Mr. Abid Butt, CEO e2e Supply Chain Management, speaks about the logistics industry of Pakistan and operations of his company.
e2e has offices in 20 cities in Pakistan. We have a staff of around 800 people. We offer services in all areas of logistics including road, sea, air transport, international and local warehousing, customs clearance and supply chain consultancy. These are the main operations of e2e. We are the only logistics company in Pakistan which provides all these services. Other companies usually outsource part of their services to other firms. In 2008 our growth rate was 1917 percent. According to a Global Ranking, we were number three in 30 countries of South Asia, Middle East and North Africa also including Turkey.
Current Industry Situation
During the last three years, we have been one of the top five fastest growing companies in Pakistan. It is because there is so much scope in Pakistan and logistics is no exception. Logistics is the biggest game in Pakistan because everything involves logistics. Everything which needs to be shifted or transported has a logistical cost. According to a study conducted by Data Monitor, in 2007 the logistics industry in Pakistan was worth $ 14 billion. We don’t even have 0.5 percent market share despite being one of the top three local companies.
Any company which trades anything physical can be our customer including telecom operators, farmers, FMCGs, industrial goods providers and construction material.
Internationally, for a logistics company to succeed, it needs to adopt a non-asset or light asset base. In Pakistan, however, beyond a certain point success cannot be achieved on this basis as the assets you have externally outsourced do not operate with full efficiency. For example, we initiated a service called Less Than Truck Load to transport cartel-level products in Pakistan. We started with about six trucks but the vendor we had outsourced our trucking service to, could not scale up with the efficiency as the business grew. Issues like fuel theft and time management also emerged, due to which we started developing our own fleet two years back and today we have over 200 trucks.
Direct and Indirect Competitors in Pakistan
Our competitors vary from industry to industry. In air forwarding, we have around 500 competitors. In sea forwarding there are 4000 companies. In transportation sector, we have 160,000 registered & unregistered companies competing with us. There are about 8000 customs clearing agents. Shipping agents stand at 700. As you can see, we have an enormous group of competitors. A distinction must be made between professional and traditional players. The number of our major competitors range from 15 to 20 companies.
Five companies of e2e
About four years ago, we realized that as far as human resources are concerned, no company was stepping up to fulfill our needs. We decided to go for the acquisition of a targeted company. We bought a company focusing on supply chain. One of our companies is an HR company called Prime HR which handles employee outsourcing, recruitment and also does consulting and training. Besides the supply chain, it also has customers in banking and farming sectors.
The company usually focuses on training the executive level employees. But, we also believe in grass root level training. A team is as strong as its weakest link. Our theory is to strengthen the weakest link of your company.
About 40 percent of Pakistan’s agriculture waste is lost because of bad logistics. The major problem is that nobody wants change in Pakistan. Farmers, middle men or retailers are not ready to change at all. We decided to take an initiative in this regard and gathered few entrepreneurs together and searched for a CEO whose work skill was based on actual farming. We founded a company called Agri Mundi which is involved in actual farming and transport to the market. The major objective of the company is to contribute to the economy through corporate farming.
We bought a mango orchard with 30,000 crates per acre yield which we increased up to 52,000 just by maintaining simple things like timely watering etc. Yield improvement can have a huge impact in terms of food supply.
We also have a separate fleet company named e2e Logistics. My office is in e2e Supply Chain Management. e2e Business Enterprises deals with the production of edible oil. Rice is brown in its raw form; it is then polished it to make it eatable in the white form. The brown part produces the healthiest of edible oil. The oil was going to waste in Pakistan. We are the first company which, in collaboration with Dawood Hercules, is developing the country’s first rice Bran oil plant.
Dawood Hercules holds 40 percent and our share in the company is 51 percent while the remaining percentage is held by two other small stakeholders.
Revenue Generation of five e2e companies
The company I officiate as a CEO has to be the top priority. However, I do feel the agri company has an unlimited potential. There is scope for more work. We have many other projects in the pipeline.
Our core objective is to ascertain what the supply chain is. Supply chain is the movement of goods through the value chain. For example, a mobile phone has a journey in terms of manufacturing, assembling and so on. Every product has a supply chain. We want to make our presence felt in this supply chain.
We have our offices in Afghanistan and Bangladesh. We are also going to expand the e2e SCM in Dubai and East Africa. To do this we are running a supply chain company backed by a fleet company. We are in agriculture field through Agri Mundi. All our businesses are linked because we want to participate in different supply chains in Pakistan and contribute in the economy.
Well, the next step could be going into distribution. There might be a possibility for us to go into areas like commodity trading.
As such there is no strong focus on a particular area but since we are a Karachi based company so, of course, a lot of our business comes from Karachi. We also have a significant presence in Punjab. Within Pakistan, we are quite fairly divided, not very different from our competition in terms of breakup.
We have international ambitions. We have our own offices in Afghanistan and Bangladesh. We represent international logistics giant GEODIS WILSON in Pakistan and Afghanistan. The company has presence in 120 countries around the world.
I don’t believe in owning assets to provide logistics services. Warehousing, unlike trucking, is something you can easily outsource. The buildings of our warehouses are totally outsourced. We have warehouses in every mega city in Pakistan including Karachi, Lahore, Multan, Islamabad and Faisalabad.
Criterion to select a region for establishing a warehouse
There are two distinctions which should be made. One: a warehouse which we require to cater our needs. This has to be near the highway. Two: a warehouse should be situated at the center which will be helpful in the distribution process.
Business from the Afghan transit trade
Well, the percentage in Afghan transit trade is not significant. We probably have a significant 5 percent market share in this (logistics) business. It is just going to grow as the level of Pak-Afghan trade is merely on a basic level. Afghanistan does not have a seaport which is why it needs the support from Pakistan and Iran.
Impact of Law and Order Situation
Well, this not only impacts the Afghan transit but the entire logistics industry. This is what we call supply chain disruption. Yes, it has no solution. The law and order situation has to improve. But, in my opinion this law and order is a blessing in disguise for Afghanistan as it will eventually start producing goods instead of importing them.
Transformation in Logistics Business
We are moving from traditional to professional players. In the past, we had to deal with a transporter wearing a traditional outfit unable to comprehend why drivers’ training is a must, why a tracker is needed in my vehicle and so on. Our HR company trains all our drivers who have adequate knowledge about the safety issues, seatbelts etc.
We fortunately face no challenges as such but our customers however do. Power is a big issue for our customers. This is not an issue for us because we use diesel-run vehicles. Security is an issue which we as well as our customers are facing. The environment is not conducive for business growth. In general, Pakistan’s banking sector is not savvy enough to do the right kind of lending. They do balance-sheet based lending instead of cash-flow based lending which is a global trend. Businesses, especially the medium ones, cannot grow. Big businesses are growing bigger and small businesses are finding no chance to boom.
Impact of Banks’Risk-Averse Behavior
Well, we don’t depend on banks for financing. Our business demand is derived. If the industry does not grow or household demand for toothpaste does not arise, we are out of work. Corruption, existing security paradigm, crowding out of small businesses and power crises which hurt our customers are some of the major issues.
Reforms & Suggestions
I think that Pakistan can really benefit by creating a separate legal system for businesses e.g. Business courts. We as businessmen have no surety that whether or not our contracts would be upheld in the court. Contract enforceability is in doubt. Litigation goes on for 15 to 20 years even for simple open-and-shut cases.
Justice should be handed out in a timely manner, even in general for that matter. It takes political will at the end of the day which, I feel, is there at present.
Internationally, our partners are GEODIS WILSON. We have many small companies with which we partner in countries where GEODIS does not operate. Their number is in dozens . Locally, our main partner is Dawood Group in e2e Business and Enterprise. We have many other local partners. For one project we have partnered with Freight Connection of Rais Hasan Saadi Group of Dubai. Then in Agri Mundi our partners are the IT companies including Inbox, Creative Chaos and Hyper Tech. We do not shy away from making partners as you can’t do everything by yourself. Partnerships are needed to grow and overcome hurdles.
Opportunities for Small Investors
Big or small, opportunities are always present for professional players. There are not enough professional players in the industry. We would like to raise the bar of the industry. We do not want a question mark put on the reputation of our industry because of some sections. We would want more professionals to come in so we could push the unprofessional players out.
In our industry, there is still no company listed on public forum like the stocks exchange. But you, perhaps, will see us going for Initial Public Offering (IPO) on the stock market. The small investors can come to this industry through capital market.
Suggestions to Government
The major emphasis should be the implementation of laws. When we talk about professionalism in trucking to get rid of road accidents, pollution, carbon emissions, we need professional logistics players who would thrive on law being implemented. This should be the case in all areas.
I already have told you about global expansion. Dubai, Central Asia and East Africa. These are the destinations I will be focusing in the next three to four years depending on our financial capability. It has to be done in a sustainable way. You know this company started with Rs 2 million only. Today, our balance-sheet’s size is over a Billion Rupees. I believe in gradual development, though our growth rate does not show this.
The expansion plan applies to My HR Company, the logistics company and the parent company.
In addition, we have to consolidate our position in Pakistan to be the number one. I want to get involved in other businesses by encouraging entrepreneurship.