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1.Objective and MethodologyIFC (International Finance Corporation), part of the World Bank Group (WBG), commissioned Idom

Consulting to conduct an assessment of the logistics sector in Pakistan. The objective of the assessment

was to identify priority issues along the logistical value-chain which constrain the competitiveness of the

agro and time-sensitive manufacturing sector in Pakistan.

The ultimate objective of this assessment is to provide recommendations as to how to remove critical

sector constraints and open the sector for investments in order to further its development and ultimately

strengthen private sector development in Pakistan. While extensive research on the transport and logistics

sectors in the country already exists, this assessment is not intended to be a general revision of the already

available sector data and information. Instead, this report seeks to produce findings and recommendations

based on original analysis geared towards the stated objective.

The assessment was conducted over a six-month period and was guided (but not limited to) the analysis of

a case study. Initial desk research showed that in the perishable goods segment, citrus is one of Pakistan s

top commodities for both export and the domestic market. A detailed and extensive mapping and analysis

of the logistic and value chains of citrus exports to European markets was conducted. The analysis focused

on quantifying time and cost factors at each point of the logistics chain. The citrus logistic chain in Pakistan

was then compared to that of a benchmark European Union (EU) country. Idom Consulting chose Spain,

which is a top exporter of oranges and other time-sensitive commodities and has successfully undergone

major developments in its logistics sector in the last 20 years.

This was followed by extensive field work that comprised interviews with representatives at all levels of the

logistics value chain. The field work and analysis was by no means limited to the citrus sector, and

stakeholders in other sectors were consulted to ensure that findings and recommendations were applicable

to other time-sensitive sectors.

The initial field work and analysis was followed by a high profile focus group in Karachi. The goal of this

focus group was to present, discuss and validate initial findings and prioritize them, and close information

and data gaps. Participants came from various fields, including exporters of different sizes, retailers, freight

forwarders, and shipping companies.

These consultations in the field were followed by a questionnaire-based survey to confirm workshop

conclusions and bring a more detailed in-depth analysis which produced final findings and

recommendations. This report summarizes the main findings and provides recommendations on assistance

needs in the logistics sector in order to further develop Pakistans logistics sector and attract investment.


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Pakistan LogisticsExecutive Summary

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2.Executive SummaryPakistans logistics is an important economic sector with significant growth and investment potential. It is

also a key driver for private sector development, economic growth and overall development. There is a

clear relationship between a countrys logistics performance, lead times and its export performance. Yet, a

detailed analysis of the time-sensitive citrus value chain in Pakistan revealed that there were critical

inefficiencies in the countrys logistics value chain, resulting in a 45 percent excess in export times

(compared to Spain) and higher logistics costs (35-40 percent of retail price compared to 22 percent in

Spain), leaving much room for improvements in the sector. This report provides a detailed analysis of the

numerous obstacles in Pakistanslogistics processes and provides recommendations for improvements on a

sub-sector basis.

Pakistans weak road transportation infrastructure and services were found to be the biggest challenge

facing the industry. The main problem facing Pakistans road infrastructure is the critical situation of the

National Trade Corridor (NTC), which faces severe capacity bottlenecks due to poor physical condition, the

presence of non-motorized traffic, and the extensive commercial activities located along it. Road services

suffer from a lack of trucking industry regulation, which produces numerous downstream problems. The

dependence of the Pakistani logistics chain on road services makes it critical for these problems to be

corrected to decrease export time and increase product quality, opening up new markets for exports.

Inefficiencies in the maritime sector are also affecting Pakistans logistics performance. Maritime transport

accounts for 91 percent of Pakistans international trade. This fact makes reforming and improving the

sector particularly important for Pakistani goods to reach international markets. Current regulation is a key

disincentive for potential investors, holding back global logistics operators, shipping companies, and other

related services providers from fully developing their service in Pakistan. This ultimately translates into

higher costs for importers and exporters. Improving maritime infrastructure and services was identified as

an opportunity for critical improvement and high impact, both in terms of facilitating trade and investment

and for creating jobs.

Rail services in Pakistan are weak and fail to offer an alternative to road transportation, with weak

infrastructure and a sector dominated by a public operator. Rail transport is currently only used for the

transport of a few non-time sensitive goods. Developing rail infrastructure and services has cost

advantages, is more environmentally friendly than road transportation, and will take some of the stress

away from the overburdened and underdeveloped trucking industry.


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Pakistan LogisticsExecutive Summary

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There are also cross-cutting obstacles in the sector that will need coordinated efforts by the government

and 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, and

developing trading platforms for smaller and medium size producers to sell their goods. Such initiatives

would not only help large players in the sector, but will also help those at the beginning of the supply chain

like small farmers and producers.

Going forward, further research needs to be done to pinpoint problems and opportunities for the private

sector to engage and profit from the logistics industry. This process will need to include in-depth

conversations with private sector stakeholders and the government to identify ways the public and private

sectors can work together to build a sustainable and efficient logistics industry. Business and investment

opportunities and projects will need to be mapped in detail based on areas that are identified as being

highest impact. As part of the effort to engage the private sector in investing in logistics opportunities,

interested private sector players will need to be identified, profiled, and encouraged to communicate with

policy makers. Assisting the private sector in becoming involved in the logistics industry will help policy

makers understand which policies need to be changed and will encourage more private sector investment.


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Pakistan LogisticsThe Logistics Sector at a Glance

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3.The Logistics Sector at a Glance3.1 Importance of the Logistics SectorLogistics is described1 as the process of planning, implementing, and controlling the efficient, effective

flow and storage of goods, services, and related information from point of origin to point of consumption

for the purpose of conforming to customer requirements. Note that this definition includes inbound,

outbound, internal and external movements, as well as the return of materials for environmental purposes.

However, other factors such as customs inspection or the level of support from the banking and insurance

sectors also have a notable influence on a countrys logistics abilities2.

Efficient logistics is a necessary condition for a countrys overall development and economic growth.

Pakistan can make improvements in most of the areas included in the above definition. In that context, 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 average3. Pakistans biggest weaknesses according to the LPI are in the

Infrastructure (2.37) and Customs (2.41)categories.

Country Overall LPI

UAE 3.73

EU 3.67

Israel 3.21

Saudi Arabia 3.02

Oman 2.92

Jordan 2.89

Tunisia 2.76

Pakistan 2.62

MENA 2.42

Morocco 2.38

Egypt 2.37

Lebanon 2.37

Syria 2.09

Algeria 2.06

Table 1: Logistics Performance Index (LPI). Source: Doing Business, World Bank.

1

Source: Council of Logistics Management.2A graphic representation of the complexity involved in logistics can be found in the annex of this document.

3In terms of LPI, one is the lowest possible score, while five is the highest.


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This is important because there is a clear relationship between logistics performance, lead times and export

performance. World Bank Group studies have shown that a 10 percent reduction in overall lead time

results in a 4.3 percent export increase in countries in the Middle East and North Africa. Moreover, there is

a clear link between the performance of a countryslogistics sector and its overall level of development.

The LPI is clearly positively correlated with the countrys gross domestic product (GDP) per capita at

purchasing power parity. Countries with a high LPI typically have a high GDP-PPP.

Figure 1: LPI vs. GDP-PPP per capita. Source: Doing Business, World Bank.

Figure 2: Pakistans Logistics Performance Index (LPI). Source: Doing Business, World Bank.

LPI

GDP-PPP per Capita(US$)

CORRELATION LPI vs. GDP-PPP

Egypt

Germany

Spain

Morocco

Algeria

Pakistan

SingaporeSlovakia

LPI

GDP-PPP per Capita(US$)

CORRELATION LPI vs. GDP-PPP

Egypt

Germany

Spain

Morocco

Algeria

Pakistan

SingaporeSlovakia


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The logistics sector is not only important for private sector and economic development, but it is equally

important in and of itself as an economic sector with significant growth and investment potential. The

sector in Pakistan moves a yearly figure estimated to be over USD 500 million.

Figure 3: Pakistans Logistic Sector Size. Source: Pakistan International Freight Forwarders Association estimation.

3.2 Composition and Characteristics of Pakistans Transport MarketMaritime transport accounts for 91 percent of Pakistans international trade, while road accounts for most

of Pakistansdomestic traffic, accounting for roughly 93 percent of the total tons-km transported within the

country. While most OECD countries also heavily rely on road transportation, rail services are used in a

higher percentage in OECD countries than in Pakistan (16.0 percent in OECD vs. 2.4 percent in Pakistan), as

seen in the below graphs.

Figure 4: Transport mode split in terms of tons-km transported. Source: Business Monitor International + Eurostat.

TransportUSD 480 million

WarehousingUSD 10 million

Other ServicesUSD 40 million

Total Market SizeUSD 530 million

93.1%

2.4%

Road

Rail

River

Air

Pipeline 73.1%

16.0%

5.4%

0.2% 5.3%


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3.3 Where in the Value Chain Are Logistical Weaknesses?While the snapshot of Pakistans logistics sector provides an overview of the size and composition of the

transport sector, and the importance and frequency of the different modes of transportation, it does not

look at quality and efficiency. The citrus value chain was analyzed in detail, in order to identify logistical

inefficiencies and bottlenecks in a time-sensitive value chain of a perishable product. In order to do this, we

mapped the transport of a container of oranges from the harvesting field to its destination market, both

domestically and abroad. At each stage of the route, we identified key actors and quantified the involved

time and costs (the PakistaniCase). The same exercise was carried out for a container of oranges in the

value chain in Spain (the Spanish Case). ThePakistani Case was benchmarked against the Spanish Case,

comparing the overall structure of the logistical value chain, and the time and costs involved at each stage.

Figure 5: Orange exports value chain. Source: own analysis from Doing Business and Trading across Borders data.

Due to inefficiencies at several points in the logistics chain, citrus export times in Pakistan were found to be

27 days longer than in Spain. Although 55 percent of this time (15 days) is due to Pakistans 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.

Pakistan

Destination Port (export)Processing Plant

Customs InspectionBodies

Origin Port

Production Field

Low tech plants withlimited cold sto rage space

Done in trucks, oftenun refrigerated (or with thecooling system turned off)

Highly bure aucraticprocedure

Lack of refrigeratedwarehouses within or

nearby ports

Highly manual p rocess +Lack of refrigerated

storage facilities

Unsu itable facilitiesfor perishables

The Karachi and Qasim portsaccount for almost all the

container traffic in the coun try

Spain

Cost Structure

Analysis of OrangeExport Logistics Chains

ConceptHarvesting

FieldProcessing*

Documents

Preparation

Inland Truck

Transport to PortCustoms Clearance Access to Port

Port & Terminal

HandlingSea Transport***

Time

(non-cumulative)0.5 Days


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Figure 6: Orange exports lead times. Source: own analysis, Doing Business and Logistics Performance Index.

These delays and the inefficiencies that cause them also have an impact in terms of logistics costs. In

Pakistan, logistics costs represent on average 35-40 percent of the total retail price, whereas logistics costs

account for only 22 percent in Spain.

Figure 7: Orange exports price structure. Source: local experts + interviews with orange exporters.

0

5

10

15

20

25

30

35

40

45

Pakistan Spain

Maritimetransport todestination

(Rotterdam)

Port andterminalhandling

Cus toms /technicalcontrol

Inlandtransport andhandling

Documentpreparation

Total Time

Difference isof 27 Days

Days

55%

45%

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Retail Price

Producer Price

Price atHarvesting Field

Pakistan Spain

1

Price at Destination

Price perton (USD)

Importer Price


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There are opportunities to improve reliability, predictability, 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. The next chapters will look at the most critical of

those inefficiencies, describe the trouble spots in more detail and analyze the underlying cause as well as

suggest initiatives to address these.


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Pakistan LogisticsRoad Transport

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4.Road TransportAfter mapping the Pakistani logistics industry, the assessment found that while all modes of transportation

(road, rail, air, and shipping) exist, 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.

Pakistans weak road transportation infrastructure and services were found to be the biggest challenge

facing the industry. The main problem facing Pakistans road infrastructure is in the critical situation of the

National Trade Corridor (NTC), which faces severe capacity bottlenecks due to poor physical condition, the

presence of non-motorized traffic, and the extensive commercial activities located along it. Road services

suffer from a lack of trucking industry regulation, which produces numerous downstream problems.

The dependence of the Pakistani logistics chain on road services makes it even more vital for these

problems to be corrected to decrease export time and increase product quality, thereby opening up new

markets for Pakistani exports.

4.1 Road Infrastructure AssessmentIn Pakistan, there are approximately 260,000 km of roads, of which about 60 percent are paved, mainly

comprising single and two lane roads. The main artery in the country is the National Trade Corridor (NTC), a

1,760 km long highway that crosses Pakistan from north to south. Its length is less than 1 percent of the

total road network of Pakistan, but it serves over 80 percent of the urban population and carries over 60

percent of inter-city traffic. It is managed by the National Highway Authority (NHA).

Figure 8: Pakistan National Motorways. Source: National Highway Authority (NHA).


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Pakistans road system main challenge is to raise its service standards. Transit times currently are three

times those in Europe and East Asia. A trip from Lahore to Karachi (1,260 km) takes about 2 days, while one

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 exacerbated by extensive commercial

activities located along the roads, poor physical condition of the roads, and lack of traffic management in

towns. The consequence is in the high travel times that particularly penalize long-distance trips.

Another feature of Pakistans road network is its low density, which leaves several areas underserved. This

shows when comparing Pakistans road density with that of neighboring countries such as Bangladesh, Sri

Lanka, India or Afghanistan. In this comparison Pakistan only is in a better position than Afghanistan.

Country Network Size Area RatioBangladesh 239,226 141,000 1.70

Sri Lanka 97,286 65,610 1.48

India 3,316,452 3,287,590 1.01

Pakistan 259,758 803,940 0.32

Afghanistan 42,150 647,500 0.07

Table 2: Road network size (in km) in terms of a countrys area (in sq-km). Source: own analysis.

In that context, different roads are currently being upgraded as part of a plan by the countrys government

to improve the national road infrastructure.Build-Operate-Transfer (BOT) schemes4are used for some of

these new developments.

ProjectInvestment

(USD Million)

Time

Frame

Funds

Origin

SheikhupuraD.G. Khan motorway (405 km) 642 (BOT) n.a. NHAMakran Coastal road (653 km) 420 (BOT) n.a. NHAGwadar - Ratodero road (885 km) 296 (BOT) 2012 NHARawalpindi - Islamabad ring road (80 km) 98 2011 RDA

Table 3: Current projects in road infrastructure. Source: Ministry of Transport.

4.2 Road Services AssessmentWeak road transportation services were identified as one of the main logistical challenges in Pakistan.

Because of bottlenecks like a large informal trucking sector and a lack of refrigerated vehicles, Pakistani

perishable goods face a lower price and shelf life, making it more difficult to compete internationally.

4

BOT: this is a form of project financing, in which a private entity receives a concession from the public sector tofinance, design, construct and operate a facility according to a concession contract. This allows the project promoter

to recover its investment in the project, as well as the subsequent operating and maintenance expenses.


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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 loads account for

206,404 million tons-km of goods per year, about 93 percent of the countrys total. For agricultural goods,

there is no alternative transport mean for transporting fruits and vegetables out of rural harvesting areas.

Despite its importance, the Pakistani road transport is immature as a service sector. One of the issues

identified in our study is a lack of qualified service providers. Most providers have a small fleet, reflected in

the industry average of below two trucks per owner. This means that most trucks are not owned by a

formal company, but are mostly informal businesses owned by individual drivers. Moreover, many trucks

are in poor condition, with a vehiclepark of a high averageage, and few specialized vehicles with reefer

devices or refrigerated trucks available to transport perishable goods.

Other problems include the lack of standard cargo and load trucking legislation, and limited availability of

insurance coverage for cargo. Freight forwarders in Pakistan do not have a widely accepted liability scheme

comparable to general practice in the global forwarding business. This occurs despite the considerable

changes towards openness that the insurance market in Pakistan has undergone since 1996 (part of a wider

reform process of the financial sector by the government). Foreign investors are now allowed to hold up to

51 percent equity share of companies operating in the general insurance sector. However, five major

domestically-owned companies still account for 78 percent of that market.

One direct consequence of the unreliable service available in the country is high working capital

requirements, as higher safety inventories are needed. Producers of certain goods are also forced to invest

their resources in non-core activities such as their own truck fleet, which increases shipping-related costs

and entry barriers to the sector.

Another externality is road damage from overloading, as trucks are loaded to their maximum cubic

capacity, irrespective of axle loads or resulting vehicle speeds.

In summary, the trucking sector in Pakistan is poorly regulated with about 70 percent of trucks5

part of theinformal sector. This environment provides little appeal to large sophisticated operators and service

providers willing to enter the market due to low prices, low margins and generally unfair competition.

These problems are mainly caused by the lack of a formal legal and institutional framework for the trucking

industry coupled with a lack of enforcement of rules on vehicle inspection, driving license concession,

overloading, crew hours, and hazardous cargo handling. The Motor Vehicle Ordinance 1965, incorporating

federal and provincial amendments, is an archaic and outdated regulation if compared with best practices

5Source: local experts estimations.


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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.

The National Highway Authority (NHA), which was created in 1991, focuses its activity in the planning,development, operation, repair and maintenance of the national highways and other strategic roads.

However, the total length of the roads under NHA management only stands at 8,780 km, which accounts

for about 3 percent of the entire road network in the country.

4.3 Road Transport RecommendationsGiven the dependence of Pakistani transportation on road services, implementing reforms and

improvements are vital for increasing the competitiveness of Pakistans products. Having a regulated

trucking industry with capacity for transporting perishable goods will increase the quality and shelf life of

products, allowing companies and smaller growers to earn a greater profit margin domestically and

compete internationally. After our analysis we recommend improving regulation of the transport and trade

logistics sector, supporting incentives to renew trucking fleets, and reshaping the current truck insurance

schemes. These recommendations support the development of a modern, safe, and efficient logistics road

transport sector in Pakistan and aim to create transparent regulation for market entry and service

provision. However, above all these, we recommend to improve the operating conditions of the National

Trade Corridor (NTC).

4.3.1 Improve the Operation of the National Trade Corridor (NTC)The National Trade Corridor (NTC) is a critical artery in Pakistans road network and should be in an

excellent condition both from the infrastructure and the service point of view. The improvement of its

operation is the single most pressing issue regarding logistics in Pakistan.

Road condition could be improved in many parts of the 1,760-km long highway. A sum of $5 billion has

already been budgeted over the next four years to spend on the improvement of the country's highways,

including works on the NTC6. However, as this will most likely not be enough, it is recommended to explore

further opportunities in order to embark on an upgrading process as wide as possible. These should include

public-private partnership (PPP) arrangements7. It is also recommended to close the NTC to non-motorized

traffic. This would contribute to increase its capacity. Commercial activities along it should be regulated,

6

Source: National Highway Authority.7 PPP: this describes a government service or private business venture which is funded and operated through a

partnership of government and one or more private sector companies.


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allowing only services to the driver and the vehicle. These should be offered in clearly designated areas in

the vicinity of, but outside, the road itself.

These actions should result in a notable increase in the average transit speeds on the NTC, significantlyreducing the current trip times of 48 hours from Lahore to Karachi (1,260 km) or 72 hours from Peshawar

to Karachi (1,700 km).

4.3.2 Improve Regulation of the Transport and Trade SectorWith the NHA exclusively focused on a marginal part of the network, there still exists the need for an entity

taking care of road transportation with a much broader approach. It is therefore recommended to

introduce an independent agency assuming the management of maintenance, contracting and construction

of the whole road network, as well as the regulation of interurban road freight and passenger transport.

Possible benchmarks are the Spanish General Directorate for Traffic (DGT), the Finnish National Road

Administration (Finnra), or the Dutch Road Authority. These are autonomous agencies under the

supervision of the relevant ministry (typically transport or interior). In general, road transportation

regulation agencies have the following divisions:

Traffic Management and Mobility Division:o Interurban traffic management and control: radars, vehicle checks, etc.o Information provision to road users about interurban traffico Education of traffic agents regarding the management of traffic flows

Road Security Education Division:o Driver education on road safetyo Traffic safety advertising campaignso Supervision of driving schoolso Definition of drivers license testso Training and certification test providers and evaluatorso Oversight of centers performing medical checks on drivers seeking license renewal

Normative Arrangement Division:o Oversees the organization that issues fines for traffic violationso Analysis and resolution of traffic violation appeals

IT Department:o Creation, development, maintenance, operation, and custody of the registries and

databases of vehicles, drivers and traffic rules infringers, driving educators, driver

education centers, etc.


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o Management of organization activities statisticso Providing IT support to the rest of the authority

National Observatory of Road Security:o Investigation of all aspects related to road securityo Analysis of road security data and statisticso Promotion of new road security policies

4.3.3 Support Incentives for the Renewal of Fleets in the Freight Transport SectorIn order to improve the quality of the trucking fleets, the average age of the trucks needs to be decreased.

One way to do this is to introduce a truck modernization incentive program that creates financial

incentives and support for truck owners to trade in their trucks for newer models. Fleet renewal will not

only increase the quality of the transport of goods, but also help reduce accidents, health problems, and

environmental contamination.

Mexico and the USA have successfully implemented similar programs that Pakistan could use as a model.

Mexico ran a payments program between 2003 and 2007 to replace old inefficient freight vehicles; a similar

program is currently being discussed in California. This program would subsidize the purchase of 2007-

model or newer trucks that can meet US-emission requirements. The goal of the program, in line with the

California Clean Air Act, would be to reduce truck-generated pollution. Spain also had a program to remove

older cars in the mid-90s that was very successful. The program was run in two phases:

Plan Renove I: Between April and October 1994 the program provided 600 to anyone retiring avehicle over 10 years old in order to purchase a new car. 170,000 older cars were retired during this

time, which represented 14 percent of cars that were older than 10 years.

Plan Renove II: Between March and June 1995 the program provided 500 to anyone retiring avehicle over seven years old in order to purchase a new car, helping retire 140,000 cars.

4.3.4 Reshape Current Truck Insurance SchemesFreight forwarders in Pakistan do not have a widely accepted liability scheme comparable to general

practice in the global forwarding business. In that context, it is recommended that the forwarders

association PIFFA agrees on an overall liability and insurance scheme for their members. This should be

arranged by international standards, so that the liability and coverage becomes part of the image and

profile of the forwarders being PIFFA members.


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Pakistan LogisticsMaritime Transport

20

5.Maritime TransportMaritime transport accounts for 91 percent of Pakistans international trade. This fact makes reforming and

improving the sector particularly important for Pakistani goods to reach international markets. Our case

study of the transport of a container of oranges further highlighted the problems facing the industry, which

then allowed us to recommend solutions based on other countries experiences.

The regulation in place in Pakistan is a key disincentive for potential investors, holding back global logistics

operators, shipping companies, and other related services providers from fully developing their service.

This ultimately translates into higher costs for importers and exporters, since higher port and terminal

handling costs are transferred into final transport fees.

Reforming the maritime infrastructure and services was identified as an opportunity for high improvement

and high impact, both in terms of facilitating trade and investment and for creating jobs. This need is

particularly pressing in relation to maritime services. All in all, the problems facing both parts of the

maritime logistics industry and recommendations for improvement are outlined below.

5.1 Maritime Infrastructure AssessmentThe main ports in Pakistan are Karachi, Qasim and Gwadar. In 2006, 55.85 million tons of cargo8 was

transported through them. Container throughput has grown at an average annual rate of 15.2 percent

since 2000, reaching 1.8 million TEUs at the two container ports in use in 2006. In recent years Karachi has

lost ground to Qasim, diminishing from a 79 percent share in 2000 to a 65 percent share in 20069.

Figure 9: Container traffic at Pakistani ports (in 000 TEUs). Source: Drewry Consultants.

8Source: Federal Bureau of Statistics.

9Source: Drewry Consultants.

160 200 227 333495 544 634

615 650716

739848

10241178

0

500

1000

1500

2000

2000 01 02 03 04 05 06

Karachi

Port Qasim


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21

The port of Karachi is Pakistan's largest and busiest seaport, handling about 60 percent of the nation's

cargo. It has two container terminals, one of which operated by Hutchison. A third one, focused on

transshipment, is set to open in 2012. The port is managed by the Karachi Port Trust (KPT), a board of

trustees comprising a chairman and 10 trustees, 5 of which appointed by the private sector.

Port Qasimis Pakistan's second busiest port, handling about 40 percent of the nation's cargo. It is located

in an old channel of the Indus river, 35 km east of Karachi. The approach to the port is through a long 45 km

navigation channel. One of its major advantages is its proximity to different national transport facilities. It is

15 km away from a national highway, directly linked to the railway network through six tracks and 22 km

away from the international airport.

The port of Gwadar is a new development located at the entrance of the Persian Gulf on the Arabian Sea

and about 460 km west of Karachi, in the Balochistan region. It became operational in 2008. It is a deep-sea

water port, being constructed in two phases with heavy investment from China. The government of

Pakistan has projected this port as the first link in the development of an energy and trade corridor to

China and Central Asian republics, by providing them with short access route to the markets in the Middle

East and Europe.

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 or the custom and storage

facilities10

. In any case, several upgrades affecting the countrys commercial ports are already underway.

Project

Investment

(USD

Million)

Time

FrameFunds Origin

3rd

Container Terminal at the Karachi Port 950 2012 Karachi Port Trust (KPT)

Gwadar Port 2ndPhase: container, oil and bulk

grain terminals, plus Ro-Ro berth

840 2014 Gwadar Port Authority

& PSA International

Development of multipurpose cargo handling

terminals each at 3-4 existing berths

50 2011 Karachi Port Trust (KPT)

Table 4: Current projects in maritime infrastructure. Source: KPT & PSA International.

5.2 Maritime Services AssessmentMaritime services in Pakistan are away from OECD standards in terms of service level and availability.

Integration with international regulation is a necessary step. Privatization in the maritime services sector

10These will be analyzed at a later point in their own specific sections.


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22

has not followed the pace of the one in ports. Several state-owned firms in the shipping, ship-building and

repair sector exist. These do not appear to be real candidates for privatization at the moment.

The state-owned Pakistan National Shipping Corporation (PNSC) is the countrys largest shipping company.It was established with the assistance of the Pakistan Navy in 1963 and nationalized by the government in

197111. Its major shareholder is the Ministry of Communications. PNSC is mainly focused on liquids, which

account for 85 percent of its total shipments. This is in part the result of a successful negotiation with three

of Pakistans major oil refineries to undertake crude oil shipments in 2002. According to BMIs assessment,

the refineries decision was to some extent influenced by the Pakistani government. Although the

government plans to induct the private sector into direct shipping, it has also stated that it wants to

promote and protect PNSC12

.

5.3 Maritime Transport RecommendationsWhile maritime transportation accounts for most of Pakistans international trade, inefficiencies and

opportunities for improvement in the sector exist. By analyzing the industry and using our case study as

proof of the delays in the transportation chain, we recommend that Pakistan liberalize the maritime

transport industry in order to attract the top maritime services providers at a global level, and create port

quality assurance programs based in international best practices. Implementing these recommendations

will increase Pakistani exports by making them more competitive with other regional goods.

5.3.1 Liberalize the Maritime Transport IndustrySince maritime transportation is international in character, there is an inherent need for harmonization and

standardization of regulation across countries. To have legislation in line with that of the leading countries

in the sector, should help to attract the top maritime services providers at a global level. It is therefore

recommended that Pakistan adapts its regulation on maritime transport to the standards set by OECD

countries. In the case of liner shipping

13

, the basic regulatory framework among OECD countries consists ofThe Code of Liberalization of Current Invisible Operations and The Common Shipping Principles.

The private sector already plays a noteworthy role in port infrastructure in Pakistan. A similar liberalization

process of the maritime transport industry would entail a number of benefits for the country, including:

Liberalization policies would enhance competition within the sector, resulting in efficiency gains.

11Source: Business Monitor International (BMI).

12

Source: Drewry Shipping Consultants-IFC.13Liner shipping is regular shipping with set schedules in different harbors published in advance. The capital-intensive

character of liner shipping, particularly container shipping, has led to a substantial degree of concentration.


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23

Increased competition would force providers to improve the quality of their service. Users of maritime transport services would have a wider choice of options at competitive rates. Liberalization should ensure greater transparency and thus create an investment favorable

environment in the sector.

5.3.2 Quality Assurance ProgramsIn order to create good practices that help raise the overall service level at Pakistani ports, it is

recommended that ports introduce their own quality assurance program. This should be done by

monitoring a series of key performance indicators (KPI) through a balanced scorecard. The KPIs should

cover various fields, including:

Port operational performance: Dwell time, transit times, loading and unloading rates, andavailability of daytime or 24/7 port services.

Availability of services to the ship: Bunkers, waste treatment, provisions, water, power, pilotage,towage, and mooring.

Availability of services to the goods: Reefer container service, customs hangar, boundedwarehouse, consolidation/de-consolidation, containers depot, and agriculture and sanitary area.

Quality of maritime services: Frequency, transit time, availability of door-to-door service, capacity,punctuality, cost, and clarity on costs.

Compliance with security, safety and environment regulation: Observance of the SOLAS andSAFEMED IMO conventions, ISPS code, and FAL standards.

Degree of intermodal and logistic integration:o Access to land transport including rail and road.o Connection with logistics platforms.

IT expertise: Tracking and tracing processes and IT.The purpose of tracking these KPIs is twofold. It will help identify the areas that lag behind international

best practices and help the sector work towards overcoming these deficiencies. In addition, this data

should contribute to the implementation of quality assurance programs in ports, as done in several OECD

countries. Self-managed programs typically have penalty measures for poor port handling performance and

have proven to reduce errors and delays. The quality assurance program of the Barcelona Port Authority 14

(APB) includes the following customer service guarantees:

14Source: Barcelona Port Authority (APB).


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24

Safe handling: In the case of damaged or absence of goods, a minimum amount of 150 and amaximum amount of 450 per container is paid.

Coordinated physical inspection: If a maximum set time for inspection is exceeded, a penaltyranging from 150 (less than 24 hours delay) to 450 (over 48 hours delay) applies.

Information: If no answer is provided to questions regarding container traffic procedures withinfour working hours, a penalty of 30 is applied. This is also applicable if wrong information is

provided.

Transit: The APB guarantees that customs procedures for containerized goods on transit take placewithin the same day that transit documents are admitted. The penalty for not fulfilling this policy is

of 450.

In the long run, a performance monitoring process (balanced scorecard) combined with a quality assurance

program (service guarantees) should allow Pakistani ports to improve their performance, gradually raise

the standard of their services, and ultimately become more competitive.


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Pakistan LogisticsRail Transport

25

6.Rail TransportRail has become a key transport mode for freight in OECD countries and could be used to transport a higher

share of heavy non-perishable goods. Weak rail services in Pakistan fail to offer an alternative to road

transportation, with weak infrastructure and a sector dominated by a public operator. Developing rail

infrastructure and services has cost advantages, is more environmentally friendly than road transportation,

and will take some of the stress away from the overburdened and underdeveloped trucking industry.

6.1 Rail Infrastructure and Services AssessmentPakistans rail network is operated by the state-owned Pakistan Railways (PR) under the supervision of the

Ministry of Railways. It comprises 8,163 km, of which broad gauge tracks account for 7,718 km and narrow

gauge tracks for the remaining 445 km. It only has international active links with India. However, plans exist

to also establish a further connection with China and other neighboring countries.

Concept Pakistan Germany

Network size (km) 8,163 41,315

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

Table 5: Pakistan-Germany rail network size comparison. Source: Pakistan Railways, Eurostat and BMI.

Pakistan Railways freight business unit operates over 200 freight stations, but railways use for freight

transport in Pakistan is limited in volume. This transport mean 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. Largely

neglected for decades, inefficiencies in the railways service include:

Rates are based in market trends in road transport, which is the main competitor to rail transport.The dominance of road transport up to now has been evident.

PR has continued to operate the entire network by cross-subsidizing profitable and non-profitablefreight routes, even though the rationale for many lines had effectively disappeared.

PR has continued to offer the traditional pattern of supply-driven services. PR has failed to downsize staff substantially and streamline operations.

The consequence is that Pakistan Railways has lost a considerable share of its private freight traffic. Most

importers and exporters are not satisfied with the railway services, and so urgent consignments are usually

transported by truck. The result is that rail freight is now largely confined to segments where rail is

protected by regulation or to usage by public sector entities. This implies that no efficient alternative

transport mean to the congested National Trade Corridor (NTC) exist, missing an opportunity to reduce the

number of trucks on the roads and the problems that these cause.


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26

Concept Pakistan Germany

Tons per year (million) 6.5 346

Avg. trip distance (km) 823 309

Tons-km (million) per year 5,355 106,914Usage in land transport 2.4% 21.9%

Table 6: Pakistan-Germany rail network usage comparison. Source: Pakistan Railways, Eurostat and BMI.

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 offering competitive rail services, no

modern management techniques have been introduced in the public railways operator up to now.

All in all, a number of upgrading works in different areas of the rail network are currently underway.

ProjectInvestment

(USD

Million)

Time

FrameFunds Origin

Development of double track from Peshawar

to Lodhran (884 km)

160 2014 Pakistan Government

Development of double track from Lahore to

Faisalabad (141 km)25 2012 Pakistan Government

Extension of VIIF & UIIF communication over

c. 1,000 km

8 2010 Pakistan Railways

Table 7: Current projects in rail infrastructure. Source: Ministry of Railways.

6.2 Rail Transport RecommendationsRail transport in Pakistan has a high opportunity for improvement. 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 transport is to reduce road traffic, and if the necessary reforms are taken, provide a fast and cheaper

way of moving goods domestically. Pakistan Railways needs to take major steps to improve the freight

services quality. Challenges faced today include improving delivery times, reliability and tracking

information. In that context, we recommend promoting public-private partnerships to upgrade the railway

network and introducing management techniques in the railways freight division as important initial steps

towards the development of a modern rail transport.

6.2.1 Promote PPP Initiatives for the Development of the Rail NetworkWith a number of areas still underserved, the rail network in Pakistan can significantly be enlarged. Public-

private partnerships (PPP) can help to increase the pace at which this is upgraded. Besides, the

implementation of double tracks in different parts of the network would allow notably increasing


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27

frequencies and reducing trip times. PPP arrangements should also contribute to bring the latest know-how

and technology into the sector.

6.2.2 Introduce Modern Management Techniques in Pakistan RailwaysFreight DivisionThe legal framework currently in place that supports Pakistan Railways monopoly and undermines

competition should be revamped. A pilot program was run in the country for operating passenger trains

under a private sector scheme through lease, but that same experiment was not done for freight trains.

Ideally, the long-term goal of reforms would be to open up the sector to private competition in order to

allow a specialized, competitive, rail freight operator to enter the market. However, this initiative does not

seem very much aligned with current governmental policies, and so it is not much likely to actually be

implemented either in the short or the mid-term.

It is therefore recommended to focus sector development efforts on improving Pakistan Railways freight

transport services by modernizing freight transport management and operations within the operator. We

recommend establishing a department in Pakistan Railways dedicated to freight transport and building its

capacity as a necessary first step. Besides, other additional actions should include:

Eradicate cross-subsidizing practices between profitable and non-profitable freight routes. Eliminate the lines for which its commercial justification has effectively disappeared. Listen to the demands of its present and potential customers, moving away from the long

established pattern in the company of supply-driven services.


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Pakistan LogisticsAir Transport

28

7.Air TransportAir cargo services in Pakistan are limited and fail to complement other transport means. While a few niche

markets rely on air transport, there are few options to choose from. Developing this industry and

encouraging more operators to enter the market would open up more markets for perishable goods, and

cut down on transport times to places like Europe.

7.1 Air Infrastructure and Services AssessmentThere are 139 airports in Pakistan, including international ones at Karachi, Lahore, Islamabad, Peshawar,

Quetta and Sialkot. Air cargo is still infrequently used in Pakistan, although important in certain

circumstances, such in those occasions where the planned transport mode would result in late delivery and

penalties. PIA is the major national airline. It is 57.7 percent state-owned, 26.3 percent owned by state-run

institutions and 16.0 percent owned by private individuals. It provides passenger air travel and freight

services to destinations in Europe, the USA, Canada and Libya. The Pakistani government has recently

agreed to provide $150 million to support the renewal of its fleet15.

Air transport options are rather reduced. Palletized direct routes to Europe are only available from Pakistan

International Airlines (PIA) and British Airways. Transit opportunities are available via the Emirates and

Turkey. Another limitation comes from the fact that the dwelling time at the airport is two to three times

longer than the actual time of transport16. Such a delay has a negative impact on the supply line, damaging

customer satisfaction, increasing the capital costs during transportation and making it difficult to cope with

demand for frequent on-time deliveries requested by overseas importers.

Besides, an study of the air freight rates for general cargo17showed that India, Pakistans major competitor

in this field, offers air freight rates out of Pakistan that are on average 30 percent lower. There is a freight

subsidy of 25 percent offered to Pakistan exporters, but even with it the rates ex India are lower. Air freight

rate level is normally linked to capacity available, so it can be concluded that air freight rates out of

Pakistan reflect the existing capacity limitations. In addition, and in connection to the subsidies issue,

Pakistan exporters complain about the extremely long reimbursement time of air freight subsidies (i.e.

some exporters claim that it takes 3-6 months to be reimbursed).

15

Source: Business Monitor International (BMI).16Source: Logistics Consulting Group.

17Source: Logistics Consulting Group.


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Pakistan LogisticsAir Transport

29

7.2 Air Transport Recommendations7.2.1 Pun in Practice Vision 2030 PoliciesThe government of Pakistan is well aware of the need to develop and improve the cargo infrastructure at

the countrys leading airports in order to meet the delivery requirements of a modern global supply chain,

as envisioned on the Vision 2030 paper. There, theactions suggested to be taken in the field include:

Unilateral open sky policy. Demand-based infrastructure development. Regionally competitive user charges and fuel prices. Bifurcation of regulatory, commercial and operating functions. Liberalization of air service agreements. Encouragement of private sector airlines to operate on international routes.

Not many further recommendations could be proposed. If only these steps already identified by the

countrys authorities were put in practice, the improvement in the air freight scenario would be notable.


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Pakistan LogisticsOther Logistical Infrastructure 30

8.Other Logistical InfrastructureOverall, the logistics sector in Pakistan needs a number of national improvements that will facilitate the flow of

goods, increase product quality, and open new markets for Pakistani goods. The proposed initiatives will not

only help the sector nationally, but will also help those at the beginning of the supply chain like small farmers

and producers. The main hindrances to the sector that will need coordinated efforts by the government and

private sector to improve include: establishing freight villages to serve as logistics hubs, invest in reefer storage

facilities to increase the shelf life of perishable goods, and develop public trading platforms for smaller and

medium size producers to sell their goods, cutting out intermediaries that add little value to the products. All

these recommendations are intended to strengthen the logistics industry in Pakistan and help make the

countrys productsmore competitive by adding value while reducing logistics costs.

8.1 Freight VillagesFreight villages are logistics concentration points, developed at strategic locations, which provide various

logistics-related activities such as warehousing, packing, re-packing, break-bulk centre, and truck parking. In

Europe, freight villages are typically a private sector business, developed by large scale operators that host

complimentary services and related operators. Freight villages are often PPPs, where an area is defined as a

freight village by the public sector usually at the intersection of major multimode routes, and then private

sector operators develop the facilities. Freight villages can vary in size, from few hectares to thousands of

hectares, depending on their functions.

No such facilities exist in Pakistan. In fact, not even a downgraded version of such facilities with limited

features exists. As a result, the surroundings of the larger cities are congested with on the rise disorganized

parking and waiting areas. With an ever growing truck fleet, the situation is more worrying than ever before.

Long stretches of roads leading into cities or circumvallation roads around them have de factobeen turned into

truck queuing and waiting areas. In parallel, unlicensed workshops, service facilities and spare parts outletshave emerged in such areas. This combines with a widespread lack of metropolitan regulations (or

enforcement when these exist) on specific timings for trucks to load, unload and circulate inside metropolitan

areas, contributing to traffic jams and pollution.


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8.2 Reefer StorageThere is a lack of reefer storage facilities in Pakistan. These facilities require strategic location choice and a set

of complementary services to be operationally viable, and so are generally located within larger logistic centers

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, are

better preserved, and are of higher quality. As a result, they sell at higher prices.

Fruit Range (C) Maximum

Apricot 0-5 Up to 1 month

Strawberry 0-5 Up to 1 month

Pineapple 8-12 Up to 1 monthOranges 8-12 Up to 3 months

Banana 12-16 Up to 3 months

Mango 10-15 Up to 3 months

Kiwi 0-5 Up to 6 months

Table 8: Fruits conservation temperature requirements and maximum life. Source: University of California.

8.3 Trading SpacesLogistics chains of perishables in Pakistan are characterized by an abundance of intermediaries that add little

value to the supply chain. Because there are few public trading spaces that smaller farmers can sell their goods

to, intermediaries typically retain a share of the profits. Farmers thus make less profit than they otherwise

could, as most of them are unable to sell to wholesalers 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. This could open up new markets for

Pakistani goods, benefiting not only the individual farmers, but the economy as a whole as well.

8.4 Logistical Infrastructure Recommendations8.4.1 Development of Public-Private Trans-Freight Stations and Reefer Storage AreasThe development of public-private freight villages, logistic platforms and reefer storage areas at key locations

throughout the country such as ports, airports or the main connection nodes, should contribute to raise

Pakistans logistics infrastructure overall level. As an initial step, we recommend the development of a network


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of simple logistic platforms that we might prefer to refer to as trans-freight stations (TFS). These should at least

offer the following services:

Waiting area: Acting as waiting points for trucks until these are allowed to enter the city in specifiedhours of day/night to unload cargo.

Cargo breakdown: For larger trucks, TFS would be a point of load breakdown. Smaller vehicles wouldthen carry the load to multiple destinations within the metropolitan city limits.

Services to the truck: TFS would be a single-point solution for truck operators by hosting there allfacilities and services they might need.

As on how to proceed, it is recommended to use the following approach:

Identify key locations: The identification of strategic sites for such facilities is an action that should bedone in cooperation with the leading export companies operating in Pakistan.

Foster development: The creation of agreements between regional authorities and the private sectorto develop logistics facilities at the identified locations will contribute to their implementation.

Finance development: Identify and define financing options for the construction of these facilitiesthrough grants or soft credits.

8.4.2 Development of Wholesale Central MarketsIn order to eliminate intermediaries that add little value, it is recommended to promote the development of

regional wholesale central markets. The Spanish MERCAs model18has proved very successful and is regarded as

a good practice. It is recommended to consider this model as a possible benchmark. 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: It will be improved through better storage in shared common facilities. Inspection: It will make quality procedures and checks easier to be enforced. Accessibility: It will make easier for small producers to access large retailers.

18The MERCAs network is formed by 23 units across Spain. About 3,650 companies work through it, from which about

2,200 are wholesalers that are part of the different food markets, while the rest are companies dedicated to

complementary activities such as distribution, logistic or customer services. In absolute terms, MERCAs annual sales of

fruits and vegetables add up to 4.1 million tons; fishing products to 0.5 million tons; and meat products to 175,000 tons.

Source: Merca Zaragoza.


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Logistical education: Markets can be used as education centers; hence these will help to improvelogistical know-how of users.


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Pakistan LogisticsCross-Cutting Issues 34

9.Cross-Cutting IssuesOn a sector by sector basis there seems to be growing interest and awareness about the importance of logistics

and the role it can play in increasing exports and thereby GDP. However, as the industry grows, there need to

be certain national initiatives to ensure that the logistics industry is both sustainable and efficient. Namely,

these national initiatives should focus on developing standard educational training to create a knowledge base

of expertise for the sector, and reforming customs procedures.

9.1 Logistical EducationOver the last few years, logistics has evolved into a wide-ranging subject that covers all aspects related to

supply chain management (SCM). This has increased the need for a continuing education targeted to provide

specific answers to the latest developments on the field.

In Pakistan, the situation is especially critical. Logistics and SCM know-how is not common even in issues often

labeled as essential elsewhere.This limited logistical expertise is perceived by both users and providers of

logistics services as one of the most critical issues affecting business operations in the country. Examples of

where the lack of logistics expertise is more pressing include:

Cold chain: There is little respect for cold chain procedures for goods that need to be transportedunder a controlled atmosphere (temperature and humidity). This occurs due to inappropriate

infrastructure, but even in the few cases that this is available, operational malpractices occur.

Control mechanisms: Few Pakistani enterprises can provide the merchandising and quality control,supply line control and logistics cost control required to qualify as a partner for international clients.

Quality management: There is a general lack of understanding and support of total quality and zeroerrors concepts. Most individuals do not understand how important their role is in securing that their

function is fulfilled.

IT Culture: EDI and other IT solutions are not commonly used in the private sector, except by the largercorporations. The IT system is mainly being used for emails. The lack of IT utilization hampers

communication with buyers, suppliers and public bodies (customs). It brings longer lead times, poorer

planning, inferior customer service, and higher cost margins than desirable. It results in lower cost

control and so lower profits.


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9.2 Customs and InspectionIn Pakistan, goods are inspected in largely unsuitable facilities. This is the case even at the main logistic nodes

such as the countrys main export ports. Perishable goods are mostly inspected in non-reefer facilities. As a

result, the cold chain is interrupted even if inspections are performed quickly, which is generally not the case.

The break in the cold chain reduces shelf life and quality of Pakistani products to be shipped abroad.

In addition, customs officials tend to act more like an auditor than as a facilitator. Delays on imports often arise

in connection with valuation of goods, with customs not accepting the shippers invoice as to reflect true value.

Besides, inspections are not risk-based, with a notably high percentage of goods being inspected. Inspection

rules are unclear, leaving room for and being subject to the discretion of inspectors. Interference from other

departments is also another usual source of delay. Containers are sometimes retained for examination and

clearance by the Anti-Narcotics Force (ANF) or other departments involved in control over drugs illegal imports.

Overall, bureaucracy in customs is high. The extent of paperwork in GD (now on computer) is still large, as 63

fields and numerous background details have to be fulfilled. Lead times could be cut if the GD-PRAL system was

further aligned, so that many signatures were avoided and took place electronically instead. Server capacity

also needs to be improved, as it is currently delaying the processes and creating longer lead times.

Dwell time is also not yet satisfactory. Processing time with an on-line system should make it possible to clear

as much as 90 percent of the consignments within 3 days. Such a time frame would be in line with international

best practice standards. However, the Pakistan Customs Computerized System (PACCS) is so far only

implemented at Karachi International Container Terminal (KICT), still generating too much red tape.

Figure 10: Duration of customs procedures. Source: World Bank.

As a result of all of the above, lead times and deliveries are often unpredictable. This means that a higher

inventory level is needed for both importers and exporters. The higher percentage of goods inspected implies

0

5

10

15

Pakistan Spain

Customsclearance

Documentpreparation


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higher direct costs in the value chain, for example, the cost of moving and positioning the container for

customs inspection.

9.3 Recommendations9.3.1 Develop Logistic Training ModulesWith an emerging logistics industry, the private sector will want to have a sufficient local pool of qualified

people to recruit from. Given that there is a critical lack of local logistics expertise in Pakistan, it is

recommended to focus efforts on building local know-how throughout the logistics chain.

IFCs Business Edge advisory productmight be a good fit to address training needs in the sector. Business Edge

covers19 a range of practical management training products and services. Flexible in its application, it can be

adapted to the requirements of specific industries. However, building up knowledge in the logistics sector

should be a continuing process with a strategic vision to support the development of the sector and should

involve all relevant stakeholders. Logistics training should be geared towards two long-term goals, as

recommended by the OECD20:

Build up qualified workforce: Workers skills have to accommodate the technology available, forexample, being able to properly operate a reefer facility. The industry needs to promote training within

the sector, as well as help promote relevant skills for jobs in the sector. In addition to training

programs, workers skills can be improved through education and certification, resulting in increased

rewards to the more skilled certified workers.

Respond to new developments in the field: Technology is rapidly changing, and so skilled people areneeded to plan, develop and operate the most advanced automated systems. Therefore, continuous

training and personnel development in logistics are critical for responding to advanced technology and

global business trends.

9.3.2 Develop IT in Logistics Awareness Program: How Useful Is IT In My Supply Chain?There clearly is an under-utilization of IT systems in logistics operations in Pakistan. Order processing times

tend to hamper overall lead times across sectors, and have a negative effect on the distribution lead time due

19Source: Overview of IFC Advisory Programs document.

20Source: Transport Logistics: shared solutions to common challenges document.


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to the low level of integration of the parties involved in-between. IT can enhance the efficiency of supply chain

management significantly, in particular that of logistics operations, and ultimately increase competitiveness. It

is recommended to assess IT training needs in the sector and develop an IT training module customized to

logistics operations. The initiative should focus on:

IT business diagnostic services in order to provide companies with an insight into their business'strengths, weaknesses, opportunities and threats, and the changes that can be made.

Advisory services to introduce IT products in the workplace such as EDI, Internet application, html,invoicing, and order processing.

Assisting IT acquisition and usage. Specific actions for the usage of e-platforms across the supply chain, particularly at ports and storage

areas, in order to increase traceability and streamlining of tools like radio-frequency, bar codes, and

data bases.

9.3.3 Customer-Oriented Approach in CustomsCustoms officers are perceived by the private sector as difficult to deal with, unknowledgeable about modern

customs inspection procedures, and lacking customer-service orientation. One way to counteract these

problems is through targeted training and capacity building on risk management techniques and efficient

customer-service. The purpose is to create an efficient business process coupled with a customer-friendly,

service-oriented, work culture. The initiative should focus in three areas:

Introduce risk management techniques: Customs should use risk management techniques to optimizeresources and reduce costs to more effectively set priorities and efficiently allocate the necessary

resources for maintaining a proper balance between controls and facilitating legitimate trade. Customs

should create risk profiles of traders, allowing traders with a good reputation to go through fewer

inspections, and integrate physical inspections into a single system with referrals to other relevant

border control agencies. This approach acknowledges that customs will never catch every fraud, but

provides the best cost-benefit balance. Risk management also helps limit corruption by automating

part of the process and decreasing the number of discretionary inspections.

Simplify procedures and spread IT usage: Electronic solutions, now mainly limited to Karachi, should beextended across the country and complemented with required training and investment support. A

major effort has to be made to have PACCS available in other cities in Pakistan, at least at the bigger


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customs stations, thus making it accessible for a bigger part of the import-export industry. Facilitation

measures should be put in place with the aim to reduce the quantity of information to be provided

directly by trade, as well as to reduce red tape. As a first step, it is recommended to further simplify the

E-filing of pro-forma invoice, LC and insurance through GD-PRAL. Potential savings are promising. One

day less in customs for all imports would have been equivalent to annual financials cost savings for

goods in transit of around USD 5 million21.

Build capacity: Improving the

An Assessment of Opportunities and 2009 IFC Constraints in the Logistics Industry in Pakistan

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