"Smart logistics make a smart economy"

Babar Badat, President, International Federation of Global Logistics Associations (FIATA) and Chairman, Transhold Pvt Limited, speaks to Aurora about Pakistan's logistics sector and the key role it has in the country's economic advancement.

AURORA: What is the role of the International Federation of Freight Forwarders Association (FIATA)?
BABAR BADAT: FIATA is based in Zurich. It is a congregation of national logistics associations from over 130 countries and has close to 50,000 individual member companies. It is the world’s largest non-governmental organisation for logistics and transportation. It connects with the UN, the World Bank with several global development institutions. FIATA deals with policy formation for the industry and interacts at different levels with multilateral organisations, governments, national associations and individuals.

A: How does Pakistan benefit from being a part of FIATA?
BB: Despite the fact that logistics is a critical sector, in Pakistan it did not have a structured framework. Pakistan is one of the few countries in the world that does not have a ministry of logistics and transport, which means we have to interact with several ministries which is ridiculous because in these circumstances, progress becomes extremely difficult. For railway matters we go to the Ministry of Railways, for ports and shipping we go to the Ministry of Ports & Shipping, for airfreight we go to the Ministry of Defence, for customs we go to the Ministry of Finance, for exports and imports we go to the Ministry of Commerce, for road transportation issues we go to the Ministry of Communications. This dilutes the effectiveness of the sector and makes it difficult to push any policy initiatives with the government, thus hampering progress. In most countries, there is a ministry of logistics and transport that acts as a focal point to discuss issues related to the development of the sector.

A: This sounds like a nightmare!
BB: I went into this business in 1979, when international freight forwarding and logistics, as we know it today, was pretty much non-existent in Pakistan. There were rudimentary operators; people were involved in trucking or acting as customs agents and shipping agents representing carriers, but there was no logistics sector as such. Over the years, the sector has developed and today, most of the business which was previously controlled by the shipping companies and the airlines is now controlled by the logistic companies. There has been change in the last 30 years but all of it has been driven by the private sector.

A: What has driven this growth?
BB: In each and every industry, for each transaction and every trade contract, you eventually need to move goods from point A to point B, be it within, out of or into Pakistan – and the common factor is logistics. As you cannot manufacture (industry) without energy and you cannot produce (agriculture) without water, you cannot deliver those goods without proper and competitive logistics. For background, by the early 2000s, the logistics business had witnessed mushroom growth, but there was no framework under which it could operate; hence in 2004, I decided to try and shape this industry and this led to my involvement in setting up the Pakistan International Freight Forwarders Association (PIFFA) and today, PIFFA has 600 member companies. In 2005, we became members of FIATA because I believed we needed international exposure to global best practices. In 2007, I was invited to stand for elections to the FIATA Board and after working for 10 years, in 2017, I was unanimously elected as President of FIATA.

A: Given how it pervades every industry, why has logistics not been accorded the importance it deserves at government level?
BB: There is a complete absence of understanding of this sector as well as little effort by successive governments to understand that to achieve forward momentum, they have to initiate policies aimed at developing growth programmes. To achieve this, a government body is required where policy is made and action is taken, and this means establishing a logistics and transportation ministry. A few years ago, the government set up the Ministry of Textiles, which resulted in growth in the textile industry.

A: Where exactly is government intervention necessary in developing this sector?
BB: Primarily legislation. You need periodic legislation to keep refining the sector and this is very difficult to achieve without a ministry. For example, the trucking sector within our industry was very rudimentary and there was little growth. Some years ago, I worked with the government and drafted a trucking reform policy; this was essentially the corporatisation of the trucking sector. The policy made it to the cabinet (in a previous government) but it was never implemented because there was no ownership of it. Had a ministry taken ownership, the policy would have been implemented by now and completely transformed road transport and many sectors allied to it. We are still struggling with the government to implement this policy; we are also struggling to push through Transports Internationaux Routiers (TIR), the international trucking convention; it is taking ages because there is no ministry to take its ownership and pursue its implementation.

When we set up PIFFA, the first thing I did was to create a training institute. We invited accredited trainers from FIATA to develop a pool of local trainers. Today we have trained between 1,500 and 2,000 people and they are certified and accredited internationally. These are specific courses on sea freight, road transport, airfreight, customs and rail transport. It is an ongoing programme which is regularly updated.

A: What is TIR?
BB:It is a UN convention for the movement of transit goods through a guarantee system. It is an important convention that needed to be ratified by Pakistan and it took more than 12 years to get it through. These things need to happen automatically, but there was no government department willing to carry the file because there is no ministry.

A: Is this a very frustrating sector to operate in?
BB: Not at all, it is a very dynamic and challenging industry. I love every single day I spend in this business and I see great opportunities in it. It is just that I expect the government to do more than what they have until now.You cannot have a growth-oriented, or even a functional economy, without smart logistics. As a simple example, we need to grow our cold storage capabilities. We are trying to push our meat exports but we don’t have cold carriers; 42% of our horticulture exports go to waste for the same reason. Everything falls back on logistics.

A: In which areas can the private sector step in to improve matters?
BB: Policy making initiatives with the government as well as vocational training. When we set up PIFFA, the first thing I did was to create a training institute. We invited accredited trainers from FIATA to develop a pool of local trainers. Today we have trained between 1,500 and 2,000 people and they are certified and accredited internationally. These are specific courses on sea freight, road transport, airfreight, customs and rail transport. It is an ongoing programme which is regularly updated.

A: In your opinion, what are the opportunities that will grow the sector?
BB:The fact that it is so rudimentary allows many opportunities for growth. A lot of international companies are interested in coming to Pakistan and although many of our colleagues within the sector oppose this, my opinion is that we should let them come in, because they will create new standards and help us move forward. For example, one particular company came to Pakistan and built a large modern warehouse (the type which did not exist here); it remained empty for a year because of the high costs involved in using it, but eventually a multinational company came along and was willing to pay the price because they understood its value from an international operations perspective – this broke the ice and a lot of other companies saw the benefit of such warehousing and more were built. This is how we keep moving and learning. Logistics is a growth sector globally as well as in Pakistan. Pakistan is one of the few countries in the world where cargo was left at the port for 10 days without payment of demurrage charges – the most expensive government real estate was being used for free storage! In our opinion efficiencies need to be created for trade and this entails moving goods out in three to five days. The government took heed of this and today, goods are moving out of the ports much faster. Before, because land used to be so cheap, industry was opting to store goods on their factory sites. However, today, land has become very expensive, so they are outsourcing their warehousing and this allows opportunities for the logistic companies. Similarly, with trucking, for years, it was common practice to load 30 tonnes on a truck that had a 10-tonne load capacity. Now with load controls in place, three times the number of trucks are required to move the same goods and this leads to an upsurge in the demand for trucks.

A: CPEC is perceived to be the big opportunity for Pakistan. Yet, given the almost systemic ad-hoc nature in which we implement most major government dependent projects, do you think it can realise its full potential?
BB: CPEC is part of a much larger Chinese programme under the ‘One Belt One Road’ initiative, and within this initiative, CPEC is the jewel in the crown. CPEC connects China to our warm waters, giving it access to the Middle East and Africa. It is a fantastic project, in fact one of the greatest initiatives launched from a logistics industry point of view, because it connects a lot of countries.

Pakistan’s agricultural initiatives need to be directly linked to our water resources, yet we have separate water and agriculture ministries. Similarly, energy and industry are intrinsically linked; yet, they have separate ministries. They too have to be linked. There is a need to shuffle the entire government and make it more efficient and ensure that decision-making takes place free from political considerations. Today, one of the major things Pakistan needs to do in every sector of the economy is to enhance capacity – and this is what the logistics sector is trying to do.

Pakistan has invested very little in infrastructure. A $62 billion investment is the first step in this initiative and is aimed primarily at creating an enabling environment to address Pakistan’s huge energy shortage, and some of this investment will also be used to create a logistics infrastructure, because once you have energy, then you need delivery. The next stage will be to create special economic zones, within which manufacturing facilities will be established. One hears this phase will constitute another $150 billion investment. I don’t know how and when it will come, but China’s industrial evolution is compelling the Chinese to push low-value industrial production out to Southeast Asia and they have already done so in Cambodia, Laos and Vietnam and now they may be planning to do the same in Pakistan. If this is so, it will create a lot of jobs for people here. There will also be many opportunities in terms of Chinese companies entering into joint ventures with Pakistani ones. In this area, however, our government needs to do more and so does the private sector which needs to take initiatives to connect with Chinese companies. A lot of international companies which have manufacturing facilities in China can also participate and bring equity and technology to Pakistan. There is a lot of money on the table for businesses that want to leverage the opportunity. Having said this, Pakistan’s economic development and structure has to develop in a certain way. Dr Ishrat Husain and other very accomplished people are contributing their time and input on this subject; a great deal of effort is being made to modernise the structure. Pakistan’s agricultural initiatives need to be directly linked to our water resources, yet we have separate water and agriculture ministries. Similarly, energy and industry are intrinsically linked; yet, they have separate ministries. They too have to be linked. There is a need to shuffle the entire government and make it more efficient and ensure that decision-making takes place free from political considerations. Today, one of the major things Pakistan needs to do in every sector of the economy is to enhance capacity – and this is what the logistics sector is trying to do.

A: A great deal will depend on the technical expertise of the workforce.
BB: Our economy needs to move in multiple directions and as I said earlier, vocational training is a huge area that needs to be developed in every single industry.

A: How much is the logistics sector worth and how much employment does it generate?
BB: In addition to establishing a training programme, the first thing I did when I set up PIFFA was to request the Ministry of Commerce to undertake an audit of our sector; the World Bank funded it and the United Nations Conference on Trade and Development (UNCTAD) was also involved. The result was a comprehensive audit of Pakistan’s entire logistic industry. It provided data on the amount of money spent on freight, how much credit was provided to exporters, the size of the companies and the assets they owned. That was in 2005; I recently asked PIFFA to seek government intervention in undertaking another survey in order to see what has changed in the last 15 years and then, do this survey every five years.

A: What has been the impact of e-commerce on the logistics sector?
BB: E-commerce is intrinsically linked to logistics; it means ordering online and then delivering as fast as possible, which is where logistics come in. Most e-commerce companies have been buying into logistics companies or creating their own logistics division. E-commerce is going be one of the new areas which will see growth.

Babar Badat was in conversation with Mariam Ali Baig. For feedback: aurora@dawn.com

In addition to his responsibilities as President, FIATA and Chairman Transhold, Babar Badat holds several honorary positions, including Founder Chair PIFFA, Chair TIR, Director PQA and NTTFC.