The latest Logistics Efficiency Indicators survey suggests some progress in tackling the country’s supply chain issues—and how much more is to be done
Written by Henrik Batallones
Part of the Philippine government’s efforts to address issues affecting the country’s logistics sector is the monitoring of key indicators pertaining to how stakeholders believe our supply chains are performing. This led to the introduction of the first Logistics Efficiency Indicators survey in 2017, which gathered feedback from manufacturers, exporters and logistics providers and painted the first clear picture of the overall health of our supply chains.
Put together with the help of the World Bank, the survey is similar to the organization’s biennial Logistics Performance Index survey, but with one key difference: while that survey assesses the health of a country’s supply chain networks through the perspective of outsiders, the LEI provides the perspective of domestic users. It provides the nuances of how supply chains differ depending on which industry one is part of, or which region of the country one is in. Read together, it provides a better idea of the issues needing urgent attention, particularly through policy and regulatory intervention.
The second LEI survey was released earlier in 2022, with data gathered at the height of the COVID-19 pandemic. Apart from showing a snapshot of the health of the Philippines’ supply chain networks, and checking on the progress of initiatives designed to address concerns that were raised in the first survey, it also illustrates a shift in priorities among stakeholders that emerged as the disease disrupted the global economy.
Two key takeaways
The 2022 LEI is borne out of two surveys. The first, conducted by STRAND Asia on behalf of DTI in early 2021, focuses on the logistics practices of manufacturers, exporters and other businesses, and their impact on total logistics costs. 300 respondents were surveyed through phone and online interviews, with almost half of them considered as small enterprises, and the bulk being based in CALABARZON. The second, conducted by the UP Public Administration Research and Extension Services Foundation on behalf of the DTI in early 2022, focuses primarily on logistics service providers, and particularly on the issues that they believe must be addressed to allow them to better serve their customers.
An important takeaway in the business survey is a slight reduction in logistics cost as percentage of total sales: from 27.16% in 2017—higher compared to other ASEAN countries with similar surveys—to 25.5% in 2020. This is led by a reduction in transport and cargo handling costs, from 10.7% in 2017 to 7.6% in 2020. However, it is worth noting that transport costs still constitute the largest share of logistics costs for businesses outside of Metro Manila, as well as for MSMEs; larger companies tend to have higher inventory carrying costs.
Another important takeaway reflected in the logistics providers’ survey is the shift in what customers consider to be the most important indicator of logistics performance. In the 2017 survey, respondents were evenly split between cost (38%) and reliability (37%) as most important, with 25% choosing speed. In 2022, reliability of deliveries is now deemed most important by 77.5% of respondents, with 16.7% choosing speed, and just 5.8% choosing cost.
These key results reflect both the initial progress made by the public and private sectors in addressing logistics costs, as well as the disruption caused by COVID-19 in our domestic and international supply chains. While the reduction in logistics costs may be minimal, it is worth noting that it also reflects the increased costs that businesses encountered in the early days of the pandemic, particularly as capacities were diminished by enforced reduction in business activities and restrictions in movement. One can assume that a larger reduction in logistics costs would have been reflected in the recent survey had the pandemic not happened.
In the years since the first LEI, the government has intensified its investment in infrastructure, with new road projects being developed, and a strengthened focus on seaports and airports. Indeed, logistics providers have indicated on the survey that the quality of roads and ports, as well as increasingly important telecommunications networks, has improved. This also reflects on the general decrease in transport and cargo handling costs; however, the complexity of inter-island supply chains mean this remains the highest share of costs for businesses outside Metro Manila.
There were also some improvements in certain key performance indicators as indicated in the business survey, such as an average of 87.95% of deliveries made in full on time, and a reduction in damage rates (2.22%) and return rates (3.07%). In any case, we anticipate that as more of these projects go online in the coming years, the quality of logistics services will continue to increase, and inversely, costs will decrease.
Long-term challenges
Despite the improvements between the two surveys, our supply chains remain less than perfect. Logistics providers still list several problems that prevent them from better serving their customers. Congestion—both in roads, and in ports—remains the most significant problem, cited by 15.4% of respondents, followed by issues stemming from COVID-19 restrictions, delays in receiving cargo, and delays in customs processes. Some cite specific measures introduced to facilitate the flow of goods, such as the Terminal Appointment Booking System (TABS) or the E2M system introduced by the Bureau of Customs. Some cite ongoing traffic regulations such as truck bans and number coding as an issue.
Congestion has been a perennial thorn in the side of our supply chains, and while new infrastructure projects can go some way to alleviate this problem, a whole-of-society approach must be done to understand the causes of congestion, and address them. Policies should appreciate the right to movement of people, while also recognizing that movement of goods is essential to maintaining quality of life, and therefore must also not be impeded. The development of alternative means of transport for both people and goods—the development of public transport options and the exploration of modes such as rail for cargo—should be pursued.
But perhaps the most significant issue is in the perceived lack of logistics personnel. This has been a problem even before the pandemic limited the number of people allowed to work on-site at a given time. In particular, logistics providers cite a continuing need for truck drivers, the number of which has steadily declined due to their inability to complete trips—and thus earn money—due to congestion and other issues. Businesses also think truck drivers are the most important logistics staff in the country, further stressing the need to develop this sector as a key plank in our domestic supply chains.
Also striking is the vast majority of businesses surveyed still not having a documented logistics plan. Almost 70% of the 300 companies surveyed admit not having such a plan, mostly smaller companies. While efforts have been made in recent years to further awareness of the importance of supply chain expertise in ensuring an enterprise’s competitiveness—a point driven home by the problems encountered since the pandemic—it seems more has to be done to reach smaller businesses, and to have them appreciate the significance of supply chain in their operations.
Perhaps a major challenge here is to remove the impression that supply chain management is just the domain of large companies with the resources to implement plans and strategies around it. The approach here is two-prong. The first is to continue educating businesses in the importance of implementing a logistics plan, and possibly providing assistance to these businesses in formulating one. Fortunately, access to logistics software and technology is slowly being democratized, making it easier for small businesses to invest in even the most basic of set-ups, allowing them greater visibility of all elements of their supply chain, and greater appreciation of what needs to be done to improve their service.
The second is to widen access to supply chain education for those who want to pursue a career in the industry. In recent years, training and education options have broadened, whether it be in formal academic institutions, professional development programs, or vocational skills development schemes. Initiatives such as the recently introduced Philippine Skills Framework should contribute to addressing the shortage of certain logistics personnel—but this should also go in tandem with policy and regulatory interventions that would address the logistics sectors’ many historical bottlenecks, and make a logistics career viable and rewarding for frontliners in particular.
The last couple of years has highlighted the importance of competitive supply chains in ensuring strong businesses and a liveable society—and that while we have strides in addressing supply chain issues, we have to address emerging challenges as the sector continues to evolve. One hopes that the next edition of the Logistics Efficiency Indicators shows a more substantial involvement, proof that our supply chain sector is truly fulfilling its role as a key driver of our economy.