The freight mix in Pakistan is set to perform moderately in both the short and medium term, with growth constricted somewhat by the parlous state of many integral economies at present. Also, domestic strife, such as the road blockade in Punjab in August 2014, has had a detrimental effect on freight output and such scenarios could flare up again into 2015.
Export cargo worth USD600mn came to a standstill in August 2014 due to a road blockade in the province of Punjab, according to exporters and shipping line sources and reported by Business Recorder. The tussle between the Pakistani government and opposition political parties - Pakistan Tehreek-e-Insaf and Pakistan Awami Tehrik - has resulted in a virtual collapse to businesses, trade, social and exports activities in the province. This could have a significant detrimental impact on the Pakistan freight industry should further blockades take place going forward.
The volume of containerised cargo calling to harbour from upcountry has registered a minimum 40% decline during the past week and is likely to rise to 50% if orders are not restored immediately, according to Mushtaq Ali Shah, President Captain, All Pakistan Shipping Association, speaking at the time of the incident.
While these economic headwinds continue to circle, as well as those from the global economy, the impact on Pakistan's freight industry will be that growth is set to be muted during 2015 across all modes. That said, this year is still set to see improvements in both the rail and air freight sectors, if not the maritime sector. The outperformer in terms of annual tonnage growth will be maritime, however, with both the port of Karachi expected to witness 4.90% year-on-year (y-o-y) increases in 2015, respectively. Air freight will see y-o-y growth of 3.31%, while rail freight is anticipated to grow by 2.70% y-o-y.
Headline Industry Data
2015 tonnage throughput at the port of Karachi is forecast to grow by 4.90% to 43.38mn tonnes.
2015 tonnage throughput growth at the Port of Muhammad Bin Qasim is forecast to increase by 3.02% to 26.55mn tonnes.
2015 air freight tonnage forecast to grow by 3.31% to reach 330,600 tonnes.
2015 rail freight tonnage forecast to increase by 2.70% to hit 2.87mn tonnes.
2015 total trade (real terms) forecast to rise 3.50%.
Key Industry Trends
Recovery Continues At Karachi: BMI forecast that for FY2014/15 total tonnage handled at the port of Karachi will stand at 43.38mn tonnes. This represents an increase of 2.9% over our estimate for the previous year. In terms of container handling, we forecast growth of 4.0% on the previous year's estimated figure, taking the FY2014/15 figure to 1.654mn twenty-foot equivalent units (TEUs).
PIA Hopes To Recommence Cargo Operations To Europe: State-run carrier Pakistan International Airlines (PIA) is aiming to gain mandatory clearance from the EU to restart its cargo operations to Europe, according to officials and reported by the Pakistan Observer in August 2014. PIA's cargo service to Europe was temporarily suspended on July 28 2014 as it failed to comply with the Air Cargo or Mail Carrier operating into the Union from a Third Country (ACC3) regulation. Under the ACC3 regulation, carriers were required to take certain security measures by July 31. The PIA, in compliance with the regulation, has set up dual view scanners and explosive trace detectors, and deployed dogs trained in identifying explosives.
Pakistan Railways Rate Cut Offers Upside Risk To Rail Freight Forecasts: Pakistan Railways (PR)'s introduction of a transhipment service from Karachi to Lahore at a reduced rate is set to encourage shippers to utilise the country's rail system. Shippers had previously been deterred by the negative impact of the privatisation of parts of PR's cargo operations. This development, therefore, offers some upside risk to our Pakistan rail freight forecasts going forward.
Key Risks To Outlook
With its economy in a fragile state, and in great need of external financing, Pakistan accepted a USD1.5bn 'gift' from Saudi Arabia in March, which provided a welcome boost to Pakistan's international reserves, and was among the drivers of the recent appreciatory pressure on the Pakistani rupee. However, it seems likely that the grant will come at the cost of Pakistan's hitherto non-interventionist policy towards Syria, and mark a further deterioration in relations with neighbouring Iran.
National Security and Foreign Affairs Advisor Sartaj Aziz, when questioned on the aid payment from Saudi Arabia in connection to Pakistan's foreign policy towards Syria, stated that the payment was not connected to any preconditions on Pakistan changing its stance on Syria, adding that Pakistan had no plans to arm Syrian rebel groups and would abide by international law with any weapons sales. However, his calls for immediate withdrawal of all foreign armed forces from Syria seem likely to have been in reference to Iran's direct support of the Assad regime.
In terms of potential upside risk, increased co-operation between Islamabad and Beijing, particularly in the area of energy infrastructure, should provide strong support to investment growth in Pakistan over the coming years.
The Pakistani economy looks set to benefit from greater co-operation with China over the coming years, particularly in terms of energy investment. Prime Minister Nawaz Sharif met with Chinese President Xi Jinping and Premier Li Keqiang in early November on his three-day visit to discuss bilateral relations and the regional situation in Beijing. During the meeting, Pakistan and China signed 19 agreements and Memorandums of Understanding (MoUs) of bilateral cooperation.