Recent events reminded us of how the Philippines is vulnerable to oil price shocks. Can we ever retool our supply chains to reduce our reliance on fossil fuels, if not remove them entirely?
Written by Henrik Batallones
There’s a good chance that supply chain managers based in the Philippines—or, indeed, any other country who imports most, if not all, of their oil and petroleum—would always keep a wary eye on developments in the Middle East. Any sign of tension in the region—or, indeed, any sign of tension involving an oil-producing country—would almost always mean an astronomical rise in oil pump prices.
Take a few months back, when Israel launched missile attacks on several sites in Iran. Many feared it was an escalation—coming after years of atrocities in Gaza, and limited strikes in southern Lebanon—that could be the proverbial straw that breaks the camel’s back, leading to all-out conflict in the region. And for a moment, things seemed headed in that direction, with Iran-backed Houthi rebels intensifying attacks on ships passing through the Red Sea.
The loss of life is, of course, devastating, but the impact goes further beyond the Middle East. The conflict brought about uncertainty in the market and a sudden upwards jolt in oil prices, which eventually affected countries far away from the conflict. Here in the Philippines, for instance, pump prices went up by an average of PHP 5 per liter—a huge, sudden strain on drivers of all sorts, from those who drive to work, to those who drive for a living, whether they be jeepneys or trucks. The impact on lives far away from the conflict—those who struggle to make ends meet, or at least buy their daily provisions—cannot be disregarded, as well.
The Philippine government tried to soften the blow by asking oil retailers to stagger the increase across the week instead of going for a huge one-time hike. Nevertheless, there were still calls from groups for further intervention. Some called for the suspension of the imposition of either the value-added tax or the excise tax—or both—on oil products, something that the government would clearly be uncomfortable with as it is a key source of its revenue. Some also called for the scrapping of the Oil Deregulation Law and return to a time when pump prices were subsidized (but new players could not enter the market). Of course, legislation does not happen overnight, and especially not when the legislature was (then) in recess.
It also became clear that the rise in oil prices do not just impact those who travel. I remember several media outlets knocking on our door, asking us to explain to their audience how a continued price hike would eventually impact the cost of goods. To put it simply, delivering products to the store requires transportation—and that is very much exposed to fluctuations in oil prices. Any short-term increases are usually factored in by manufacturers and logistics planners through annual plans and service reviews, but a longer-term trend would force everyone to revisit their terms—and this could mean higher prices even for basic commodities, which even the government may not be able to control.
Considering both our awareness of this, and the impact of the continued use of fossil fuels on our climate and the environment, it is perhaps worth asking: can our supply chains truly escape the crutches of oil? The reasons for doing so are simple: it would lead to more price stability, and it would be better for the planet—although, for the purposes of this piece, I will be focusing mostly on cost considerations. The answers, of course, are complex, but encouragingly, at this point in time, it’s not a straight-out “that’s impossible” or “it’s difficult”. There are more options, but that also means more things to consider.
First, we have to acknowledge that it would be difficult for our supply chains to be truly disentangled from oil. We don’t just use it for transportation, but also for our day-to-day operations. 2023 figures from the Department of Energy puts oil as the second largest source of our total energy supply, at 30.1%. (Coal, another fossil fuel, is our top contributor, at 34.6%; renewable sources such as hydroelectric, solar and wind sit at a combined 32.6%.) That means a segment of our electricity requirements—especially in parts of the country that are served by oil power plants—are still volatile to price shocks as we have seen in recent months.
However, reducing our reliance on oil for our daily electricity supply is mostly out of our hands. This would be mostly down to the government, who should make it a policy to prioritize renewable energy sources, and more importantly, facilitate the transition away from fossil fuels in our power grid. The need for this is pertinent especially in areas that have seen regular power outages, like we have seen in Panay, Negros and Siquijor in recent years. Manufacturers and logistics providers can, however, supplement their electricity requirements through the installation of solar panels and wind turbines within their facilities, which should go some way in reducing costs.
Where we supply chain managers have greater control, however, is in transportation. With logistics costs amounting to roughly 25% of our total sales cost, there is a lot of room for improvement.
While answers on this front would mostly revolve around reducing congestion and developing infrastructure, a new front recently opened, with the increasing viability of electric vehicles both for personal mobility and for our supply chains. Recent years have seen a surge in EVs, thanks in part to the enactment of the Electric Vehicle Industry Development Act in 2022, which aims not just to encourage the purchase of such vehicles, but also to develop charging infrastructure and, one hopes, a homegrown EV manufacturing industry. That may seem like a pipe dream at this point, as the vast majority of our EVs have come from China, a country with a mature and robust EV industry.
Interestingly, businesses were the earliest adopters of EVs, although personal use has surged in recent years, also due to concerns about the increasing price of oil. Logistics players such as EV pioneer Mober have aggressively courted companies to at least partly move to EVs, appealing to their green aspirations and responsibility to the planet. Other logistics players have since followed suit, and indeed Mober has embraced the business model of also helping 3PLs to transition to EV use.
One challenge, however, is that more viable EVs are limited to smaller vehicles such as cars and vans. That usually covers the last mile—a boon especially considering the recent growth of e-commerce in the country—but it still leaves a gap for the other parts of a supply chain, whether it be products made in the country or imported from elsewhere. There are electric-powered container trucks available in the market, and some logistics players in the Philippines have begun offering it to customers, but costs still remain too high for some, and the associated costs of transition—particularly for those driving the trucks, who will have to relearn skills, and may be resistant, choosing instead to spend the time making trips and earning money.
Another challenge remains range anxiety, or the fear that the charge in one’s EV might run out in the middle of the trip. This very much remains a concern even in Metro Manila, where heavy traffic can last for hours depending on the circumstances. (There are also other elements, such as whether these vehicles can withstand the regular—and sudden—flooding we see in Metro Manila.) Perhaps this was the thinking of the EVIDA in providing tax incentives for the development of charging stations rather than for the purchase of electric vehicles themselves. (That said, the government eventually removed the excise tax from sales of pure EVs, and slashed it to half for hybrid vehicles.)
Mober, for one, has opened a major charging hub in Pasay, and plans to open two more in the northern and southern ends of Metro Manila; their overall ambition is to expand their network from Laoag to Tacloban. Mall developers have also begun installing charging stations in their properties. But we wait to see whether other players—particularly the oil giants, who have an existing presence along our major thoroughfares—would be open to EV charging, like how Unioil has had such facilities installed in some of their branches for years now. In addition, charging stations remain limited to major urban areas, particularly in Metro Manila—and, surprisingly, out of reach to those living in high-density developments such as condominium buildings.
Perhaps conditions for this will change when demand for EVs are further driven up. The EVIDA mandates government agencies to transition at least 5% of their existing transportation fleet to electric vehicles, although some have set a higher target. In addition, there have been some pronouncements from the Department of Transportation that consider the idea of transitioning completely to EVs as part of its PUV modernization program. It remains unclear what the targets really are—and whether it’s more EVs on the road that will bring about the infrastructure needed, or the other way around. A classic chicken-and-egg situation.
But, again, electric vehicles do not cover the entire supply chain. There is still a very long way to go, for instance, before we can see electric-powered cargo ships or planes, for instance. While there have been advances to making sure these modes of transport are more energy-efficient, thanks to new engine and fuel standards—as well as the introduction of more sustainable fuel sources for both sea and air freight—it remains fact that these modes are still subject to oil price shocks, not to mention other forms of international disruption, such as the aforementioned attacks on major shipping routes.
Perhaps this is a reality that larger supply chains have to accept and even absorb. Still, for other types of long-haul transport, there are options. Advanced countries—and especially those situated in a single land mass—have long had cargo rail in their mix, with companies benefiting from reliable travel times and a reduction in cost.
The Philippines used to have a relatively extensive rail network, but between World War II, post-war reconstruction and subsequent neglect, it fell into disrepair and became a less favored means of moving goods as opposed to road transport. There have been efforts to revive cargo rail in the early part of this century, using the limited network of Philippine National Railways, but stakeholders have conceded that it was ahead of its time, as shippers were then more keen to use trucks; they were a faster, more in-demand mode of transport, mostly because there was less congestion in the roads at the time.
Of course, 2025 is much more different from 2000. Increased development has led to increased sprawl, and to greater congestion in our roads; our truck drivers are pursuing other careers abroad because of difficulty completing trips and earning money. The government has belatedly latched on to rail as a way not just to decongest our road networks but to enable long-haul travel, both for people and for goods. Mass transport projects such as new LRT and MRT lines in the greater Manila area, as well as the North-South Commuter Railway envisioned to connect Clark to Calamba—and, hopefully, to the existing PNR network connecting the south of Manila to the Bicol region—are firmly in development.
But more importantly, the time seems to have come for cargo rail. While the Duterte administration’s initial proposal for a cargo link connecting Subic and Clark did not take off—ostensibly because of difficulty getting funding from China, but perhaps also because such a short route was not going to be affordable enough to be feasible—the US-backed plans for the Luzon Economic Corridor, which aims to connect the ports of Subic, Manila and Batangas, offer more potential. All indications are this initiative—which seemed to be on shaky ground after Donald Trump gutted all American development aid upon his assumption of the US presidency—will push through, in part because there is a strategic benefit to Americans in light of its rivalry with China and its need to secure crucial supply chains, such as in semiconductors.
The larger proposed scale of this cargo rail project will be a game-changer, as it will provide a more competitive alternative to road transport, and better utilize the ports of Subic and Batangas, as well as Clark International Airport, which is fashioning itself as a hub both for passengers and cargo coming to and from northern Luzon. Efforts to promote these facilities as an alternative to Manila’s busy seaports and airports have been underway for decades, but the LEC’s proposed rail link is poised to tip the balance, and perhaps even spur the development of industries (and the logistics sector) in Bulacan and Batangas, alongside the existing industrial footprints of Pampanga, Laguna and Cavite.
There are also ambitions—although outside of the LEC—to extend these rail links to other parts of Luzon, and perhaps beyond it, to address other logistics bottlenecks. Take the fact that eastern Luzon has always had to rely on trucks to deliver goods, which means agricultural products coming from the region to Manila tend to cost higher. Also take the eternal bottleneck that is Matnog port in Sorsogon, further exacerbated by the ongoing (and sudden) rehabilitation of the San Juanico bridge. There are early proposals to build rail links in both regions—and, most critically, a rail link between Sorsogon and Samar, as part of a mega-bridge project. Again, very early days, but expanded rail will further improve the economies of scale and make our supply chains more competitive. But at the moment, all of these remain at the hands of whether this government—or future ones—prioritize these things.
Can our supply chains truly escape the crutches of oil? Our discussion has been limited to transportation, and even then it’s clear that, at least at this moment, we can’t entirely remove ourselves from it. Long-haul transport still relies on it. Transitioning short-haul transport will not be as easy as some hope. Even powering that transition can be reliant on fossil fuels. A question that always comes up during conversations I have with colleagues about electric vehicles, for instance, is whether the power that is used to charge the vehicles actually comes from renewable sources: charging an EV with power from a coal plant, for example, defeats the purpose, they say. And they do have a point.
Also, for better or worse, fossil fuels are an intrinsic part of our entire product cycle. Just take our use of plastic packaging. Plastics are also derived from fossil fuel, including oil, and producing new materials can also be volatile to the aforementioned price shocks we have seen in recent years. Yet plastic recycling is a concept that has yet to be fully implemented at scale, considering how widely used it is and how heavily integrated it has become in both packaging and final product. Nevertheless, we have seen many efforts around the world—including here in the Philippines—to recover certain types of plastic and repurpose them into new packaging materials. Of course, in our specific case, we need stricter implementation of existing regulations to ensure proper recycling and reuse.
Reducing, if not removing, oil from our supply chains, with the idea of reducing our exposure to price volatility and improving our costs, requires more than just looking for alternatives. Early wins, of course, lie in stronger collaboration, particularly in sharing transport fleets—and therefore, sharing transport costs—in common routes. If you’d allow me to be environmentally-minded for a second, we can reduce our footprint by doing more with less—and often, using less means maximizing existing capacity, even if it means sharing with our erstwhile competitors. Perhaps policy can also help here, with stronger corporate governance giving assurances of trust between parties and a reduction of anti-competitive behaviors that will negatively affect customers in the long run.
Perhaps this also means massively reshaping our supply chains. Can we source closer to our customers instead of relying on raw materials from other countries? Can we improve our service levels by changing the way we make our products to make our transport more sustainable? These are long, if not difficult exercises, and this approach may not work for everyone, especially for large companies that require scale to be viable. But consider, also, the current move to extend logistics support to MSMEs, ones who may not have an ambition to go further out of their communities, but would rather improve their products and their services. The evolution of urban logistics and the last mile has seen new vehicle types doing transport, rather than just trucks and motorcycles. Perhaps the paradigm shift lies there, in thinking that there is more than one way to transport a product. If a bicycle is enough, then a bicycle should be enough.
The answers to this question are indeed complex, but it is worth thinking about. Conversations that start early will lead to potential solutions sooner. More stable logistics costs would mean more stable prices, more competitive products, and more value for our companies and our customers. Why not start that conversation now?