The State of Logistics Industry in the Philippines

This subject has been rarely discussed in government circles and public policy discourse. The less it is discussed, the more we will lag behind in competitiveness vis-à-vis our neighbors. So, I believe it is urgent that this matter get the attention it deserves from our policymakers.

Sometime in 2019, my boss at a logistics company I was employed brought me with him to attend a conference of sort organized by the PASIA at the Marriot Hotel in Pasay City. Being a newbie to the logistics industry, I was entirely excited to know something about it. My boss loved conferences and seminars and he never a miser when it comes to ensuring that his people know the latest in the industry.

Among the topics of the conference were digital transformation, blockchain, industry disruption caused by the entry of IT companies, such as LaLa Moves and Transportify, and how the industry compared to other ASEAN countries.

The digital transformation thing is not new. Industry pundits have been talking about this since the early 2000s, and even during the 1990s with the advent of the Internet boom. What makes the early 21st-century digital transformation was the development of Internet-connected technologies that enable companies to substantially change most of their processes if not all of their processes through Process Automation and Artificial Intelligence (AI). The big players, such as DHL, are excited at how digital transformation could remake the industry and what cost savings companies can achieve with it.

The entry of IT companies that pretend to be transport companies is also one big thing for the industry. Like what happened to the taxi sector with the entry of Uber and Grab, LaLa Move and Transportify are forcing the industry to rethink its old assumptions. LaLa Move and Transportify are not transport companies. They are IT companies that created a platform for small transport companies and even new entrants to offer transport services without having to worry about where to find clients. Like Grab and Uber, they recruit small and independent players and group them together to engage the industry. Since logistics is a huge game from bulk hauling to last mile, these IT companies can operate more efficiently than traditional logistics companies. Until today, new IT companies are entering the industry with a better business model. TokTok is one such company that is eating at the turf of LaLa Move.

Blockchain is another technology that could revolutionize not only the logistics industry but all industries that we know. It is basically a technology that automatically, efficiently, and accurately processes all transactions within an extremely secured environment. Cryptocurrencies such as Bitcoin and Etherium use blockchain technology. However, the regulatory environment is the number one challenge facing the widespread adoption of this technology. Whatever the promise of this technology rests on whether our monetary authorities are willing to surrender some of their most important functions.

The above three topics are very interesting, and they are going to be transformative to the industry in the next five to 10 years.

It is the last topic that made me pause and consider what kind of people the Filipinos are and what kind of future awaits our children and our grandchildren.

Consider this.

The Cost of Logistics in Selected ASEAN Countries in 2018

1. Singapore 8%

2. Thailand 11%

3. Indonesia 19%

4. Philippines 28%

In simple terms, this is how cost impacts consumers. Let us say a Filipino consumer buys 100 pesos worth of goods in the supermarket, 28 pesos of that is the cost of logistics The consumer in Singapore only pays 8 pesos for logistics, the Thai consumer 11 pesos, and the Indonesian consumer 19 pesos.

While there are many factors cited by the speakers about why we have the worst logistics costs in the Philippines, none honestly identified the true reason why this is so. Indonesia is like the Philippines, an archipelagic country, Thailand and Singapore are almost similar. Of course, Singapore is a city-state and transporting goods is not much of a problem. But why did Indonesia beat us by some order of magnitude? The true reason is that, our logistics industry in the Philippinesis exposed to more corruption than it is in Indonesia. Let me explain.

Imported goods are fetched by trailer trucks at the Manila Harbor, where various kinds of payola and “ticketing” system exist. If a trucker won’t pay chances are his truck won’t get loaded at the port. Then the Pinoy trucker will pay protection money to all the LGUs along his route. If he would have to pass 5 LGUs to the final destination, he would have to make arrangements for 5 greedy LGU traffic management officials. If he gets stuck in traffic and his arrival to the point of final destination is delayed, the poor Pinoy trucker would have to pay for the demurrage both to the client and to the freight forwarder that procured his trucking service. Then along the way, the Pinoy trucker would have to bribe some traffic enforcers who need to pay for his meal and snack.

Port of Manila Source: Philippine News Agency

If one will account for the cost of corruption in the logistics industry, it could easily tide to over billions of pesos a year.

That my friends are the true reason why we have the highest logistics cost in Southeast Asia.