SUPPLY constraints were already a given before the Ever Given blocked the Suez Canal: lockdowns are to blame and exporters are seen to put up with the setback for a long term. And merchants relying on revenues from sending goods out of the country’s borders—nay, the whole economy itself have no other choice but to adjust operations and hold on tight during this bumpy ride.
The Supply Chain Management Association of the Philippines (SCMAP) told the BusinessMirror that the concern regarding shipment delays is not going away any time soon.
“We have been told that these issues may persist even after the Christmas rush,” the group said.
Philippine Exporters Confederation Inc. (Philexport) Assistant Vice President Flordeliza C. Leong told the BusinessMirror that exporters started dealing with shipment delays in the last quarter of 2020 when production began picking up anew.
While there is no conclusive report yet, Leong said that delays usually range from two weeks to a month.
The bottlenecks were caused by the schedule changes, occasional vessel omissions and increasing shipment rates, Leong’s group said.
“However, in recent months these issues have gotten worse, with shipping lines not confirming space beyond contracted allocations and rates going up as high as three times more, especially for long-haul shipments,” the group told the BusinessMirror.
Book shipments
LEONG explained that the delays are also being caused by the piling up of goods in the shipping lines and the traffic going to the ports. In addition, she noted that ports have no regular operations at the moment and employees are working in shortened hours amid the pandemic, among others.
The Philexport official said that she already talked to traders and logistics service providers to find solutions to the shipping delays. But it appears that the sector is on a deadlock.
“There is nothing to do but to wait [if there is a shipping container already],” she lamented. However, Leong said it may help if exporters consolidate their orders and book early shipments.
End-customers
ASIDE from export-oriented firms, importers have also experienced delays in shipments, which are seen to impact manufacturing and, ergo, consumption of the country, SCMAP Executive Director Corazon C. Curay told the BusinessMirror.
The shipments that are taking a longer time to deliver include raw materials; and finished goods, which are usually purchased through e-commerce, Curay said. There could also be potential shortage of stocks and price increases that the customers have to deal with as a result, she added.
“For our end customers, this will result in products missing from shelves and higher prices, which is not ideal considering our continued battle against Covid-19 and its long-term economic impact,” SCMAP added.
But Leong said that it is fortunate that customers understand the shipping delays.
“The good thing about this is it is a global thing,” Leong said. “Alam din ng mga buyers nila na this is happening.” [The buyers are aware of the situation.]
Imports arrangement
SOME importers manufacturing for exports are negotiating with their buyers to have a longer turnaround period, she explained. If the buyers agree with the arrangement, orders will not be cancelled anymore—and buyers are ready to deal with the delays as well.
In general, Philexport said that exporters have accepted that they have to adjust their production timeline as no concrete and long-term solution is in place yet.
However, there are still concerns for perishable items, Leong noted, adding that air shipment is usually the solution to make sure the products arrive fresh. This may not be applicable to some nonperishable items as fees could be higher if ever, she said.
Leong, on the positive side, said that she has not encountered an exporter who decided to cut production because of the shipment delays.
A garment exporter, the Philexport official, is even seeing continuous flow of orders from the US.
However, “they have to decline orders only because of order capacity, not because of the shipping problem,” she added.
Manufacturing issues
REPORTS from the BusinessMirror stated that shipping costs for exports have increased “10-fold.”
Henry Basilio, chairman of the networking committee on transportation and logistics of the Export Development Council (EDC), flagged in a recent statement the increasing freight rates amid imbalances in the repositioning of empty containers.
Basilio noted that the cargo handling cost has doubled with the cranage fee amounting to P1,587. This is on top of the arrastre fee of P1,575, Basilio said.
Cranage fee is the price paid for the use of cranes when loading and unloading ships. Arrastre fee is charged for the handling, receiving and custody of shipments.
Basilio also noted that the proposed increase for out-of-gauge (OOG) cargo is 300 percent. OOG cargo refers to shipments that cannot fit into 6-sided shipping containers because of their larger size.
Among Southeast Asian countries, standard OOG surcharge is only 50 percent based on Association of International Shipping Lines tariff comparison, Basilio noted. An exception is Tanjung Priok, the busiest Indonesian seaport.
“The proposed rates are exorbitant and will increase the cost of doing business, drive away investors, and unduly burden existing manufacturing industries and export companies,” he said. “While these intended charges are billable to the shipping lines, this will directly impact the logistics cost and will ultimately be borne by the end consumers.”
Meanwhile, Basilio expects the container imbalance to normalize this month amid increased shipping logistics costs.
Affecting winners
DESPITE the exorbitant rates, University of the Philippines Professor Emeritus Epictetus E. Patalinghug believes the increase in these costs were mainly due to the low volumes and a select few ocean shipping carriers that dominated the market. This would not likely affect the country’s export winners.
According to the Philippine Statistics Authority (PSA), exports in January dipped by 5.2 percent to $5.49 billion from $5.79 billion for the same month last year.
Based on preliminary data from the PSA, the country’s top export remains to be electronic products. This brought in $3.24 billion in earnings for the country and accounted for 59.1 percent of the country’s exports in January 2021.
The commodity is also the country’s top import. PSA data showed imported electronic products were valued at $2.34 billion or a share of 29.6 percent to the total imports in January 2021.
But “because of low volume and despite excess capacity, shipping costs have increased by 10 percent—due to the market power of the dominant few ocean shipping carriers. Electronics exports can be shipped via air, they are not affected,” Patalinghug told the BusinessMirror.
Going bananas
FORMER dean of the School of Labor and Industrial Relations (Solair) Rene E. Ofreneo shared Patalinghug’s view, saying that among electronic exports and imports, the top product are semiconductors, particularly microchips, which can easily be transported.
“Pwede kasing isakay sa maleta [This can be transported through your luggage],” Ofreneo explained to the BusinessMirror.
Based on the January data, semiconductors accounted for 43.2 percent of total exports. This amounted to $2.37 billion in 2021, a 4.4-percent decline from the $2.48 billion posted in the January 2020.
Ofreneo said it is reasonable to expect exports of goods shipped in bulk, such as bananas, to sag.
To note, the country’s banana exports in January plunged 51 percent to 186,419.019 metric tons (MT), from last year’s 384,151.173 MT. PSA data earlier analyzed by the BusinessMirror showed that the latest figure is the steepest decline in January banana shipments since 2006.
Ofreneo added that bulky auto parts and electronics assemblies may also be affected by the logistics nightmare.
Exports of other electronic products such as electronic data processing amounted to $557.66 million while automotive electronics amounted to $8.06 million in January 2021 based on the PSA’s report. While electronic data processing saw a 24.4-percent growth in January, automotive electronics suffered a 61.6-percent decline value.
Issued order
TO ease the cargo traffic, the SCMAP said government agencies should still implement the measures they placed in response last year.
“We also call for the continued enforcement of the Joint Administrative Order (JAO) issued by various government agencies at the beginning of the pandemic to facilitate movement of cargo from Manila’s ports,” Curay told the BusinessMirror.
The Department of Trade and Industry (DTI), along with several agencies, agreed to release an order in April last year to decongest the ports of Manila to allow inbound shipments of food, medicine and personal protective equipment. These government agencies include Philippine Ports Authority (PPA), the Bureau of Customs, the Department of Finance and the Department of Agriculture (DA).
Prior to this, the Inter-Agency Task Force (IATF) for the Management of Emerging Infectious Diseases had instructed the PPA to remove the overstaying containers in the ports to make way for incoming cargo containing essential goods.
Under the JAO, all cargo remaining beyond 30 days from discharge should be withdrawn within five days from the effectivity date of the order. Containers scheduled to arrive after the issuance of order are required to be withdrawn 10 days from discharge.
The JAO also expedites customs clearance and streamline the process of applying for import permits and clearances online.
“While these issues are out of our control due to its global nature, we believe our local authorities can help reduce its impact,” Curay added. “The PPA and the Marina [Maritime Industry Authority] must continue efforts to ensure sufficient capacity in ports across the country, as well as improved efficiency.”
Needs slowdown
THE shipment delays may potentially cut the country’s export revenues this year.
“Definitely, the lockdown will affect our export target this year,” De La Salle University (DLSU) Economist Maria Ella C. Oplas told the BusinessMirror.
According to the DTI, the goods and services exports were expected to drop by 14.7 percent to $80.5 billion in 2020 before growing by 12.4 percent to $90.5 billion this year.
Figures are anticipated to further rise by 14.8 percent to $103.9 billion in 2022, lower than the earlier target of $130 billion as the pandemic severely impacted business activities.
Oplas said shipment delays have affected the whole value chain. In addition, she noted that manufacturing companies may need to slow down production because employees cannot come to work, which meant fewer goods to be shipped out as well.
“It’s a domino effect on them,” she said.
On the demand side, the DLSU economist pointed out that orders from abroad could have been fewer as well, as company-clients potentially scaled down their operations, or worse, were forced to shutter.
Philexport’s Leong noted that shipment delays could also explain the lower export revenues because the earnings will not be reflected immediately.
Added bottlenecks
FOR the semiconductor sector, a major contributor to the Philippines’s export industry, shipment delays usually take weeks.
Semiconductor and Electronics Industries in the Philippines Foundation Inc. (Seipi) President Danilo C. Lachica told the BusinessMirror the industry’s supply chain has been disrupted with the implementation of lockdowns.
Lachica noted that the reduced flights and ships have been causing bottleneck to the shipments of semiconductor players.
But Seipi is not worried about not meeting the 7-percent growth forecast for this year. Lachica said the Seipi has factored in this forecast.
Data from Seipi shows that electronics accounted for 65 percent of the total Philippine exports in January. Exports for the segment inched up by 1.48 percent to $3.55 billion in the first month of 2021 from $3.50 billion year-on-year, supported by growth in four sectors.
Medical and/or industrial instrumentation led the sector with 84.31-percent growth to $22.99 million for the period. Consumer electronics, electronic data processing and control and instrumentation, grew by 28.2 percent, 24.38 percent and 8.89 percent, respectively.
Meanwhile, automotive electronics declined by 61.64 percent; telecommunication, 27.24 percent; office equipment, 4.59 percent; components or devices, 4.37 percent; and, communication or radar, 3.47 percent.
Last year, total electronic exports dropped by 8.8 percent to $39.67 billion from $43.39 billion.
The top destinations for Philippine electronics exports are China, Hong Kong, Japan, Singapore and the United States of America.
Earlier, Trade Secretary Ramon M. Lopez said electronic exports were expected to register further growth this year with the opening of more economies.
Temp checks
THE government recently extended the enhanced community quarantine (ECQ) measure in the National Capital Region (NCR), Cavite, Rizal, Laguna and Bulacan for another week or until April 11 amid surging Covid-19 cases.
While Seipi understands the rationale behind the move, Lachica said allowing full occupancy of shuttle buses that follow the health protocols for the electronics sector would be a big help.
“For electronics, allowing 100-percent occupancy for shuttle buses with plastic partitions would help relieve the mounting costs,” he explained.
Lachica said the infections do not spread in such “clean shuttles,” even during an upsurge of cases, because Covid-19 protocols are strictly enforced.
He noted the passengers wear face masks and face shields and are not allowed to talk, eat or make phone calls. There are also disinfection and temperature checks, among others, as safety measures.
“The pandemic affects the volume of exports and imports. Since our exports are import-dependent, our net exports—exports less imports—will be down. On the other hand, an import declining more than export declining means we have net dollar inflow and is good for our balance of payments,” Patalinghug explained.
“Less trade volume, less shipping activities mean less port congestion. Less port congestion means less logistics problems—there is excess capacity for logistics given less goods to move to and from destinations and/or origins,” he added.
Impacts OFWs
HOWEVER, despite the numbers, Patalinghug said the Philippines is still not an export-oriented economy. This means that the country’s recovery from the recession will not depend on trade but on consumption.
Patalinghug said remittances from overseas Filipino workers (OFWs) and revenues from business process outsourcing (BPO) matter more to the recovery. He noted that despite the mobility restrictions and economies going into recession, earnings of these sectors did not decline that much. As such, he said these can fuel domestic consumption, which represents 72 percent of gross domestic product in Luzon, determining the pace of the recovery.
One caveat, Ofreneo said, is that global trade also affects OFWs. Many global shipping and logistics firms employ Filipino seafarers. The perfect storm in global trade, Ofreneo said, would add to the existing challenge of the shipping and logistics industries to automate and even use artificial intelligence (AI) in the hope of making their operations more efficient.
“The only thing I know re shipping and logistics is the adverse impact on our seafarers who are working in this sector. For example, Maersk, maraming [there are a lot of] Pinoy. Jobs falling due to global recession. Also there is the trend towards leaner and leaner ship cargo operations, facilitated by AI,” Ofreneo said.
Vegetables, rice
IN terms of food security, Patalinghug believes that rice and vegetables are still in adequate supply in the country. While the African Swine Fever (ASF) continues to ravage hog farms nationwide, there are pork substitutes such as poultry and fish that can be consumed by Filipinos.
He added that the recent move by the agriculture department to recommend a higher minimum access volume (MAV) quota for pork imports will help address the shortage from domestic pork suppliers. This shortage has been blamed for the surge in pork prices.
The PSA said the price of pork in the National Capital Region (NCR) averaged P329 per kilo in March, a 59-percent increase from the P207 per kilo recorded in March last year. Compared to February, when the price of pork averaged P323 per kilo, the increase was slower at 1.8 percent.
In Areas Outside NCR (AONCR), pork prices averaged P312 per kilo in March, a 50-percent increase from the P208 per kilo in the same period last year. However, compared to February, there was a 1.6-percent decline in pork prices. The average price of a kilo of pork in these areas was pegged at P317.
Easing situation
“IN short, there is no probability of a food shortage—unless there is a food riot due to fake information in the social media, but this possibility is remote,” Patalinghug, nonetheless, told the BusinessMirror in April.
He cited the “maximum” inflation target of the Bangko Sentral ng Pilipinas (BSP) at “only 4 percent.”
Last week, monetary authorities slashed the central bank’s average inflation forecast for this year from 4.2 percent to 3.9 percent.
Prior to this, Patalinghug said: “Let’s see if they can hit this target [4 percent].
“Reaching 10 percent—double digit—from 4.7 percent for this year is less of a possibility, unless there is a food shortage—an unlikely scenario,” he added
Ofreneo added that a food shortage may not be possible given the high availability of food imports in markets nationwide, particularly rice, pork and chicken.
To find a more sustainable solution, he said there is a need to increase support for local producers. This support should help them and their products better compete with imported goods that are currently available in the market.
Patalinghug believes the government has sufficient tools to address any shipping and logistics problem. However, he emphasized, “there are no shipping and logistics problems at present.”
Should a shipping or logistics problem arise, Patalinghug said the completion of Harbor Link Road and Skyway Stage 3 will ease the situation.
“[This] despite the inefficiency of the DOTr [Department of Transportation] top leadership, particularly its clueless Secretary,” Ofreneo said.
“If the government gets the competence to learn how to manage well the pandemic problem, then the economy will be on the trajectory to growth, even without active government intervention in terms of fiscal and monetary policy,” he added. “Certainty, instead of fear due to the virus, and macroeconomic stability are the prerequisites for recovery.”