Wednesday, October 28, 2020

EXCLUSIVE: Secure Logistics CEO Gulraiz Khan reflects on Pakistan’s logistic challenges

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Gulraiz Khan, CEO Secure Logistic Group (SLG) sat down with Editor Global Village Space to reflect on Pakistan’s logistic challenges; he explains why this industry has not grown, what government can do and how this underdeveloped, unregulated, fragmented sector is being affected by the arrival of CPEC.

He was once a soldier at the country’s physical borders, remained an instructor at the prestigious Command & Staff College Quetta, an Honour Graduate of Fort Levenworth United States where he was awarded the prestigious “George S Patton Jnr Award”.

But then his life changed, leaving the army he went on creating a start-up, learnt the mysteries of balance sheet and raising finance at London Business School, and focused the strategic mindset that was once trained by NDU into Pakistan’s logistic challenges. In a short period of time, he has created the country’s one of the largest integrated logistics group – and this appears like a beginning.

You have a much diversified professional and educational background, how did you end up running a logistics company?

That’s true! I have moved around but trust me that diversified exposure is so helpful in running a logistics business. And I feel blessed to have had exposure to both the public and private sectors. Having served as an officer in Pak Army for almost 22 years in different Command, Staff and Instructional appointments, I embarked upon my entrepreneurial career in 2009.

At that time the overwhelming advise from family members and friends was to first seek the private sector exposure by way of a job, however, after much deliberation, I opted for the more difficult and bumpy road of a start-up business. And I am glad that I chose a road less travelled.

Read more: National Logistic Cell: Ready to embrace new challenges of Pakistan’s evolving industrial and trade…

Though I had several graduate-level degrees and specific qualifications from armed forces training institutes, I realised that I have to equip myself with formal business education, with an understanding of financial management, and my initiative was rewarded when I was able to secure MBA degree from London Business School.

Those initial few years were excruciatingly difficult as I was setting up a business from the ground up and pursuing my MBA degree. Logistics was in a way the chronological extension of our first two business lines of security services and vehicle fleet management. However, with time it has become our mainstay with the largest contribution to Profit & Loss Statement and the Balance Sheet. Today, we are branded as an integrated Logistic Group.

Today “SLG” is a key player in Pakistan’s Logistic Industry, if I am not wrong you are almost third or fourth largest group; what now is the scope of your services and target market? What is the vision ahead and what strategy are you following to achieve that?

Secure Logistics Group (SLG) is now a leading domestic logistic private sector with three horizontally synergetic business lines of logistics, vehicle fleet management and security services. Within logistics, we are currently focused upon the long and short-haul transportation segments with planned entry into warehousing in 2021.

We serve over 150 clients, mostly MNCs, domestic corporates, banks, insurance companies and Foreign Missions/NGOs through our management and non-management staff of 3,600 and by leveraging the Group’s nationwide network of offices and Marshalling Yards in Islamabad, Lahore, Karachi, Peshawar and Quetta. Our vision is to be a “Top 3 domestic Integrated Logistic group” providing 3 PL solutions with a regional outreach.

Accordingly, we have embarked upon an ambitious growth plan involving the addition of transportation and warehousing assets, support infrastructure such as Marshalling Yards and workshops, IT infrastructure with a focus upon ERP and fleet management software’s and most importantly, quality human resources to our team.

Your vision is impressive but how will you finance your growth, logistics is capital intensive and the economy is pretty stagnant?

Agreed! Logistics is a highly capital intensive industry; thus, SLG in recent years has embarked upon a major capital raising plan to meet its growth targets. Other than the traditional vehicle lease financing facilities from financial institutions, SLG closed two back-to-back semi-equity and equity transactions.

In January 2019, SLG executed, probably the first time in Pakistan, Rs 600 million Convertible TFC issue and in January 2020, we closed a Rs. 1.2 billion equity issue. In the process, we have facilitated FDI from JS Private Equity/Pakistan Catalyst Fund, Karandaz Pakistan (a venture of UK’s DIFID) and Saudi Bugshan Group, a Jeddah based conglomerate.

I am pleased to share that through SLG team’s combined efforts, we have added value to the national economy. Since inception, we have created several thousand jobs and contributed approximately Rs 750 million to the national exchequer by way of direct and indirect taxes. It excludes the substantial individual tax contribution by sponsor shareholders. I am grateful to Allah to have guided us to lead this effort.

Read more: Pakistan’s Logistics Nightmare: Years of Neglect & Shortsightedness

Since the beginning of 2020, the COVID-19 pandemic severely affected the business environment. Apparently, the logistics business was severely hit, so what mitigation strategies were adapted by SLG?

It’s true! Logistics was perhaps worst hit due to COVID-19 – especially after March. The shutting down of the port operations, prolonged absence of labour, inter-cities lock-downs and shutting down of major industries – all had a negative impact on operations and consequently, the financials.

However, the State Bank of Pakistan’s timely incentives in terms of deferment of principal debt payments and the employee’s salary refinancing scheme helped businesses in managing liquidity. The foremost mitigation strategy adopted by SLG was the strict implementation of HSE measures for the safety and wellbeing of our staff.

These included flexible working arrangements through a Work-From-Home plan and a series of hygiene and sanitation measures. We also reinforced screening protocols and restricted non-essential travel. At the same time, we closely analysed and curtailed all non-essential expenditures to avoid additional impact on the bottom line.

We were lucky to have closed our second round of equity funding in January 2020, immediately before the spread of COVID-19 pandemic. While the businesses generally opted for a ‘wait & see” mode; with Capex funding available to SLG, we have successfully continued with our fleet expansion plan.

Most important economic benefit is Pakistan’s potential transformation into a trans-regional trading corridor. Furthermore, it will attract Chinese FDI into the Special Economic Zones (SEZs) and contribute to the country’s industrialization

I can proudly say, its a measure of our commitment to our staff that while the Group’s bottom line was impacted by more than 50% as compared with the pre-COVID-19 results, the Company neither announced any salary reductions nor enforced a single redundancy.

Conversely, since February 2020, due to the on-going expansion, SLG has created 200 jobs. But you know, this crisis has taught us many business lessons. I think all smart businesses will be compelled to adopt innovative thinking for similar emergencies and develop contingency plans and SOPs to ensure business continuity.

How big is Pakistan’s logistic market, what is its structure and who are the key players? How do you see this industry evolving?

The requirement of goods transportation through road transport, to satisfy domestic market needs is enormous. In Pakistan, this becomes more significant in the absence of formidable rail transportation. Around 96% of the total freight movement within Pakistan is done through road transport. At this point in time, the number of registered trucks in Pakistan is approx. 300,000; this number includes old vintage rigid trucks and modern version Prime Movers.

However, what further restricts the development of logistics as an industry is that most of the long and shorthaul transportation segments of the logistics have generally been unstructured with small size fleet owners through sole proprietorships or loose family associations. Now it’s true, that over the past few years, selective corporatization has taken place with investors entering the industry through corporate entities. But due to the large Capex requirement, there are still very few large companies.

Around 75% – 80% of the trucking industry comprises of small sole proprietors having a fleet of 1-5 trucks; 18% – 20% comprises of medium-size companies owning 10 (plus) trucks; only 2% – 5% comprises of large corporate entities owning 100 (plus) vehicles’ fleet. The development of CPEC, including the Gwadar Port and the highway network, will also have a multiplying impact on-road transportation.

Read more: Strengthening Cooperation in Trade, Industry: Leveraging CPEC to Double Textile Exports

Furthermore, the commissioning of several large coal-fired power plants will accentuate the existing demand-supply gap of road transportation assets. On account of all of the above variables, the demand-supply gap is expected to further increase, thus providing opportunities for well-structured and well-capitalized players.

In addition, the prevailing average truck life is 8 – 10 years comprising mostly of older technologies. For efficient transportation, there is a growing demand for Prime Movers and Multi-Axle Trucks / Trailers which have a positive bearing on the modernization and development of lateral and downstream Industries.

You mention CPEC’s impact on logistics, how do you perceive it will impact the domestic Logistic Industry? What can be done under the ambit of CPEC to strengthen, modernise and integrate the Logistic Industry of Pakistan?

As you know, since its inception, CPEC has been talked about as a game-changer by the people, institutions and media of Pakistan. But this game-changer will require renewed impetus in terms of the speed of execution. Time is of the essence! Pakistan’s Economic Survey 2018-19 indicates that around $14 billion, which is approximately 28% of total original envisaged CPEC investment, is geared towards the development of transport and logistics infrastructure across Pakistan.

As a result of this substantial Capex, CPEC’s primary contribution to the domestic logistic industry is material up-gradation of the highway networks. As the ancillary infrastructure, such as rest areas, petrol stations and workshops are developed along the new highways network, the volume of traffic will multiply. Resultantly, the delivery of cargos will take significantly lesser time leading to a reduction in operational cost and better profit margins.

Most importantly, road safety will improve, and environmental benefits will accrue. Having already shifted almost 50% of our fleet’s movement to the new highways built under the CPEC, we have witnessed first-hand the operational benefits. Looking forward, under the CPEC’s ambit, first and foremost, the highway network should be further expanded and critical, yet to be developed segments, such as HyderabadSukkur should be expedited.

 

Whereas, the development of the highway support infrastructure should be a pure domestic play to be led by NHA; the CPEC funding should be focused on the fast track development of the critical infrastructure at the entry and exit nodes (Gawadar/other ports and Khunjerab/ Sust). The Policy Framework for the movement of goods across regional borders, specifically, the China-Pakistan-China traffic should be clearly formulated while protecting the interest of local logistic companies.

For example, the Cis-Frontier movement of goods should be carried out by the local transporters in respective territories. In the same vein, the implementation of the Axle loads should be strictly implemented for vehicles utilizing CPEC highways. Overall, the Policy Framework, while regulating the movement of cargos across borders should encourage free competition for the benefit of end-users.

As I said earlier, the domestic logistic industry is fragmented and undercapitalized; the Government should endeavor to dedicate a portion of CPEC funding through the State Bank of Pakistan or alternatively, offer a direct funding facility to local logistic companies at attractive rates. Unless the domestic players achieve a minimum scale and balance sheet size, it will be difficult for them to compete with the Chinese companies.

Looking beyond logistics, how has CPEC benefited Pakistan so far? What are your expectations from CPEC Phase II? What are your fears and concerns?

I think, at the strategic level, the CPEC will help Pakistan in realizing its economic and other objectives within the region. The most important economic benefit is the country’s potential transformation into a trans-regional trading corridor. Furthermore, it will attract Chinese FDI into the Special Economic Zones (SEZs) and contribute to the country’s industrialization.

Beyond logistics, CPEC has also helped overcome perennial power generation shortages. According to PPIB, the CPEC has to-date helped develop approximately 6,000 out of the planned 11,000 MWS of power generation – 7 out of 15 projects are already operational. Overall, it has attracted the largest package of FDI within a short space of time and created jobs both during construction and operational phases.

As regards the CPEC Phase II, I believe that the planners are on the right track in terms of the development of Special Industrial Zones in Phase II of CPEC. After all, the logistic and power generation infrastructure is meant to support the industry. My main concern is the unnecessary politicization of CPEC. It is unfortunate to turn such a gigantic strategic initiative of national importance into a political point-scoring matter.

Read more: CPEC: Once a game-changer, always a game-changer?

I am afraid that the work pace has slowed down and efforts should be redoubled to catch up on the lost time by avoiding further politicization, removing bureaucratic hurdles and improving the quality of human resources dealing with CPEC from within the public sector.

What advice would you like to offer to young university graduates and budding entrepreneurs?

Speaking from my personal experiences, I think young entrepreneurs must be clear about their personal goals before embarking upon the entrepreneurial journey. It is a common fallacy amongst many young entrepreneurs that the overriding objective is quick riches. This objective will not lead to the establishment of long-term sustainable business, but it is other way around.

A successful venture requires a robust Business Plan with base and worst-case scenarios. The venture’s longterm sustainability should always be based on the worstcase scenario. Amongst so many variables at play for startups, in the absence of a formal Venture Capital industry, the most critical is the capital raising strategy. In the end, it is a combination of vision, planning, determination, perseverance, and no denying: luck. I believe in destiny!

Who are the corporate leaders and decision makers who affected your thought, transformed your own ideas?

You know, I believe learning is an on-going process. During my career, I have had the privilege of learning from so many qualified and competent persons in the capacity of instructors, colleagues and counterparties, both in public and private domains. Amongst the corporate leaders and decision-makers, my role model is Late Steve Jobs, who had to resurrect his career from scratch after having being forced out of the company he founded.

Read more: IN-DEPTH: CPEC Authority chief Lt Gen (r) Asim Bajwa weighs in on project challenges

In the end, Apple’s Board had to bring him back to save the company teetering at the brink. Amongst other lessons, Steve Job taught that one important character to have is to rise after a fall, and not to be deterred by adversity. His legacy is a $1.35 trillion market value company which controls a major portion of a technological echo-system -and serves us all.

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