In 2004, Badat formed Pakistan's national logistics association - PIFFA - and was its Founding Chairman. In 2005, he got PIFFA to take the membership of FIATA, thus launching the local logistics industry's assimilation with the international logistics community.
In 2004, Badat also formed the TIR Commission in order to introduce the TIR Convention in Pakistan, to enable cross-border trucking wherein Pakistan's trucks could go into China, Iran, Turkey, and Central Asia. This was then followed by his active lobbying & participation to formulate a trucking reform policy.
More recently, Badat was elected as the President of FIATA, which is the international federation of the national logistics & freight associations, headquartered in Zurich. He has held various honorary positions like Director of PIDC, PHDEB, NTTFC, PQA etc. He has been a member of National Trade Corridor Programme and is a member of the much-respected UN ESCAP Business Advisory Council.
In this interview with BR Research, Badat chooses not to talk about his companies which he heads; instead he chooses to talk about the logistics industry in Pakistan, its brief history, its governance and the need for trucking reforms and a transport policy. Within that frame, BR Research was able to draw out his views, including on issues like the workings of NLC and Pakistan Railways, the dynamics of warehousing and some aspects of CPEC. Below are edited transcripts from a sit-down that spanned a few hours:
BR Research: You have been championing the cause of the logistics industry for a long time; can you please walk us through what drove you to do that?
Babar Badat: Logistics was not very well-structured in Pakistan and nor was it understood. In the changing global environment, Pakistan's location warranted a better rollout of this industry, so in 2002 I decided to get involved with the stakeholders followed by engaging with the government. In December 2004, we formed the national logistics association PIFFA, which is essentially the primary national body for the logistics trade.
Before this, there were individual shipping agents, air-cargo agents, informal truckers and warehouse operators but there was no focused logistics organisation. I felt that logistics was a growing business all over the world, but it was overlapping with other related businesses. It was logical for us to come under one umbrella, integrate and define our existence.
In 2005, I had PIFFA affiliated with FIATA. FIATA is the primary global logistics organisation, with close to 140 national associations, federations and around 50,000 individual companies as its members. FIATA has got a structured working relationship with the UN and several other multilateral organizations and sets the rules for the function of this important industry.
Similarly, under a parallel initiative, also in 2004, I worked with the international chambers & set up the TIR commission for development of the cross-border trucking industry. After more than 12 years of engagement, the government finally signed the Convention with the UN in 2015. Its implementation has now started, about four weeks ago
BRR: What key milestones have you achieved under PIFFA?
BB: The first thing I did was to request the Ministry of Commerce to do a survey of the logistics industry. The survey was funded by the World Bank and conducted by an independent consultant appointed by the Ministry. That survey quantified and qualified the size of the industry and also detailed the contribution of the logistics industry in the services sector towards the national economy. It also showed how much credit the logistics industry provided to the trade, particularly the exporters.
The next area which I worked on was the development of our "Standard Trading Conditions", where we defined our formal rules of engagement with the trade. These rules were publicized and presented to the Federal Chambers as well as the Government. These rules defined our industry's role in dealing with the trade.
Next, we engaged with FIATA and introduced an internationally-accredited logistics' vocational training programme to Pakistan. This was a six-month course and eventually led to the setting up of a training academy, which has since turned out hundreds of trained professionals.
By 2007, I was invited onto the board of FIATA. At that time, the Government was also keen that Pakistan should be represented on this board. Currently, about 600 companies are members of PIFFA.
BRR: Which alliance did you rally on for the FIATA presidency?
BB: At FIATA, it's all about the private sector. Though internationally, we have some natural alliances with countries like China and Turkey but then the US and the EU countries were also very helpful. At the end of the day, it is more about individuals and what you have done for the global industry. From 2007 to 2017, a lot of work was done and different engagements undertaken. In October 2017, I was elected as President of FIATA. I am honoured to take up this engagement and it comes at a very opportune time for Pakistan.
BRR: How is this presidency going to help Pakistan's trade in general and its logistics industry in particular? Will there be a knowledge spill-over or lobbying for certain benefits?
BB: In terms of benefits, visibility is the first thing. Pakistan logistics is now visible on the global canvas and global logistics players will look at Pakistan. I have already spoken at two seminars where I have advocated to international companies that the best model for Pakistan is that they select a reliable local partner and buy into that company - make a JV.
These international logistics companies are very big and powerful, they have large resources and they are prime movers of trade so their entry into the Pakistan market will create competition, and therefore, upgrade the industry. It will also help in the context of CPEC by building capacity as Pakistan is a transit corridor not only for China but also for Central Asia and Afghanistan.
BRR: Where does shipping fit into this?
BB: Previously, the shipping lines used to play a dominant role but today the document being used is issued by the logistics companies.
Shipping lines had a traditional role for port-to-port transport but with the common use of containers, logistics companies gained prominence: 95 percent of the commercial global trade is via containers. Today, the container moves from the point of origin to the final point of consumption and it goes across different modes of transport under a single document. The logistics operators, the international freight companies and the international freight forwarders are the ones who take charge of this; they negotiate and find the perfect mode & route for the transport.
Today, some of the larger logistics companies have 700-800 international offices, they employ thousands of professionals and some of them are bigger than banks. Now even the shipping companies are setting up their own logistics subsidiaries in order to provide their captive clients with their end to end services.
BRR: What role has FIATA played in putting a spotlight on the logistics industry?
BB: FIATA is a strong body. It has traditionally had a large participation from Europe but over the last few years the Americans and the Chinese have also got involved and now a lot of countries are engaged in it.
FIATA has various institutes & advisory bodies which take care of many critical aspects connected with trade. Amongst them vocational training is a very important aspect at FIATA, it has the FIATA Foundation, an advisory body and now also a FIATA logistics academy where now you can access the world top class online courses and programmes from Harvard & MIT Universities.
At the end of UN's MDGs (2000-2015), we as FIATA engaged with the UN and explained to them that logistics was an important enabler of global trade. We made a statement in 2013 which was very well-publicized and that statement read "the biggest non-tariff barrier to the growth of global trade is the lack of logistics connectivity in many parts of the world". This statement was very well-received across the world. When the UN's SDGs were eventually released in 2015, out of 17 goals, 14 had a logistics component to it. This was in wide contrast to the earlier position as there were no references to logistics in the MDGs.
Another thing we did from the FIATA platform was that we asked for the logistics industry to be a part of the decision-making process of "transport infrastructure spending by the multilaterals". So, typically, the World Bank would engage only with the governments for planning investments into transport infrastructure but have no private sector input. We raised this issue & it was well heard. After that, the World Bank signed a MOU with FIATA. That MOU will give space to the private sector to express their views when these multilateral organizations decided to spend on infrastructure projects.
BRR: What is the national association doing to ensure that the level of formality increases in this industry? As we understand it, there are a lot of mom and pop companies in this trade.
BB: Pakistan's logistics industry was like any other industry in Pakistan. However after PIFFA's formation, the association introduced training programs & has worked to increase the local level by international assimilation with FIATA. But you cannot finish mom and pop companies, they will come, some will stay and grow, while others will phase out, that's the business environment of the country.
As for informality, we have made the rules; whosoever conducts this business must be a member of PIFFA and must have at least two trained people. That's what the association can do. On the other hand, the trade must do its due diligence and see the credentials before selecting any logistics company.
BRR: You have also been working on trucking policy reform. Where does it stand now?
BB: Yes. I had worked to make that policy together with the Ministry of Commerce and the Ministry of Industries. Because we don't have a transport Ministry in the country, this whole initiative was placed under the special initiatives section of the Ministry of Industries and later housed at the Engineering Development Board (EDB).
The Trucking Reform Policy was later approved by the cabinet. In 2013, the policy went into the cold storage of the Planning Commission; however I am hopeful that the policy will be rolled out soon as now the government is already working on implementing the TIR.
This trucking reform policy document takes care of everything. It is very detailed and talks about load controls, traffic conditions etc, yet it is very concise. Today 20-ton trucks carry 40 to 80 tons. If we implement this policy, there will be load restriction and eventually we will have better roads, a better environment and the demand for trucks will increase by 30 percent. So it's a win-win for all.
BRR: Is there any sense of urgency to it?
BB: When the TIR is implemented, there will be trucks coming to Pakistan from China, Iran, Central Asia and Turkey. And if Pakistan does not have a good trucking fleet (meeting international standards), we will be overrun. It is very important for us to start a process of fleet formation on an emergency footing.
When the USSR finished, three countries had an opportunity: Turkey, Iran and Pakistan. Pakistan's biggest advantage was that we had 600 containers from Nato going through the country daily - we should have leveraged that and moved forward into creating a strong transport industry. We couldn't do it because there was no focal point, so no infrastructure was established and no rolling stocks were developed. We could have asked Nato to build a dedicated corridor thereby adding to the national transport infrastructure.
Iran was lumped with sanctions but still developed its infrastructure and created a trucking industry. Turkey was the most vibrant, most versatile. Today, Turkey is the largest trucking industry outside of the US. Iran and Turkey both created their fleets overnight; they brought long-haul trucks, then selected good companies and gave those vehicles to them. These are the initiatives that the government needs to take.
BRR: Why is there a need for a transport ministry?
BB: Back in the day, the communication ministry took care of telecoms, postage, ports and the roads network. Then post went separate, followed by telecoms and then ports & shipping and finally the communication ministry was left with roads and the National Highway Authority (NHA). We've been trying to tell the government that we need to have a Ministry of Transport & Logistics.
Today our logistics companies deal with seven ministries - Customs is at Ministry of Finance, Railways is separate, then we have a Ministry for Ports and Shipping, then if we want to talk about conventions we have to go to the commerce ministry, and similarly for roads and trucking we go to Communications ministry. We can't work nor can we grow like this; we must have a focal ministry.
The closest thing that we have ever had to a Ministry was NTCP. In 2004 I had submitted a detailed paper to the government on Pakistan's logistics. At that time, the World Bank was discussing the corridor concept with the Government; so the Government decided to dovetail my concept paper with the World Bank program and set up a body called National Trade Corridor Program.
It was the most concise logistics development program ever set up in this country. It consisted of eight federal secretaries, the three port heads, head of NLC, Chairman FBR and the Deputy Chairman of the Planning Commission who was heading it. I was the only person from the private sector. The chair used to have monthly meetings and the Prime Minister himself called quarterly meetings. That program pushed a lot of things for logistics, but unfortunately, after the change of government, the program became dormant.
BRR: What areas should the transport ministry look at?
BB: The transport ministry should be the focal point for the transport of cargo by road, rail, air, warehousing and everything connected with freight transport. You need to have smart logistics to be able to produce and deliver or export efficiently. Logistics gives you reach & can boost the economy. We need to make a cohesive national logistic & transport policy which ensures our national development and regional connectivity.
I was once sitting in the NTCP meeting and was asked why Pakistan didn't have warehouses like in Dubai. I said that's because we gave free storage at our ports. I said gone were the days of big ships, which used to take a month to load & unload and the ports would give free storage for 10 days. Ships have become better, they unload in 12 hours, load in 18 hours and leave in 1-2 days. Pakistan still gave 10 days' free time. And this happened on the most expensive government-owned real-estate which was being given out for free and then the government wanted to borrow money to make new jetties & terminals.
They asked for benchmarking. It turned out that Pakistan was one of the countries with the highest free time. The 10-days' free storage was reduced to 5; it would've come to 3 days, but it stopped at 5. Then the government turned customs 24/7, banks were also told to operate at the ports, hence the supply chain became faster and so Pakistan came into this century. This was one of the initiatives we did without one dollar of investment. Resultantly, warehousing business started, a new economic space opened for us; and companies started investing in warehousing at Hawksbay road, Port Qasim, etc.
BRR: You mentioned investment in warehousing. What are some of the major issues over there?
BB: The cost of land is very high; the government needs to have a policy. We should try to attract in actual investor and not land speculators. Even today we are only at the tip. Warehousing investment is required not only in dry cargo storage but in temperature controlled warehousing in rural areas to support our horticulture produce, 40 percent of which goes waste, and for our agri produce a significant percentage of which also goes waste for want of better warehousing.
BRR: Let's turn to your competition. Railway has been in a bad shape, and we are told that improvement is on the way. You think it would hurt the trucking industry?
BB: The size of railway is too small; it's carrying only 3-4 percent of cargo and it's inefficient. Even if it doubles in improvement, it will have a 6-8 percent share. In the most efficient countries, railway doesn't carry more than 10 percent. Look at Europe or America, road transport is the leader. Railway is limited from station to station. But for long duration of a journey, railway is of course better so it must be developed as it is a very important part of a nation's supply-chain capacity. Today the single biggest project in CPEC (US $8 billion) is the railways ML1 project; it is the up gradation & the dualization of the Karachi Peshawar railway line.
BRR: What's your take on the NLC; is it still creating distortion in the market?
BB: NLC is a good national organisation, but perhaps not a commercial one. NLC used to be one of the largest trucking companies in the world, but over the years they've lost their rolling stock. The point the private sector feels is that they buy a truck, but don't pay tax, and then they compete with the private sector. The private sector doesn't stand with them and it results in crude competition.
Today, we need a national transport initiative. We don't have to fight with each other. On the contrary, we can very easily complement each other. The private sector does not have the capacity to invest in infrastructure; it can buy and operate trucks. NLC cannot run trucks as efficiently but it has the land to build infrastructure projects.
NLC should invest and work on creating the infrastructure, such as transport corridors, freight stations, truck-stands at the borders and weigh stations. NLC can create terminals everywhere and earn from the private sectors' 1000 trucks instead of their own 100. Do that and you will make allies, and you will complete a national transport supply chain.
BRR: Let's pivot to regional trade. Pak, Afghan transit trade has been going down. What do you think is the real problem?
BB: Here, the security & political considerations far outweigh commercial considerations. We hope that sometime in the near future this position will improve.
BRR: Would you support the notion that we should allow Afghanistan to trade with India via Wagah, because unless we allow them, they are not willing to open the CIS corridor for us?
BB: That's a political problem. We, unfortunately, don't have the intellectual input to comment or decide on political issues - we are businessman and I look up to my government to decide the policy.
BRR: At the end, let's talk about Gwadar for a bit. When do you think it will start flourishing?
BB: Gwadar is not going to happen next week or next month. It'll take 3-5 years for Gwadar to open, and 5-8 years for it to flourish. But we need to plan now and also start investing.
BRR: But the first cargo has already passed through from Khunjerab to Gwadar. Or is it that a lot of it was empty cargo as some quarter like to maintain?
BB: Opening is one thing, flourishing is another. As for the first cargo, yes several trucks came from China in November 2016. That was the first transit transport of Chinese cargo through Gwadar.
Empty cargo story is a myth. There are a lot of detractors but let me tell you CPEC is happening. It is a very critical programme for Pakistani's economy and both our business and our Government must work together to inculcate, incubate and promote the opportunities for our private sector to avail them. Remember, it is only a thriving private sector that propels a national economy, nothing else does.
Copyright Business Recorder, 2017