Uncovering Philippines Logistics: Will it Triumph Over Customs Challenges and Resource Reliance?

In the dynamic landscape of the Philippines' logistics industry, a crucial question looms: Can it maintain its growth trajectory while grappling with inefficient customs clearance processes and a heavy reliance on human resources? The industry's potential for expansion is undeniable, yet the road ahead is fraught with challenges. As the nation strives to position itself as a regional logistics hub, the intricate balance between sustained growth, streamlined customs procedures, and optimizing human capital becomes paramount. In this exploration, we delve into the interplay of factors shaping the industry's evolution. Want to know how the market navigates through these hurdles? Read the complete White paper.

1. Philippines, with a population of 113.9 Mn, is one of the most lucrative and fastest-growing economies in ASEAN with a GDP of $394 Bn in 2021, opens up a sea of opportunities for the logistics sector

Philippines Population in 2022 is 113.2 Mn¹

300,000

(Area Km², 2021)

113.2 Mn⁴

(Total Population, 2021)

7,641

(Islands, 2021)

Philippines GDP and Inflation Rate, 2017-2021²

Philippines currently has 6 Metro Cities in 2022¹

There are a total of 146 cities in the Philippines, 33 of which are categorized as Highly urbanized cities.⁵

Major Imports & Exports, 2022³

Major Exports

Electronics, other manufactured goods, machinery and transport equipment, other mineral products, copper cathodes

Major Imports

Electronics, mineral fuels and lubricants, transport equipment, industrial machinery and equipment, iron and steel

GDP Contribution, 20221

• Service Sector¹: 61.4% of GDP
• Industry¹: 29.7% of GDP
• Agriculture, Hunting, Forestry and Fishing¹: 8.9% of GDP

Source: Philippines Statistical Authority | 2. THE World Bank | 3. Doing business in the Philippines | 4. United Nations Population Fund | 5. Biodiversity Management Bureau, Philippines | 6. Alpha beta Philippines Report, Source: Industry Articles, Interview with Industry Experts, Ken Research Analysis

2. The country’s transportation sector suffered due to cross-border restrictions, but E-commerce played a crucial role in keeping the logistics market afloat during the pandemic

Impact of Covid on Philippines Logistics Market

Impact on Supply Chains

• Supply chains were severely impacted during Covid-19 all around the world. Philippines also suffered with the scarcity of raw materials, factories closed and disruption in supply chain due to cross border restrictions.

Impact on Transportation Industry

• The transportation industry also suffered during covid crisis. For instance, there was a huge drop in the revenue generated by cold transportation market. The cold transportation market fell from PHP 4.1 Bn, 2019 to 3.4 Bn in 2020.

E-commerce played a crucial role

• E-commerce experienced a positive growth during Covid. It was a major contributor to the GDP during the period with a GMV of PHP 52.0 Bn in 2020 from GMV of PHP 49.4 in 2019.

Steps taken by the Government during Covid

1

Issued guidelines related to social distancing for employees working in closed vicinities.

2

Department of Labor and Employment issued regulations for employers for proving safe environment to the employees

3

Increased Emphasis on Data Privacy Act of 2012 and Electronic Commerce Act of 2000 due to exponential rise in E-commerce

4

Mandatory screening for employees working in closed vicinities with employers bearing cost for the same.

Interested to access the warehouse and cold-chain sub sectors of this industry? Click here to download a free sample of our report

3. Government’s support with better Infrastructure, Rise in demand from E-Commerce Sector, and Growth in Digital Logistics are some of the growth drivers in the Philippines Logistics Market

Government Support in Infrastructure

• Government has a Regional Development plan (2017-2022) having a special plan for each region.
• With such a growth plans, regional disparities would be curbed facilitating easy movement of goods and services throughout.

Rise in Demand from E-commerce Sector:

• Tremendous GMV growth from $ 745 Mn (2017) to $ 17.9 Bn (2022)¹
• Number of Internet users have risen from 47.4 million 2015 to 76.0 million in 20222 giving rise to sales of Online platforms such as Lazada, Shopee and Zalora that have started to offer 2 day/1 day delivery along with minimum cart order. All these have contributed to rise in logistics market.

Growth in Digital Logistics Market

• Demand for cost-effective logistics and supply chain solutions across several industrial verticals is a key driver of the digital logistics market. The expanding digitization trend and increased need for fleet and warehouse management systems are driving market growth.
• Digital logistics enables greater cooperation among varied internal and external stakeholders, decreasing the data silo effect and creating the profitable potential for overall Logistics Industry

Public Private Partnership

• The government has added smaller projects as a part of ‘Build Build Build’ Program keeping on hold the bigger projects such as Linking bridges for Luzon, Cebu & Visayas
• More than 20 Projects out of 100 under the new list are public-private partnership (PPP) deals for Intra Island Connectivity funded by Big Companies such as San Miguel corporation.

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4. Yet, the logistics industry faces challenges in the form of Inefficient custom clearance processes, high dependence on human resources, and traffic congestion in major regions indirectly affect the freight industry too

Inefficient Custom Clearance Process

• The custom clearance process for importers in Philippines have been a major barrier and pain point. Sometimes, it take 25¹ days to complete the entire process.
• The delays are caused due to inefficient traditional processes and high yard utilization rates.

Dependence on Human Resource

• Many business in Philippines still rely on human operated processes.
• Dependency on human resource increases the scope for errors resulting in unsatisfied customers.

High Logistic Cost

• The logistic requirements differ in Philippines due to its geography.
• The islands that are farther from the economic centers suffer from low connectivity and high logistics cost.

Traffic Congestion

• The traffic congestion in regions such as Metro Manila is the major reason for delays caused in the delivery of goods.
• The main reason for traffic is inefficient road structure, high vehicle density and rapidly increasing population.

1. Market Research, Philippines
Source: Industry Articles, Industry Report & Ken Research Analysis

4.1 The Freight industry faces cascading issues driven by the logistics sector such as high traffic congestion and inefficient supply chain processes which leads to increased operating costs

• Geographical Disruptions: It experiences several typhoons and floods on yearly basis which disrupt the supply chain. During this time, the sea vessels and ferries, which allow goods to move between islands in the absence of a national bridge network, do not operate while some roads are blocked by floods or debris leading to high operating costs.

• High traffic congestion: Asian Development Bank study shows that Metro Manila as 43% congestion level and 98 hours is lost to traffic annually. Accompanied with poor infrastructure in the country, it takes a long time to reach before the merchandise reaches its final points of distribution.

• High freight transport cost: The road freight uses sea ferries to transport between islands which increases the cost. Lengthy average dwelling time for trucks and vessels and a high labor cost for truck drivers results in high transport costs in Philippines.

• Exponential rise in fuel and oil prices: The increase in oil prices is mainly affected by the supply and demand and the exchange rate. Excise tax has been implemented alongside with the TRAIN Law 2018. There has been a 3-tranche increase in the fuel prices for diesel truck drivers of approximately PHP 6.0 per liter in 2020.

• Inconsistent regulations: Due to inconsistent regulations, it takes a much longer time for ships that are arriving at the ports in the country to be able to dock or berth at their respective locations. There is no large body to regulate the ports which increases the inconsistencies.

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4.2 Facing such shortcomings in the freight segments, the majority of the companies have GPS-enabled vehicles and are aiming to adopt modern technologies like platooning and autonomous vehicles in the coming years to make the industry more robust

1-2 Years

Freight Digital Aggregators

• A platform where the user will be able to see shipping options from providers such as Ninja Van, J&T Express, DHL, Entrego, XDE, LBC and Lalamove.

2-5 Years

Fleet Management Software

• Algorithms used to track real time location of fleets and helps to analyze cargo volumes using fleet analytics and provide 24*7 access to fleet data.
• Example: V3 is a leading fleet management solutions company.

5-8 Years

Electric Trucks

•  A firm step towards the company’s goal of reducing environmental impact, promoting green logistics and to prove the viability of the technology.
• Major vendors: PhUV

8-10 Years

Platooning

• Driving a group of vehicles together, controlled by computers which communicate with each other. Fuel Saving : At least 4.5% for the lead truck and 10% for the following truck.
• Major vendors: Scania & Atlas Copco

10-15 Years

Autonomous Vehicles

• Combine sensors and software to control, navigate, and drive the vehicle.
• It is expected to be operational before Autonomous consumer cars.

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