Home » 3PL/4PL, Breaking News, Ports/Terminals » PH logistics stunted by regulatory constraints, conflict of interest—WB report

Restrictions in various transport sectors are impairing logistics competitiveness in the Philippines and creating bottlenecks, according to a report by the World Bank.

In its report on “Fostering Competition in the Philippines: The Challenge of Restrictive Regulations” released in Manila on March 4, the World Bank said restrictions on cabotage in road freight and air transport paired with foreign direct investment (FDI) limitations on investing in infrastructure “appear to have stifled competition in logistics”.

In the maritime transport infrastructure, the report noted that “the lack of separation between commercial interests and regulatory functions of the port regulator, the Philippine Ports Authority’s (PPA), may result in a discriminatory application of rules that puts private operators at a disadvantage.”

The report said cumulative roles of the PPA as the main developer, operator and regulator of ports, which develops, owns, maintains and regulates its own ports, while being responsible for awarding contracts to private terminal and cargo handling operators, “have led to limited competition in port operations.”

Stakeholders’ organizations and some government agencies have pushed for the separation of PPA’s regulatory and commercial functions, saying having these dual functions represents a conflict of interest.

Lack of competition is one of the main reasons domestic shipping in the Philippines is more expensive than in Malaysia or Indonesia, according to the report.

Domestic shipping in the Philippines “is generally more expensive than in Malaysia or Indonesia and exhibits concentrated market structures,” the report stated. It noted that the average port-to-port cost per nautical mile in the Philippines is US$1.47, higher than Indonesia’s $0.77 and Malaysia’s $1.36.

“Constraints on market competition appear to be among the causes of the poor state of the domestic shipping industry. Few operators serve most shipping routes, with more than 40% of routes served by a single operator,” the report explained.

“While some market concentration is likely due to market factors such as economies of scale in shipping operations, the threat of the potential entry of competitors is often the major force driving market behavior in the industry. Moreover, prior to 2015, incumbents had to give their consent for new entry in the routes they were serving,” it continued.

Causes of high shipping rates

Philippine Inter-island Shipping Association (PISA) executive director Atty. Pedro Aguilar earlier identified several causes for high domestic shipping rates. He said domestic shipping is saddled with high operating costs, such as duties and taxes for fuel that account for 40% to 50% of the total operating cost; high cost of dry-docking; lack of economies of scale; and poor facilities and lack of equipment in ports that result in delays and additional costs.

Aguilar said his group has for decades pushed for measures to lower the operating costs of domestic shipping lines, but to no avail. He pointed out that although more than 90% of the country’s trade is transported by sea, shipping seemed not to be on the radar of the government.

In the air transport industry, regional agreements (e.g. ASEAN Multilateral Agreement on Air Services 2009) have not fully eliminated regulatory restraints, the report said. Cabotage rights for foreign carriers are not part of these regional agreements, and price regulation in the sector also persists as the Civil Aeronautics Board can regulate domestic airfares, it said.

Road transport

In the road transport sector, key regulatory restrictions also remain in place.

“Road transport accounts for 58% of cargo traffic, even in a country in which maritime transport plays an important role due to the archipelagic nature of the country,” the report stated.

“While road cargo is characterized by a large number of small firms providing basic transportation services, Organization for Economic Cooperation and Development Product Market Regulation (PMR) data indicates a number of regulatory restrictions mainly due to entry barriers,” it further said.

In the Philippines, trucks require a license to operate in the market, and acquiring the license requires interaction with eight government agencies. A Filipino citizenship and hauling contracts are also requirements to establish a business in national road freight services. Participation of foreign firms in tenders for government transport is restricted; foreign bidders are only eligible to participate in order to prevent restraints of trade when a treaty or executive agreement allows them; when reciprocity rights exist; and goods are not available locally.

Fostering healthy competition

To address the constraints to competition in the identified sectors and to help the National Economic and Development Authority and the Philippine Competition Commission forge an effective competition policy, the report recommends reducing regulatory restrictiveness by eliminating restrictions on foreign and domestic investors in sectors where restrictions create an uneven plating field.

It also recommends minimizing the scope of controlled prices to create the right incentives for firms to compete, and tackling restrictive regulations in infrastructure and professional services to create more competitive conditions. Further, it suggests streamlining burdensome administrative procedures for businesses so as to facilitate market entry and rivalry.

“With competitive markets, the Philippines can have a more vibrant private sector, one that generates more and better paying jobs. A level playing field opens up markets for entrepreneurs to enter and thrive and provides more opportunities for lifting millions of Filipinos out of poverty,” Mara K. Warwick, World Bank country director for Brunei, Malaysia, Philippines, and Thailand, said during the report launch. – Roumina Pablo

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