Tanker and trucking demand growing sharply

Interview with Rana Asim Shakoor, CEO, Shakoor & Company Ltd:

Rana Asim Shakoor is a second-generation logistics businessman. In his current hat, he is the CEO of the firm that his father founded in 1965. Recently, Asim co-founded Fleet Operators Association of Pakistan (FOAP), the first registered association representing fleet operators in Pakistan. This year Shakoor and Company Limited was awarded as the best transport services award by FPCCI.

Being a promoter of modern fleet management concepts, he pioneered the implementation of international standards like ISO9002, OHSAS18001, Cefic SQAS and SAP in transport operations. He has also pioneered “Satellite based GPS Tracking System of Vehicles” in fleet operations in the country. Asim is also one of the six authors who prepared Commercial Vehicle Standards for the Government of Pakistan. He is a professional healer and trainer of alternate medicine with expertise in hypnosis, reiki, NLP and stress management.

In this interview, Shakoor goes into detail about his logistics business and the importance of keeping with global quality controls and standards for growth. He also discusses the structure and dynamics of the transport and logistics industry in Pakistan and the approach government should be taking to formalize the sector and enforce standards.

Here are edited transcripts from Shakoor’s candid conversation with BR Research.

BR Research: Let’s start with a brief background of your company.

Rana Asim Shakoor: My father formed this company in 1965 with four Bedford vehicles that he brought from England. Most of our business came from the oil industry back then. But by 1980s tanker union problems and other issues in the oil industry forced us to look for options. We soon got a break in the chemical side as ICI had just come into Pakistan and they were looking for good transporters. Since then, we have worked mostly with the chemical sector, though at the turn of the century, we stepped back into oil sector.

BRR: What made you step back into the oil business?

RAS: Pakistan State Oil (PSO) had a major accident in those days. Back then, the late Shaukat Mirza was the Managing Director of PSO, who had only recently joined the company after having worked in Engro. He hired a Finnish consultant to find a good contractor in Pakistan. That consultant gave us more than 90 points on a scale of 100; the second one had scored in 40s. We’ve been working on PSO’s Karachi operations since 2001. Likewise, we handle Pakistan Air Force’s main operations; we supply all its air bases. We also started working with British Petroleum (which is now United Energy Pakistan) 15 years ago, to bring their crude oil from the well-sites  in Badin Area to the refineries in Karachi.

BRR: You seem to be focused on multinationals; what makes that possible?

RAS: Multinationals care more for the safety and quality standards and that seems to us as our niche market. We were the first ones to get European standard certification. We entered that market since there wasn’t any competition. We had a good team, we hired qualified people, and made good systems. We are still the only company in Asia to have the Cefic-Sqas Assurance certification which is specifically designed for transport.

BRR: What is your current fleet size? 

RAS: We have a fleet size of 260, which is self-owned. Around 125 is sub-contractors.

BRR: Do the sub-contractors also meet those standards?

RAS: Definitely. Around 80 percent of vehicles meet those standards. We’re the ones who run them, because we mostly follow the investor-model of subcontractors. Most of the subcontractors are actually investors who have given us the trucks; we maintain them and our drivers drive them.

BRR: What is your corporate structure. Is it an AOP?

RAS: It was. But 4 years back we made it a public unlisted company under the Securities & Exchange Commission of Pakistan (SECP). Next year we plan to go to an Initial Public Offering (IPO), which could be Pakistan’s first logistics company IPO. We’re working on it.

BRR: What are the reasons behind the IPO? And how will you use the funds?

RAS: Every couple of years, I take an executive learning course at LUMS or anywhere else for my continuous professional development. Once I took a course at LUMS on “how to sustain a family business”. There I learned that till the second generation everything is fine. But third generation onward, 80 percent of the businesses in the world falter. The trainers explained the importance of documentation, standardisation, formalisation and so forth.

As for the use of funds, we plan to increase our fleet size, and go into dry cargo. Currently our specialty is liquid, it’s our market, but of course there is a limit. With CPEC we might need to go into dry cargo.

BRR: What other ‘firsts’ does your firm have on its lapel aside from Cefic and the likely IPO?

RAS: There might be many. But just to give you an example, we made Pakistan’s first acid tanker. Acid used to be transported in boxes. My father found out that in Germany they coated the inside of the tanker with rubber. He went to a rubber company in Lahore and asked them to make it for him. They sent some of their people to China to learn how to do it. And that was the first time acid was transported in tankers in Pakistan.

We were also the first to bring trailers to tankers in Pakistan. Likewise, we were the first to have OSHAS 18000 certification, which is about safety standards. Last year, we implemented SAP in our company. This is a big landmark, because no other firm in Pakistan’s transport sector has a fully integrated SAP.

We also started leasing in Pakistan. Leasing companies and banks did not lease commercial vehicles. But I convinced Orix Leasing to start commercial leasing for truckers in Pakistan. The first tanker leasing in Pakistan was done by Shakoor & Co. and so was the first insurance of commercial vehicles. That was way back in 1993.

BRR: Your profile says you introduced tracker as a tool for fleet management in Pakistan. What’s that story?  

RAS: Yes, we were the first to implement trackers on trucking fleet in Pakistan. TPL Tracker was not even aware of it. They brought the system for car theft; whereas worldwide it was used as a transport management tool. On our encouragement, the head of TPL asked their engineers to find out details about it; those engineers were about to embark on a training trip to South Africa. When they returned, they said that 90 percent of our training was related to using tracker as a transport tool. We were also the first one in Pakistan to install satellite tracking.

BRR: What has been the pace of your sales growth?

RAS: On average, our revenues have grown at about 10-11 percent in the past decade or so, which is at par with industry’s growth. However, in the past two years, we have grown about 20 percent and next year we are targeting a growth of about 25 percent

BRR: The source of your growth is oil or chemicals?

RAS: There are two oil businesses: primary and secondary. Primary is from depot to depot, for instance Karachi to Lahore or Peshawar; whereas secondary business is depot to city. We focus more on secondary business. In fact, all of PSO’s oil in Karachi is supplied by us. The growth of chemical sector has slowed in the last four or five years, so we’ve focused more on oil.

The concept of transport in Pakistan is very dirty. In the last couple of years, we grew with our existing businesses; we had no new business. We had offers but we were very choosy; we didn’t go for any companies that worked at the local level.

We try to take advantage of our standards. For instance, when we became transporters of BP , they had three contractors including us. We asked them to give us incentives with volume against Key Performance Indicators (KPIs). The first year we got a third of the business; but after the first quarterly audit, one of the contractors ran away. Then we had half of the business, and within a year we got 100 percent of BP’s business because no one else could meet the KPIs of quality and safety.

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BRR: Let’s pivot to the industry. What’s the reason behind the recent oil tanker incident that killed so many people?  

RAS: The root cause of that incident goes back to failures in the implementation of the law. Ogra had formed a set of rules for oil tankers in 2009. In 2000, the National Highway Authority (NHA) had rolled out standard pertaining to weight limit, measurement, trailer length, braking, axle weight, etc. Both very excellent laws that weren’t implemented, nor followed by companies in Pakistan, except for a few firms that followed them partially.

Ours was the first of fleets that was fully compliant to these laws by 2004-05. Internationally, there is a concept called ‘cradle-to-grave’, which implies that the responsibility lies with the owner of the product who should oversee the vehicles, contractors, etc. The concept in Pakistan, however, is that once the vehicle has left the depot, the responsibility lies with the transporter.

BRR: Why couldn’t the law be implemented?

RAS: Initially, Ogra had given a time frame of five years for stakeholders to start following the law. But they never followed up on it strongly. When the NHA tried to enforce their laws, tankers would go on strikes.  It is not just the failure of Ogra or NHA but also the fault of companies and contractors.

Now we’ve asked the government to enforce the law since we will never get a better time. After the last accident, mindsets have changed a little. When China implemented these laws, they gave three months to the owners to return their vehicles, take some money in return – about Rs2 million – and use that to manufacture new ones. India gave around INR 1 million in order to help standardize. Something similar is hard to do in Pakistan. We asked the government to instead increase the fuel transport rate, which would increase tankers’ income. Since this November Ogra has increased the transportation rates , which would help contractors  to standardize their vehicles.

BRR: Do those standards also include training of drivers?

RAS: No. But we provide defensive driving training to our drivers nevertheless.  In defensive driving, we train drivers to analyze road conditions, what to do when the weather changes, light conditions, etcetera, and ensure driver fitness. Perhaps only five percent of total drivers in Pakistani’s trucking industry meet these international standards of driver training. For us it is cost saving; for others, it is a cost. We think that if even it saves one accident it’s worth spending on training.

Using FOAP’s platform we have made Drivers Training Institute on Super Highway in collaboration with Motorway Police to facilitate Training of Drivers .

BRR: We are told that drivers’ licences is also a big issue. Why is that?

RAS: Yes at the moment, the most immediate issue with drivers is drivers’ licences. And it’s industry wide. There was no licence standard in Pakistan; nor was there a way to check if they had forged licenses. Last year, provinces computerised driving licences; that system can tell you whether the licence is fake or not. We found out that across the industry around 50–60 percent of drivers have fake licences, which also includes senior drivers.

Logistics companies can vouch for some of their senior drivers that they trust to be capable of handling heavy vehicles. But the system is such that first the drivers have to get a learners license, then Light Transport vehicle (LTV) license and then only after three years they can get the Heavy Transport Vehicle (HTV) license. We have been trying to get this issue resolved for at least senior drivers, but three DIGs Traffic have changed since we’ve started talking about this within the past year.

BRR: Do we have enough capacity to assemble the trucks as a replacement for those that don’t meet the standards?

RAS: In total, there are estimated 16,000-17,000 total tankers in Pakistan; oil cargo comprises about 70 percent of total dry and liquid cargo business in Pakistan. This implies that Ogra can at least regulate 70 percent of the market. However, it is not that easy. Granted that there will be a 30-40 percent reduction in the number of tankers once the white oil pipeline comes into play in about three years, but we will need a lot of tankers in the immediate term.

The reality is that if we can get 3,000 vehicles in two years that will be a big deal; I want to acquire 50 vehicles and the date I’m being given is February for first lot of ten standards tanker trailers  from a major tank manufacturer i.e. Automobile Corporation of Pakistan. There simply isn’t the capacity in Pakistan. It will take more than two years for 6,000-7,000 vehicles to meet the standards. Only around 1,000 vehicles are currently on the standard.

BRR: What percentage of the industry can realistically achieve standards within the two years deadline given by Ogra?

RAS: The Fleet Operators’ Association  of Pakistan consists of around 34 big fleet operators, almost all those who owned 200+ vehicles. We told the government that we have around 40 percent of the business and we are ready to bring ourselves to the standards. The reason many of us haven’t done it yet is because we were afraid of being undercut.

If the government can implement the law, then in two years we will be there. But if the government doesn’t fully implement the law, then we stand at the risk of being undercut. Capacity issue means that not everyone will be able to meet the standards, which is why we have suggested increasing the government rate on oil transport, and zero sales tax for at least for two years on commercial vehicles and tank manufacturers  to boost the standardisation process.

BRR: Where is the limitation in production of trailer tankers coming from?

RAS: There are only two Ogra certified producers of tankers in Pakistan; one with a capacity of 60 and the other 20 per month. We can therefore only produce 80 tankers a month, whereas we need to be able to produce 250 tankers per month to meet the need of about 6,000 tankers in two years. We are expecting imported Chinese tank trailers to bridge that gap.

BRR: Are the companies that make those tankers willing to invest?

RAS: The companies are willing to invest, but the question is whether there will be buyers since the main cost will be borne by the contractors. We believe that around 4,000 vehicles will be standardized, but about 2,000 will still be left. If we start importing from China, at the most we can produce 150 vehicles a month; but it will begin to pick up pace February 2018 onwards. Once the government becomes stricter, only the companies that meet the standards will remain in the market. The government needs to realise that both carrot and stick needs to be used.

BRR: Do you see demand picking up in trucking industry?

RAS: Currently, about 7 major manufacturers are coming into Pakistan. Hyundai, Scania, Iveco, Renault, Volvo, Man and two Chinese players are coming to Pakistan. They’re coming here because they can see that something is happening here.

At present, the steel and cement industry are benefiting a lot from CPEC. The next industry will be trucking and logistics. As CPEC picks over the next two or three years, trucking business will grow at about 20 percent per annum. There will be 20 percent growth only in diesel and petrol per annum.

 

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