Butterfly Effect

0
613

According to the recently released Logistics Efficiency Indicators survey, conducted by the Department of Trade and Industry with assistance from the World Bank, logistics costs in the Philippines form an average of 27% of total sales costs.

 

This is the headline figure. Striking enough. Setting aside the limitations of the survey, however—the number of respondents, as well as the composition of the respondents by industry—the more interesting trends pop up when you break things down in detail.

 

For one, average logistics costs in Mindanao are higher than in the rest of the country, at around 30% of total sales costs. One can argue it’s due to underdeveloped infrastructure, or to the relatively volatile peace and order situation warding off investment, or to the centralized nature of the Philippines, where most products, particularly imported ones, come from Manila.

 

Logistics costs are inversely proportional to logistics reliability: the lower the costs, the higher the reliability. Interestingly, however, reliability in the Visayas lags behind the rest of the country in some categories, like in damage rate and customer complaint rate. One can also argue it’s down to the archipelagic nature of the region, and the limitation imposed by existing sea routes. Ship something to Bacolod and it will have to wait in nearby Iloilo, for instance. Air cargo provides a relatively direct route—airports in the region are quite competitive these days —but costs remain prohibitive.

 

(Of course, it goes without saying that Luzon isn’t perfect. The downside to having most of the development is having most of the congestion. The region feels like it’s on the verge of a tipping point.)

 

The Logistics Efficiency Indicators survey is, as its name suggests, an indicator. It will not easily spell out what’s right and wrong with the country’s logistics sector – as the World Bank’s lead consultant, Dr. Ruth Banomyong, out it, you’ll need to do further studies to understand the figures presented, breaking things down further by region and by industry.

 

But it does underscore a couple of things. One, there is some work to be done to improve the reliability of our logistics sector, and in turn, make it more competitive. We already know this—it’s supply chain’s nature to evolve and adapt, as preferences and demands change, like it does right now, with the advent of e-commerce and the shifting habits of younger demographics.

 

Two, while big-picture initiatives help in ensuring we remain competitive, the nitty-gritty remains at the local level. Go granular and you’ll see what affects what. Call it a domino effect, call it a butterfly effect, call it a nuclear reaction. Every little thing can alter the bigger picture.

 

I was reminded of this during last week’s Regional Competitiveness Summit, an annual affair organized by the National Competitiveness Council. While the focus was different—ease of doing business, economic dynamism, resiliency in the face of disasters—it shows that the initiatives at the local level contribute to the national picture. Rizal is competitive, for instance, because of business-friendly policies and strong connectivity (and proximity) to the rest of greater Manila. Clark and Subic are emerging as a new logistics hub because of investment from both the public and private sectors. On the flipside, Iloilo’s economic growth may be hampered by the limitations of its sea ports.

 

The Duterte government is calling for the development of value-adding facilities across the country, to make towns and cities outside Manila more competitive. We must pay equal attention to these efforts. Grand plans are great, but get the small details wrong and everything may collapse.

 

2017 SCMAP Supply Chain Conference: Our flagship event is happening exactly a month from today, gathering industry leaders and policy makers as they discuss the role of supply chain in improving lives and growing the economy. We have announced three new speakers: Dickson Ho of the Hong Kong Trade Development Council, Maureen Ledesma of Vesl Trade Finance, and Josemari Danga of SSI Schaefer Philippines. More information and links tlo register are available online at scmap.org.

 

Henrik Batallones is the marketing and communications executive of SCMAP. A former board director, he is also editor-in-chief of the organization’s official publication, Supply Chain Philippines. More information about SCMAP is available at scmap.org.