The fate of cargo services

Cargo services industry in Pakistan has seen a few ups and downs in the last couple of decades but has not suffered big jolts like other industries.

Quality of cargo services, whether it is local or international, has always been good by all the companies operating in Pakistan. Margins of cargo service companies are always squeezed due to the fierce competition of many local as well as multinational companies but still cargo service companies are earning reasonable profit as the operational cost of this sector is not as high as other industries like manufacturing.

Cargo service companies, beyond all doubt, have rendered excellent services at corporate as well as individual levels but the exorbitant increase in the price of courier in the last few years has been taken negatively by the masses. 

With respect to pricing, one thing is still very positive that the cargo prices in Pakistan are still much lower than countries like Saudi Arabia where I am living. It costs more than Rs. 15,000 to just send a single document through courier from Saudi to Pakistan. Even the local (within kingdom) courier charges are more than five times higher than local courier charges in Pakistan.

This should have been the other way round as the operational cost of courier in GCC countries, particularly in Saudi Arabia is much lower than Pakistan but the prices here are too high which indicates that the courier service companies of GCC are earning very high profits.

If we see the entire courier industry in Pakistan, many companies have entered the market in the last 25 years which has made the market very competitive. This has benefited the consumer in prices as well as quality of service and has generated good employment.

Cargo services in Pakistan have already improved as the failure of timely delivery is probably less than 1% but still, there is room to improve in some areas. The main area where improvement is needed is the time duration that it takes to deliver a courier.

We have noted that it takes even a week to deliver a courier at some parts of Pakistan. I remember last year I sent an item through courier from Lahore to Gilgit assuming that it will reach in two days maximum but got shocked to see that the courier reached after one week.

One of the main reasons the public uses courier companies is with an expectation of fast delivery, but when the courier service fails at its core area then the main objective of courier service is lost.

The other area of improvement that I have noted is the training of staff of courier service. Cargo service companies spend almost zero in the training and development of staff. This is a public service job, and therefore staff needs much more training.

Courier service companies are reluctant to allocate budgets for human resource training but they should divert some of their annual budget to improve the quality of service.

Taxes on cargo services in Pakistan are flat on the turnover which, at the moment is around 8%. The cargo service has to pay a flat tax on its turnover (sales) whether the company is earning profit or loss.

In my opinion, this is not justified as this industry has too squeezed margins which are not more than 15% of turnover and the government has imposed a tax rate of 8% which means the cargo service company has to pay more than half of its earning to the government. In 2015 when the tax on cargo service companies was raised from 6% to 8% on turnover, I was the first to raise voice against this injustice at various TV channels.

When we compare the taxes imposed on cargo services with other countries like GCC countries, it is tax-free in most of these countries, but when we compare it with Europe and the USA, tax is on net profit rather than turnover like in Pakistan, and hence European US cargo service companies do not face issue in paying taxes. Pakistan needs to rationalise the tax rate of cargo service companies so that the industry grows, generates employment and increases GDP.

Road network is one of the key factors for quality and timely delivery of courier.  This has been a pain factor for cargo service industries as the road infrastructure is not as per international standards. Nonetheless, the cargo industry should not be disappointed as we expect the government to focus on this area in the next three years.

We shall not blame the present government for not investing in road infrastructure in these eighteen months of its tenure since the government has been involved in the surgery of the economy. Now that the surgery is almost complete and healing time has started, we are fully optimistic that the road network will be improved.

This is not only important for the cargo industry rather it is a lifeline for the entire economy because 70% of the goods are transported through roads and the rest through rest by rail network. The economy can grow by 0.25% more only if the road network is improved.