Final Project Proposal

Freight Forwarding Related Issues Faced by Azgard 9

Submitted by:

Ayisha Ashraf L1S09MBAM1207

Madiha Ahmad L1S09MBAM1196

Advisor

Prof. Saadat Kirmani

Freight forwarding related Issues faced by Azgard 9

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Azgard 9

Problem Statement

Azgard 9 is facing tremendous amount of freight forwarding related problems. Freight

forwarding companies are directly in conta Company profile

Pakistan is basically an agricultural country, most of its exports based on its agricultural
products, and the main strength of Pakistan’s agricultural sector is cotton and cotton based
products. Now Pakistan is moving towards industrialization and the share of industrial sector
is also increasing. Being a Pakistani textile company our main advantage is its world class
cotton, cotton yarn and cotton fabric.

Statistics

Textile exports during the period 2006 were $9,816 million. The substantial increase of
82.59 percent to $61million recorded in export of yarn other than cotton yarn which stood
at $33 in preceding period of last fiscal year. Exports of readymade garment recorded 5.53
percent increase during first eleven months of outgoing fiscal year. Country’s readymade
garments exports were recorded $ 1,254 million, which was $1,190 in the same period of
fiscal 2005-06.

Pakistan’s

The jeans came into existance in 1873 and since then has remained an icon generations
after generations. Levi Strauss a young Bavarian immigrant left Newyork to San Fransico to
sell his supply of dry goods. There he found the need for rugged long lasting trousers. Levi
patented cotton riveted waist overall which later became the legendary Jeans.

Azgard 9 is fully vertical specialized textile company. We manufacture virgin fiber to retail
ready products (finished Garment), which are marketed through our global sales and
distribution set up. Azgard nine limited is about a 100 million US$ company with sales
offices in 5 countries.

Our head office is in Pakistan and branch offices in Italy, USA, Sweden, and Turkey.

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Azgard 9 was established in 1972 by Ismail Shaikh, the grandfather of existing CEO Mr
Ahmed Shaikh. It was started as a family business over four generation ago. The Shaikh
family now in their 4th generation, is one of the oldest business families in the sub-
continent with experience in different sectors and having a proven track record of successful
leadership in four continents.

Specialized yarn products were started in 1972

Spinning denim were started in 1995

Garment division was established in 1996

Mission

Our mission is to become a $300M International branded jeans business by the end of
2007.

Vision

Our vision is to become a major Global Fashion Apparel Company.

Our quality Policy is to provide products of best possible standards to satisfy our valued
customer. Encourage all types of waste minimization by ensuring optimum utilization of
resources. To comply all the applicable regulatory & other requirements that applies with
our business operation. Emphasize on discipline & personnel training to promote teamwork.
Make continual improvement in our processes & systems.

Company Products

Our major products are integrated denim apparel, yarn & fabric confectioning & laundering,
30% of denim fabric converted into finished garments, 70% of fabric and 80% of total yarn
output & apparel exported. Finished garments include denim jeans, jackets, skirts, shorts &
children garments.

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We position our self in the market as high in price, high in fashion & high in quality.The
primary focus & concentration of Denim Division is to devise value added ‘Fashion Forward’
advance denim fabrics. Company’s multi-cultural commercial offices in Italy, USA, Sweden &
Turkey are able to provide services from trend analysis to sales support, product design &
development.

The Garments Division is the addition to complement the Azgard9 portfolio & thus
completes the fully vertical composite aspirations and visions of the group. The operation is
manned by the best team of specialists brought in from Italy – the garment ‘MECCA’ of the
world. The human capital that created this operation was drawn from the ‘Best of Breed’
talent pools across the globe in order to bridge the gap between the 3rd & the 1st world
nations

Garments Machinery

Description Brand Made in

Stitching machines Brother, Juki, Kansai, Japan, Italy, USA

VI- Be-Mac, Reece

Auto loop attach VI-Be-Mac Italy

Auto pocket setter VI-Be-Mac Italy

Needle detection machine Besta China

Washing machines Tenello, Tolan, Miano Italy, Turkey

Dryer Machines Local Pakistan

PI department ensures that IQA is conducted as per IQA plan; corporate quality report is
submitted every month, Certification status of GBU is maintained.

Year Wise Sales Value 773

800
FY 1996-97 to 2003-04
700

600 538
Value In Million

500

400 334
336
308
268
300

200
134 129

100

0
1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

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Awards

1. Top 25 companies award from KSE twice in the lat 15 years.

2. First ECO Tex certified textile Co in Pakistan.
3. Highest value garments exporter from PRGMEA from Cat 6 (Woven bottoms).
4. ISO 9001 certified.
5. Member & License Holder of ‘Cotton USA’.
6. Highest credit rating in textile sector of Pakistan by PACRA. Rating ‘A’ in the long
term and ‘A1’ in the short term.
7. Listed, Rated Secured & Convertible Term Finance Certificate Issue of PKR 2,000
Million (With a Green Shoe Option Of PKR 400 7th Export Excellence Award
Spinning Capacity is planned to increase by 51% to 51,000 spindles. A new Denim Mills is
planned which will take fabric capacity up to 26 million meters.

Company departmental functions

Our merchandising department is divided in different sub departments; PPC department

procures fabric for merchandising department and MMC departments arranges the
accessories and trims,

We are working with H&M, Esprit, Lindex, Dressmann, Kappahl, Stadium, Cubus, Bikbok and
Mango.

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Effective integration of different departments helps Azgard 9 to become efficient and active
to meet its targets.

Merchandizing

Merchandizing department is responsible to:

1. Ensure CA is available on planned date
2. Ensure CSI is maintained at desired level
3. Ensure customer complaints are not exceeding from the
minimum standard

Product Planning and Control Department

PPC department is responsible to ensure shipments are made on planned date

and measures are taken to avoid air shipments due to the bad planning factor

Material Management and controlling

MMC department is responsible to ensure supplies (accessories) are made on

planned date, control the supplier’s rejection rate, and Control the rate of process reliability
and the lead time of sample development

IE & Training

IE & Training department is responsible to Control the rate of un-measured

work, Improve the efficiency of Plant, Control the lead time of style change and the lead
time of 1st bundle stitching

Work In Process

WIP department ensures that process loss is under controlled limits

Cutting

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 Cutting department is responsible to Ensure that rejection of markers , cutting
rejection rate, deviation from cut plan, re-cutting and garments rejection due to cutting is
under controlled limits
Stitching

Stitching department is responsible to control the rejection of garment, re-

stitch rate, deviation from feed plan, and lead time of stitching.

Garment dry Processing and Garment wet processing

GDP & GWP department is responsible Ensure that rejection of dry & wet
processed garment, re-work, planned vs. actual failure rate, and lead time of GDP & GWP is
under controlled limits.

Finishing
Finishing department ensures that rate of re-packing garment, re-inspection,
and deviation from planned, and lead time of finishing & packing dates is under controlled
limits

Quality Assurance

Quality Assurance department ensures the control of the rate of re-screening

of shipment, amount of customer claims (due to quality problems).

Sampling department

Sampling department is responsible to control the rate of rejection, rate of re-

work, sample developing lead time and the rate of deviation from plan

Maintenance department controls the rate of Machine down time.

Creative cell

Our creative cell develops its promo collection twice a year, and sent it to our
sales offices in other counties just for reference.

Azgard Nine Limited is not engaged in or supports the use of child labor.

It is committed not to expose young workers to situations in or outside of the workplace

that are hazardous, unsafe, or unhealthy. It does not hire any employee under the age of
18 years for full time employment,

For securing certain minimum standards of skill, Azgard Nine Limited makes provision for
promoting, developing and regulating systematic apprenticeship programs.

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There are certain people who force their children to work with them so that they can be
helpful for them in earning. To discourage this phenomenon Azgard Nine Limited offers the
Education Promotion Program details as below:

Company offers 15 scholarships for the children of company permanent employees who
have completed at least 1 year service with Azgard Nine Limited. These scholarships are
awarded purely on merit basis.

Many companies today have a customer focus (or customer orientation). This implies that
the company focuses its activities and products on consumer demands. Generally there are
three ways of doing this:

 The customer-driven approach

 The sense of identifying market changes

 The product innovation approach.

In the consumer-driven approach, consumer wants are the drivers of all strategic marketing
decisions. No strategy is pursued until it passes the test of consumer research. Every aspect
of a market offering, including the nature of the product itself, is driven by the needs of
potential consumers. The starting point is always the consumer. The rationale for this
approach is that there is no point spending R&D funds developing products that people will
not buy. History attests to many products that were commercial failures in spite of being
technological breakthroughs. Success in business, as in life, is based on the relationships
you have with people. Marketers must aggressively build relationships with consumers,
customers, distributors, partners and even competitors if they want to have success in
today's competitive marketplace. There are four type of relationships (1) win-win (2) win-
lose (3) lose-lose (4) lose-win. (Customer-vendor)

Companies with a greater number of resources than their competitors will have an easier
time competing in the marketplace. Resources include: financial (cash and cash reserves),
physical (plant and equipment), human (knowledge and skill), and legal (trademarks and
patents), organizational (structure, competencies, and policies), and informational
(knowledge of consumers and competitors). Small companies usually have a harder time
competing with larger corporations because of their disadvantage in resource allocation.

Azgard 9 is purely a customer oriented company and our main objective is to provide the
customer the highest level of satisfaction, by providing quality and timely products. It is
based on relationship and value.There is always a room to success and we are reaching the
level of excellence through our commitment. We treat our customers as we want to be
treated.

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Freight Forwarder

A freight forwarder (often just forwarder) is a third party logistics provider. As a third party
provider a forwarder dispatches shipments via asset-based carriers and books or otherwise
arranges space for those shipments. Carrier types include waterborne vessels, airplanes,
trucks or railroads.

The international freight forwarder is the entity whichmoves goods from point of origin to
overseas point of destination and ensures thatinternationally traded merchandise arrives in
good time, safe condition and at the most economical cost. Specifically, freight forwarding
firms arrange transportation fromshipper’s factories or warehouse to ports, packing or
consolidation of cargo if necessaryaccording to the customers needs, documentation,
customs clearance, shipping (land, sea and air or combination thereof), unpacking or
deconsolidation if required anddelivery at customer designated location(s).

History of Freight Forwarders

The original function of the forwarder, or spediteur, was to arrange for the carriage of his
customers' good by contracting with various carriers. His responsibilities included advice on
all documentation and customs requirements in the country of destination. His
correspondent agent in far-away lands looked after his customers' interests and kept him
informed about matters that would affect movement of goods.

In modern times the forwarder still carries out those same responsibilities for his client. He
still operates either with a corresponding agent overseas or with his own company branch-
office. In many instances, the freight forwarder also acts as a carrier for part of a movement
it can happen that in a single transaction the forwarder may be acting either as a carrier
(principal) or as an agent for his customer.

Freight forwarding firms in Pakistan can be segmented into:

1) Primary Service Providers

Labeling themselves as freight forwarders but effectively operating as brokers offering

competitive tariffs to small and medium shippers for LCL cargoes, negotiating maximum
margins from consolidators searching for smaller consignments to complete container
loads and arranging customs clearance, documentation and payment of custom’s levies.

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2) Middle Order Firms

These firms act as nominated agents for overseas buyers.

3) Total Solutions Providers

These firms offer full range of services with access to global networks through overseas
associates

Customs clearing agent:

is an agent licensed by the Central Board of Revenue through the customs authorities to
complete documentation formalities and arrange, on behalf of the merchant, payment of
custom duties, taxes etc.

International Freight Forwarding firms in Pakistan

International freight forwarding firms in Pakistan can be segmented into:

• Primary service providers labeling themselves as freight forwarders but effectively

operating as brokers offering competitive tariffs to small and medium shippers for LCL
cargoes, negotiating maximum margins from consolidators searching for smaller
consignments to complete container loads and arranging customs clearance,
documentation and payment of custom’s levies.

• Middle order firms providing core services provided by primary services acting as
nominated agents for overseas buyers.

• Total solutions providers offering full range of services with access to global networks
through overseas associates.
Customs clearing agent: An agent licensed by the Central Board of Revenue through the
Customs authorities to complete documentation formalities and arrange, on behalf of the
merchant, payment of custom duties, taxes etc.

TEU: Twenty-foot equivalent unit a standard measurement of volume in container

shipping. The majority of containers are either 20’ in length, or 40’ in length. A 20’
container is one TEU, a 40’ container is two TEUs.

LCL: Less than container load cargo

FCL: Full container load cargo

Size: Freight forwarding companies have been classified according to annual TEUs
handled as under:
Small = 360 TEUs Medium + 1200 TEUs Large = 4800 TEUs

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Shipper: Merchant or manufacturer selling goods to overseas buyers (exporter)

Consignee: Merchant or manufacturer buying goods form overseas suppliers (importer)

Shipping Agent: An agent licensed by the Central Board of Revenue through the Customs
authorities for servicing vessels calling at Pakistan’s ports. The agent represents the
interest of the vessel/carrier and arranges payment of port dues, etc.

Economic importance of Pakistan’s international freight forwarding industry

Contribution to GDP
The international freight forwarding industry is classified in the transportation, storage and
communication segment of the services sector, the largest contributor to Pakistan’s GDP.
This sector attracted the largest inflow of investment in 2004, which rose by nearly 33%
over the previous year.
The importance of the industry lies in managing the logistics of the country’s international
trade. The services provided by international freight forwarding companies facilitate
exports including cotton and its made-ups, leather and leather goods, sports goods,
surgical, rice and seafood which collectively generate over 80% of the country's foreign
exchange earnings. At the same time, imports handled by the industry ensure
uninterrupted flows of industrial raw materials, plant and machinery, spares and
components to maintain industrial production at competitive costs.

Value-addition
The industry’s annual turnover for 2004 is estimated at Rs 43.3 billion while gross income
is estimated at Rs 3.3 billion. The value-added by the freight forwarding industry can be
measured as the residual balance after deducting all expenses from aggregate industry
receipts except wages, profits and rent which amounts to Rs 1.3 billion.
This is considered a conservative estimate given the difficulties in obtaining accurate
financial data as well as secondary value- addition through business volumes generated for
vendor industries namely trucking, clearing and port handling.

Global competitiveness
Logistics costs play an important role in determining any country’s competitiveness in the
global market. Research has established that such costs vary from 10% to 30% between
countries depending on the efficiency of their transportation and international freight
forwarding services. In many countries, an inefficient logistics infrastructure imposes far
greater economic cost than tariff barriers restricting market access. The role of the
international freight forwarder as the “architect of efficient logistics” is acquiring
increasing importance as global trade becomes driven by competitive market forces.
Countries with the capacity to ensure timely and secure transportation of goods between
their primary producers and ultimate consumers are likely to win increasing market share
in the emerging world trade environment.

Export financing

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Due to competitive market structures, the industry provides forced credit terms to its
clients. Working capital financing is extended to shippers as a revolving credit on 30–60
day terms. Based on annual industry turnover of Rs 43.4 billion, this indicates an export
subsidy of about Rs 5.2 billion at current interest rates.

Importance of external trade

Pakistan has a relatively open economy. Since 2001, the country’s external trade to GDP
ratio has averaged 27%. National economic activity is, therefore, heavily influenced by
external sector developments. A significant proportion (13%) of aggregate demand
comprises of exports, while imports, mostly comprising industrial raw materials and
capital goods, sustain manufacturing activity. Among leading textile export, Pakistan is
ranked fourth in terms of the share of textiles in total exports.

Market size and trends

Demand
The demand for international freight forwarding services derives from the volume of
Pakistan’s external trade. After virtual stagnation between 2000-02, Pakistan’s external
trade has increased sharply over the last two years. During 2004, the country’s total trade
amounted to about US$ 28 billion, reflecting a sharp increase of nearly 44% over 2002
levels. Survey respondents who confirm the uptrend in business volumes over this period
corroborate the trend captured in official data.

The enabling factors underlying rising demand include:

Increasing containerisation of Pakistan’s overseas trade; according to industry

sources, container throughput of Pakistani ports doubled between 1995-2004 to
one million TEUs. Higher volumes and an expanding number of unitized cargoes,
particularly bulk commodities such as rice and cotton, accounted for rapid growth.

Growing trend among large overseas retail chains to nominate Pakistan based
international freight forwarding firms to effectively operate as liaison offices,
monitor status of ordered merchandise, negotiate competitive freight tariffs,
consolidate ordered merchandise and execute loading plans. This was largely due
to increased high frequency of delayed shipments and manipulation of shipping
documents by suppliers to camouflage production delays.

High shipping tariffs and withdrawal of shipping lines from the LCL business
opening up a market niche for consolidation services by international freight
forwarding companies.

Supply
The increase in cargo volumes accompanying rising external trade and the expanding
demand for specialized services including consolidation/de-consolidation also fostered
the growth of Pakistan’s international freight forwarding companies. The growth trend
was subdued initially but gained momentum after 1992 peaking at 20% annually
between 1995-2002.

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Industry sources indicate that the supply of international freight forwarding services
closely matched demand between 1985-1990. In recent years however, the rate of new
entrants into the industry has outpaced growth in demand. This has resulted in excess
capacity and a competitive market environment. The key factor behind the mushrooming
growth is the virtual absence of entry barriers which are practically nonexistent
at the bottom end of the value chain and increase progressively upwards. New
entrants to the industry have managed to established viable businesses by attracting
customer through discounted freight charges.

Industry structure
Current size and geographic dispersion
At present, the industry comprises approximately 450 companies. These include 380
entities registered with the industry’s trade body and the balance comprising freight
forwarders without formal membership. The overwhelming majority of freight
forwarders are located in Karachi, while the balance is mostly clustered in Lahore and
Sialkot.

Age profile

The industry is relatively new in Pakistan. The average age of firms is eight years and
almost half of them have been in business for only five years or less. Mushroom growth
is due to the emergence of new firms set up by former employees of older established
companies as well as those formed as a result of breaking-up or realignment of old
partnerships.

Forms of business organisation

The majority of industry players comprise smaller proprietary or partnership firms
operated with a maximum of 15 employees. Survey results indicate that 55% of the
firms surveyed are sole proprietorships/partnerships, while 45% comprise private limited
companies. The latter include some multinational corporations that have either entered
into joint ventures with local companies or established independent offices.

Investment aspects
5.1 Fixed investment
The international freight-forwarding companies at the low end of the services scale do
not incur substantial capital investment in their business. Capital requirements grow
proportionately to the scope of value-added services and the client base of freight
forwarders. The aggregate fixed investment in the industry is estimated around
Rs 1 billion.

Working capital
Working capital requirements are rising to support higher operating overheads and
growing trade receivables. Cash flow management is a major challenge for international
freight forwarders. This is because in some cases shipping companies extend about 15
days credit while clients usually stretch payments up to 60 days and occasionally even
default.

Survey data on working capital indicates that cash requirements are mostly met through
internal funds while the use of bank borrowings is virtually non-existent. Only the

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larger companies are able to attract working capital financing which is usually fully
secured through personal mortgages, guarantees or indemnity bonds and carries a
premium over prime borrowing rates. Banks are unwilling to finance international
freight-forwarding companies due to perceptions of high risk resulting from an
inadequate understanding of the industry, lack of regulatory framework within the
industry and until recently, the absence of operating procedures or standard trading
conditions. Most firms are therefore, forced to manage the cash cycle through juggling
receivables and payables. Feedback from industry sources indicates that financial
pressures are increasing as new entrants facilitate clients with larger credit terms.

Currently the majority of the country’s international freight forwarding companies outsource
packaging, transportation, customs clearance and warehousing to vendor firms.
This is cost effective for forwarders with moderate volumes. The anticipated growth in
business over the medium term will necessitate rising investment requirements on account
of warehouses, forklift trucks, lorries, containers, office premises and information
technology infrastructure as mid-sized firms scale upwards to cope with customer
requirements and cost benefit ratios of incremental investment are favourably impacted by
savings in operating costs. However, pressure on profit margin combined with diversion
of funds to finance working capital continues to hurt the industry’s ability to accelerate
investment. This represents a major barrier for the industry’s future development.

Business volumes for Pakistan’s international freight forwarding industry have increased
in parallel to increasing containerization of Pakistan’s external trade. Over the five years
ending 2003, total container throughput increased at the rate of 8% annually, matching the
growth in the country’s external trade. Industry estimates place current container
throughput at about one million TEUs for 2004.

Turnover
The industry is estimated to handle over 500,000 TEUs of overseas cargo annually,
representing about 50% of total container throughput. Shipping sources confirm that
virtually all LCL consignments both export and import is now handled by freight
forwarders in addition to about 20% of FCL shipments. Based on the country’s trading
pattern and current freight rates, this translates into an annual turnover of Rs 43.4 billion
for 2004 (details in Annex V).
Given the nature of the industry, it is difficult to assess industry revenue through directly
translating volume into value. Forwarders handling lesser volumes could be deriving
higher sales revenue by providing broader services while those handling larger volumes
could represent high turnover, low margin operators. In addition, forwarders are reluctant
to disclose sensitive financial information. Despite these limitations, the industry’s
financial indicators have been estimated based on survey data and industry feedback.

Industry margins vary from 3% for primary service providers to about 10% for total
solutions companies. Margin differences reflect the intensity of competition in different
segments, the impact of economies of scale and qualitative differences in the scope of
services.

Customer profile

The clientele of freight forwarding companies comprises both local companies as well

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as multinationals. The industry caters to the needs of a diverse variety of exporters
including primary products, semi-processed industrial raw materials and manufactured
goods. The top five items on the export side include cotton and its made-ups, textiles,
leather products, sports goods, surgical goods, rice and handicrafts etc. The major
imports handled by the industry include plant and machinery, sophisticated electrical
components and pharmaceuticals

Client base
The customer base of the country’s international freight forwarders comprises a diverse
range of businesses including small and medium enterprises as well as large corporate
clients. The average number of customers ranges from 10 to 20 clients at the lower end
to over 800 at the upper end.

Human resources
The industry requires trained manpower to manage specialized tasks including multimodal
logistic planning, sea freight and inland delivery, pricing, air freight, documentation
and handling dangerous goods. The total labour force in the industry is estimated at about
12,000 full time employees. In addition, outsourcing generates indirect employment from
allied activities including packaging, warehousing, and transportation handling at
ports/container terminals and customs clearance at the ratio 1:3 translating into
nonexclusive
employment generation at three times the industry’s workforce.
Industry firms encounter major difficulties in recruiting workers from the urban labour
force. This is largely because salaries and benefits in the industry are below average
compensation in alternative employment, poor prospects for long-term career growth and
lack of professional employment practices in closely held family firms.

Training opportunities

Prior to February 2004, training opportunities were virtually non-existent. Employees

acquired the necessary skills on the job. Rapid industry growth in recent years has resulted
in an acute shortage of experienced employees. The scarcity of required manpower
resulted in employee poaching within the industry and by shipping lines.
In order to address the issue, the industry’s trade body submitted a specific request to the
Trade and Transport Facilitation Project under the Ministry of Commerce. With the active
participation of PIFFC’s management and its training and education subcommittee, a basic
freight forwarding training course developed by UNCTAD and the International
Federation of Freight Forwarding Associations (FIATA) was customized to meet the local
industry’s needs. PIFFC accredited four institutes in Karachi and Lahore to run certificate
courses, which commenced in February 2004. As of September 2004 about 200
employees from industry companies had undergone training thereby upgrading the quality
of manpower available to the industry. As an incentive, some industry firms subsidized the
cost for their employees. Although it is too early to judge their impact, there is a
consensus among industry sources that the availability of these courses is good for the
industry. The industry body plans to expand the program further to augment the supply of
trained manpower in future years.

Current issues

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Infrastructure constraints

The industry is negatively impacted by severe infrastructure constraints. Ports are

notoriously inefficient. Exporters suffer losses via careless handling by dock labour and
damage of less than container load (LCL) cargoes, due lack of covered storage facilities
exposing merchandise to pilferage and weather hazards. These problems are aggravated
by operations restricted to specified working hours, high wages for port labour and
document processing by multiple government agencies.
Quantifiable economic costs through the above losses are estimated at US$ 93 million
for the five years ending June 2004. The damage to business relationships, however, is
far greater than measurable losses. Strained relationships with overseas buyers reduce
their willingness to expand business ties with Pakistani exporters resulting in negative
repercussions on long term export growth. The estimated cost of foregone business
opportunities on this account are estimated at three times the amount of measurable
losses

Inefficient transit rules

The country’s geographic position gives it a strategic advantage in handling transit
trade for landlocked Afghanistan and Central Asian countries compared to Iran.
However, current transit rules are cumbersome and result in procedural delays hence
Pakistan has been losing out on the increased goods traffic destined for Central Asia.
Pakistan is the only country in the region that is not a signatory to the TIR convention
which is the world’s most widely practiced transit cargo procedures agreement.
However, recent initiatives taken by some industry members have resulted in Pakistan
Government’s decision to ratify the convention.

Industry trade body

Pakistan International Freight Forwarding Council, (the only trade body prior to the
formation of an industry trade association towards the end of 2004) was established in
the mid 1980s. The body has 380 registered members which account for over 80% of
the total known firms in the industry.

PIFFC’s capacity to promote the industry was hitherto limited by two major factors.
These include the trade body’s status as a ‘council’, effectively only a sub-committee
of Federation of Pakistan Chamber of Commerce & Industry (FPCCI), rather than an
independent trade association. This deprived the industry of a strong platform to
interact effectively with national policy makers. Secondly, the body’s activities were
politicised which prevented the body from focusing on industry promotion.

Despite these limitations, PIFFC’s management undertook several initiatives in 2004

with the Trade and Transport Facilitation Project to promote the industry. These
included the development and implementation of the industry’s standard trading
conditions, code of conduct, minimum qualifications for members and their acceptance

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by the country’s trade and all its affiliated trade bodies under the Federation of Pakistan
Chambers of Commerce and Industry. The other important initiative related to human
resource development of the industry’s manpower, through organising training
opportunities for industry employees.

The industry achieved a major milestone towards the end of December 2004 with the
establishment of an independent trade association, namely the Pakistan International
Freight Forwarders Association (PIFFA). As a result, the industry is now poised to
push for greater government support and in order to play its due role in the national
economy

Outsourcing

Outsourcing is not a new phenomenon for the Shipping and Logistics sector. Some of the
biggest companies in this sector have used outsourcing in many of their key functions
routinely- from Ship Management, Training & Development to I.T. Application development
& maintenance. Although the core objectives which drove outsourcing haven�t changed
over the years- viz: need to concentrate on core competencies, lack of in-house expertise
and need to extract greater financial flexibility- what is new is that Shipping and Logistics
companies are now increasingly seeking to gain these benefits by outsourcing business
processes which have been traditionally considered to be too core to be outsourced � much
less offshored. This is just one amongst some of the key trends which we have researched,
which are emerging from this domain.

A. Laggards w.r.t outsourcing are trying to play catch-up:

Relatively smaller companies are increasingly feeling more and more confident of their
ability to get business processes executed from offshore. These companies now view the
cost advantage and customer service improvement gains from outsourcing as one of the
ways they can face up to the competition from industry heavyweights, in an industry which
is increasingly becoming ever more consolidated through a wave of mergers & acquisitions.
Ex: Recently one of the European NVOCC�s which has now been acquired by an Indian
Logistics company moved some of its key customer service functions, hitherto being

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performed from Europe, into India. Companies with geographical origins in the Far East are
increasingly seeking the benefits from BPO. This is significant given that traditionally it has
been the companies from the USA and Europe which have taken a lead in seeking gains
arising out of BPO. Ex: A Japanese shipping giant is presently in the midst of outsourcing
business processes like Customer Documentation to offshore centers in India.

B. Leaders themselves are busy moving onto the next evolutionary step in
their outsourcing journey:

Captives of Shipping and logistics majors are evolving from being a Onshore centric in
terms of decision making and accountability to a model where process related decisions are
increasingly being taken where the process is being performed- the offshore back office.
Historically, the pioneers in shipping BPO established business process models which
required the offshore teams to rely on their onshore counterparts to validate and check
work output, or at the very least, assume final accountability for the output. Given the early
stages where these captives found themselves on the learning curve, this model was the
most logical choice at that point in time. However, while the resources in the offshore unit
went up the leaning curve over a period of time, the original process model stayed at its
historical origins, resulting in a sub-optimal process where- the work input going into the
offshore BPO was first checked onshore for completeness, checked in the offshore captive
again for completeness before being processed, checked offshore after processing the data
and then passing through another layer of onshore checks for completeness and accuracy,
before being passed on to the end customer! The unstated assumption behind this process
model was that the offshore process would constitute nothing more than transactional
algorithmic data entry based on procedures dictated by onshore subject matter experts who
should therefore be finally accountable for the process quality.

This process model is now being turned on its head with the offshore resources increasingly
being seen as the SMEs of the offshored processes. The process level decisions are now
being increasingly taken offshore and these resources are now being even asked to
contribute their knowledge on issues like system architecture changes wrt the application
modules they work on. One shipping captive, for example, interacts directly with customers

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on issues related to bill of lading and invoice accuracy Vis a Vis the traditional model where
interactions with customers were always handled by the onshore offices.

This is a major change in both the process model as well as in perceptions related to
capabilities of the offshore vendor.
Transactional/Algorithmic data entry to Knowledge oriented
No longer are only transactional processes which require little or no decision making, the
only ones that are being offshored. Shipping and logistics companies are increasingly feeling
confident enough to outsource even complex, knowledge oriented processes which require
significant levels of business process knowledge and decision making. Some of the
representative processes which are being performed from offshore which fall into this
category are: Approval of dangerous cargo before loading cargo on board- a process which
requires master mariners with enormous business expertise, Business Process & IT
application helpdesks etc. A few industry majors are even examining the possibility of
outsourcing complex data analytics related to yield management, global accounting and
budgetary control- processes which are currently being executed by senior resources with
considerable industry experience.

Captive to Third party It is an accepted fact now that companies following the captive
outsourcing model will incur a Total Cost of Ownership (which includes costs such as
attrition, costs related to attracting and maintaining quality resources, among others) which
is far higher than what they would incur in a third party model. A recent Forrester report
entitled

Shattering the Offshore Captive Myth which shook the outsourcing world, confirms what
was being suspected all along. Additionally, the Information & Data security systems of third
party vendors are seen as much more robust than captives given that many of them have
now secured certifications, like the BS7799, from internationally accepted certification
bodies. Recent conversations with the industry make us believe that Shipping and Logistics
companies, which have been traditionally captive heavy in terms of their outsourcing model,
are already looking at the third party model in a more favorable light.

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