THE TRENDS OF LOGISTICS IN THE PHILIPPINE INDUSTRY

A Research Paper

Presented to Prof. Reynaldo De Vera

In Partial Fulfillment of the Requirements for the Subject

(PC8-1) Strategic Management

by

Janel N. Suarez
ABSTRACT
For any Manufacturing house to be successful, there logistics system is very
important to ensure that products get to the consumer in time, in good condition and at
the minimum cost possible. Despite much effort by manufacturing firms to ensure that
their logistics systems are efficient, many customers still experience delays for
deliveries, which show that logistics performance performs short of customer
expectations in most companies. This research project seeks to identify the trends of
logistics in Philippine Industry.

INTRODUCTION
The council of logistic management defines logistics as “that part of supply chain
process that plans, implements, and controls the efficient, effective, forward and reverse
flow and storage of goods, services, and related information between the point of origin
and the point of consumption in order to meet customer requirement”. In ordinary
language the same can be defined as right product, at the right place, in right time, and
in right condition.

The importance of logistics in National Economy is that logistics can make

an important contribution to the economy as a whole. Logistics also plays a key role in
the economy in that it supports the movement and flow of many economic transactions.

The emerging new technologies are creating strategic opportunities for the
organizations to build competitive advantages in various functional areas of
management including logistics and supply chain management. However the degree of
success depends on the selection of the right technology for the application, availability
of proper organizational infrastructure, culture and management policies. In logistics,
information, communication and automation technologies has substantially increased
speed of identification, data gathering, processing, analysis and transmission, with high
level of accuracy and reliability. Technology is a means to enhance business
competitiveness and performance. It plays a major role in success of supply chain by
enhancing the overall effectiveness and efficiency of the logistics system. In logistics
many new technologies are used in developed country while in Philippines adoption
process is very slow. However due to liberalization of the Philippine economy the
competitive pressure is building up and the only option to face the competition in to go
in for technology enabled operations.

REVIEW OF RELATED LITERATURE

Logistics is the organization of the flow of goods between the point of origin and
the point of destination in order to meet the requirements of customers or corporations.
Logistics involves the combination of information, transportation, inventory,
warehousing, and material handling, delivery, idle or holding constraints, routing,
packaging and often security. Logistics is a channel of the supply chain which adds the
value of time and place utility. Today the complexity of production logistics can be
modeled, analyzed, visualized and optimized by plant simulation software, but is
constantly changing. This can involve anything from consumer goods such as food, to
IT materials, to aerospace and defense equipment. Logistics is one of the main
functions within a company. The main targets of logistics can be divided into
performance related and cost related. They are high due date reliability, short delivery
times, low inventory level and high capacity utilization. But when decisions need to be
made, there is always a tradeoff between these targets. This is what makes being a
logistician challenging and interesting. The term production logistics is used to describe
logistic processes within an industry. The purpose of production logistics is to ensure
that each machine and workstation is being fed with the right product in the right
quantity and quality at the right time. The concern is not the transportation itself, but to
streamline and control the flow through value-adding processes and eliminate non –
value-adding ones. Production logistics can be applied to existing as well as new plants.
Manufacturing in an existing plant is a constantly changing process. Machines are
exchanged and new ones added, which gives the opportunity to improve the production
logistics system accordingly.
 Production logistics is becoming more important with decreasing batch sizes. In
many industries (e.g. mobile phones), a batch size of one is the short-term aim, allowing
even a single customer's demand to be fulfilled efficiently. Track and tracing, which is an
essential part of production logistics due to product safety and product reliability issues
is also gaining importance, especially in the automotive and medical industries. In
queuing which is the oldest form and the most widely used technique in quantitative
analysis. The three basic qualities of queuing are the arrivals, service facilities, and the
actual waiting line. Most ideal problems are focused on finding the ideal level of the
service a firm should provide.

Baziotopoulos (2008). An Investigation of Logistics Outsourcing Practices In the Greek

Manufacturing Sector. PhD thesis

THE ORIGIN OF LOGISTIC

The common view is that the term logistics comes from the late 19th century
from French word “Logistique” (means TO LODGE) which first appeared in the book
"The Art of War" by Baron Henri who was the general in French army
during Napoleon's time.

The term logistics has its origins in the military. From that perspective, it applies to the
process of supplying a theater of war with troops, equipment and supplies. In industry
field they borrowed this term and have applied it to the discipline known as “Business
Logistics”. The French army used this concept in the world war.

Others said that logistics is a Greek origin to the word “λόγος” (LOGOSH), meaning
reason,“λογιστικός”(LOYISTIKOSH), meaning accountant or responsible for counting.
THE OBJECTIVES OF LOGISTICS
The primary objective of logistics management is to move the inventory in a
supply chain effectively and efficiently to extend the desired level of customer service at
the least cost as done parallel with waste management.

LOGISTICS AND THE PHILIPPINE ECONOMIC DEVELOPMENT

Due to its archipelagic nature and burdensome, and sometimes inconsistent,

regulations, the Philippines currently has the highest logistics cost among the member-
states of the Association of Southeast Asian Nations (ASEAN) (DTI 2016). Despite this,
the Philippine logistics market has still managed to grow as a result of the country’s
strong economic growth, growing outsourcing sector, and rising globalization (Ken
Research Private Limited 2016). Nonetheless, it has remained fragmented and
dominated by foreign transnational players (Tongzon 2011). Local logistics firms have
also remained generally small to medium in size, compared to their foreign
counterparts, and are mainly offering freight forwarding services (Ken Research Private
Limited 2016). Based on the latest survey undertaken by the World Bank (2016), the
Philippine LPI in 2016 was way below those of Singapore, Malaysia, Thailand, and
Indonesia. The country even trails behind Viet Nam, considered as one of ASEAN
transitional economies. Clearly, the local logistics sector has a competitive
disadvantage compared to its counterparts in other older (or original) ASEAN members.
World Bank (2016) imputed this weak performance to the country’s inadequate and
relatively poor quality of infrastructure, inefficient customs, poor competency of its
logistics providers, and their limited ability to track and trace shipments. The excessive
fees further worsen the standing of the local logistics sector in the market. According to
the Maritime Industry Authority (2016),1 the high logistics cost in the Philippines is due
to the limited cargo base (lack of economies of scale), inadequate port infrastructure,
lack of competition in the coastal shipping market due to cabotage, inadequate road
transport networks and regulations that lead to excessive road congestion, high cost of
port operations, and inadequate investments from the private sector. In terms of the lack
of competition, for instance, the local market for shipping has yet to fully open to foreign
shipping operators. In fact, only domestic ships are currently allowed to make port-to
port calls within the country, thus constraining the flow of cargoes throughout the
logistics chain.

TRANSPORT AND LOGISTICS PHILIPPINES ON THE MOVE WITH THE

INDUSTRY’S GROWTH

 The Philippines Development Plan by government for the period 2017-2022 is

aimed at accelerating infrastructure programs and projects thereby positively
impacting demand for logistics.
 Philippines Port Agency is aiming to accelerate the implementation of
infrastructure projects in ports nationwide under the 'Build-Build-Build' program to
decongest ports for cargo and passenger.
 In order to keep up with the rapid demand of logistics, the warehousing facilities
will look forward for speedy upgradation to handle larger volumes of traffic with
digitized and efficient management systems.

Growing Economy of Philippines: Strong economic growth is likely to boost the

logistics market in the country during the forecasted period. The sectors which are
expected to be particularly depending on logistics services include healthcare,
telecommunication, electronics and retail. An increase in the consumer spending will
provide a strong impetus for the growth of these sectors thereby affecting the logistics
market positively. The country aims to achieve national Ambisyon by the year 2040
which will witness its GDP per capita grow by three times. This will positively impact the
demand for products such as apparel, electronics, food and beverages which will also
augment demand for logistics services in the country.

Encouraging trade among ASEAN: The establishment of ASEAN Economic

Community in the year 2015 was aimed at improving the trade scenario in the region by
freeing up the movement of people and goods across the bloc. The Blueprint for 2025
adopted by ASEAN leaders at 27th ASEAN Summit in 2015 will help in facilitating the
utilization of ASEAN Trade in Goods Agreement and allow liberalization of logistics
services across the nations including Philippines.

Emergence of Technological Advancements: The logistics companies are expected

to invest on advanced technologies solutions such as autonomous logistics, real-time
tracking, automation and robotics in order to provide an improved customer service.
With the growing international trade, incorporation of advanced technology based
solutions will help in an efficient delivery of products by the logistics providers. New
technological services such as real time tracking and warehouse management systems
provide complete information about the shipment by offering real time data to the
customers and proper track record of movement of goods in storage facilities. The
country also witnesses a rising demand for blast freezing in its cold storage facilities.
Such advanced technologies are expected to keep the operations of logistics and
warehousing industry in Philippines both effective and efficient.

Booming Industries: FMCG products, food processing and pharmaceuticals sector

have showcased considerable growth in the Filipino economy and have raised the
requirements of specialized integrated logistics services. Advanced warehousing
capabilities which require temperature control environments will look forward to increase
in the coming years to support the growth of specialized industries such as
pharmaceuticals and energy sectors.

Analysts at Ken Research in their latest publication "Philippines Logistics and

Warehousing Market Outlook to 2024 – By Freight Forwarding (Air, Sea, Land),
Domestic and International Freight Flow Corridor; By Warehousing (Industrial/Retail
Freight, Container Freight, Cold Storage, Agriculture and Others), Express and E-
commerce Logistics, Balikbayan Box, Third Party Logistics" believe that the logistics
industry is in its growth stage and is projected to expand in future through increasing
government investment to improve the nation's infrastructure and rising demand for e-
commerce logistics to meet the consumption requirement of growing population. The
market is expected to register a positive CAGR of 8.2% in terms of revenue during the
forecast period of 2018-2024.

Key Segments Covered

 Logistics and Warehousing:

o By Service Mix (Freight Forwarding, Warehousing and Value Added
Services)
 Freight Forwarding:
o By Mode of Transport (Water Transport, Road Transport and Air
Transport)
o By Major Flow Corridors (Asia, North America, Europe, Middle East and
Others)
o By Owned and Rented / 3PL
o By Delivery Type (Normal Delivery and Express Delivery)
o By Mode of Freight (International Freight and Domestic Freight)
 Express Delivery:
o By Mode of Transport (Air Express and Road Express)
o By Delivery Type (International Express and Domestic Express)
o By Business Model (B2B, B2C and C2C)
 E-Commerce:
o By Channel (E-Commerce Merchants and 3PL Companies)
o By Time Duration (One Day Delivery, Two Day Delivery, Same Day
Delivery and Others)
o By Area of Delivery (Intracity and Intercity)
o By Payment Method (Cash on Delivery and Others)
 Third Party Logistics:
o By Market Type (Freight Forwarding and Warehousing Services)
 Warehousing:
 o By End User (Food and Beverage, Pharmaceuticals and Medical
Consumables, Textile and Footwear, Electronics, Chemicals and Others)
o By Domestic and International Companies
o By Business Model (Industrial / Retail Freight, Container Freight, Cold
Storage, Agriculture and Others)
o By Owned and Rented Warehouses
 Balikbayan Box:
o By Seasonal Demand (On-Season and Off-Season)

Key Target Audience

 Logistics Companies
 Warehousing Companies
 Cold Chain Companies
 Courier and Parcel Companies
 Express Logistics Companies
 E-Commerce Logistics Companies
 E-Commerce Companies
 Logistics Association
 Government Association
 Investors and Private Equity Companies

Time Period Captured in the Report:

 Historical Period: 2013-2018

 Forecast Period: 2018-2024

Companies Covered:

 Freight Forwarding and Warehousing Market:

o Chelsea Logistics Holdings Corporation
 o International Container Terminal Services Inc.
o Lorenzo Shipping Corporation
o Metro Alliance Holdings & Equity Corporation
o Asian Terminals Inc.
o AAI Worldwide Logistics Inc.
o Kintetsu World Express
o Royal Cargo
o Yusen Logistics Co. Ltd.
o All Transport Network Logistics (ATN)
o F2 Logistics All Systems Logistics (ASL)
o LF Logistics
o Nippon Express
o Panalpina
o Expeditors
o Orient Freight International
o Metro Combined Logistics Solutions Inc.
o Infinity Logistics Philippines Co.
o MMG Corporation Philippines
 Express Delivery Market:
o LBC Express
o Philippines Postal Corporation
o 2Go Group Inc.
o JRS Express
o AirFreight 2100 (Air21)
o Xend Business Solutions
o Abest Express
 E-Commerce Logistics Market:
o Lazada Express
o Shopee
o DHL Philippines
o Zalora
  Balikbayan Box Market:
o Jolly B Box
o Forex Cargo
o Afreight
o Zalora

LOGISTICS-RELATED CHALLENGES IN THE PHILIPPINES

There are different logistics-related challenges per country. In the Philippines,

there are four things that require extra effort from freight and logistics companies to
operate.

1. Rainy Days and Flooding

Although a tropical country, the Philippines has an extreme rainy season which usually
runs from June until October. We’ve said “extreme” because the country is visited by
more or less 20 typhoons a year with heavy rains and strong winds that lead to flash
flood, landslides, and other natural disasters. It’s really challenging for logistics and
freight companies to deliver goods safely and on time during the rainy season since
some roads are blocked, some ships are not allowed to sail and some flights are either
delayed or cancelled.

2. Heavy Traffic

Both companies and people suffer from heavy traffic in Metro Manila and other
populated cities – especially during working days. In terms of logistics, heavy traffic
sometimes delays the pick up and delivery time of goods which could affect the
company’s integrity and could also result to irate clients. Being stuck in traffic is also a
no-no to perishable goods. To prevent such things from happening, logistics companies
should stretch their delivery and pick up time to give some allowance for heavy traffic
and other unpredicted circumstances.
3. Process of Acquiring Customs Clearance

There are regulatory requirements to acquire customs clearance for outbound and
inbound shipments. For some reasons, these requirements change every now and then
which demand companies to pay attention to announcements and to also comply with
the revisions or additional requirements – whether they like it or not. In case you weren’t
able to complete the new requirements due to ignorance, you will suffer from additional
costs and shipping delays. This will be a big hassle for the business and your
customers.

4. Limited Cargo Capacity in Provincial Airports

Several provincial airports in the country only cater to domestic flights. Because of
that, freight companies in those provinces are required to transport their products to
cities that could deliver international cargo. Also, smaller provincial airports could
accommodate only smaller planes which have limited cargo capacity. Therefore, if the
amount of cargo exceeds the required capacity in the airport, the freight provider needs
to wait for another flight going to that specific province to transport the excess goods.
Hence, if you need to transport goods in such provinces, make sure to set a realistic
delivery time to avoid disappointing your clients
RECOMMENDATIONS

Apart from the improvements in transport infrastructure, regulatory reforms are

required to address the Philippine ports’ inefficiency and lack of international
competitiveness. These reforms include the following:

 Revisit the management and regulation

 Improve competition in logistics industry
 In terms of traffic find an alternative route

 maximum allowable weight for loading, to reduce GHG due to overloading

 periodic vehicle maintenance and inspection to ensure optimum performance
and emissions
 route planning and optimization as well as load sharing through operator
collaboration, in order to reduce vehicle trips