Final Project Proposal

Freight Forwarding Related Issues Faced by Azgard 9

Submitted by: Ayisha Ashraf Madiha Ahmad L1S09MBAM1207 L1S09MBAM1196

Advisor Prof. Saadat Kirmani

Freight forwarding related Issues faced by Azgard 9


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.


Azgard 9 was established in 1972 by Ismail Shaikh. 3 . Emphasize on discipline & personnel training to promote teamwork. Make continual improvement in our processes & systems. shorts & children garments. 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. skirts. Our quality Policy is to provide products of best possible standards to satisfy our valued customer. It was started as a family business over four generation ago. Finished garments include denim jeans. The Shaikh family now in their 4th generation. Vision Our vision is to become a major Global Fashion Apparel Company. 30% of denim fabric converted into finished garments. the grandfather of existing CEO Mr Ahmed Shaikh. yarn & fabric confectioning & laundering. 70% of fabric and 80% of total yarn output & apparel exported. Company Products Our major products are integrated denim apparel. Encourage all types of waste minimization by ensuring optimum utilization of resources. jackets. To comply all the applicable regulatory & other requirements that applies with our business operation. is one of the oldest business families in the subcontinent with experience in different sectors and having a proven track record of successful leadership in four continents.

Miano Local Italy Italy China Italy. USA PI department ensures that IQA is conducted as per IQA plan. 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 Stitching machines Brand Brother. Juki. corporate quality report is submitted every month. Turkey Pakistan Made in Japan. The operation is manned by the best team of specialists brought in from Italy – the garment ‘MECCA’ of the world. The Garments Division is the addition to complement the Azgard9 portfolio & thus completes the fully vertical composite aspirations and visions of the group. Italy. high in fashion & high in quality. product design & development. Year Wise Sales Value 800 FY 1996-97 to 2003-04 773 700 Value In Million 600 538 500 400 268 334 308 336 300 200 134 129 100 0 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 4 . VI. Tolan. Certification status of GBU is maintained. Company’s multi-cultural commercial offices in Italy.Be-Mac. Reece Auto loop attach Auto pocket setter Needle detection machine Washing machines Dryer Machines VI-Be-Mac VI-Be-Mac Besta Tenello.We position our self in the market as high in price. Kansai. USA. Sweden & Turkey are able to provide services from trend analysis to sales support.The primary focus & concentration of Denim Division is to devise value added ‘Fashion Forward’ advance denim fabrics.

First ECO Tex certified textile Co in Pakistan. Cubus. 7. PPC department procures fabric for merchandising department and MMC departments arranges the accessories and trims. Rated Secured & Convertible Term Finance Certificate Issue of PKR 2.000 spindles. Lindex. Stadium. Esprit. Member & License Holder of ‘Cotton USA’. Rating ‘A’ in the long term and ‘A1’ in the short term. Highest value garments exporter from PRGMEA from Cat 6 (Woven bottoms). Highest credit rating in textile sector of Pakistan by PACRA. 2. 6. 5. Listed. Company departmental functions Our merchandising department is divided in different sub departments. We are working with H&M. Dressmann. Bikbok and Mango. 5 . 1. A new Denim Mills is planned which will take fabric capacity up to 26 million meters. Top 25 companies award from KSE twice in the lat 15 years. ISO 9001 certified.Awards 4. 3.000 Million (With a Green Shoe Option Of PKR 400 7th Export Excellence Award Spinning Capacity is planned to increase by 51% to 51. Kappahl.

Ensure CSI is maintained at desired level 3. Improve the efficiency of Plant.Effective integration of different departments helps Azgard 9 to become efficient and active to meet its targets. 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. 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 6 . Merchandizing Merchandizing department is responsible to: 1. control the supplier’s rejection rate. 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. Ensure CA is available on planned date 2.

restitch rate. cutting rejection rate. Azgard Nine Limited makes provision for promoting. actual failure rate. and sent it to our sales offices in other counties just for reference. amount of customer claims (due to quality problems). 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. Finishing Finishing department ensures that rate of re-packing garment. re-cutting and garments rejection due to cutting is under controlled limits Stitching Stitching department is responsible to control the rejection of garment. Garment dry Processing and Garment wet processing GDP & GWP department is responsible Ensure that rejection of dry & wet processed garment. Creative cell Our creative cell develops its promo collection twice a year. re-inspection. deviation from feed plan. re-work.Cutting department is responsible to Ensure that rejection of markers . Sampling department Sampling department is responsible to control the rate of rejection. developing and regulating systematic apprenticeship programs. For securing certain minimum standards of skill. and lead time of stitching. planned vs. 7 . unsafe. It is committed not to expose young workers to situations in or outside of the workplace that are hazardous. Azgard Nine Limited is not engaged in or supports the use of child labor. or unhealthy. rate of rework. deviation from cut plan. sample developing lead time and the rate of deviation from plan Maintenance department controls the rate of Machine down time. and deviation from planned. It does not hire any employee under the age of 18 years for full time employment. and lead time of GDP & GWP is under controlled limits.

The rationale for this approach is that there is no point spending R&D funds developing products that people will not buy. Many companies today have a customer focus (or customer orientation). and legal (trademarks and patents). 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. competencies. Marketers must aggressively build relationships with consumers. including the nature of the product itself. The starting point is always the consumer. distributors. These scholarships are awarded purely on merit basis. as in life. Azgard 9 is purely a customer oriented company and our main objective is to provide the customer the highest level of satisfaction.There are certain people who force their children to work with them so that they can be helpful for them in earning. physical (plant and equipment). Success in business. consumer wants are the drivers of all strategic marketing decisions. is based on the relationships you have with people. human (knowledge and skill). partners and even competitors if they want to have success in today's competitive marketplace.There is always a room to success and we are reaching the level of excellence through our commitment. Every aspect of a market offering. 8 . organizational (structure. This implies that the company focuses its activities and products on consumer demands. is driven by the needs of potential consumers. There are four type of relationships (1) win-win (2) winlose (3) lose-lose (4) lose-win. We treat our customers as we want to be treated. (Customer-vendor) Companies with a greater number of resources than their competitors will have an easier time competing in the marketplace. Generally there are three ways of doing this:    The customer-driven approach The sense of identifying market changes The product innovation approach. No strategy is pursued until it passes the test of consumer research. In the consumer-driven approach. It is based on relationship and value. customers. Small companies usually have a harder time competing with larger corporations because of their disadvantage in resource allocation. Resources include: financial (cash and cash reserves). History attests to many products that were commercial failures in spite of being technological breakthroughs. and informational (knowledge of consumers and competitors). by providing quality and timely products. and policies).

packing or consolidation of cargo if necessaryaccording to the customers needs. His responsibilities included advice on all documentation and customs requirements in the country of destination. 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.Freight Forwarder A freight forwarder (often just forwarder) is a third party logistics provider. 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. shipping (land. 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. sea and air or combination thereof). Carrier types include waterborne vessels. 9 . He still operates either with a corresponding agent overseas or with his own company branchoffice. or spediteur. His correspondent agent in far-away lands looked after his customers' interests and kept him informed about matters that would affect movement of goods. negotiating maximum margins from consolidators searching for smaller consignments to complete container loads and arranging customs clearance. Specifically. documentation. trucks or railroads. customs clearance. As a third party provider a forwarder dispatches shipments via asset-based carriers and books or otherwise arranges space for those shipments. was to arrange for the carriage of his customers' good by contracting with various carriers. unpacking or deconsolidation if required anddelivery at customer designated location(s). safe condition and at the most economical cost. airplanes. In modern times the forwarder still carries out those same responsibilities for his client. documentation and payment of custom’s levies. History of Freight Forwarders The original function of the forwarder. freight forwarding firms arrange transportation fromshipper’s factories or warehouse to ports. In many instances.

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. payment of custom duties. on behalf of the merchant.2) Middle Order Firms These firms act 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. documentation and payment of custom’s levies. 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. TEU: Twenty-foot equivalent unit a standard measurement of volume in container shipping. • Middle order firms providing core services provided by primary services acting as nominated agents for overseas buyers. A 20’ container is one TEU. 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 10 . a 40’ container is two TEUs. payment of custom duties. taxes etc. taxes etc. The majority of containers are either 20’ in length. negotiating maximum margins from consolidators searching for smaller consignments to complete container loads and arranging customs clearance. or 40’ in length. on behalf of the merchant.

an inefficient logistics infrastructure imposes far greater economic cost than tariff barriers restricting market access. rice and seafood which collectively generate over 80% of the country's foreign exchange earnings.3 billion while gross income is estimated at Rs 3. Value-addition The industry’s annual turnover for 2004 is estimated at Rs 43. which rose by nearly 33% over the previous year. spares and components to maintain industrial production at competitive costs. sports goods. Economic importance of Pakistan’s international freight forwarding industry Contribution to GDP The international freight forwarding industry is classified in the transportation. surgical.addition through business volumes generated for vendor industries namely trucking. leather and leather goods. profits and rent which amounts to Rs 1. plant and machinery. This is considered a conservative estimate given the difficulties in obtaining accurate financial data as well as secondary value. 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. The agent represents the interest of the vessel/carrier and arranges payment of port dues. 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. Global competitiveness Logistics costs play an important role in determining any country’s competitiveness in the global market. Export financing 11 . 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.3 billion. This sector attracted the largest inflow of investment in 2004. etc.3 billion. imports handled by the industry ensure uninterrupted flows of industrial raw materials. 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. At the same time. clearing and port handling. The services provided by international freight forwarding companies facilitate exports including cotton and its made-ups. The importance of the industry lies in managing the logistics of the country’s international trade.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 largest contributor to Pakistan’s GDP. storage and communication segment of the services sector.

consolidate ordered merchandise and execute loading plans. The enabling factors underlying rising demand include: Increasing containerisation of Pakistan’s overseas trade. monitor status of ordered merchandise. Pakistan’s external trade has increased sharply over the last two years. Survey respondents who confirm the uptrend in business volumes over this period corroborate the trend captured in official data. reflecting a sharp increase of nearly 44% over 2002 levels. according to industry sources. while imports. sustain manufacturing activity. Market size and trends Demand The demand for international freight forwarding services derives from the volume of Pakistan’s external trade. particularly bulk commodities such as rice and cotton. 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. mostly comprising industrial raw materials and capital goods. After virtual stagnation between 2000-02. Importance of external trade Pakistan has a relatively open economy. This was largely due to increased high frequency of delayed shipments and manipulation of shipping documents by suppliers to camouflage production delays. The growth trend was subdued initially but gained momentum after 1992 peaking at 20% annually between 1995-2002. the country’s external trade to GDP ratio has averaged 27%. the industry provides forced credit terms to its clients. Growing trend among large overseas retail chains to nominate Pakistan based international freight forwarding firms to effectively operate as liaison offices. Since 2001. Higher volumes and an expanding number of unitized cargoes.4 billion. Among leading textile export. 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. this indicates an export subsidy of about Rs 5.2 billion at current interest rates.Due to competitive market structures. 12 . During 2004. Based on annual industry turnover of Rs 43. A significant proportion (13%) of aggregate demand comprises of exports. National economic activity is. therefore. container throughput of Pakistani ports doubled between 1995-2004 to one million TEUs. the country’s total trade amounted to about US$ 28 billion. Working capital financing is extended to shippers as a revolving credit on 30–60 day terms. accounted for rapid growth. negotiate competitive freight tariffs. heavily influenced by external sector developments. Pakistan is ranked fourth in terms of the share of textiles in total exports.

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. Survey results indicate that 55% of the firms surveyed are sole proprietorships/partnerships. New entrants to the industry have managed to established viable businesses by attracting customer through discounted freight charges. In recent years however.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. while the balance is mostly clustered in Lahore and Sialkot. Capital requirements grow proportionately to the scope of value-added services and the client base of freight forwarders. The overwhelming majority of freight forwarders are located in Karachi. the industry comprises approximately 450 companies. Investment aspects 5. the rate of new entrants into the industry has outpaced growth in demand. 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. 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. Only the 13 . Cash flow management is a major challenge for international freight forwarders. The aggregate fixed investment in the industry is estimated around Rs 1 billion. The latter include some multinational corporations that have either entered into joint ventures with local companies or established independent offices. 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.Industry sources indicate that the supply of international freight forwarding services closely matched demand between 1985-1990. Working capital Working capital requirements are rising to support higher operating overheads and growing trade receivables. This has resulted in excess capacity and a competitive market environment. Forms of business organisation The majority of industry players comprise smaller proprietary or partnership firms operated with a maximum of 15 employees. These include 380 entities registered with the industry’s trade body and the balance comprising freight forwarders without formal membership. Industry structure Current size and geographic dispersion At present. The average age of firms is eight years and almost half of them have been in business for only five years or less. while 45% comprise private limited companies. Age profile The industry is relatively new in Pakistan.

the impact of economies of scale and qualitative differences in the scope of services. lack of regulatory framework within the industry and until recently. forwarders are reluctant to disclose sensitive financial information. lorries. Turnover The industry is estimated to handle over 500. total container throughput increased at the rate of 8% annually. Given the nature of the industry. Industry estimates place current container throughput at about one million TEUs for 2004. However. 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. Banks are unwilling to finance international freight-forwarding companies due to perceptions of high risk resulting from an inadequate understanding of the industry. 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. Despite these limitations. Business volumes for Pakistan’s international freight forwarding industry have increased in parallel to increasing containerization of Pakistan’s external trade. customs clearance and warehousing to vendor firms. Over the five years ending 2003. The anticipated growth in business over the medium term will necessitate rising investment requirements on account of warehouses. guarantees or indemnity bonds and carries a premium over prime borrowing rates. forced to manage the cash cycle through juggling receivables and payables.larger companies are able to attract working capital financing which is usually fully secured through personal mortgages. In addition. forklift trucks. transportation. it is difficult to assess industry revenue through directly translating volume into value. This is cost effective for forwarders with moderate volumes. Currently the majority of the country’s international freight forwarding companies outsource packaging. the industry’s financial indicators have been estimated based on survey data and industry feedback. containers. Most firms are therefore. Feedback from industry sources indicates that financial pressures are increasing as new entrants facilitate clients with larger credit terms. the absence of operating procedures or standard trading conditions.4 billion for 2004 (details in Annex V). this translates into an annual turnover of Rs 43. Margin differences reflect the intensity of competition in different segments. Industry margins vary from 3% for primary service providers to about 10% for total solutions companies. Forwarders handling lesser volumes could be deriving higher sales revenue by providing broader services while those handling larger volumes could represent high turnover. representing about 50% of total container throughput. Customer profile The clientele of freight forwarding companies comprises both local companies as well 14 . low margin operators.000 TEUs of overseas cargo annually. matching the growth in the country’s external trade. Based on the country’s trading pattern and current freight rates. This represents a major barrier for the industry’s future development. pressure on profit margin combined with diversion of funds to finance working capital continues to hurt the industry’s ability to accelerate investment.

Current issues 15 . This is largely because salaries and benefits in the industry are below average compensation in alternative employment. textiles. The total labour force in the industry is estimated at about 12. With the active participation of PIFFC’s management and its training and education subcommittee. pricing. semi-processed industrial raw materials and manufactured goods. outsourcing generates indirect employment from allied activities including packaging. documentation and handling dangerous goods. training opportunities were virtually non-existent. The major imports handled by the industry include plant and machinery. The industry caters to the needs of a diverse variety of exporters including primary products. air freight. warehousing. which commenced in February 2004. Although it is too early to judge their impact. 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. some industry firms subsidized the cost for their employees. In order to address the issue. sports goods. surgical goods. Rapid industry growth in recent years has resulted in an acute shortage of experienced multinationals. 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. The industry body plans to expand the program further to augment the supply of trained manpower in future years. there is a consensus among industry sources that the availability of these courses is good for the industry. poor prospects for long-term career growth and lack of professional employment practices in closely held family firms. PIFFC accredited four institutes in Karachi and Lahore to run certificate courses. The top five items on the export side include cotton and its made-ups. The average number of customers ranges from 10 to 20 clients at the lower end to over 800 at the upper end. 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. Human resources The industry requires trained manpower to manage specialized tasks including multimodal logistic planning. Training opportunities Prior to February 2004. Industry firms encounter major difficulties in recruiting workers from the urban labour force. rice and handicrafts etc. sea freight and inland delivery. As of September 2004 about 200 employees from industry companies had undergone training thereby upgrading the quality of manpower available to the industry. In addition. As an incentive.000 full time employees. Employees acquired the necessary skills on the job. The scarcity of required manpower resulted in employee poaching within the industry and by shipping lines. leather products. the industry’s trade body submitted a specific request to the Trade and Transport Facilitation Project under the Ministry of Commerce.

however. rather than an independent trade association. effectively only a sub-committee of Federation of Pakistan Chamber of Commerce & Industry (FPCCI). PIFFC’s capacity to promote the industry was hitherto limited by two major factors. (the only trade body prior to the formation of an industry trade association towards the end of 2004) was established in the mid 1980s. Strained relationships with overseas buyers reduce their willingness to expand business ties with Pakistani exporters resulting in negative repercussions on long term export growth.Infrastructure constraints The industry is negatively impacted by severe infrastructure constraints. The body has 380 registered members which account for over 80% of the total known firms in the industry. The damage to business relationships. 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. the body’s activities were politicised which prevented the body from focusing on industry promotion. However. PIFFC’s management undertook several initiatives in 2004 with the Trade and Transport Facilitation Project to promote the industry. These problems are aggravated by operations restricted to specified working hours. 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. recent initiatives taken by some industry members have resulted in Pakistan Government’s decision to ratify the convention. Quantifiable economic costs through the above losses are estimated at US$ 93 million for the five years ending June 2004. minimum qualifications for members and their acceptance 16 . These include the trade body’s status as a ‘council’. code of conduct. high wages for port labour and document processing by multiple government agencies. Ports are notoriously inefficient. This deprived the industry of a strong platform to interact effectively with national policy makers. These included the development and implementation of the industry’s standard trading conditions. 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. 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. Secondly. Industry trade body Pakistan International Freight Forwarding Council. Despite these limitations. is far greater than measurable losses. However.

T. The other important initiative related to human resource development of the industry’s manpower. through organising training opportunities for industry employees. Laggards w. hitherto being 17 .by the country’s trade and all its affiliated trade bodies under the Federation of Pakistan Chambers of Commerce and Industry. which are emerging from this domain. 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. 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.viz: need to concentrate on core competencies.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. namely the Pakistan International Freight Forwarders Association (PIFFA). The industry achieved a major milestone towards the end of December 2004 with the establishment of an independent trade association. Application development & maintenance. A. Training & Development to I. in an industry which is increasingly becoming ever more consolidated through a wave of mergers & acquisitions. As a result. This is just one amongst some of the key trends which we have researched. lack of in-house expertise and need to extract greater financial flexibility. Although the core objectives which drove outsourcing haven�t changed over the years.from Ship Management.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. 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.r.

while the resources in the offshore unit went up the leaning curve over a period of time. Companies with geographical origins in the Far East are increasingly seeking the benefits from BPO. 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. One shipping captive.the work input going into the offshore BPO was first checked onshore for completeness. assume final accountability for the output. Given the early stages where these captives found themselves on the learning curve. Historically. checked in the offshore captive again for completeness before being processed. resulting in a sub-optimal process where. However. this model was the most logical choice at that point in time. checked offshore after processing the data and then passing through another layer of onshore checks for completeness and accuracy. This process model is now being turned on its head with the offshore resources increasingly being seen as the SMEs of the offshored processes. for example. into India. interacts directly with customers 18 . Ex: A Japanese shipping giant is presently in the midst of outsourcing business processes like Customer Documentation to offshore centers in India. 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. 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. or at the very least. the original process model stayed at its historical origins. 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.performed from Europe. 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. B.

like the BS7799. Additionally. from internationally accepted certification bodies. confirms what was being suspected all along. among others) which is far higher than what they would incur in a third party model. global accounting and budgetary control. This is a major change in both the process model as well as in perceptions related to capabilities of the offshore vendor. 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.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. knowledge oriented processes which require significant levels of business process knowledge and decision making. 19 . Recent conversations with the industry make us believe that Shipping and Logistics companies. the only ones that are being offshored. which have been traditionally captive heavy in terms of their outsourcing model. A few industry majors are even examining the possibility of outsourcing complex data analytics related to yield management.a process which requires master mariners with enormous business expertise. costs related to attracting and maintaining quality resources. 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. A recent Forrester report entitled Shattering the Offshore Captive Myth which shook the outsourcing world. Business Process & IT application helpdesks etc.processes which are currently being executed by senior resources with considerable industry experience. Shipping and logistics companies are increasingly feeling confident enough to outsource even complex. are already looking at the third party model in a more favorable light. Transactional/Algorithmic data entry to Knowledge oriented No longer are only transactional processes which require little or no 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.

20 .

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