Is Pakistan’s transport and logistics sector ready to realise the trade benefits from CPEC?

Ali Haider Lodhi
With the progression of China’s Belt and Road Initiative (BRI), Asia is expecting a rapid increase in trade making it the trade hub of the world. Similarly, the $62 billion China-Pakistan Economic Corridor (CPEC), a subproject of the BRI, is said to be a game changer for Pakistan, as it will affect trade flows through multiple channels, enhancing the country’s trade and industrial growth. CPEC is expected to boost Pakistan’s annual economic growth rate by about 2.5% till 2030 and increase Pakistan’s exports to $ 4-5 billion in the medium term through rapid upgradation of Pakistani infrastructure, construction of modern transportation networks, energy projects and special economic zones (SEZs), but is Pakistan’s transport and logistics sector ready to realise the trade benefits from CPEC? CPEC is a multifaceted project, an infusion of transport, infrastructure, ports, roads, railway networks and energy projects, creating an enabling environment to boost Pakistan’s trade connectivity and export potential. About $11 billion or 17.7% of the CPEC investment is targeted at the development of the transport and logistics sector of Pakistan, including highways, motorways and rail-based mass transit projects. With about $6.1
billion being invested in transforming the road infrastructure and about $3.69 billion being contributed to railways, the transport and logistics sector in Pakistan could capitalise on untapped potential worth billions of dollars. However, the sector is plagued with long-standing issues and inefficiencies that could prevent Pakistan from realising its true potential of turning into a regional trading hub. With more than 90% of inland freight taking place across around 264,000 kilometres of road networks, CPEC projects like
the Karakoram Highway Phases II and III and the Karachi-Lahore Motorway will improve connectivity between rural and urban markets within the country. However, the sector severely lacks high-quality trucks that are needed for effective transportation of goods. Most of Pakistan’s existing 500,000 registered trucks are obsolete and heavy on fuel, making them highly inefficient in terms of time and cost. In addition to the registered trucks, there are unregistered trucks that are often overloaded and not operated based on regulations, increasing the risk of road accidents and damage to road
infrastructure. Alongside replacing the existing trucks with new and high quality trucks, it has been estimated that Pakistan needs at least 100,000 additional trucks in order to cope with the export-import trade, transportation of construction materials and increase in volume of goods. While improving road infrastructure and the trucking industry is central to improving logistics performance, rail networks are a much more feasible means of inland freight. In fact, according to a study by the World Bank, each freight train is equivalent to 100 trucks and a gallon of fuel can transport a ton of goods over a distance of 250
miles by rail as compared to 90 miles by road. Unfortunately, rail networks only handle about 5% of the freight traffic with low quality container and non-container freight trains in Pakistan. The unbalanced division of freight traffic between roads and railways creates immense pressure on the road infrastructure, causing road damage, congestion, pollution and an increase in the overall cost of transportation. The onset of rail mass transit projects like the Main-Line-1 project is likely to increase the country’s trade capacity and make trade cheaper, if coupled with an increase in the number of freight trains. However, an increase in freight trains should not be done at the cost of passenger trains,
as it will increase the load of passengers on the remaining trains and on road transport. There is also a need to increase cold store containers to minimise wastage of perishables items that Pakistan is currently unable to export. The demand for warehousing is also expected to increase due to the establishment of SEZs along the corridor whereas the current state of warehousing in the logistics sector is dismal, largely because of the high costs that prevent key players from investing in the sector. With approximately 50 million passengers expected to be using railways by 2030, significant changes
need to be made to the existing rail infrastructure in order for the market share of rails to increase beyond 8-9%. The absence of a single dedicated ministry to the transports and logistics sector is one of the biggest challenges faced by the sector and will slow down the increase in trade created by CPEC.
Transport and logistics companies have to coordinate with seven to eight separate ministries to get a simple task done. Rail and road infrastructure and freight are administered by the Ministries of Communications and Railways, shipping services fall under the Ministry of Ports and Shipping, matters pertaining to customs and cargo clearance are controlled by the Ministries of Finance and Interior, foreign and transit trade issues are handled by the Ministry of Commerce, and airports and aviation are
managed by the Ministry of Defence. Not only does the conflict of interest between ministries cause delays but also prevents the development of a comprehensive National Transport Policy that could help streamline and integrate the various sub-sectors involved in the transport and logistics sector. The creation of a Ministry of Transport is an important step that will help improve coordination and document the grey part of the sector into the formal economy by offering incentives such as reasonable financing opportunities to modernise fleets and build warehouses. The current state of Pakistan's
transport and logistics sector is not good enough to realise the trade benefits from CPEC. It requires an overhaul with strengthened road networks, a modernised trucking industry, increased freight and passenger trains, investment in storage and warehousing, and the introduction and implementation of policies that encourage the growth of the industry and make it compatible with international standards. These improvements are expected to reduce transportation costs by 10% and travel time by 50%, which will in turn make Pakistan’s transport and logistics sector more efficient while enhancing Pakistan’s
trade growth.