The ABC's Of Pakistani Logistics

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The is something beautiful about long haul trucking logistics. The imperative to create a symphony amidst waves upon waves of thunderous chaos, There is nothing else quite like it.

Having spent a few years helping conceptualize and launch a 200 truck logistics business, I can quite honestly say that it’s a business that continues to fascinate and teach me (sometimes harsh) lessons every day. ?It’s been a roller coaster ride, but anything worth doing, is worth doing well.

In its simplest form, this is what trucking logistics looks like. A truck comes to it a shipper’s loading point, waits its turn in a queue, gets loaded and then proceeds to embrace the challenges that Pakistani roads have to offer. Along the way, the vehicle stops for refueling, rest, tea, prayers, meals to name a few, not to mention resolving enroute issues like a nasty little punctures or the odd inconvenient fine. Eventually our truck makes it to its destination and then gets unloaded.

Sounds incredibly simple at its core, but it is anything but. It’s a dynamic market full of ifs, buts and maybes – and quite the generous servings of “Inshallah’s”. ?At its core, the simplest way to understand the business is breaking it down to (A) Freight Rate, (B) Kilometers and (C) Costs…. hint they are all extremely important and carelessness on any of the 3 can be deadly if your goal is to churn out a profit.

A.????Freight Rates: Moving product from point A to point B comes at a certain price – a trip rate if you will. Sometimes it’s a flat fee for the volumetric capacity, and other times it’s a per ton rate times the amount of tonnage the truck owner is willing to carry. However, these rates can swing wildly with the forces of supply and demand.

The easiest way to address a shortage of trucking at any location in Pakistan is simply to increase the price (sometimes by a lot) and make it financially attractive for trucks to hurdle their way to that load. It’s like watching some manifestation of perfect competition coming to life. Please note this is absent certain constraints – for eg. Roads being underwater during floods. The intermediary that balances supply and demand is the ‘Contractor”, whose primary role is to pick and deliver cargo on behalf the shipper. For the record, contractors they don’t usually have a formal contract with their clients. However, what contractors do have is contacts, working capital and most importantly, a reputation. They have access to cargo loads that a single trucker would not have, and they earn their keep by ensuring that all orders are picked and delivered to their rightful destination – with all the associated risks. Ones that are don’t manage this well…. Well, they don’t last very long. Its very much eat or be eaten and the rates reflect this. What Contractors lack in sophistication, professionalism and tech they make up in street smarts, relationships and business acumen. Opportunistic truckers ride pricing waves wherever they can, contractors manage this and shippers pay for it. Fundamentally, one can be underpriced to the market, but no one can charge a meaningful premium for long.

B.????Kilometers: The more your truck run, the more money you make. If only life were that simple. Every inch of Pakistan’s roads do their best to slow you down. Whilst in theory, Pakistan should be a fairly easy country to serve, particularly in long haul where you have a largely vertical country with movements from the south to the north and ample loads from the north to sound. The routes are easy to understand, but come with their own set of challenges.

Overloading is a theme in Pakistan, infact in the trucking industry it’s a national past time. To explain, a 22 wheeler, 40-45ft flatbed truck has the legal capacity to load upto 50 tons, depending on the product, trucks will load an additional 10-30 tons. Great for revenue, not so great for the roads (damages and repairs funded by taxpayer money) which deteriorate rapidly under the extra weight. Any truck carrying an extra heavy load on a battered road won’t be breaking any speed records any time soon, particularly when you factor in inevitable break downs on what are fairly old trucks. In context, the last Bedford truck rolled off a manufacturing line several decades ago. On top of that, long loading and offloading times further hamper asset utilization, not to mention additional drags like the odd driver who wants to get in a full nights sleep. In general, there are very real constraints that limit kilometers run per month.

Optimizing vehicle utilization is hand to hand combat and is a battle that must be fought every day – the more trips you can pull off, the healthier your returns will look…as long as your costs are in order.

C.?????Costs: Having spoken to local truck owners, there is something charming about the simplicity with how they think about (read: imagine) their costs. Forget about quaint items like depreciation or taxes. The only way to think about the costs is see what you spend and compare that with what you bring in and that’s it. If you have to spend on new tyres, maintenance or engine overhauls, just do it from the profits saved up. Whilst the formal end of the industry strives to be more fiscally responsible about their costs, the vast majority of the industry operates under a draconian cost control regime; Low overheads, extend consumables parts life, buying second hand parts, using smuggled Diesel and repairing trucks themselves are only some of the capabilities the truckers have developed over time.

Fundamentally, trucking isn’t a business that offers heavy operating margins, there are good times and bad times dictated by market forces. It provides asset owners with stable-ish cashflows, but the real kicker is the value of the truck. Truck values in Pakistan don’t decline in value as one would expect, infact trucks act like a dollar hedge and any discount in price, is relative to a new truck. So for any truck owner, the time they sell their truck is when they book their capital gain.

In a world where trucking is evolving towards supply chain efficiency, trucking in Pakistan standing firmly still in the cash cost efficiency pool. The fundamental problem with this, is that commodification of transport over time reduces the amount of re-investable capital. Rates predicated on old trucks will unlikely generate enough return to make new modern fleets viable, and when there is a shortage and baseline demand finally outstrips supply, lets just say then the symphony will start sounding a lot like death metal. ?

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