The Philippine cargo transport industry has a mixed outlook for 2019: volumes and opportunities are seen to increase, but issues and concerns affecting operations and costs last year have carried through as major challenges for this year.
The positive outlook comes mainly from the projected increase in cargo volumes brought by the country’s continuous high consumption, and business opportunities coming from the government’s infrastructure program and the booming e-commerce industry.
Supply Chain Management Association of the Philippines (SCMAP) president Christine Pardiñas said that with 2019 being an election year, the group expects increased spending, which translates to higher need for logistics support.
Innovations in the retail industry, particularly in e-commerce, should also lead to more opportunities for a buoyant supply chain sector, she added.
The shipping sector, however, has a different outlook.
Philippine Inter-island Shipping Association (PISA) executive director Atty. Pedro Aguilar said 2019 may be worse than 2018 for domestic shipping operators due to the increased excise tax on petroleum products, which will further hike the cost of vessel operations. Under the Tax Reform for Acceleration and Inclusion Law, excise tax on fuel further increased to P4.50 per liter this year. The biggest component of operating costs for domestic shipping lines is fuel, which accounts for 40% to 50% of their total operational costs.
Aguilar also cited the over-tonnage in the domestic fleet, whose impact on freight rates have some operators resorting to cut-throat competition, reportedly significantly dropping their rates just to get clients.
For Association of International Shipping Lines (AISL) general manager Atty. Maximino Cruz, the outlook for 2019 is “less optimistic.”
Cruz noted that the trade war between the United States and China and the possible trade deals which both countries may be able to forge “will serve as an important barometer on how far ocean container shipping can go.”
He said the ongoing trade talks between the two nations, depending on their duration, will significantly affect rate levels and vessel capacity.
“With the anticipated slowdown of the global economy, we may witness carriers leaning towards further consolidation and sharing agreements to be more cost effective,” Cruz said.
While volumes are seen to increase, albeit slightly, the Philippine Ship Agents Association (PSAA) said operations will still be challenging this year due to remaining difficulties. These include numerous government regulations and cumbersome documentation requirements, antiquated tariff for services that no longer reflect current business conditions, and the need for more infrastructure that fits the requirements of the industry.
Long-standing issues and challenges that remain unresolved are also a major concern for other stakeholders.
Multimodal transport firms list woes
The continuing problem with the return of empty containers, high utilization of Manila port, and high shipping costs are some of the top issues of members of the Philippine Multimodal Transport and Logistics Association, Inc. (PMTLAI).
A member company said the positive outlook due to the high consumption of the country “will only be for nothing” if issues with the empty containers and shipping costs are not addressed.
The difficulty in returning empty containers has been an issue for many years, but was highlighted last year due to a confluence of events that affected the supply chain. Utilization of Manila international terminals and offdock container yards in Metro Manila has also been high for several months now, affecting the flow of goods.
Stakeholders are hoping that this year, government “will acknowledge the problem and its impact to the economy” so it can take the lead in formulating long-term solutions together with the private sector and stakeholders.
A PMTLAI member company suggests that government mandate foreign shipping lines to send sweeper vessels to evacuate empty containers. This has been a recurring suggestion, as this was done by shipping lines during the Manila port congestion in 2014.
However, shipping lines find it difficult to do today because terminal operators, giving priority to laden containers, are limiting the entry of empty containers into the port. Some foreign liners have reportedly started barging empty containers from Manila to Subic, where their empty containers can be picked up.
It was also suggested that the Bureau of Customs (BOC) issue an order changing the reckoning point for its 90-day rule on the dwell time of containers in the country. Instead of basing the 90 days limit on the date in the equipment interchange receipt (EIR), the proposal is for the reckoning period to start from the date of discharge of the last container from the vessel.
BOC earlier explained that shipping lines, which own the containers, may be compliant with the 90-day period if the reckoning period it is based on is the EIR, but he noted that the period prior to the issuance of EIR could be more than 90 days.
Under customs rules, if a container stays in the country beyond the allowed period, it will be considered an importation, with duties and taxes to be paid for by the shipping line.
BOC already has a draft memorandum order on this, but it has yet to be issued.
Another long-standing issue stakeholders hope will be solved soon is the return of container deposits, some of which take months and even years to be returned by foreign shipping lines. A PMTLAI member hopes foreign shipping lines can return container deposits seven working days after the empty container has been returned to the container yard.
SCMAP’s Pardiñas said the ongoing issue with the port will also continue to affect shipments and businesses, and will translate to higher logistics costs, and higher prices for the end consumer.
Adding to this are higher logistics costs, including the rising cost of fuel, which stakeholders hope will be lower this year compared to last year.
What truckers are up against
Issues of truckers also remain the same this year.
Confederation of Truckers Association of the Philippines (CTAP) president Ruperto Bayocot said their number one problem is the pronouncement of the government to strictly implement this year the maximum allowable gross vehicle weight (MAGVW) for truck codes 12-2 and 12-3 under the Anti-Overloading Law. Bayocot said that if this will push through, more than 50% of the containers arriving at the ports couldn’t be loaded onto trucks/trailers as the vehicles will already be overloaded based on the MAGVW.
CTAP explained that the average weight of containers arriving in the Philippines is around 30,000 kilograms to 36,000 kg, which means that if the minimum weight is added to the tare weight of the tractor head and trailer, which averages 15,000 kg, the total weight would be 43,500 kg, which is an automatic violation of the law.
The confederation also noted that to comply with the MAGVW, “we would need a truck and trailer with a tare weight of around 10,000 kg to 11,500 kg, which would be impossible since the average tare weight of such is 15,000 kg for code 12-2 and 16,000 kg for code 12-3.”
Bayocot clarified that CTAP is not against implementing the law, as importers sending lighter cargoes may “somewhat be advantageous to truckers, in a sense, because lighter loads mean lesser wear and tear to their equipment, hence lesser maintenance costs.”
But the group still recommends that the Department of Public Works and Highways suspend the MAGVW and instead follow the per-axle load limit that is already prescribed under the law, and which truckers can comply with.
Integrated North Harbor Truckers Association (INHTA) president Teddy Gervacio also noted that the 15-year-old age limit for trucks-for-hire continues to be a concern of truckers. Despite repeated correspondence with government, the sector still awaits a black-and-white response, as only verbal statements that have yet to be translated on the ground have been issued by concerned authorities.
Gervacio suggests that a technical working group consisting of concerned government agencies and private sector be created to conduct consultations, research and in-depth studies to come up with a quantifiable appraisal and standard of vehicle roadworthiness. Truckers have been proposing roadworthiness, instead of vehicle age, as the basis for issuing franchise to trucks-for-hire.
If the government pushes for the truck age limit, Gervacio suggests a voluntary truck retirement program be developed and implemented, and to include soft loans, tax incentives, buy-back or trade-in of units, a remanufacturing program, tax holiday from the Bureau of Internal Revenue, as well as draft guidelines on surplus trucks.
Pass-through fees imposed by several local government units (LGU) on truckers, despite several orders by the Department of Interior and Local Government that these charges are illegal, also remain an issue that increases costs of truckers. Gervacio hopes the national government can meet with LGUs to finally resolve the issue.
Transport infrastructure inadequacies
Infrastructure is also still a main concern. AISL’s Cruz said “infrastructure building simply cannot keep pace with the growth of the national economy.”
“And this is not only confined to port-related facilities but to the other associated network facilities outside the port, whether by land and waterways, that will ensure the smooth movement of goods in the supply chain,” he added.
He said ports should gear up for the arrival of bigger vessels and should have the necessary and adequate state-of-the-art equipment to handle them.
“Modern and bigger port facilities remain a paramount requirement of international carriers that will ensure better productivity and turnaround time,” he said.
PSAA also noted that aside from ports that cater to containerized cargoes, there is also a need for more ports that can accommodate bulk and break bulk shipments. The group noted that not all cargoes can be containerized, and with the booming construction industry and the government’s infrastructure program, there will be more shipments of non-containerized cargoes. The improving cruise shipping industry, while a positive development, may also highlight challenges such as the shallow drafts of ports.
AISL’s Cruz said completion of some crucial infrastructure projects this year “will further prop up one of the most active economies in Southeast Asia and help accelerate growth.”
Once completed, these projects, notably vital road and connector highways, will lessen logistics cost, he added.
“With the present high yard utilization of the ports due to the surge of imports, this will also be a good opportunity for the present and prospective ICD (inland container depots) and offdock CY (container yards) operators to establish and/or expand their facilities outside Metro Manila,” Cruz said.
Entry of the big boys
One issue, which may be new, is the entry of big players that have more financial capacity; these players can offer rates way below industry standard. Several conglomerates have recently entered the logistics industry either to complement their other operations and/or take advantage of the booming e-commerce industry.
While the entry of big players cannot be stopped as the market is free for all, a freight forwarding company hopes PMTLAI can assist in upgrading the technical know-how of its members to enable them to become world-class service providers and to compete with the bigger players.
Despite the challenges, SCMAP’s Pardiñas is looking forward to collaborations with government this year, as “there seems to be a better appreciation of the role supply chain plays in economic growth, which leads to more sensible initiatives and solutions that would positively impact the sector.”
This, after the Department of Transportation and Department of Trade and Industry and several industry associations came together to outline common goals for the improvement of supply chain in the Philippines through the signing last December of the “Ten Commitments of the Philippines Logistics Services Sector.”
Pardiñas said they look forward to increased collaboration and consultation as the signing was just an early step and “those would mean nothing if no concrete solutions are proposed and implemented.”
“This year will see the second edition of the Logistics Efficiency Indicators survey which should show how our logistics networks have fared over the past two years. This should give us a better idea of where to go,” she noted.
Other stakeholders also hope for more government support this year.
AISL’s Cruz said addressing the industry’s challenges cannot be accomplished by the private sector alone.
“It needs the support of government not only in terms of funding but also in providing directional guidance through the issuance of policy guidelines. But more importantly, in cases where urgent action is required, government action should be swift and decisive as it has the muscle to get things done,” Cruz said.
SCMAP’s Pardiñas said the group is also looking forward to the government’s continuing work to eradicate red tape through the Ease of Doing Business (EODB) Law, as red tape “also impacts our ability to increase capacity and better serve our customers.” She is also looking forward for the Anti-Red Tape Authority, which will implement the EODB law, to be formally established this year.
Filling skills gaps, upgrading technologies
With increased investment in logistics services from both new players and established ones continuing into 2019, Pardiñas said they foresee an increase in the number of jobs in the sector.
“We hope there are efforts to address the gaps in skills on both ground workers and supply chain managers,” she said.
The use of new technologies that will improve our supply chains should continue to gain ground this year, she added.
AISL’s Cruz said foreign shipping lines are looking forward to the Philippines finally acceding to the Convention on Facilitation of International Maritime Traffic. The convention, which entered into force in 1967 and has been amended 13 times, aims to facilitate maritime transport by simplifying and minimizing the formalities, data requirements, and procedures associated with the arrival, stay and departure of vessels engaged in international trade.
Getting on with automation
He also hopes that processes of the BOC, Philippine Ports Authority, and other port authorities will be automated.
PISA’s Aguilar said the Maritime Industry Authority’s 10-year Maritime Industry Development Plan (MIDP), with its incentives to the shipping industry, is something shipping lines are looking forward to. The MIDP, whose programs aim to accelerate the achievement of a nationally integrated and globally competitive Philippine maritime industry, is already being finalized to be forwarded to President Rodrigo Duterte for his approval.
An industry wish this year, Aguilar said, is for government to pass a legislation that would “lower cost of doing business” in the country. Aguilar earlier said the cost of doing business in the Philippines, especially fees imposed by the government, is one of several factors for the high cost of operating domestic ships.
Meanwhile, some stakeholders wish for the Philippine Customs “to be sincere in implementing measures that would ease the process of releasing import shipments and for the entire agency to become graft-free.” – Roumina Pablo