Hike in freight by Pakistan railways to raise cost of doing business.

Byline: Shabbir Kazmi

In the recent past, businesses in Pakistan have been marred by exorbitantly high costs of doing business. The macro-economic adversity that was triggered by historic twin deficits has trickled down to every facet of business operation. The massive erosion in rupee value and hike in interest rate have further escalated the costs of doing business. The businesses in the current environment are facing server downturn as margins have squeezed and operational costs have skyrocketed, added to these is subdued demand for various products, due to shrinking purchasing power of people. The recent upsurge in the rail freight that cumulatively amounts to approximately 70% of some of the goods seems to be implausible by all standards.

Logistics industry, as a whole has faced the brunt of the severe economic conditions coupled with crucial policy decisions that have led to an escalation of costs for the businesses. The FY19 Budget introduced axle load regime in a nationwide attempt to counter safety repercussions of road transportation which has been welcomed by every stakeholder as a critical decision for the industry. However, the decision-makers were unable to think through this blanket move as the abrupt nature of the regulation led to a disruption in supply dynamics. Consequently, it led to an imbalance in demand and supply of road transportation industry. The move was bound to inflate road freights and hence, there was an approximately 60% escalation in general freights through road transportation across the country. Situation was worse for agriculture commodities as peak season of several crops led to delayed distribution at high costs.

During this period, rail freights recorded a series of increases which outpaces the effect of inflation rate, oil prices and rupee depreciation, all put together. The rail freights were increase by 10% and 20% in July and August respectively. In addition, Pakistan railways has increased rates by another 30% in October by altering commodity classes which consequently led to crucial Agri commodities witnessing a compounded rail transportation cost increase of more than 70% in 2019.

In a country where road transportation forms approximately 90% of the total goods logistics, the Government should have instead taken the opportunity to augment the demand for rail as an alternative mode of freight cargo in the county. Besides this, the additional...