Freight management is in DNA of GBS

Freight management is in DNA of GBS

– Strong freight forwarding industry imperative for Pakistan to capitalize on emerging opportunities
– An efficient logistics cycle is key for valuable foreign exchange of the country

Interview with Malik Naeem Azam – President, Global Business Solutions Pakistan

PAKISTAN & GULF ECONOMIST had an exclusive conversation with Malik Naeem Azam

vis-à-vis Global Business Solutions Pakistan, Freight Management, Freight Forwarding and Logistics Industry, Role in Trade Facilitation, Global Competitiveness, Current Trends in Logistics Practice World-Wide, Current Issues Faced By The Industry and the Challenges Faced By Freight Forwarders in 2021. The excerpts of the conversation are as follows:

GBS is the highly-specialized expert in freight forwarding and project logistics solutions for clients all over the world. GBS is a company of the GBS group, which is comprised of some independent companies that offer far-reaching competence, experience and expertise in their respective field of business. We fully focus on identifying our client’s specific needs and tailoring unique solutions to suit and exceed these requirements. We see ourselves as an extension of our clients in their respective supply chains, in order to provide the best in terms of both cost and service.

Freight Management is in our DNA. When we join a project, we establish a close working relationship with our clients, based on professionalism and mutual respect. This trust extends through all layers of our organization, and is the basis of how we work to achieve our goal: thorough planning and flawless execution of best-in-class solutions for clients in the freight forwarding industry. Just as important to us are our human resources, the secret to our success for more than 30 years. We combine our best minds and their dedication with innovative technology to deliver flawless, creative solutions to the highest standards, no matter how complex or difficult the parameters are. We are client-centric with an excellent track record of long-term client partnerships, achieved mainly through our determination to truly understand challenges and deliver real tailor-made solutions. A great advantage for our clients is our global reach and local expertise.

Freight Forwarding and Logistics Industry plays a vital role in the overall economy of our country. Logistics Service providers assist trade in all processes including sea freight, air freight, custom clearance, warehousing, road transportation, rail transportation, packaging, warehousing and other allied value added services. In global context efficient Freight Forwarding and Logistics Industry is back bone of any economy. It plays a significant role in eliminating wastages and makes the process efficient for the availability of right product at the right time at an economical cost.

Pakistan, being an agro based country, can easily increase its exports by 30% which as of today turn into wastages due to insufficient logistics system. Reputable freight forwarding players with their presence around the globe bring significant concept of an economic value added services to the customers by coordinating at both ends i.e. Supplier and Customer. This result in cheaper freight rate options, providing updated information and ensuring the product reaches at the right time. Keeping in view its significance, this segment of the economy needs to be recognized as a proper industry to build around certain parameters and frame work to regulate the business. As of today this is not a regulated function as an industry and there are no pre-requisites to enter into the field. An effort has been made to bring the reputable players on one platform and “Pakistan International Freight Forwarding Association – PIFFA” acts as a recognized representative body of this Industry.

In trade the term “Logistics” depict broad range of activities concerned with the efficient movement of finished products from the end of production line to the consumer, and in some cases includes movement of raw materials from source of supply to the beginning of the production line. These activities include freight management, transportation, warehousing, materials handling, protective packaging, inventory control, order processing, market forecasting, and customer service. The freight forwarder is the entity which moves goods from point of origin to overseas point of destination and ensures that internationally traded merchandise arrives in good time, in safe condition and at the most economical cost.

Specifically, freight forwarding firms arrange transportation from shipper’s factories or warehouse to ports, packing or consolidation of cargo if necessary, according to the customer’s needs, documentation, customs clearance, transportation (land, sea and air or combination thereof), unpacking or deconsolidation if required and delivery at customer designated location(s). The traditional concept of moving the cargo on C&F basis is something which has changed around the world and the end customer now wants to take control directly from suppliers’ factory to ensure that there are no wastages in the complete movement by having control over every action; resulting in economical freight, timely receipt of documentation, complete shipment status and achieving the best possible time for the cargo movement. This is only possible with the role of a Freight Forwarder who acts on behalf of customer and ensure that all these activities are coordinated and one-stop shop solution is provided to end customers.

The international freight forwarding industry emerged in Pakistan in the early 1980s. Initially, the industry comprised of few firms catering to a niche market; shipments of plants and machinery for the expanding weaving sector of the textile industry, household packing companies assisting families re-locating overseas and multilateral agencies providing food supplies under aid or emergency programs.

The industry’s growth remained subdued in early years largely due to client’s reluctance to risk overseas business relationships by placing their consignments in the hands of an unknown market entity. The industry subsequently gained acceptance as an intelligent intermediary between local exporters, importers and shipping lines.

Growth in the country’s international trade, the growing trend towards containerization and increasing market realization of tangible benefits of international freight forwarding services were the major factors driving industry growth. A strong freight forwarding industry is imperative if the country is to capitalize on emerging opportunities as well as enhancing the efficiency of vulnerable industries. The complexities of global trade practices comprising of multi-modal transportation, cargo consolidation at regional hubs, distribution at destinations and multiple documentation have increased the importance of intermediaries providing logistics solutions.

The international freight forwarding industry is the largest contributor to Pakistan’s GDP in service sector. The importance of the industry lies in managing the logistics of the country’s international trade. The services provided by international freight forwarding companies facilitate exports including textile, cotton / CP Goods and its made-ups, leather and leather goods, sports goods, surgical, rice, fruits and vegetable and seafood which collectively generate over 80% of the country’s foreign exchange earnings. At the same time, imports handled by the industry ensure uninterrupted flows of industrial raw materials, plant and machinery, spares and components to maintain industrial production at competitive costs.

A country like Pakistan where there is an imbalance of trade, there is more drain of our foreign reserves compared to our inflows due to negative exports. The segment of our imports can easily be categorized into two major segments i.e. Raw Materials and Finished Goods. Much needs to be done to decrease outflows of our foreign reserves. The area where Freight Forwarding Industry can play its vital role is to bring the cost advantages in terms of Freight and improvising on the process to decrease the lead time of entire chain.

Some of the key elements that can bring direct and indirect savings to our foreign reserves are as follows:

1) Global Freight Buying with Shipping Lines accrues in cheaper rate quotes both on Import and Export Cargo.

2) Consignees can get quote in the local country rather than relying on the information of their overseas shippers.

3) Payment of the Freight can be made once the shipment arrives in the country rather arranging advance payment against LC thus directly affecting cash flows.

4) Freight Forwarders are in direct coordination with their corresponding offices to ensure the availability of documents on time and thus avoiding negative costs like detention and demurrages.

5) Complete tracking of shipment to ensure that it reaches on time and customer is aware about the complete status of the shipment.

Logistics costs play an important role in determining any country’s competitiveness in the global market. Research has established that such costs vary from 10% to 30% between countries depending on the efficiency of their transportation and international freight forwarding services. In many countries, an inefficient logistics infrastructure imposes far greater economic cost than tariff barriers restricting market access. The role of the international freight forwarder as the “architect of efficient logistics” is gaining increasing importance as global trade becomes driven by competitive market forces. Countries with the capacity to ensure timely and secure transportation of goods between their primary producers and ultimate consumers are likely to win increasing market share in the emerging world trade environment. An efficient logistics cycle is very important to cut down wastages in terms of inefficiencies and wastages resulting in direct savings to the valuable foreign exchange of the country.

During last decade, several trends have stimulated interest in developing logistics and supply chain management. First, the manufacturers have now realized that logistics function could play a prominent role as a strategic tool in gaining competitive advantage. Consequently, the tendency towards keeping low inventories to reduce the cost of storage, as underlined by the production concepts like Just-In-Time and Zero-Inventory became obvious. Thus, logistics activities have become a concern of CEOs, CFOs and MDs of many companies, rather than the logistics managers previously. Second, the outsourcing of the production function has also led to the outsourcing of logistics activities. Many multinational companies, such as the automobile, electronic and electrical companies etc. have outsourced their logistics activities to third party logistics (TPL) service providers to enable them focus on core business.

Cash flow management is a major challenge for international freight forwarders. This is because in some cases shipping companies extend about 15 days credit while clients usually stretch payments up to 60 days. To keep pace with the international competition freight forwarding companies have made major capital investments in infrastructure developments like warehouses, racking system, forklifts, stackers, IT equipment, transport vehicles of different configurations and specifications. Majority of the country’s international freight forwarding companies outsources packaging, transportation, customs clearance and warehousing to vendor firms, however, the big players have now come up with their in-house sources for all such services. The anticipated growth in business over the medium term will necessitate more investment. However, pressure on profit margin combined with diversion of funds to finance working capital continues to hurt the industry’s ability to accelerate investment. This represents a major barrier for the industry’s future development.

The industry requires trained manpower to manage specialized tasks including multimodal logistic planning, sea freight and inland delivery, pricing, air freight, documentation and handling dangerous goods. The total labor force in the industry is estimated at about 20,000 full time employees. In addition, outsourcing generates indirect employment from allied activities including packaging, warehousing, and transportation handling at ports/container terminals and customs clearance at the ratio 1:3 translating into nonexclusive employment generation at three times the industry’s workforce. To cope with shortages of trained professionals PIFFA Training Institute offer a 4 months Diploma program at its Karachi and Lahore training facilities and often conduct industry relevant workshops.

The government needs to recognize that, without a strong freight forwarding and logistics industry, ambitious export targets are unlikely to be achieved. The end of preferential access to developed markets under the emerging global trade environment makes it imperative for the government to view the international freight forwarding industry as part of the mainstream economy. The neglect of Freight Forwarding & Logistics Industry deprives the members with a proper regulatory structure and access to preferred financing facilities.

The country’s geographic position gives it a strategic advantage in handling transit and transshipment trade for landlocked neighbors Afghanistan, Central Asian Republics and Western China (PRC). However, current custom transit rules are cumbersome and result in procedural delays hence Pakistan has been losing out on the increased goods traffic destined for Central Asia. Recent Government steps to implement TIR Convention and CPEC initiatives however are likely to increase business volumes for international freight forwarding companies resulting from enhanced transit trade flows.

The industry is negatively impacted by severe infrastructure constraints. Inefficiency at Ports, lack of covered storage facilities exposes merchandise to pilferage and weather hazards. These problems are further aggravated by limited working hours and document processing by multiple government agencies. Non- implementation of road load restrictions and over-loading are deteriorating and damaging infrastructure imposing maintenance cost.

There is an urgent need for establishing additional container freight stations (CFS) since the existing stations are operating at full capacity. In addition, major infrastructure developments are required for warehousing, trucking and cold chain sector.

The industry’s needs for working capital are increasing with growing business volumes. With the full implementation of WTO convention, overseas buyers will require delivery of ordered merchandise on duty paid terms. This will further enhance the capital requirements of freight forwarders. Conservative lending policies of commercial banks deprives the country’s international freight forwarding industry of operating funds. Banks are only willing to extend credit on fully secured terms and at high interest rates and are generally averse to extending financing to services sector in Pakistan. Although the decision to lend is strictly a business prerogative, better appreciation of the industry and later on even some mechanism for credit rating would help companies access bank financing consistent with prudential criteria established by the central bank.

One of the key factors is the misinterpretation of role of Freight Forwarding in the local industry, mixing it with the concept of Shipping Industry. Freight is just one aspect of the Freight Forwarders’ role. In any developed country it is the Freight Forwarding Industry that controls the complete flow of materials from ex-works to final destination offering multiple options.

The above defined roles exhibits that it has much broader role and carries a lot of value addition services for the entire Supply Chain. The role of freight forwarders is continuously evolving from being a mere freight forwarder to providing one-stop real and cost-effective supply chain solutions which includes all the activities pertaining to efficient movement of finished products from the end of the production line to the consumer, and in some cases movement of raw materials from the source of supply to the beginning of the production line. This has significantly resulted in trade facilitation which can bring direct and indirect savings to our foreign reserves and significant cost savings to customers by outsourcing logistics and bringing in international best practices to promote Pakistan’s exports. In Global context efficient Freight Forwarding and Logistics Industry is back bone of any economy. It plays a significant role in eliminating wastages and makes the process efficient for the availability of right product at the right time at an economical cost. Pakistan, being an agro based country, can easily increase its exports by 30% which as of today turn into wastages due to insufficient logistics system. The local representative body of Freight Forwarders – PIFFA is playing instrumental role in realizing this function and ensuring that the defined rules and regulations are followed and the function is represented as a separate industry. Government’s role is imperative towards the development of this sector by introducing and implementing policies conducive to logistics sector and economy.

Logistics And Transport: Problems And Solutions

Transport & Logistics is not restricted to physical infrastructure usage of rails, roads and transport, sea trade and related freight, but it also includes packaging, delivery, storage facility and trade logistics. Moreover, insurance, renewal costs, high freight, longer delivery times also add up to costs. Opportunity cost, service standards and trade facilitation play pivotal, crucial and detrimental role in defining efficacy of transport and logistics. For sustainable development of Pakistan we need robust and cost effective Transport & Logistics Sector. Export also depends on this very important sector. Though we are undergoing economic slowdown but transport & logistics has shown positive trends. In 2018 the inland traffic by road and rail was estimated 433 billion passengers kilometer (BP-Km) and 269 billion tonnes-km (BT-Km) respectively and it is likely to increase to 614 BP-Km and 381 BT-Km. The sector was providing jobs to 3 million people and the same is expected to rise more than ever. The sector is getting 25-30% share of the annual public sector program (PSDP) but concerted efforts are required to promote public-private partnership for leveraging higher investments from the private sector.

Pakistan has ranking of 142 (out of 160 countries) in World Bank’s Logistics Performance Index (LPI). This standing is because of poor performance in custom clearance, tracking, tracing and time lines through our country. Pakistan is also experiencing the same political, industrial and financial difficulties as are faced by Bangladesh, India and Nepal. There is no long term government plan to develop logistic value chain as a means to climb out of the economic black hole Pakistan is trapped in. Logistic industry is contributing globally $4.3 trillion, contributing 8-10% to the GDP, creating thousands of new jobs and improving export competitiveness substantially.

The nations with top twenty LPI are among the 10 strongest economies of the world. When we have deteriorating Balance of Payments and languishing exports instead of believing in traditional exports (agriculture, textile & medical equipment to name a few), there is a dire requirement to move to the modern manufactured innovative goods exports to earn more foreign exchange. The need is to eradicate supply chain inefficiencies in bringing products, raw materials and finished goods to market for making Pakistan’s exports more competitive. If quality and linkages of transportation infrastructure are improved then our exports can be increased.

In 2015 World Bank reported that Logistic Sector of Pakistan could capitalize an untapped potential worth $30.77 billion. This value would be realized by developing integrated road/rail networks (including air, sea & dry ports) thereby, improving connectivity interlinking the rural and urban markets vis-à-vis among regional trading partners. Roads carry approximately 93% of passengers and 94% of the freight traffic while Railways is only adding about 6% to freight traffic. This heavy burden on road has resulted into traffic congestion, pollution and fair, wear & tear of roads. Roads traffic costs too much due to imported fuel. Almost 35% of the fuel is consumed by the transport sector. Pakistan Railways is perpetually running at loss due to low freight traffic and subsidized passenger traffic. According to the World Bank one freight train is equivalent to 100 trucks. As Logistics is price sensitive sector so private and public investment must be brought in for rail development. Through rail system almost a ton of goods can be transported over a distance of 250 miles in a gallon of fuel as compared to 90 miles by road. Internationally 50% of cargo is carried/traded through rail development. In Pakistan Rail share is just 5% due to lack of quality containers & non container freight trains. Pakistan Railways has launched very first freight train with 75 containers on the Karachi to Lahore route through private public partnership. There is a plan to bring improvement in the existing rail system and setting up new railway tracks. Moreover, cold storage containers are very much required to reduce/minimize the wastage of farm produce & other perishables items that Pakistan is currently unable to produce. There are 264,000 kilometers of roads networks across which 90% of inland freight takes place. There are 500,000 registered trucks operating in Pakistan, of which the majority are obsolete old vintage trucks with rigid suspensions. That have limited speeds and are heavy on fuel consumption that make them highly inefficient in terms of time & cost. Most of the truck owners have undocumented trucks who do not follow regulation and are prone to overloading. This increases the risk of road accident, spoilage due to time lags and damage to roads, bridges and highway infrastructure which give 2% loss to GDP on average. This substandard quality fleet trucks and absence of comprehensive regulatory system not only has decreased our exports but has resulted in poor ranking of our LPI. Since our trucks do not comply with international standards so local logistics companies automatically disqualify from the regional road freight trade. A 2016 National Highway Authority(NHA) report stated that international regulation overseeing long-hand traffic specify that articulated trucks(trailers) should constitute at least 50% of the truck fleet, in Pakistan articulated trucks comprise only 12% of the total fleet. This is because of the need of massive investment which may not be possible for small & medium transporters to undertake. Trade is handled by Karachi Port & Qasim Port. Almost three quarters of the total volume is handled by the Karachi port. The capacity of these two ports is less as these are congested with limited infrastructure development. Pakistan has 46 airports, 10 are international. Out of total 42 are owned by Civil Aviation Authority (CAA). Amongst them 13 are used for both international and domestic operations, 11 are for domestic operations. Remaining 22 have been sealed or closed down for operations due to various reasons. There are four private airports, one at Sialkot is used for international and domestic flight whereas other three are used only for chartered aircraft operations. PIA is handling 87% of passenger and freight traffic along with other airlines. Due to high freight charges, inadequate Cargo Facilities at airports, are not helping to use air route for trade. Custom procedures are cumbersome. The gap is filled by international airlines.

We have canal system based on five rivers in Pakistan but inland water transport is almost absent. Technology being innovative enhances the competency of business and leads to development and implementation of a new business model. Above all, the internet & information and communication technologies (ILT) are in controvertible enablers for logistics innovation by sharing information to the all business involved and to connect them to facilitate better flow of information and technology. With the advent of internet the e-commerce business has emerged. The growing global logistics firms as FedEx and United Parcel Service (UPS) could become full service logistics by securing the technological capability to coordinate the flow of goods and information within supply chains. Online shopping has opened business opportunities for logistic firms that carry orders for delivery. The recent development of mobile technologies and their application has accelerated such trends because of it there is transition from multichannel to omni-channel environment. Now customers have multiple options to interact with firms and need an integrated logistics system to give customer satisfaction and improved company performance.

Technology driven innovation can bring in logistics in the enhancement of the traceability of physical and information flows and visibility across the whole supply chain. These technologies in logistics develop operation efficiency, improve customer satisfaction and financial performance in logistics. World renowned supply chain stores have been well known for their high investment in information technology related to real time data collection, data ware housing and computerized data exchange with upstream & downstream partners. It has improved stock turnover, achieving cost competitiveness and a quick response CJ-GLS, a Korean third party Logistic (3PL) provides, showed that the successful application of advanced technologies like RFID, aligned with a corporate strategy, could be a critical source of differentiation & competitiveness. Amazon (3PL) has gone one step further by predicting consumer’s demand at an individual level and implementing anticipatory shipping by analyzing big data gathered from its well-connected supply chain.

If we summarize 2020 into one word, it would be COVID, and the challenges left over from 2020 are likely to still affect your freight forwarder enterprise into 2021. However, 2021 offers freight forwarders a unique opportunity to digitally transform to distinguish themselves in a market saturated by commoditized offerings. With freight demand skyrocketing and fewer containers available, forwarders need tech-savviness to navigate 2021 for greater profitability.

Below we’ve outlined the four biggest challenges you might face this year and some expert advice on how to overcome them.

1- COVID-19: High Demand Means Less Space

In 2020, experts generally agreed that demand for ocean freight services would decline. This was true for the first quarter of 2020, but since then until now, demand has not waned.

It’s grown steadily. Despite lockdowns, the demand for consumer goods, PPE gear, and more have grown. Blank sailings and a decline in carriers’ space didn’t help the situation. Recovery vessels, used to keep weekly shipping schedules on time when ships fall behind, are no longer available. In a complete U-turn from what experts expected, ocean carriers are maxing their capacity ceiling on many trade lanes. This means one thing, higher spot rates.

The FBX Global Container Index had a weekly price of $1,461 on January 3rd, 2020. By January 29th, 2021, this price was $4,087, or an increase of 279% from the previous year. This was unprecedented and continues to stump pundits in the industry.

We predict this trend will continue, and even when the COVID-19 pandemic recedes, the demand for freight will potentially boom.

Speed is key, and gaining access to direct ocean carrier data is vital for booking customers’ best rates. Likewise, space guarantees are now vital more than ever.

While previously, these guarantees were only purchased by shippers during peak season, it looks like they will be a staple in future freight procurement in 2021.

2- Freight Forwarder FreighTech and Digital Transformation in 2021

Ocean carriers are embracing technology to digitally transform their operations to streamline freight procurement to generate stable revenue channels. Trends in the industry showcase that ocean carriers that think and act like tech companies will have a competitive advantage. For example, towards the end of 2020, 53% of Maersk’s short-term bookings were booked on their online spot platform. Likewise, at BlueX, we’re building and delivering an online ecosystem to ocean carriers with online booking platforms, AI-driven analytics, and other FreighTech tools.

Freight forwarders must also digitally transform their services to align with ocean carrier FreighTech. Forwarders with instant access to ocean carrier information can offer the following data directly to customers in real-time:

  • Spot rate data
  • Space data
  • Schedule data
  • Tracking data

With the danger of commoditization weakening margins for so many freight forwarders, digital transformation could be a competitive advantage for your business needs in 2021. The above ocean carrier data is available through the BlueX API that connects freight forwarders to ocean freight data sources, ocean carriers. BlueX-affiliated ocean carriers continue to grow, with Yang Ming Marine and Evergreen Line joining BlueX, with more expected in the future. BlueX’s systems are also designed with enterprise-class security in mind, ensuring your data is safe.

3- Increased Cybersecurity for Freight Forwarders

Ocean shipping hasn’t been immune from cyberattacks in 2020. Four of the world’s largest shipping companies underwent cyberattacks, with CMA CGM being the latest victim. Large ocean carriers haven’t been the only victims either. Trucking and logistics companies were targeted too. Freight forwarders need to prepare their systems to avoid or minimize the effects of cyberattacks. For example, failing to centralize cybersecurity strategies, using outdated antivirus tools, systems, drivers, and tools, and employees accidentally releasing sensitive information can result in devastating cyberattacks. Such attacks can prevent your enterprise from servicing customers. Worse yet, if your system is not architected to protect customer information fully, such breaches can lead to substantial fines.

We previously discussed how ocean carriers could protect their systems and customers from cyberattacks, and this advice still rings true for freight forwarding companies and includes:

  • Creating backups and recovery plans
  • Centralizing cyber and information security
  • Updating all software, tools, systems, and drivers
  • Training to prevent data leaks

BlueX systems are architected for high availability and with the latest in information security to give freight forwarders peace of mind. Some of the world’s largest ocean carriers use our systems with its enterprise-class security features and best practices.

4- Post-COVID 19 Boom and Securing Freight in 2021

We predict that post-COVID 19, we will see a huge rise in demand for everything. Revenge travel is already a trending term in 2021, suggesting that tourism is likely to boom as hundreds of millions of people will travel more when borders reopen. Logistics already underwent a boom during COVID-19. Likewise, e-commerce sales grew by a whopping 27.6% in 2020, and the revenge travel trend will likely emerge in ocean shipping as consumer demand explodes after over a year of lockdowns. What is true now will be true for the future. Speed is the key for freight forwarders to deliver real-time rate, schedule, and tracking data to customers. The BlueX API offers these capabilities and API booking features that can be integrated into your existing system easily. Overcome Challenges in 2021 with BlueX. It’s no longer a buyers’ market. Instead, it’s a seller’s market, and that’s not ending anytime soon. With increasing freight demand and shrinking container supplies in an ever-growing digitalized ecosystem, 2021 will be a busy year for many freight forwarders. Overcoming these challenges in 2021 will require freight forwarders to adopt freighTech to deliver greater transparency in ocean freight data to give customers the most streamlined experience to digital book freight. A starting point to achieve this is to apply for the BlueX API and give your customers the data they need for their freight procurement needs.

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