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 bringsignificant 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.
INTRODUCTION OF FREIGHT FORWARDING & LOGISTICS 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.
Today the role of Freight Forwarder can be summarized as follows:
-- Air Freight / Sea Freight / Land Transportation
-- Consolidation denote combining cargo of many consignees into one lot and then prepare it for shipping is better known as consolidation in the freight industry. This includes sea, air and road freight. Consolidation service typically involves the cargo transportation to the stuffing point, stuffing of cargo in container, custom process of shipping documents, and finally re-packing if necessary for delivery.
-- Buyer's Consolidation for international buyers like GAP, IKEA, Nike, Walmart, JC Penny and others where there are multiple shippers and one consignee.
-- Direct-to-Store products like managing the export of Hanging Garments
-- Origin Cargo Management (OCM) - arranging inland transportation from the origin, coordination with vendors, consolidation of cargo at consolidation points, QC inspection, labeling / bar coding, stuffing and shipping as per buyer's reference.
-- Warehousing - offering storage services with complete inventory management through modern IT based WMS meeting desired criteria of customers like FIFO, LIFO, FEFO and LEFO; Batch / Lot expiry control and ABC analysis.
-- Bonded Warehousing Services - offering storage spaces for custom bonded cargo
-- Cold Storages - offering cold storage warehouses for temperature controlled cargo of different industries.
-- Reefer Transportation Services - offering transport services to cold chain products covering FMCG, Pharmaceutical and Agro sector business.
-- Fuel and Liquid Transportation - offering services for liquid transportation to OMCs (Oil marketing Companies) like Shell, PSO etc. and Liquid Chemical Transportation.
-- Expo and Event Logistics - offering services for managing complete logistics for Expo Goods for Exports of Pakistan. For international Expos, Freight Forwarders work in collaboration with TDAP. Freight Forwarders also play key role in exhibitions like IDEAs.
-- Fruits and Vegetable Processing Centers - with the induction of modern retail chains like Metro and Carrefour this is another avenue taken care by Freight Forwarding companies to provide clean and properly processed Fruits and Vegetables to customers.
-- Supply Chain Consultancy Services - offering solutions for many local and international companies to design and address their Supply Chain needs.
-- Project Logistics - Moving complete Plant and Machinery from the site of origin, transportation it to relevant sea port / airport, custom clearance, arranging vessel / airline as per the cargo dimensions, shipping it to destination, custom clearance, arranging special transportation equipment to move it to the installation sites and offloading to specific installations areas.
In practice, freight forwarders have become important multimodal transport operators; they have moved away from their traditional role as agents for the sender, accepting a greater liability as carriers.
In Pakistan there is much to be desired and lot of room for advancement of Freight Forwarder. Much of the role in the country has been driven by the needs of international buyers or the policy decision derived from the international peers of multi-national organizations. The local market still needs to go a long way to capitalize on the role of Freight Forwarder.
The concept of C&F is still dwelling around our local industries/merchants whereby the freights are paid as per the Shipper's demand, delays in documentation leading to detentions and demurrages and less or no track on shipment status. Similar to modern economies, the realization of the effective role of Freight Forwarder needs to be further recognized to bring the cost efficiencies and process efficiencies in the system.
ROLE IN TRADE FACILITATION
Economic importance of Pakistan's international freight forwarding industry. 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.
Global competitiveness
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.
Current Trends in Logistics Practice World-wide
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.
Investments
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, transportvehicles 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.
Human Resources
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.
CURRENT ISSUES FACED BY THE INDUSTRY
Policy recommendations
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.
Transit & Transshipment Procedures
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.
Infrastructure constraints
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.
Access to bank financing
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.
Misconception of Freight Forwarding Role in Pakistan
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.
Conclusion
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. Compiled by: PIFFA Secretariat