The state of play in Pakistan’s freight industry and how startups plan to change it

You need to be familiar with four stakeholders in Pakistan’s truck freight industry: shippers that want their goods to be transported to a destination within or outside a city in Pakistan; transporters that these shippers have to reach out to deliver these goods; brokers that transporters reach out to get them these delivery orders in case they don’t have direct arrangements with shippers; and truck drivers that execute the deliveries. 

The hauling is year-round and these truckers are moving freight within the city and outside, doing short hauls and long hauls. “There is a fragmented ownership market. The way the demand side works is that the big companies like Unilever, Packages Group or different industrial groups like Nishat, all have a criteria that small truckers will not be able to walk through the door and offer their services to them,” says Abid Butt, founder of TruckSher, a startup working on removing inefficiencies in the freight industry.  

In recent years, as the startup culture has grown in Pakistan, some have popped up in the freight industry as well. Profit takes a look at what the impact of these startups might be.

Trucking in Pakistan  

By small truckers we mean ones that have a small fleet size. According to Abid, corporates are more likely to work with big fleet owners and transporters, leaving smaller ones in the lurch, and the industry predicament is that big transporters do not represent the entire market. In fact, they really have a bigger fleet because small truckers join these transporters for work. 

“Small truckers are substantial in number. They have two choices. As a single truck owner, he can go to large truck owners and associate himself with their fleets. Alternatively, he can become associated with a broker who would give him work.” 

In local parlance, brokers are essentially truck addas. If you have ever had a chance of moving goods within a city, and by goods we mean ones that are sizable enough to require a large vehicle, it is very unlikely that you would find them standing somewhere isolated on roads. They are usually concentrated at locations that we call addas. And it is here that they get the bulk of their work, through brokers. 

This works really well for big transporters. They have bigger fleets that now help them sign up with corporates and the double-whammy is that the small trucker has to give the transporter a cut for providing him loads. All this happens because of small truckers not having access to the big companies. 

“In terms of cash flows as well, if this big transporter needs to give the small trucker some kind of payment, instead of making full payments, these transporters make partial payments, creating disabling inefficiencies for small truckers” adds Abid.  

Conversely, there are small and medium sized businesses who do not really have the size and scale and smooth production cycles to warrant formal contracts, like big manufacturers have with transporters, to deliver loads. Who do SMEs turn to in this case? The brokers, again, that are encumbered with inefficiencies. 

“Brokers work in an informal arrangement. There are brutal negotiations over rates that result in time delays,” says Umair Atta, founder and CEO of Freightix. “We encountered numerous problems, one of which was that the brokers would be giving transporters less amounts to the transporters for delivering a full load, whereas the price decided with the shipper would be higher, simultaneously deducting commission from the transporter as well.” 

According to estimates provided by TruckSher, there is also a North-South trade imbalance in Pakistan that results in 70% of the freight moving from South of Pakistan, mainly Karachi, to the North, and only 30% of the volume moving Southwards from upcountry. 

Consequently, the trucks that go North to deliver loads run the risk of returning without any load. It is for this reason that reverse loads would be less expensive for a transporter to deliver. For instance, if a lone trucker in Karachi, not affiliated with the fleet of a big transporter, manages to run a delivery for a small business to Lahore, might be returning back to Karachi empty because he did not simply have a reverse load booked. 

“It is a hit and miss for them if they get the reverse loads or not because on returning, there is less load and the supply is more and what rate trucker gets to deliver the load matters significantly for him,” adds Abid.

Enter Trucking Tech

The above arrangement, however, held when startups were not really a thing in Pakistan. Forward to the times when raising capital for startups appears to be a breeze, plenty of new entrants have sprang to remove the inefficiencies in the freight delivery ecosystem. 

Among the known ones which are also recent entrants are Trella that was launched in Egypt in 2019 and started operations in Pakistan in November last year, and Karachi-based Truck It In that was also launched last year and raised $1.5 million in April this year. 

The most recent entrant is Karachi-based TruckSher, founded by Abid Butt, which was launched in February this year and raised an undisclosed seed round from Pakistani Venture Capital firm Sarmayacar in May. Truck It In has by far been able to gather the most hype after its funding announcement, followed by TruckSher that now plans to go big after its recent round. 

But while both Truck It In and TruckSher are pandemic startups, meaning that they launched during the Covid-19 pandemic, Lahore-based Freightix, founded by Umair Atta, claims to be the pioneer that started digitizing the freight industry back in 2017. 

Freightix is backed by Daewoo Express Pakistan and raised $2.25 million in April 2019 from Daewoo Express Pakistan and Sparklab Ventures, a Korean Venture Capital firm. The round was never announced. Freightix was founded by Atta in 2016, followed by incubation in the 8th cycle of the Punjab Government’s technology incubator Plan9, and was officially launched in 2017.  The startup has since remained in stealth mode, claiming to have been busy building its customer base instead of buzzing the market with announcements.

On the other hand, TruckSher was conceived by Abid Butt in October 2020 and launched in February 2021. Butt is a celebrated entrepreneur with an MBA from INSEAD and a Young Global Leader nominated by the World Economic Forum. He founded E2E Logistics Company in Karachi that he exited, and which he says had as many as 300-350 trucks in its fleet in the heyday of the business. Atta, on the other hand, is a software engineer with a family business in truck transport, whereas Truck It In founders are all Careem alumni with main experience in tech and a different vertical of logistics, that is ride-hailing and last-mile deliveries. 

Back to inefficiencies. 

The online platforms are deployed with the shippers, that are corporates and the SMEs, that can put in a detailed shipment order on the platform and push the job. On the back end, transporters are online that can accept the jobs and forward these to trucks in the fleet. Solo drivers can also accept jobs without any transporters in between. The entire process simply makes it easier to get a job and that is simply virtuous for lone truckers.

“If you have a platform where demand is mapped, supply is mapped, then it is much easier to find reverse loads than if you were just calling brokers up to find where the loads are, which is the traditional model for the truckers,” says Butt, elaborating on how technology platforms like TruckSher help truckers with securing timely reverse loads when traveling back after delivery. 

The startups then have pricing mechanisms in place whereby truckers can bid for the jobs. This is common for both Freightix and TruckSher, except that TruckSher has more to offer in terms of pricing options for both shippers and carriers (transporters), making it more dynamic. 

“On the customer (shipper) side, we can have them agreeing for a rate that is fixed for a certain period or they can take rates from us on a daily basis. Or they can get truckers to bid for their business. Of course, we won’t allow customers to do all three because then he will take the long-term rates, and bid and see if he gets a lower bid and switch to that,” says Butt.

On the vendor (trucker) side, a fixed rate for a period is very rare as their business does not really run like that and they are more inclined towards negotiating rates on a daily basis. “Usually we negotiate the rates with them on a daily basis and then the loads are delivered at that price. Alternatively, we let them bid between themselves for the business.”

“I think over time, we would head to the dynamic model completely like Uber where prices are not set and supply, demand and other factors. For instance, in trucking, we have holidays and vacations that would be considered as factors that would be affecting rates. On an hourly basis, some impact could be that certain sizes of trucks are not allowed into the city during certain hours,” he adds. 

Now, what about the drivers? According to Atta, there are accountability problems that arise on the driver’s end when delivering a load. There have been instances where the drivers delivering the loads would simply switch off their phones and there would be no information about the whereabouts of the cargo en route to the delivery location. However, Freightix does not have anything solid to curb that except that they claim to have transporters that are credible enough and onboard after thorough vetting. 

While that is certainly a welcome thing to do, TruckSher has been more innovative with technology on the platform and introduced real-time live-tracking of the cargo to eliminate the aforementioned risks and keeping a track of timely deliveries.  TruckSher was in fact launched under a technology transfer from a regional player in the same space, the name of which the startup founder did not disclose.  

“We could build our own technology or bring technology from existing players and we thought that it would be better to use market-tested technology. It is already being used by a company that has a presence in many countries. We started working on it in October and took four to five months to customize the technology for use in Pakistan,” says Butt. 

Freightix’s technological evolution has been rather painful because the startup before it launched in 2017, had to develop its own technology stack that was launched with the shippers initially followed by an application for the customers later. But according to Atta, the feature limitation of live tracking on their platform has to do with the reluctance of transporters to use the internet and non-availability of internet along the long routes that they are hauling.  

Reverse Disruption

Essentially, these startups are eliminating the brokers by creating a marketplace where the shippers and transporters can connect directly. And broadly, these startups are also disjointing the big transporters that include smaller truckers in their fleet. Smaller ones would simply leave big transporters when they are able to get enough work through online platforms like TruckSher and Freightix and would not be required to pay commissions. 

To sum it up, the freight industry’s new order looks something like this: shippers want their goods delivered; transporters that deliver these goods and startups that are breaking transporters’ large fleets that shippers reach out to; startups that are gunning to eliminate brokers and connect the shippers with transporters directly, digitally; and drivers that execute the deliveries. 

The challenge, however, as candidly admitted by Freightix, is that big transporters have recognised that tech can be a problem solver. While they themselves have till now abhorred tech, their posterity and future owners of the business love tech, have degrees in tech and have recognised that technology is something that they can incorporate themselves in their business. 

Knowledge about technology is penetrating and a call to arms to stop disruption means that these transporters would use technology to create reverse disruption, making similar apps to connect directly with businesses to move freight

Being the crude businessmen that these transporters are, they are ready to expend resources to make these applications to cut out the startups and connect directly with shippers. After all, these startups are also an expense for transporters because startups make money in the form of variable commissions charged to various stakeholders. 

“It’s best to cut the startups out, they [the transporters] believe. And they are ready to do it,” says Atta. But startups like Freightix are coming up with innovative ways to increase the adoption of their platforms. For instance, Freightix offers loyalty programmes under which the company provides tyre replacement and fuel cards with discounts for transporters and concessions for vehicle maintenance like oil changes, in a bid to keep their platform from dying out.