There’s always been talk about how exciting it is to be in the supply chain sector, especially as more people understand the critical role it plays in keeping businesses competitive. Certainly there has been talk in the last couple of years, as COVID-19 upended economies around the world, consumption patterns changed, and businesses pivoted and innovated to survive.
The past few months have certainly been exciting, as we saw major industry players further consolidate their presence. A few weeks back we heard that global shipping line Maersk was acquiring LF Logistics. A few months ago, DSV Panalpina acquired the logistics operations of Agility. This mirrors, on a larger scale, moves that we’ve seen in the Philippine market over the past few years, with major conglomerates entering the supply chain sector through acquisitions (see SM acquiring 2GO), joint ventures (see DHL and JG Summit) and investments (see Fast Group’s shopping spree).
Of course, it’s not all about long-established players. E-commerce and last mile logistics continue to drive buzz among investors and observers, tapping into still-evolving markets with tremendous growth potential. (In the Philippines alone, our online economy doubled in 2021; it now stands at USD17 billion, according to the latest e-Conomy SEA report.) We have new titans such as Shopee and Grab—and I should also mention the blockbuster merger between Indonesian companies Gojek and Tokopedia—as well as various startups looking to leverage technologies to bring more value to its partners and customers.
It’s this quest for added value that drives all this activity in the supply chain space. Some companies would love to be able to portray themselves as a one-stop shop to principals, handling most, if not all, facets of physical distribution and storage. Other companies are keen to acquire logistics expertise to complement their core competencies. (Think of how the 2GO acquisition benefits SM’s nationwide retail network.) There’s a greater opportunity for innovations and best practices to spread to more enterprises and supply chains.
But ultimately, the pandemic has also highlighted more inefficiencies that have arguably led to the delays and bottlenecks that we’ve seen in the past couple of years, not to mention operational difficulties exacerbated by shifting lockdowns and general uncertainty. The big players’ response: greater economies of scale! That’s an easier sell.
The potential downside, of course, is the loss of expertise. As logistics players consolidate, we risk losing talent that can contribute greatly to a supply chain’s efficient movement. We may also lose local know-how that remains important even as goods are increasingly moved from one point of the globe to another. (At the height of the pandemic the talk was of shrinking supply chains to a regional or national level to ensure less disruption. What we’ve seen now seems to be an opposite reaction.) There’s also the question of the impact of these moves, in the long run, to logistics frontliners. How can their job security be ensured and protected?
The other question I have in mind is how all these moves will benefit the Philippines. Sure, all the global players I mentioned earlier have a presence in the country, but are we able to take advantage of the new opportunities that present themselves? Our logistics costs remain higher than our neighboring countries. While this is partly down to our being an archipelago—more points inevitably mean more costs—we still have many inefficiencies we can address to drive down costs. The proposed amendments to the Public Service Act would, among others, allow fully foreign-owned companies to invest in various points in Philippine logistics, enabling transfer of expertise and knowledge. Our support for this, as outlined in a joint position paper with other business groups last week, is with the hope that we can fully take advantage of these opportunities and ensure our supply chains remain competitive and world-class.
Henrik Batallones is the marketing and communications director of SCMAP, and editor-in-chief of its official publication, Supply Chain Philippines. More information about SCMAP is available at scmap.org.
