THE Philippines has the most expensive logistics cost among four Southeast Asian competitors, mostly caused by the country’s archipelagic feature and reliability issues on the industry.
In a study by the Department of Trade and Industry (DTI) and the World Bank, titled “An Assessment of Logistics Performance of Manufacturing Firms in the Philippines,” it was reported the Philippines has the highest logistics cost compared to Indonesia, Vietnam and Thailand.
Philippine firms were found to spend 27.16 percent of their total sales on logistics services. This is higher than that of Indonesia at 21.4 percent, Vietnam at 16.3 percent
and Thailand at 11.11 percent.
“A similarity between Indonesia and the Philippines is their geographic structure, which is most likely contributing to the high logistics cost. On another note, the high transport and inventory costs, likewise, reflect the unreliability of the logistics system in the Philippines,” the study read.
Most of logistics allocation of Philippine firms were spent on inventory carrying, followed by transport, warehousing and logistics administration.
The study also claimed firms operating in higher-value sectors have less costs than in lower-value sectors, including food, chemical products, and textile and garments. “As compared with Indonesia, Vietnam and Thailand, the Philippines has higher logistics cost in the following sectors: chemical, textile and garments and electronics,” it read.
“Likewise, the country faces relatively high logistics cost over sales in the food sector, as it is expensive to transport food products within the Philippines given its archipelagic structure,” the study also claimed.
Further, the report said logistics performance differs by island group based on order cycle time, transport lead time and cash conversion cycle. The average order cycle time accounts for the time the responding firm receives or takes an order until the item is delivered to the customer.
On the other hand, the transport lead time focuses on the actual physical transport from the responding firm to the customer.
The study pointed to the Visayas as having the lower levels of performance, and stakeholders attributed this finding to the geographical nature of the region, with a more complicated interisland shipping used in the carrying of freight. “This finding also underscores the critical issue confronting smaller islands that have limited connectivity to main economic locations within the country,” the study read.
Cash conversion cycle in Mindanao is shortest at almost two weeks, while the Visayas has a cash cycle of almost one month. This translates to a higher financial burden for Visayas-based firms compared to those in Mindanao.
By way of redressing the problems, the study urged the government to focus on eliminating uncertainties to establish a more reliable logistics system in the Philippines. “Improving reliability will create an established and dependable environment where local manufacturers and logistics service providers can plan and design more efficient logistics systems,” it concluded.
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