OECD proposes changes to boost PH logistics sector

• The Organisation for Economic Co-operation and Development and Philippine Competition Commission recommended 99 pro-competition actions/measures to boost the country’s logistics sector and level the playing field between private and state-owned firms

• The recommendations include ensuring road freight transportation is not classified as a public utility, effectively removing the sector’s 40% restriction on foreign ownership

• Other proposals: separation of operational, regulatory, and commercial functions of port authorities; lifting minimum capital requirements for logistics providers; concentration into a single ministry the task of regulating freight forwarders; and repeal of indicative rates for freight forwarding services to ensure there is no collusion among service providers

• The Philippine logistics sector has a market size of US$11 billion, accounting for approximately 4% of the country’s gross domestic product

The Organisation for Economic Co-operation and Development (OECD) and Philippine Competition Commission (PCC) recommended 99 pro-competition actions/measures to boost the country’s logistics sector, including ensuring road freight transportation is not classified as a public utility, effectively removing the sector’s 40% restriction on foreign ownership.

Other measures include separation of operational, regulatory, and commercial functions of port authorities; lifting minimum capital requirements for logistics providers; concentration into a single ministry the task of regulating freight forwarders; and repeal of indicative rates for freight forwarding services to ensure there is no collusion among service providers.

The recommendations are contained in two reports launched virtually on January 29. The first report is “Competition Assessment Reviews: Logistics Sector in the Philippines” and the second “Competitive Neutrality Reviews: Small-Package Delivery Services in the Philippines”.

The first report reviewed regulatory constraints on competition in the logistics sector for road and maritime freight transports, freight forwarding, and value-added services. The assessment prioritized 96 pieces of legislation and identified 76 regulatory barriers where changes could be made to foster greater competition in the logistics sector.

The second report focused on small-package delivery services to demonstrate how competitive neutrality is applied in the logistics sector, in this case between private firms and the state-owned Philippine Postal Corporation (PHLPost). The assessment prioritized 56 pieces of legislation and identified 23 regulatory barriers where changes could be made to foster competition in the small-package delivery services by levelling the playing field between public and private companies.

The recommendations resulted from studying more than 150 laws and regulations covering freight transport (by road, railway and water), freight forwarding, warehousing, small package delivery services, and value-added services.

The reports noted the logistics sector’s crucial role in the Philippine economic development with a market size of US$11 billion, which accounts for approximately 4% of the country’s gross domestic product.

They flagged competition issues in the logistics sector as rules that may limit market entry, exemptions from the competition law, and rules granting preferential treatment only to certain companies resulting in uneven competition in the market.

Recommendations for the road freight sector under the first report are:

• Ensure road freight transportation is not considered a public utility. This will remove the 40% foreign equity restriction in the sector and remove the certificate of public convenience requirement for road freight transport
• Make all licenses and permits required for trucks for hire available through a single application to a single agency. Separate processes to obtain port-related activity permits should be removed.

Recommendations for maritime are:

• Separate the operational, regulatory, and commercial functions of port authorities, including the Philippine Ports Authority, ensuring that an independent body has the power to adopt regulations regarding ports and port operations.
• Allow operators to carry out repairs, alterations and fulfil any dry-docking requirements in overseas shipyards that impose equivalent standards to those required in the Philippines.
• Maritime authorities should work together to remove any overlapping requirements, for example, safety-certificate requirements.

Proposals for freight forwarding and warehouses:

• Concentrate responsibilities for the regulation of all freight forwarders, regardless of their mode of transport, into a single ministry.
• Repeal indicative rates for freight-forwarding services that can give an incentive to service providers to coordinate and keep rates high.
• Allow accreditation of freight forwarders on a national level. Remove the authorization procedure for individual branches of freight forwarders or allow accreditation of all physical offices in one application.

For small package delivery services, the key recommendations are:

• Allow foreign participation in the market for express-delivery services.
• Remove minimum prices for postal services including for small packages. Alternatively, the regulator should increase transparency around the mechanism to calculate minimum rates.
• Grant new licenses to every applicant for courier services that fulfils stated conditions. Currently no licenses are being awarded.

For horizontal and regional issues, key recommendations include:

• Create a database of all laws and regulations. As a first step, authorities should publish on their website all relevant legislation within their purview. Every piece of legislation should include subsequent amendments so that all legislation has a consolidated, updated version.
• Consider lifting minimum capital requirements for logistics providers. Alternatively, ensure that minimum capital requirements are the same for all businesses, irrespective of whether they are Philippine or foreign entities.
• Continue the process of digitalization of all application procedures for logistics-related authorizations.

On international agreements, the first report recommends that TradeNet, the Philippines’ National Single Window, be activated and made operational as soon as possible.

It must be noted that many of the recommendations have already been previously cited in different roadmaps, including the National Logistics Master Plan and Philippine Multimodal and Logistics Roadmap.

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The second report listed the following key recommendations for the small package delivery services:

• Adequately compensate PHLPOST for its public service obligations (PSO) and ensure accounting separation between PHLPOST’s PSO and commercial activities.
• Subject PHLPOST’s commercial activities to licensing requirements comparable to those imposed on other players.
• Amend legislation to clarify that PHLPOST does not exercise any regulatory powers on the sector.
• Ensure legislation explicitly states that DICT-PRD sectoral regulation applies equally to PHLPOST and its competitors.
• Amend legislation to reflect that the state will not grant any preferential (financial) treatment to PHLPOST.

At the launch, PCC chairperson Arsenio Balisacan threw PCC support to government’s “pro-competition initiatives of government to modernize and simplify its processes and eliminate red tape. A competitive logistics industry is vital to recovery and key to increasing consumer welfare in the new normal, especially with the rise of digital commerce in bridging supply and demand in our markets.”

For his part, OECD deputy director for financial and enterprise affairs Antonio Gomes said: “Ultimately, the policy recommendations in the reviews are about investment, jobs and growth. There is a need to reduce unnecessary legal and regulatory restrictions to competition, thus bringing prices down, and improving the quality of goods and services and increasing innovation.”

OECD cited a Department of Trade and Industry report pointing to the cost of logistics to sales in the Philippines at 27%, much higher than its Association of South East Asian Nations neighbors’. The OECD reports cited the country ranks 60^th in World Bank’s Logistics Performance Index in 2018, with timeliness and customs considered as the two most challenging areas and low scores for infrastructure and logistics competence.

The reports are part of a region-wide project to foster competition under the ASEAN Competition Action Plan 2016-2025. The assessments were conducted in partnership with ASEAN and the government of the United Kingdom.

“The UK government fully supports the goals and initiatives under the ASEAN Competition Action Plan 2016-2025 to help member countries build a fair and competitive environment where innovation, entrepreneurship, investments, and trade and industry could thrive,” UK ambassador to the Philippines Daniel Pruce said at the launch of the reports.

OECD said its non-binding recommendations to boost competition and foster productivity growth in the logistics sector in the Philippines can, if suitably implemented, assist in making regulations under review fit for purpose and contribute to making the country more competitive internationally. – Roumina Pablo