Industry roadmaps for the cold chain and e-commerce sectors are poised to boost Philippine supply chain in the coming years
Written by Henrik Batallones
The past year has been a particularly challenging time for the supply chain sector. Apart from the obvious constraints caused by the COVID-19 pandemic, more long-term trends see it adapt to new demands from both businesses and customers, so it can still serve and provide value to both.
While the private sector has managed to usher in these changes on its own, we all know that the public sector plays a key role in fostering an environment that enables these enterprises to thrive. Under the right conditions, stakeholders can pursue new technologies and refine its processes that can improve service levels. Innovative approaches can also come from such environments.
In past years the public and private sectors have worked side by side to identify key concerns and craft programs and interventions to ensure Philippine supply chain can continue to grow. In 2020—despite the pandemic virtually putting the economy on hold—two industry roadmaps were launched. One centers on the growing online economy, recognizing its role in opening new markets to businesses big and small. The other focuses on the cold chain sector, which has long helped ensure food security and safety. Both sectors’ growth ensures the future competitiveness of all of Philippine supply chain.
Philippine Cold Chain Roadmap: Driving food safety and security
The cold chain sector may be top of mind in the past few months as the Philippines bids to move past the COVID-19 pandemic, but it has long played a role in facilitating economic growth for the country and ensuring quality of life for Filipinos, as a critical player in the agricultural and food industries.
The sector – which covers warehousing, transport and integrated logistics services – has long been crucial in ensuring food safety and security, delivering products from farms, growers and manufacturers here and abroad to supermarkets, restaurants and homes. The Board of Investments notes that food spending, which comprises 57% of the country’s gross national income in 2019, is a key driver of cold storage. The Cold Chain Association of the Philippines estimates that the country has cold storage capacity for around 400,000 tons of goods. Most of these facilities are operated by meat and fish processors, agriculture producers, and retailers, apart from logistics providers.
Industry estimates also show that the sector’s growth is expected to continue, buoyed by the continued expansion of the retail sector. The pandemic may have impacted restaurants thanks to restrictions on dining activities, but the shirt towards take-out and delivery has ensured these establishments continue to require cold storage services. There is also a noted increase in demand for frozen food due to safety concerns, particularly as consumers avoid wet markets. The pandemic has also seen a new demand for temperature-controlled storage for pharmaceutical products.
Despite these, the cold chain sector sees challenges preventing it from meeting the demands for its services. In the main, the sector requires high levels of investment. A cold chain operation requires specialized facilities, equipment and transport. Energy costs in the country is high compared to our neighbors in the ASEAN, which also deters investment. And then there are other familiar constraints, like underdeveloped transport infrastructure, lack of qualified personnel to run these facilities, and the seasonality of demand.
Yet, stakeholders from the public and private sectors see potential in the cold chain sector. In December 2020, they launched the Philippine Cold Chain Industry Roadmap, indicating strategies to spur demand for cold chain services and to facilitate its growth. In the short term, the industry aims to see annual growth of 10% to 15%, roughly equal to 50,000 pallets per year. In the long run, its goal is to ensure the position of the cold chain sector as the country navigates its way through the so-called “new normal”, particularly with the emergence of greener technologies, new agricultural trends and a steady rise in demand for healthier eating and farm-to-fork dining.
The roadmap has set a five-point agenda to ensure this:
Encourage investment in cold chain facilities, particularly in areas underserved by the sector. While the sector has a presence in all regions of the Philippines, it is important to boost this presence to ensure food security, particularly during calamities, and to prevent food wastage. Plans include identifying suitable sites for such facilities and incentives including a reduction in real estate tax.
Encourage investment in cold chain logistics services. This includes developing transport and telecommunications infrastructure, especially in far-flung areas. Local government units are also expected to coordinate with stakeholders in ensuring harmonized traffic regulations to facilitate movement of goods, which should result in a decrease in logistics costs.
Enhance demand for cold chain services. Seasonality is an issue for the sector, with some facilities being in full capacity during peak months and virtually empty in others. With food spending expected to grow – particularly as consumer confidence creeps back up to pre-pandemic levels – stakeholders are encouraged to proactively collaborate to increase food supply, schedule production and balance imports to ensure a more even spread of volume and a reduction in lean months. Programs such as the Department of Agriculture’s “Plant Plant Plant” would add to the demand, as oversupply of some cash crops would lead to a need for storage for these items.
Promote food safety. A particular challenge is the misconception surrounding frozen food, with some consumers still preferring “fresh” meats as they are seen to be newer than frozen items. Plans for food safety education programs should address these issues and, ultimately, further drive up demand for cold chain services.
Improve policies and regulations governing the sector. These include taxes at the national and local levels, traffic ordinances and other regulations that impact the establishment and operation of cold chain facilities in a particular locality.
To oversee the roadmap, a National Cold Chain Committee will be established, to be led by the Department of Agriculture, the Board of Investments and the Cold Chain Association of the Philippines, which will oversee the implementation of these plans in the short term and ensure continuity on a provincial and regional level. SCMAP is part of this committee, working with the technical working group on cold chain logistics.
E-Commerce Philippines 2022: Opening up new markets for business
First, some numbers. The Philippines’ “Internet economy” is valued at USD 7.5 billion, according to Google, Temasek and Bain & Company’s e-Conomy SEA 2020 report, and it is expected to rise to USD 28 billion by 2025. The latest We Are Social report estimates the country has 73 million Internet users (out of over 108 million people) who are online an average of ten hours a day.
Yet there is still a lot of room for growth. The Bangko Sentral ng Pilipinas estimates that the Filipino spends an average of USD 21.70 online, compared to USD 142 for Indonesians, USD 136 for Thais and USD 58 for the Vietnamese. One need only look at how e-commerce was embraced enthusiastically in light of COVID-19 restrictions to see how many opportunities remain.
The timing of the Department of Trade and Industry’s new e-commerce roadmap—updating the one originally released in 2016—is fortuitous. The new plan seeks to better understand the ever-changing e-commerce ecosystem, including businesses, platforms, service providers and government agencies responsible for its oversight. It also seeks to update the criteria through which our progress is measured. By the end of 2021, e-commerce’s share to the overall economy is expected to be at 4.3%, or roughly PHP 850 billion. It is also hoped that by then, there are 750,000 e-commerce enterprises.
Considering the all-encompassing scope of e-commerce—which, for this roadmap, is not limited to online shopping, but covers all transactions done through the Internet—the roadmap has 22 agenda points, which we will summarize into three general areas of performance:
Speed. A strong digital economy requires, above all, robust, reliable and affordable Internet networks for everyone. This means the implementation of the country’s National Broadband Plan (although we believe its goal of a minimum of 20mbps Internet speed across the country needs updating) and other initiatives to improve connectivity.
On a micro level, speed also means timely delivery of products and services, which requires investment in both transport and digital infrastructure, and updates to current regulations governing movement of goods. On the former, there are plans to develop an e-commerce logistics infrastructure and investment convergence program. On the latter, there are plans to update Customs policies and procedures to account for e-commerce transactions; improve processes surrounding e-invoicing (covered by the recently passed TRAIN Law) and consumer and merchant protection; and implement the BSP’s Digital Payments Transformation Roadmap, which aims to grow use of digital payment systems and cover the 70% of Filipinos who do not have a bank account.
Worth watching closely are plans to modernize the Philippine Postal Corporation, turning it into a major player in e-commerce. Online sellers would tell you the postal system is still the best (and most affordable) way to send products to customers around the world, and its reach is still wider compared to most logistics providers.
Security. To raise confidence in e-commerce, measures must be put in place to protect consumers and businesses from unscrupulous actors. An important pillar is the proposed Internet Transactions Act, which aims to “ensure an effective regulation of commercial activities through the Internet” through regulations that cover both domestic and international players (think of Netflix, Amazon and the like).
Among others, the law calls for the establishment of an E-Commerce Bureau to address customer complaints and build resources and capacity; as well as the creation of an “E-Commerce Philippines Trustmark” assuring customers of its safety and trustworthiness. The House of Representatives passed the bill in late 2020, with the Senate still holding deliberations.
Structure. Perhaps the biggest challenge for e-commerce in the country is the establishment of systems and policy that will enable the sector and encourage its growth. For the government, this means ensuring its processes are also able to keep up with the demands of the growing digital economy. This means formulating a policy agenda covering e-commerce interests, the promotion of e-government initiatives, and enhancing cross-border cooperation with trading partners across the globe. Critically, this also means formulating regulations that enable the “gig economy”, the new model that powers e-commerce players such as Grab, Lalamove and Foodpanda.
For the private sector, this means boosting its capacity and capability to handle the expected growth of e-commerce transactions. This means development of skills and workers to support the growing sector, as well as the updating and revising of relevant statistics to monitor the roadmap’s progress and respond to stakeholders’ evolving needs.
And these needs are indeed evolving. As the Philippines continues to face COVID-19, which has made necessary for businesses to embrace the digital economy, the playing field continues to shift. Perhaps the biggest challenge for all e-commerce stakeholders is to be agile and ready to respond at a moment’s notice, especially in a world where demands and preferences can change in a snap.