Prolonged arrival, costlier goods: A ‘new normal’ of PHL logistics and supply chain

Cargo trucks queue up to get deliveries at Manila’s port in this April 3, 2020, file photo.

LOOK northwest. That’s where the future of the world’s and the country’s logistics and supply chain lies post-pandemic.

That is what a former Dean of the University of the Philippines School of Labor and Industrial Relations (Solair) told the BusinessMirror.

Rene E. Ofreneo pointed out that Hong Kong-based logistics giant Li & Fung Ltd. could be the poster boy of the “new normal” of the world’s supply chain.

“[Before the pandemic] even the postal-parcel-courier industry was being taken over, while industrial outsourcing management under ‘Factory Asia’ [global value chain] was falling under the control of these logistics integrators,” Ofreneo said. “Hence, business management, mainly chain management, was from trading to production and distribution.”

According to the economist and former dean, such was “essentially the work of the giant Li & Fung.”

As far as Ofreneo knew, Li & Fung suffered under Covid “obviously due to the difficulty of maintaining global and/or regional chain management under the pandemic.”

In its announcement of 2019 financial results, the logistics solutions provider said its core operating profit “decreased by 22.9 percent to $228 million.”

“This was largely due to reductions in turnover and margin pressure in the supply chain solutions business. Turnover decreased by 10.1 percent to $11.4 billion due to continued destocking by customers, store closures and customer bankruptcies, as well as the company exiting a number of higher-risk and non-strategic customers.”

The downfall of Li & Fung seems to be the whole picture of the current situation of the world’s supply chain and logistics, which has been stretched beyond its limit due to complications brought about by the pandemic.

It’s not.

It is just a pigment of a collage of frailty and near collapse that extends up to the pockets of Filipino consumers.

INDUSTRY players told the BusinessMirror that the new normal for logistics and supply chain for the Philippines is this: prolonged arrivals and more expensive goods.

The arrival of shipments to the Philippines from Western countries has been extended by 30 days to 60 days; some taking longer by nearly three months. The reason: lack of containers and vessels as a result of Covid-19-related consequences, such as mobility restrictions and personnel debilitated by the virus, among others.

“If you are importing from Europe, do not plan for a 30-day arrival; it is already between 60 and 90 days. And that is our new reality,” Royal Cargo Inc. COO Jet B. Ambalada told the BusinessMirror.

Because of this, Ambalada pointed out it is now imperative for companies, particularly manufacturers who are dependent on imports for their raw materials, to have bigger inventory levels.

Ambalada pointed to the country’s frozen pork inventory, which has skyrocketed to record-highs of beyond 80,000 metric ton (MT) levels. Such volume would have been surprising if there were no mobility restrictions.

But this volume, according to Ambalada, is the ideal level of inventory to ensure the country’s two-month pork supply.

“The supply chains have been disrupted and we have to keep extra inventory levels,” he told the BusinessMirror. “Besides, we have to secure our own supply chain and we must spread the availability of food supply.”

End result

IF there is one thing vulnerable to the current global supply chain crisis and to future shocks, it’s the country’s food supply.

“It is really affecting the supply of our imported food products and ingredients. All these supply chain problems—from lack of container to vessel positioning and port activities—contribute to the aberration,” Cold Chain Association of the Philippines President Anthony S. Dizon told the BusinessMirror.

“The end result is that the food industry must plant accordingly due to the impact of the shipping problems,” Dizon added.

He concurs with Ambalada’s view that the “new normal” includes having a higher inventory of goods to cover the gaps and lapses in the supply chain, which he pointed out has, in turn, an impact on the country’s cold-storage capacity.

Dizon also noted that this is the right time for the government and even companies to rethink their raw material supply chain given the constraints faced by imports today.

“Part of the current thinking now is that we should try to create a start of a directional shift toward food sufficiency especially if imports are choked by these current logistical problems,” he told the BusinessMirror.

Costlier goods

AMBALADA emphasized that the rise in freight costs will not decelerate or stop anytime soon. And what this means for Filipino consumers is that goods could be more expensive than ever, since costs incurred by importers are usually passed on to the retail level, particularly for consumer goods or items that are in a cost-plus value chain.

“Shipping costs have gone wild. The cost of shipping one twenty-foot equivalent unit (TEU) container to the West Coast of the United States is $10,000,” he said.

The BusinessMirror has been publishing series of stories about the impact of the global supply chain and shipping problems to the country’s economy and food security.

Earlier, the BusinessMirror reported that higher freight costs have derailed export deliveries due to untenable shipping rates while importers are forced to spend more just to ensure that their goods will arrive in the country.

One of the problems the Philippines faces in terms of shipping is that it is not considered as a major port or transshipment point in the world. Due to this, the Philippines relies heavily on charter freights that pass through other transshipment points like Vietnam and China, leaving it vulnerable to more challenges and shocks that may arise from the concerned transshipment ports.

Tight market

EARLIER, University of the Philippines Professor Emeritus Epictetus E. Patalinghug explained to the BusinessMirror that the logistics industry is currently plagued by a shortage of shipping crew.

Patalinghug said many of these crew members are residing in countries with limited vaccines such as the Ukraine, Greece, Indonesia, Panama and, of course, the Philippines.

The difficulties in global trade have slowed down the pace of recovery of many economies.

Philippine Exporters Confederation Inc. (Philexport) President Sergio Ortiz-Luis has told the BusinessMirror that local exporters are feeling the crunch.

An exporter of marine products based in the Visayas has been quoted in a PhilExport statement as lamenting the shortage of available space aboard container vessels for Philippine cargoes bound for the US market.

The exporter said Philippine cargoes are at a big disadvantage: either these are “not getting priority” or being “shut out/bumped off from whatever available space.” Meanwhile, freight costs have soared because of the tight market.

What is sad, the exporter added, is there is now market demand, especially for food and furniture and other products since major markets have reopened, “but we are still constrained by supply chain and logistics issues.”

Optimistic performance

THE challenges brought about by the Covid-19 pandemic are evident in the government’s official external performance trade data.

The July 2021 data on the country’s external trade performance shows slowing growth of the country’s exports and imports after recovering from the deep plunge that occurred in the second quarter last year.

Exports this year peaked at a growth of 74.1 percent in April, but this has since slowed to a growth of 12.7 percent in July. Imports, meanwhile, peaked at a growth of 153.1 percent in April and slowed to around 24 percent in July.

The latest data from the Philippine Statistics Authority (PSA) also showed the average growth of exports was pegged at 19.7 percent, while imports was at 30.2 percent between January and July this year.

“Export growth should remain in the positive territory for the rest of the year, although unlikely to reach a double-digit pace again,” First Metro Investment Corp.-University of Asia and the Pacific (FMIC-UA&P) Capital Markets said.

Nonetheless, hope springs eternal. The local think tank said even if exports growth has been slowing, the growth remained in double digits, which is a good sign.

The think tank said the country’s external trade performance is expected to boost the economy. They said exports have kept their double-digit growth at 12.6 percent in July.

Marching forward

THE Covid-19 pandemic made the world stop—figuratively and literally.

After the Duterte government restricted mobility in March last year, trucks carrying goods from the North to the capital lined highways as if in a religious procession.

Shelves inside humongous supermarkets were emptied as consumers hoarded canned goods and tissue papers.

More than a year and a half later, the long queues of trucks are now absent and shelves now filled with goods.

But as Antoine de Saint-Exupéry has written, what is essential is invisible to the eyes.

Indeed, the ills plaguing the world’s logistics and supply chain network—the invisible hand that brings food from farms to the table—provide ominous difficulties to the Philippines’s own sector and food requirements.

Images courtesy of Bernard Testa and Oana Ungureanu |
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