The Philippine Multimodal

Transportation and Logistics

Industry Roadmap

Institute for Development and Econometric Analysis, In (IDEA)

Philippine International Seafreight Forwarders Association
United Portusers Confederation
PortCalls

April 14, 2016

Supported by:

Manila North Harbor Port Inc

Pair-Pags
Asian Terminals Inc
Association of Off-Dock CFS Operators of the Philippines
International Container Terminal Services, Inc
Royal Cargo
The Philippine Multimodal Transportation
and Logistics Industry Roadmap

Institute for Development and Econometric Analysis, In (IDEA)

Philippine International Seafreight Forwarders Association
United Portusers Confederation
PortCalls
 In memory of

Dr Cayetano Paderanga, Jr,

who gave the roadmap team the courage to pursue this project.
 ACKNOWLEDGEMENTS
Our thanks to officials of the following companies, organizations and agencies for providing inputs
to and supporting this roadmap:

1. Aduana Business Club

2. Asian Development Bank
3. Air2100
4. Aircargo Forwarders of the Philippines
5. Asian Tigers Mobility
6. Asian Terminals Inc
7. Association of Off-Dock CFS Operators of the Philippines
8. Bureau of Customs
9. Cargo Data Exchange Center
10. Chamber of Customs Brokers, Inc
11. Civil Aeronautics Board
12. Confederation of Truckers Association of the Philippines
13. Container Depot Alliance of the Philippines
14. DHL Express
15. DHL Supply Chain
16. Department of Trade and Industry-Fair Trade Enforcement Bureau
17. Department of Trade and Industry-Supply Chain and Logistics Management Division
18. Department of Transportation and Communications
19. Export Development Council
20. FedEx
21. GIZ (Deutsche Gesellschaft für Internationale Zusammenarbeit)
22. InterCommerce Network Services
23. International Container Terminal Services, Inc
24. Joint Foreign Chambers of Commerce
25. Manila North Harbour Port, Inc
26. National Economic and Development Authority
27. Pair-Pags
28. Palafox Associates
29. Philippine Chamber of Air Express Operators
30. Philippine Economic Zone Authority
31. Philippine Exporters Confederation
32. Philippine Institute for Development Studies
33. Philippine Interisland Shipping Association
34. Philippine International Seafreight Forwarders association
35. Philippine Liner Shipping Association
36. PortCalls
37. Procurement and Supply Institute of Asia
38. Royal Cargo
39. Subic-Clark Alliance for Development
40. Subic Bay International Terminal Corp
41. Supply Chain Management Association of the Philippines
42. TNT
43. UPS
44. United Portusers Confederation
45. Philippine Exporters Confederation, Inc
46. Philippine Chamber of Commerce and Industry
47. World Bank
EXECUTIVE SUMMARY

The main purpose of this roadmap is to produce a common vision for the Philippine multimodal
transportation and logistics industry by mapping the structure of the industry, identifying key
concerns, and providing specific goals and time-bound strategies for the sector.

This roadmap was prepared by the Institute for Development and Econometric Analysis (IDEA)
with inputs from various private and public transport and logistics industry stakeholders who
attended four focus group discussions over a period of more than one year, from December 2014 to
February 2016. A number of other stakeholders submitted their written recommendations. The
roadmap’s core group regularly met to incorporate all inputs.

The industry organizations, associations and government and multilateral agencies that
participated in the focus group discussions are listed in the Acknowledgements page.

During the focus group discussions, many of the problems facing the industry came to the fore.
These included:

1. Poor infrastructure
2. Government’s non-compliance to international agreements
3. Lack of a national master plan
4. Absence of one central, coordinating agency
5. Unclear, confusing and sometimes conflicting and outdated government regulations
6. Red tape that has led to corruption; and
7. Lack of a national skills training program for both new hires and industry professionals

These problems have led to uncompetitive practices that contribute to high logistics costs in the
Philippines.

On the other hand, considered favorable to the industry are the country’s large and young
workforce, the growing consumer base as well as the promise of a bigger market resulting from
ASEAN integration.

Recommendations were divided into three phases: short term, 2015-2017; medium term, 2018-
2022; and long term, 2023-2030. Actions required for the recommendations to take shape were
grouped into Legislative, Executive, and Administrative. The recommendations also identified
government agencies whose participation was critical to effect any kind of change in the process or
system.

This Executive Summary is succeeded by an introduction of the industry (Chapter 1) then a

discussion of industry vision, goals, and concrete targets (Chapter 2). Strategies and timelines in the
short, medium, and long terms are tackled in Chapter 3. The structure of the industry, including a
profile of stakeholders, historical performance of major players, and market and other conditions
affecting the industry, are discussed in Chapter 4. Chapter 5 presents an integrative SWOT analysis;
Chapter 6, the role of supporting government agencies; Chapter 7, impact mapping; and Chapter 8
recommendations, prioritization of strategies, activities and implementation of strategies.
INTRODUCTION

The link between logistics, economic growth, and poverty reduction has long been established,
evident in growth experienced by developed and emerging economies.

According to the United Nations Economic and Social Commission for Asia and the Pacific
(UNESCAP), logistics encompasses the planning, implementation and control of forward and
reverse flow of goods, services, and information from the point of origin to the point of
consumption. Logistics also involves the storage of goods and information.

Krumweide (2002) offers a simplified structure of logistics systems (Figure 1). The flow in black
arrows presents the direction of reverse logistics, whose direction is counter to the forward
logistics represented in hollow arrows. The information flow creates a web as information
interlaces between the different stakeholders within the system.

FIGURE 1: THE LOGISTICS SYSTEM

Source: Adopted from Krumweide (2002)

The World Bank (WB) considered an efficient and effective logistics sector as one of the pillars of
trade competitiveness. With the impending ASEAN Economic Integration (AEI), the role of logistics
in helping ensure the Philippines is competitive becomes even more critical.
Under the Philippine Development Plan 2011-2016, logistics has been identified as one of the key
elements in achieving inclusive growth and poverty reduction. But as it is, the full potential of the
local logistics sector remains largely untapped. In its current condition, the sector may even
dampen gains of the AEI.

In 2014, the World Bank reported a lower logistics performance index (LPI) for the Philippines,
57th out of 160 countries, down from 44 out of 155 countries in 2010 (Table 1). The country trailed
ASEAN nations such as Singapore, Malaysia, Thailand, Vietnam, and Indonesia in 2014.

TABLE 1: LOGISTICS PERFORMANCE RANKING OF ASEAN COUNTRIES

2014 2012 2010

Country
Score Rank Score Rank Score Rank
Singapore 4.00 5 4.13 1 4.09 2
Malaysia 3.59 25 3.49 29 3.44 29
Thailand 3.43 35 3.18 38 3.29 35
Vietnam 3.15 48 3.00 53 2.96 53
Indonesia 3.08 53 2.94 59 2.76 75
Philippines 3.00 57 3.02 52 3.14 44
Cambodia 2.74 83 2.56 101 2.37 129
Lao PDR 2.39 131 2.50 109 2.46 118
Myanmar 2.25 145 2.37 129 2.33 133

Source: World Bank

The logistics sector – part of transportation and storage under the Philippine Standard Industrial
Classification (PSIC) – contributed 6.1% to the country’s total gross domestic product during the
third quarter of 2014. The sector’s impact on economic growth is certainly extensive considering
logistics cost, according to the Department of Trade and Industry (DTI), accounts for 24% to 53% of
the wholesale price of goods in the country.

This roadmap is intended to coordinate efforts of all stakeholders – shippers (importers, exporters,
manufacturers), cargo and logistics service providers, private industry associations, and
government agencies – to attain a common vision for the logistics industry by providing concrete
goals and time-bounded strategies.
VISION, GOALS, AND TARGETS

Industry players envision the industry as a competitive logistics hub in Southeast Asia by 2030 with
an integrated multimodal transportation1 system. This goal will be achieved in three phases, as
seen in Figure 2.

FIGURE 2: GOALS AND TARGETS FOR THE LOGISTICS INDUSTRY

2015-2017 2018-2022 2023-2030

Capacity building Capacity Integrated
extension and multimodal
(Institutions, skills efficiency logistics
development, ICT enhancement
readiness) (Information
(Hard infrastructure, linkages, physical
skills development, linkages)
ICT readiness)

Phase I (2015-2017): Capacity Building. Phase I involves the formulation of soft infrastructure, as
well as refining and concretizing existing policies essential for a solid and environmentally
sustainable logistics system. Soft infrastructure includes policies with the corresponding
implementing rules and regulations that will facilitate execution of hard infrastructure and other
programs for capacity building. This consists of policies and concrete regulations in the following
areas: (1) institutions, (2) skills development and (3) information and communications technology
(ICT) readiness.

Phase II (2018-2022): Capacity Extension and Efficiency Enhancement. Phase II involves the
material implementation of policies, including building and expanding transport and storage
infrastructure, and the adoption of efficiency measures, specifically programs that promote skills
development.

Phase III (2023-2030): Integrated Multimodal Logistics. Phase III creates information and
physical linkages with the global community embracing multimodal transport links.

1 Under the United Nations Convention on International Multimodal Transport of Goods (Geneva, 24 May
1980), "international multimodal transport" means the “carriage of goods by at least two different modes of
transport on the basis of a multimodal transport contract from a place in one country at which the goods are
taken in charge by the multimodal transport operator to a place designated for delivery situated in a different
country.”
STRATEGIES AND TIMELINE

This chapter lines up concrete strategies under each phase. The strategies aim to address issues
that obstruct growth of the logistics sector, and are directed at facilitating the integration of all
modes of freight transport and other nodes of the logistics network.

PHASE I (2015-2017): CAPACITY BUILDING

INSTITUTIONAL AND REGULATORY FRAMEWORK IMPROVEMENTS

LEGISLATIVE ACTION REQUIRED

Congress should pass the Freedom of Information Act that will ensure, among others, government
statistics and data crucial to the logistics industry are readily available.

EXECUTIVE ACTION REQUIRED

1. Government should recognize multimodal transport operators2 and institutionalize their

operation by formulating an integrated long-term national master plan for multimodal
transportation and logistics. The master plan should include infrastructure programs
(roads, sea and air ports, rail, and logistics centers) in which all stakeholders are
properly consulted. (Action required from Department of Transportation and
Communications [DOTC], DTI, Department of Public Works and Highways [DPWH],
Department of Finance [DOF], Department of Interior and Local Government [DILG],
Department of Budget and Management [DBM], Department of Energy [DOE])

2. A Transport Logistics and Supply Chain agency must be created via an Executive Order
composed of both public and private sector representatives. (Action required from
DOTC, DTI, DPWH, DILG, DOF, Department of Agriculture [DA], Department of
Environment and Natural Resources [DENR], and all other agencies overseeing
regulated products and requiring transport and transport-related permits).

a. The agency will play a key role in drafting the integrated long-term national master
plan for supply chain and transport logistics.

2The United Nations Convention on International Multimodal Transport of Goods (Geneva, 24 May 1980)
defines multimodal transport operator as “any person who on his own behalf or through another person
acting on his behalf concludes a multimodal transport contract and who acts as a principal, not as an agent or
on behalf of the consignor or of the carriers participating in the multimodal transport operations, and who
assumes responsibility for the performance of the contract.”
 b. The agency will ensure consultation and coordination with stakeholders at all times
so that policies affecting all industry players are aligned, not contradictory with
other policies, and subsequently complied with.
c. The head of the agency must be a Career Executive Service Officer with wide-
ranging experience in the field of logistics and supply chain.

3. There is a need to implement the ASEAN Framework Agreement on Multimodal Transport

signed in 2005 by the DOTC. The Agreement requires the creation of a national
accreditation system for Philippine multimodal transport operators that will allow them
to operate in other ASEAN member-states using one single document. (Action required
from DOTC, DTI, DOF)
a. In order to implement the Agreement, an Executive Order must be signed creating a
multimodal transport bureau under the DOTC that will accredit and supervise
multimodal transport operators. This Executive Order will place all freight
forwarders (sea or air) under the jurisdiction of only one agency, the DOTC, as is the
practice in many countries. (Under the present setup, seafreight forwarders are
accredited and supervised by the DTI-Fair Trade Enforcement Bureau [FTEB] while
airfreight forwarders are under the jurisdiction of DOTC-Civil Aeronautics Board
[CAB].) The new DOTC bureau will also accredit and supervise operations of cargo
and delivery vehicles (this function currently falls under the Land Transportation
Franchising and Regulatory Board [LTFRB]), road transportation being a
component of multimodal transport. See Figure 3 for ideal setup of forwarding
sector.
b. If the issuance of an Executive Order is not immediately practicable, the transfer of
the function of accreditation and supervision of seafreight forwarders from DTI to
DOTC-Maritime Industry Authority [MARINA] should be effected instead. (Save for
seafreight forwarders, MARINA, under its present charter, already supervises all
maritime enterprises.) It should be noted that while this transfer to MARINA
rationalizes the setup of the forwarding sector—placing all freight forwarders under
one agency (DOTC with seafreight under MARINA and airfreight under CAB)—it still
does not allow forwarders to operate as multimodal transport operators because of
the absence of a national accreditation body.
 FIGURE 3: IDEAL SETUP FOR FREIGHT FORWARDERS

4. The ASEAN Framework Agreement on the Facilitation of Goods in Transit must be fully
adopted. (Action required from DOF, DOTC, DTI)

5. The Customs Modernization and Tariff Act (CMTA) must be signed into law to overhaul the
Bureau of Customs (BOC) and update the Tariff and Customs Code of the Philippines.

6. The instrument of acceptance for the World Trade Organization Trade Facilitation
Agreement must be drawn up. The Trade Facilitation Agreement contains provisions for
expediting the movement, release and clearance of goods, including goods in transit. It
also sets out measures for effective cooperation between customs and other
appropriate authorities on trade facilitation and customs compliance issues. (Action
required from the Office of the President)

7. A national development plan for industry clusters, specifically manufacturing and

production centers, must be created. These clusters should preferably be outside urban
areas in order to help with decongestion, and should have easy access to port, airport
and rail infrastructure for easy delivery of goods to market. An example of such a cluster
is the Beijing Tongzhou Logistics Park. Positioned as a "road-sea freight hub", the
logistics park is an important hub for distribution in the area around China’s Bohai Bay
as well as distribution to the adjacent Beijing Development Area, the most important
economic zone in Beijing. The park has attracted a number of overseas and local
developers such as Globle Logistics Properties and China Merchants Logistics. (Action
 required from DTI, DOTC, DPWH, DOF, DILG, National Economic and Development
Authority [NEDA], Philippine Economic Zone Authority [PEZA], Board of Investments
[BOI]).

8. Government needs to support the action items on transport facilitation and green logistics
from the ASEAN Kuala Lumpur Transport Strategic Plan 2016-2025.

9. Government should encourage and promote, as a public-private initiative, the establishment

of a Green Freight and Logistics Program aimed at increasing energy efficiency of road
freight transportation. (Action required from DOTC, DTI, DPWH, DENR)
a. The use of cost-efficient fuel-saving technologies (e.g. low rolling resistance tires,
telematics, aerodynamic equipment, anti-idling devices) must be encouraged.
b. The use of hybrid buses that ferry both passenger and cargo must be explored.

10. A national policy on dangerous goods handling and storage along all modes of transport
must be formulated. (Action required from Philippine Ports Authority [PPA], Philippine
Coast Guard [PCG], BOC, CAB, Civil Aviation Authority of the Philippines [CAAP], Office of
Transport Security [OTS], Bureau of Fire Protection [BFP])

11. Government must issue an order prohibiting local government units from unilaterally
implementing policies that have a national impact. (Action required from Office of the
President, DILG, local government units [LGUs]).

12. The PPA must add at least two more private sector representatives to its Board. These
representatives should head a major stakeholder organization to ensure proper
industry representation.

13. Government should establish a regular freight transport data collection system, with
logistics operators required to report certain information, in order to improve the basis for
evidence-based policy-making and to enhance monitoring of policy implementation. (Action
required from DOTC, DTI, DOF, Philippine Statistics Authority [PSA])

14. Government should actively encourage the use of Batangas and Subic ports as well as other
international sea ports and airports outside Metro Manila as gateways to cater to the needs
of industry in and around such ports, and for purposes of decongesting urban areas. (Action
required from Office of the President, DOTC, DTI, PEZA and other free ports)

15. Government should actively push rehabilitation and use of the rail network for cargo
transportation. Railways should ideally be connected to production, manufacturing and dry
ports. (Action required from DOTC)

16. Discussions on leveling the playing field for domestic and international shipping must be
started. Foreign shipping lines enjoy benefits not accorded to ships plying the domestic
 trade. Foreign carriers, for instance, do not pay duties on fuel and lube oil while their
domestic counterparts pay duties and the 12% VAT. (Action required from DOTC, DTI, DOF)

17. Policies that will make data and information work for the growth and development of the
cargo and logistics sector must be implemented:
a. The PSA must adopt standard data measurements and indices for all industry
sectors (e.g. 20-foot container for shipping, kilos for airfreight, etc.)

18. Government should roll out an information dissemination and training campaign focusing
on cargo security, safety and green logistics. (Action required from DOTC, DTI)

ADMINISTRATIVE ACTION REQUIRED

1. DOTC should consult the cargo community in efforts to formulate a checklist for
infrastructure projects.

2. Full automation of Customs processes is necessary to minimize face-to-face transactions

and expedite clearance at borders in keeping with the BOC’s target of four hours for
customs clearance . (Action required from DOF-BOC)
a. The National Single Window must be fully implemented in accordance with the
country’s commitment to the ASEAN Single Window.
b. A single customs unit allowing importers and exporters the option to choose their
port of loading and discharge should be studied. This will eliminate the current
practice of port shopping and lead to standardization of implementation of all
policies and regulations.

3. A review and standardization of policies affecting trade is necessary, especially on the

following concerns:
a. Truck ban (There is a need to synchronize ban hours.)
b. Road user's fee, including truck stickers and passes
c. Toll fees
d. LTFRB requirement for truck operators to operate trucks no more than 15 years old.
(This impending regulation would mean an estimated 80% of trucks will no longer
be given a franchise and therefore banned on the streets. The policy could trigger
another round of port congestion.) The implementation of a reasonable transition
period to comply with the requirement to phase out old trucks is recommended; a
public consultation that will look into incentive schemes for truck fleet
modernization would also be helpful.
e. Gross vehicle weight regulations under the Anti-Overloading Law. Under the law,
most trucks operating in the Philippines will already be considered overloaded.
 Road weight limitations should be aligned with ASEAN cross-border trade
agreements. (Action required from DPWH, DOTC)
f. Smoke belching, inconsistent implementation and monitoring of anti-smoke
belching regulations. (Action required from DOTC-LTFRB, Toll Regulatory Board
[TRB], DPWH, LGUs)

4. There is a need to review, streamline, harmonize and standardize processes related to:
a. Fees and requirements of LGUs. Truck fees differ from city to city, causing much
confusion to truckers. (Action required from DILG, LGUs, Mayors’ League)
b. Accreditation of importers and customs brokers at the Bureau of Internal Revenue
(BIR) and the BOC. (Action required from DOF, BIR and BOC)
c. Philippine National Police (PNP) list of controlled chemicals. Some chemicals in the
list are commonly used in manufacturing, and are now more difficult to procure.
d. Requirements for transportation and storage of dangerous goods (Action required
from PPA, CAB, CAAP, PCG, BFP, Philippine Drug Enforcement Agency [PDEA],
Environmental Management Bureau [EMB])
e. Requirements governing temporary importation of trade promotion materials,
equipment and paraphernalia. (Action required from BOC)
f. Reportorial requirements required by some agencies (For example, cargo data
submitted by seafreight forwarders to DTI-FTEB does not seem to have any use as
FTEB does not generate industry statistics; manifest submission at the BOC is
allowed after office hours but there is no one at the BOC to read it.) (Action required
from DTI, BOC)
g. All other regulations pertaining to transportation and logistics activities that are
deemed redundant, obsolete, and inconsistent with other regulations. (Action
required from DOTC, DTI, DOF)
h. Application for other business licenses, permits, and other procedures. (Action
required from DTI, DOTC, DOF, DPWH, DILG, DA, DENR, Securities and Exchange
Commission [SEC])

5. MARINA should fully exercise its mandate to accredit and regulate maritime enterprises,
including international shipping lines (both principal and ship agents).
a. As part of its requirements, Marina should ensure accredited enterprises have
skilled personnel; proper infrastructure to support operations, including the
provision of container yards (whether owned, leased or subcontracted); ample
insurance liability; and an IT infrastructure that supports electronic payments.

6. LTFRB’s mandate and screening procedures in the grant of truck franchises require a
thorough review.
a. LTFRB should ensure franchised truckers comply with all safety and operational
requirements such as liability insurance and personnel training.
7. In order to facilitate flow of traffic and avoid corruption among law enforcers, major
trucking routes must be clearly mapped out and properly disseminated to truck users.
(Action required from DPWH, DOTC, DTI, Metro Manila Development Authority [MMDA,
PNP-Highway Patrol Group [PNP-HPG])
a. Major highways should have dedicated truck stops.

8. A redefinition of the logistics industry is needed via a review of the PSIC to reflect these
changes:
a. The unique role of air express operators has to be recognized through the inclusion
of the sector under Air Transport (PSIC Division 51).
b. Multimodal transportation as a mode of transport has to be recognized by adding
Multimodal Transport as a sub-sector.
c. The term “Brokerage and Customs Clearance” should be used instead of “Customs
Brokerage – Ship and Aircraft” under Division 52 of Warehousing and Support
Activities for Transportation. This is in recognition of the expanded scope of the
customs broker profession.

9. PEZA and/or the Philippine Chamber of Commerce and Industry (PCCI) should be
designated as the certifying body in the issuance of the Certificate of Origin under the
Generalized System of Preferences. (Action required from PEZA, PCCI, BOC)

10. BOC should mandate sea and airport terminal operators to provide truck holding areas and
drivers' lounge. (Action required from BOC, PPA, CAAP, sea and air port operators)
SKILLS DEVELOPMENT

The absence of a skills certification program in the cargo transportation industry has been
identified as an immediate concern among players, prompting a call to create a National
Qualification Framework that is in keeping with ASEAN standards. This would ensure that
whatever manpower advantages the industry has is preserved, even enhanced, with the constant
supply of labor properly trained and always updated on industry developments.

The establishment of a skills development programs for all stakeholders in the cargo and logistics
industry (freight forwarders, terminal and warehouse personnel, container yard and port operators,
truckers, shipping line personnel, airline staff, ground handlers, express operators and integrators,
etc.) is urgent to ensure inclusive growth. This activity is now ongoing with the Technical Education
Skills and Development Authority (TESDA) as lead agency; as of the writing of this report, only a
few industry associations are, however, building their certification programs, including the
Philippine International Seafreight Forwarders Association and Supply Chain Management
Association of the Philippines.

INFORMATION AND COMMUNICATIONS TECHNOLOGY

1. There is a need to automate processes involving:

a. The BOC in order to reduce, if not entirely eliminate, submission of hard copies of
documents.
b. Application for business license and requirements on all levels.

2. Cross-border electronic transactions, information sharing, electronic payment and electronic

signatures must be facilitated.

3. There should be active promotion of relevant technologies for advanced information systems to
be shared among government agencies, shippers, and industry, in advancing supply-chain security
initiatives.
PHASE II (2018-2023): CAPACITY EXTENSION AND EFFICIENCY ENHANCEMENT

This phase involves carrying out of physical projects that will advance both infrastructure and skills
development. The projects are intended to expand capacity and enhance transport efficiency.

HARD/PHYSICAL INFRASTRUCTURE

1. The following facilities and infrastructure should be built:

a. Dedicated access roads to sea and air ports, freight centers and railway stations
b. Dedicated air cargo terminal. Storage facilities in airports should also be expanded.
c. Freight centers and dry ports
d. New sea and air port facilities that would promote economic activity in accordance
with cross-border agreements such as the Brunei Darussalam-Indonesia-Malaysia-
Philippines–East ASEAN Growth Area or BIMP-EAGA.

2. The following must be improved and expanded in anticipation of economic growth:

a. All international and secondary sea and air ports
b. Railway network to service both passenger and cargo requirements. This will help
change modality of transporting goods and support green logistics initiatives.

SKILLS DEVELOPMENT

The greatest asset of an organization is its people. Hence, sustained investment in human resource
must be pushed. The following can be implemented in the medium to long term:

1. Creation of ASEAN Virtual Learning Resources Centers.

2. Formulation of ASEAN common core curriculum for multimodal transportation and logistics
management. This could include tertiary curriculum or applied graduate program for
logistics professionals.

3. Institutionalization of mandatory training for truckers and logistics operators on safe and
eco-driving, preventive maintenance and truck fleet financial management.

4. Building of national/sub-regional centers of excellence (e.g. training centers).

INFORMATION AND COMMUNICATIONS TECHNOLOGY

An integrated and seamless logistics service is inseparable from the seamless exchange and
communication of information. Hence, improving ICT infrastructure is crucial in attaining the 2030
vision of the industry.

ASEAN defines ICT infrastructure as any fixed, mobile or satellite communication network, as well
as the internet. Also included are software supporting the development and operation of these
communication networks.

The following strategies are part of the ASEAN Roadmap for Integration of Logistics Services and
should therefore be adopted:

1. Promoting the use of Radio Frequency Identification applications to facilitate cross-border

trade as well as cross-border tracking of goods;

2. Encouraging enterprises to adopt/develop interoperable supply chain management

systems in ASEAN to link up planning solutions, automated storage and retrieval systems
and wireless tracking technologies; and

3. Promoting increased use of telematics as a promising area for fuel efficiency and safety
improvements in truck transport; data collection; and monitoring (e.g. driver training, low-
rolling resistance tires and other improvements that affect fuel consumption).
PHASE III (2024-2030): INTEGRATED MULTIMODAL LOGISTICS

This phase involves programs and projects intended to connect the Philippines to ASEAN countries
and other economic regions. Some form part of the Roadmap and Master Plan for ASEAN
Connectivity:

1. Reevaluation of projects with the view toward upgrading and expanding infrastructure to
implement the ASEAN Framework Agreement on Multimodal Transport.

2. Establish an ASEAN Broadband Corridor.

3. Expand port infrastructure to accommodate the ASEAN Single Shipping Market.

4. Upgrade the road quality of missing links in the ASEAN Highway Network (AHN). In the
2010 status report of the AHN Project, around 211 kilometers of the designated transit
transport routes in the country remain to be upgraded to at least Class III roads.

5. Conduct a study on potential multimodal transport corridors to empower parts of ASEAN to

function as land bridges in global supply routes.
CHALLENGES AND ISSUES

Industry stakeholders cited red tape, unclear and redundant government regulations, non-standard
implementation of policies, and inefficient transport infrastructure as causes of inefficiencies in the
supply chain which have translated to high transport costs in the Philippines.

INSTITUTIONAL AND REGULATORY CONCERNS

Red Tape. Stakeholders concur that red tape and the presence of various government regulatory or
coordinating agencies with no clear delineation of supervisory functions are barriers to efficient
logistics.

According to the World Bank’s 2014 Logistics Performance Report, around five agencies monitor
import shipments and four agencies monitor export shipments in the Philippines. Equally
numerous are forms required to clear shipments: seven for import shipments and four for export
shipments. This leads to two-day clearance processing time, which could lengthen to five days if
inspection is required. Compare this to one-day clearance or two days processing (with physical
inspection) in Malaysia. In Thailand, clearance period could only last for a day, including for
shipments requiring inspection.

Examples of red tape:

1. BIR and BOC accreditation for importers and customs brokers are not integrated leading to
submission of similar documents to two agencies that are under one department, the DOF.

2. Despite the push for the National Single Window, only a handful of government agencies are
fully plugged into the system. This means shippers have to submit the same documentary
requirements to different government agencies.

3. Similar documentary requirements for transportation and handling of dangerous goods are
required by the CAB and the CAAP, both of which are attached agencies of the DOTC.

4. The BOC still requires submission of hard copies of manifests even if manifests are already
electronically lodged under the electronic-to-mobile (e2m) system.

Unclear and poorly-thought-out government regulations. The unclear and often confusing
regulations imposed by some government agencies lead to uneven implementation of policies and
instability in the supply chain. Public consultation on issues affecting the entire supply chain is also
lacking or sometimes cursory.
A few examples of these:

1. Truck ban policy implemented by various LGUs;

2. Implementation of importer and customs broker accreditation when the BIR and BOC have
few personnel to attend to the rush in entities seeking accreditation. The policy caused
much confusion among stakeholders and caused delays in trade;

3. Imposition of the rule requiring the presence of BOC personnel during stuffing of export
containers when there are not enough staff to do this. (This policy was eventually scrapped
by former Commissioner John Phillip Sevilla but only after much lobbying from the export
industry);

4. The adoption of the joint administrative order (JAO) on higher penalties for colorum
(unfranchised) trucks at a time when port congestion was at its peak. Trucks were later
given provisional authority to avoid apprehension for violation of the JAO;

5. The imposition of new storage rates for overstaying containers to counter congestion at
Manila ports in 2014. At a public consultation on the issue, the private sector was led to
believe there would be more discussions on the subject. But very soon after, the storage
rates were increased; and

6. The PNP list of regulated shipments, which included chemicals commonly used by the
manufacturing sector making it difficult to import the same.

Non-compliance. While there are standard government-approved rates charged by freight

forwarders (based on a Philippine Shippers’ Bureau order) as well as BOC-prescribed rates for
offdock operations, there are numerous reports these are not complied with.

Informal payments. Corollary to the problem of unclear regulations is the issue of informal
payments which jack up logistics costs. Informal payments, many times affecting transactions at the
BOC, are usually resorted to in order to quickly settle disputes in the interpretation and application
of unclear government rules or tariff regulations.

In the 2014 Enabling Trade Index Report by World Economic Forum, the Philippines ranked 103rd
out of 138 countries in terms of irregular payments in exports and imports. In terms of customs
transparency index, it ranked 102nd.
PHYSICAL INFRASTRUCTURE

Poor transport infrastructure has resulted in longer lead times and consequently high logistics
costs. Frequent calamities and the transport infrastructure's inability to deal with them have
impaired the supply chain many times over.

In the World Bank 2014 LPI Report, the country ranked low in infrastructure index. In the 2014
Enabling Trade Index Report by the World Economic Forum, the country was ranked 96th (out of
138 countries) in terms of availability of transport infrastructure. The latter report also ranked the
country 107th in terms of seaport infrastructure, and 105th in airport infrastructure.

Bhattacharyay (2010), who estimated infrastructure needs in Asia from 2010-2020, noted that
transport infrastructure occupied the largest share of the total infrastructure needs in the
Philippines, followed by energy infrastructure, then ICT infrastructure.

Road Infrastructure. Inadequate road infrastructure is a constant source of frustration among

stakeholders, with some key roads poorly maintained and some parts taken over by informal
settlers and vendors and illegally parked vehicles. Conversely, some roads that do not seem to need
maintenance undergo repair.

The lack of planning and coordination with utility companies undertaking repairs of facilities has
also been noted by stakeholders.

According to a study by the Joint Foreign Chambers of Commerce in the Philippines, in spite of
increased budgets directed to infrastructure, road rating remains low. Funds were primarily
directed to barangay roads, side stepping national highways. In 2007, around 60.7% of total
growth in road length was accounted for by barangay roads; national roads only accounted for
14.5%.

In the 2013 road assessment made by the DPWH, around 27% of respondents ranked national
roads from bad-to-poor, while 63% gave a fair-to-good mark.

The government has tapped public-private partnerships (PPP) to implement some road
infrastructure projects. This set up has its own complex issues though as it is harder to apply in
rural road construction due to lower financial returns to the private investor. In the end even if it
offers high social benefits, connecting rural areas to economic centers – if PPP is solely relied on --
may just be a pipe dream.

Seaport facilities. Government-operated seaports outside the National Capital Region are in dire
need of modernization, lacking cargo-handling equipment required for an efficient supply chain.
The privatization of Davao-Sasa, one of Mindanao's key ports, has been held in abeyance for years.

Cebu port has not kept pace with growth of volume in the region and is now congested and in need
of major expansion.

Airport Facilities. There is no provision for adequate air cargo facilities, much more a dedicated
cargo facility, as well as truck holding areas.

Rail Freight. While acknowledged as the most efficient and eco-friendly among all modes of
transport, rail freight is deemed a non-existent subsector in the Philippines. Rail freight services
initiated previously by port operator International Container Terminal Services, Inc. failed because
of lack of volumes.

INFORMATION AND COMMUNICATIONS TECHNOLOGY INFRASTRUCTURE

Seamless connectivity in logistics requires automation and adoption of IT solutions in its processes.
Although ICT infrastructure in the country has improved in previous years, much remain to be done
in order to attain a “cloud readiness” level that will benefit various sectors, foremost of which is the
logistics industry.

In the 2014 Cloud Readiness Index in the Asia-Pacific, the country went up two notches. The
country got the lowest ranking in the following indices: (1) Government regulatory environment
and government usage, and (2) Broadband quality. The regulatory environment index assesses the
extent to which the national legal framework facilitates ICT penetration and safe development of
business activities. The government usage index evaluates the implementation of ICT policies
intended to enhance competitiveness and well-being of citizens, as well as the efforts to develop ICT.
It also measures the number of services the government provides online.

Adoption of ICT in operations, not only speeds up processing time, but can also be a tool to
minimizing the presence informal payments due to red tape.

Internet penetration in the Philippines was among the lowest of the ASEAN countries. Fortunately,
recent years have shown marked improvement. In particular, the number of internet users per 100
people doubled from 2009 to 2010, and has continued to increase ever since.

While this is the case, the connection speed in the country leaves much to be desired, as a report by
the ASEAN DNA states that the Philippines may have the slowest internet connection speed in the
region.
 FIGURE 4: INTERNET USERS PER 100 PEOPLE, 2000 TO 2014

Source: World Bank

FIGURE 5: INFOGRAPHIC: AVERAGE INTERNET CONNECTION SPEED AMONG ASEAN COUNTRIES, 2014

Source: ASEAN Briefing

INDUSTRY ADVANTAGES AND PITFALLS: STRENGTHS, WEAKNESSES,
OPPORTUNITIES, AND THREATS

STRENGTHS
The strength of the sector rests primarily on its young labor force, providing the industry with a
large and stable supply of manpower.

The workforce is also educated and proficient in the English language. A more educated labor force
increases labor productivity and promotes versatility among members of the force.

WEAKNESSES
Institutional and structural issues mainly constitute the industry’s weak points.

Poor and inadequate transport infrastructure restricts provision of logistics services translating to
high transport costs. The country's archipelagic makeup makes transportation even more
challenging.

The industry is fragmented. Despite players being classified under one PSIC, overseeing agencies
for different activities of the industry are varied. For example, seafreight forwarders are under the
jurisdiction of the DTI while airfreight forwarders are under the DOTC.

Unclear and sometimes even contradictory regulations and policies result in red tape and
corruption, leading to informal payments.

There is much to be desired when it comes to the role of government in the industry, with
collaborative efforts between the government and the private sector seemingly limited. This
became especially evident in 2014 when it took government a few months to finally address the
problem of the Manila port congestion.

Government's information campaign for new or revised major policies is not institutionalized.
Oftentimes, the private sector has to take the initiative to educate stakeholders about new
government regulations.

National and local government policies are not aligned. Case in point is the adoption of truck bans
with different times by various local government units.

The lack of a national curriculum, including technical courses, specific to transportation and
logistics industry practitioners is a major weakness. This oftentimes means new hires have to learn
on the job, translating to higher costs for companies.
OPPORTUNITIES
The large domestic market with a growing middle class is a key opportunity. The stable growth of
middle-income families will keep consumption demand high in the next few years, a development
that can only be favorable for the industry.

The market is expected to grow even more with the advent of the ASEAN Economic Community, a
market of 600 million people. ASEAN is also the fourth-largest exporting region in the world,
cornering 7% of global exports; the opportunities for trade are therefore enormous.

The relative ease of market access to the Philippines, partly due to favorable trading conditions
(zero or lower tariffs), is another opportunity. (In the 2014 Enabling Trade Index Report, the
country ranked 11th out of 138 countries in terms of market access, 19th in domestic market access
index, and 26th in terms of foreign market access.) Similarly, the country’s exporters have favorable
access to foreign markets, enabling greater trade.

THREATS
Non-compliance with international agreements such as the ASEAN Framework Agreement on
Multimodal Transport is a grave threat. The country’s multimodal transport operators will lose the
ability to operate as such in other ASEAN countries if the Agreement is not implemented.

For smaller home-grown and undercapitalized companies, the entry of more competitive foreign
firms once ASEAN Economic Integration is in full swing may be considered a threat.

Due to the expected easing of restrictions on labor flow among ASEAN countries due to integration,
the industry may suffer from brain drain, with Filipino nationals seeking higher pay overseas.

Calamities are a constant source of threat for the industry. Year in and year out, the supply chain
suffers from much disruption due to flooding and repair of damaged infrastructure. This has led to
delivery delays and consequently higher transport costs.

Another threat is the lack of awareness of green logistics. As the world gears towards greener jobs
and procedures, the industry's lack of awareness to meet global standards means its inability to
participate in reducing the global carbon footprint and contribute to national energy efficiency and
climate goals.
RECOMMENDATIONS

1. An integrated long-term national master plan for supply chain and logistics should be
crafted in consultation with all stakeholders. This master plan must include nationwide
infrastructure requirements and the development of a strong nautical highway and a
roll-on/roll-off terminal system linking the entire country. The plan must be reviewed
regularly to ensure it remains responsive to industry requirements.

2. An agency for Supply Chain and Logistics should be created to coordinate all initiatives
related to the supply chain and to follow through on implementation and compliance to
national and international policies and commitments.

3. There is an urgent need to review, streamline and standardize logistics-related policies

implemented by various government agencies.

4. Automation in government agencies must be pushed to the greatest extent possible to boost
efficiency and eliminate corruption.

5. The country’s compliance to international agreements it entered into is essential. The

ASEAN Framework Agreement on Multimodal Transport, signed by the DOTC in 2005,
must be immediately implemented. The Agreement requires the creation of a national
accreditation system for multimodal transport operators that will allow freight
forwarders based in the Philippines to operate as multimodal transport operators in
other ASEAN member states.

6. There should be continuous development of transport infrastructure, including the road

network, to cater to the projected long-term growth of the Philippine economy. The
following are needed to carry out this development:

a. Dedicated access roads to sea and air ports, freight centers and railway stations as
well as dedicated air cargo facilities must be constructed.

b. Manila ports need to be further expanded to keep pace with expected volume
growths owing to an expanding economy. But this expansion will only be more
consequential if there is corresponding expansion of support facilities outside ports
(roads, warehouses and other off-dock facilities) to match ports development.

c. The capacity of Subic and Batangas ports as well as all other international sea and
air gateways need to be expanded in anticipation of larger volumes but always
keeping in mind that infrastructure outside the gateways need expansion too.
 d. In the interest of more efficient and eco-friendly transport solutions, it is time to
harness the railway network to service not only passengers but also cargo
requirements.

7. In addition to strengthening the domestic freight system’s efficiency by improving

multimodal transportation, industry and government should take coordinated action to
advance the efficiency of road freight transport and thus leverage the potential for
saving fuel, reducing congestion and protecting the environment.

8. A nationwide skills development training program should be institutionalized to ensure the

logistics industry has a steady pool of workers who are competent and up-to-date with
industry requirements.