Transport and Logistics – Industry Report

Transport and Logistics

2023

Preamble

The transport and Logistics sector comprises physical and soft infrastructure.
The physical portion constitutes rails, road transport, sea trade and related
freight and air transport, whereas the soft infrastructure covers packaging,
delivery, storage, and trade logistics and facilitation.

The Transport & Logistics sector’s cost is an important component since it

determines efficiency of connectivity, while high freight, insurance and longer
delivery times in Pakistan restrain growth in connectivity of the people and
places. Pakistan is gifted with a strategic location, which is well-suited to serve as
a hub of commercial activity. Transport contributes about 10 per cent to the
GDP, accounts for over six per cent of employment, and consumes 35 per cent
of the total energy annually.

Pakistan’s Transport and Logistics Sector

Pakistan ranks 122 in the logistics performance index (LPI, 2018), lowest in South
Asia. According to the recently approved National Logistics and Freight policy
2021, the sector is highly fragmented and in dire need of modernization. The
absence of a comprehensive vision for all the ministries and departments is a
Highlights of the sector: major hindrance.

In Pakistan, the roadways still play a critical role in helping transportation of

goods across the country. In the future, the share of rail freight is expected to
increase. Currently, the government is prioritizing the development of road
networks for obvious reasons. With the participation of private stakeholders,
this development is expected to enhance its pace further.

The vast area of Pakistan is critically dependent on the logistic sector for the
availability of goods and services across the country. Pakistan Post, an important
logistics company in Pakistan, ensures the transportation of goods from one
region to another. In addition to it, other logistics companies like TCS also play a
critical role in strengthening the sector. The logistics sector currently employs
more than 20% of the people in the service sector itself. It is an important
contributor to the GDP of the country too. This contribution is further expected
to grow in the coming years.

Prepared by: Enterprise Risk Management – Risk Management Group

 Transport and Logistics – Industry Report

Logistics as a pillar of growth for Pakistan’s exports

SWOT ANALYSIS
Logistics is the turning wheel behind any country’s economy to help enter
Strengths the global supply chain industry, which is rapidly digitalizing and creating a
new generation of consumers. Moreover, it plays an even larger role in
 An International sector in true
countries that enjoy a geostrategic advantage such as Pakistan. This
essence, wherein compliance sector is becoming one of the most important accelerators of trade and
and safety requirements are industry in developing and developed countries. Specifically, an efficient
devised, managed and supply chain network has the potential to increase rural income manifold,
monitored on a global scale. which can lead to a multiplier effect on the overall economy.
 Significantly important sector
of the economy in terms of
catering over ~90% of the
Trade of Pakistan
country’s external trade
movement.
 The trade route from Kashgar, Xinjiang province of China to
 Capital intensive thus high
Gwadar Port, Karachi will significantly ease the strategic and
barrier to entry.
financial cost of trade and give undeterred access to China to
Europe and Africa.
Weakness  Almost 80% of China’s oil is currently transported from the Strait
 Significant dependence on of Malacca to Shanghai, (distance is almost 16,000 km and takes
specific trade routes 2-3 months), with Gwadar becoming operational, the distance
 Inability to set pricing, would reduce to less than 5,000 km. Shipments of crude oil into
dependence on international the country last month stood at 37.12 million tonnes, or 9.05
index. million barrels per day (bpd).
 Lack of technological expertise  Approximately 200 freight stations are operated by Pakistan
and resources to increase Railways’ freight business unit with 16436 freight wagon which in
penetration in shipping 2017 carried 5.63 million tonnes.
landscape.  Plans by the government for the development of logistic hubs in
the private sector, integrated into the existing industrial estates,
Threats: industrial parks, export processing zones and others, will be
 Litigation risks carried out on pilot basis in all the provinces.
 Major accidents or oil spillage  Pakistan Customs is in the process of developing an integrated
web-based and paperless arrangement ‘Web based one customs
 Fluctuation in Interest rate
system’. It will be tested first at Karachi, and Transport and
 Volatility in fuel Cost.
logistics subsequently rolled out to all other stations in the
country. The system is expected to significantly reduce the
Opportunities custom clearance time from two days (current) to a few hours,
 Unique coastal geographical and add efficiency to facilitate trade immensely.
position of the country holds
the potential to grow
tremendously on global
shipping services.
 Strategic alliances and joint
ventures.

Prepared by: Enterprise Risk Management – Risk Management Group

 Transport and Logistics – Industry Report

Pakistan’s Shipping Industry

 Seaborne trade holds a significant importance for the economy of

Pakistan as the country enjoys a very imperative coastal
geographical location, with sea front ranging from the Iranian
border in the west to Sir creek in the east.
 Pakistan’s coastline dominates sea traffic to and from the Suez
Canal, Arabian Sea and Persian Gulf on one side and India to Far
East on the other.
 Afghanistan largely depends on Pakistan for its international
maritime trade with China being the next to use it fluently; since
the Gwadar port is being developed rapidly.
 The economy of Pakistan also has heavy reliance on the shipping
industry for the international trade. Almost ~95% of the external
trade is based on sea transportation.
 The seaborne trade of the country rose to ~110mln DWT in FY21
against ~94mln DWT in FY20.
 The revenue of the industry decreased by ~7.4% from PKR~14bln
in FY20 to PKR~13bln in FY21. For 9MFY22, the revenue jumped
by ~68% YoY (9MFY22: PKR~16bln; 9MFY21: PKR~10bln)
z compared to 9MFY21 period.

Business Risk

 Revenue earned from oil tankers constituted the highest chunk of

~66% to PNSC’s topline in FY21. The share decreased to ~62% in
9MFY22. Whereas, the bulk carriers contributed ~18% and
chartered ships ~16% in FY21. The share of the Bulk ships also
decreased to ~12% in 9MFY22 while the share of Chartered ships
increased to 27% for the same period. Total Revenue of the
industry stood at PKR~13bln in FY21 down by ~7.4%. Revenue for
9MFY22 stood at PKR~19bln.
 Raw material cost which is primarily lubricants costs has declined
by ~7% YoY in 9MFY22 as compared to 9MFY21; an increase oof
~3% YoY was witnessed in depreciation costs for the same period.
The costs are expected to go up with globally high inflation and oil
prices.
 Gross margin and operating margin declined substantially in FY21
by approximately 10% except for the Net Margin which increased
by ~1% as shown in the graph below. The reason for depressed
margins has been pressured freight rates. The margins improved
for 9MFY22 against the 9MFY21 period marginally. Net Profit
Margin for 9MFY22 stood around ~15%.

Prepared by: Enterprise Risk Management – Risk Management Group

 Transport and Logistics – Industry Report

Overview of the shipping sector

Particulars FY21 FY22

Gross Revenue (PKR 12,789 16,223
Mln)
Structure Listed and Monopolistic
Total Seaborne Trade 94 110
(Mln tons)
Fleet size 11 11
Tankers 6 6
Dry Bulk Carriers 5 5

CPEC (China Pakistan Economic Corridor)

JS Bank’s Top 10 Borrowers in terms of
Total Outstanding (amount in millions) The China Pakistan Economic Corridor (CPEC) under the belt and road
initiative (BRI) aims to bring Pakistan on the forefront of Global trade routes.
$55 billion is planned to be invested in the energy, transport, industrial
Name of Borrower Sum of Total cooperation and social economic development.
Outstanding
PAKISTAN Within the logistics sector, approx. $19.7 billion will be invested in
INTERNATIONAL 23,587 construction of Gwadar port, network of motor ways, dry port in Havelian,
upgradation of main lines of Pakistan Railways, etc. Under CPEC program,
VEDA TRANSIT
China and Pakistan has launched 56 projects. Out of which 26 projects of work
SOLUTIONS PVT LTD 232
$17 billion have been completed so far and 30 projects having an estimate of
NIAZI EXPRESS 99 $28.4 billion are also under different stages of negotiations for inclusion in the
176 CPEC framework.
RASCH PVT LTD
144
AL-MADINA AIR JS Banks’s Portfolio Overview
CONDITIONED COACHES 133
ITC LOGISTICS PRIVATE Industry Sector Number of Borrowers
LIMITED 94
OPTIMUS LIMITED Transport & Logistics - GOP 3
79
Transport & Logistics - Private 290
CONTINENTAL FREIGHT
SYSTEM PVT LIMITED 73 Grand Total 293
SUPER NIAZI EXPRESS
71
BILAL TRAVELS
66
Source: JS Bank’s Credit Portfolio Dec’22

Prepared by: Enterprise Risk Management – Risk Management Group

 Transport and Logistics – Industry Report

JSBL’s Portfolio for Transport and Logistics

JS Bank’s Transport and Logistic Industry is bifurcated into two categories:
1. The Government of Pakistan (GoP)
2. The Private sector.

The Industry Threshold for the Transport and Logistic Industry of GoP has
been 8% and 10% for the Private sector as of December 2022. The
percentage share based on Outstanding has been 6.39% for the public
sector and 0.87% for the private.

As per December 2022 the total outstanding (funded and non-funded) has
been 23,587 million for the government sector against approved limit of
23,587 million. Whereas, for the private sector the total outstanding is
3,199 million for a limit of 3,255 million. The NPLs (Non-Performing Loans)
were 241 million for the private sector and non for the government sector.

Future Outlook

“Foreign The Vision 2025 set the target of raising the road-density to a level of 0.45
kilometer per square km by 2018, which will increase the existing road
national network from about 2,60,000 kms to 3,58,000 kms. Major

shipping lines upgrade in the railway system includes: increasing speed from 95 km per
hour to 120-140 km per hour, doubling tracks of the main line sections,

mulling to
increasing line capacity with a modern signaling system, establishing
North-South and East-West corridors and developing linkages through
road and rail to the Central Asian states, China, and other neighboring

stop services countries and development of a separate freight corridor on the railway
tracks.

for Pakistan” The Vision emphasizes participation of the private sector as a growth-
driver.
~Pakistan today, January 29th 2023 This will further enhance productivity, competitiveness, efficiency,
innovation and entrepreneurship in the country.

With an evolution of multiple trends in the market, companies need to

keep up with tech advancements to navigate through the challenges and
adapt to the changing times.

Prepared by: Enterprise Risk Management – Risk Management Group