Pakistan has started implementing an axle load regime on transporting cement, all kinds of raw materials and other commodities to meet the World Bank yardstick and improve its ranking. According to IMS Research, the government has taken a firm stance on implementing the axle load regime, effective 15 November 2023, across all motorways and highways in Pakistan. This decision is anticipated to raise transportation expenses substantially for the cement sector, which not only imports coal but also exports clinker and cement.
Estimates provided by the All Pakistan Cement Manufacturers Association (APCMA) suggest that freight costs could surge by 50-60 per cent due to the implementation of the axle load regime. This regime will reduce the lifting capacity of each truck, necessitating an increased number of trucks to transport the same volume of goods, consequently raising fuel costs. Moreover, the higher number of trucks could extend load and discharge times in shipping, potentially resulting in increased demurrage charges for imports such as coal.
Experts believe the incremental increase in price per bag from APCMA would offset the impact of the axle load regime's implementation. Dividing this value by the average retention price per bag, experts approximated the potential impact on earnings where bag prices don't increase by PKR50 (US$0.17). The 6.8 per cent negative impact on earnings assumes no pass-through in prices. It is crucial to note that the impact will slightly vary for each company, influenced by their fluctuating ratios of exports to local sales and the coal blend they choose based on pricing considerations between local, Afghan and Richard Bay sources. Overall, cement companies should be able to transfer the higher freight costs to consumers, thereby maintaining their current profitability levels.
