ON August 1 I was invited by the Department of Trade and Industry (DTI) Competitiveness Bureau Supply Chain and Logistics Management Division to attend the presentation of Dr. Ruth Banomyong of the World Bank-International Finance Corp., entitled “Understanding Logistics Performance in the Philippines”. The event was well attended and filled up the ballroom of Hotel Jen.
Banomyong certainly had a well-prepared presentation and the results came as no surprise to me. Among the countries included in the presentation, the Philippines had the highest logistics cost as a percentage of sales at an amazing 27.16 percent. This was broken down to 10.71 percent for transportation, 5.20 percent for warehousing, 8.78 percent for inventory carrying and 2.47 percent for logistics administration. In comparison, Thailand had the lowest at 11.11 percent, followed by Vietnam at 16.3 percent and Indonesia at 21.40 percent.
It is interesting to note that the International Labor Organization (ILO) in their 2014 report on unemployment rates, correlates very well with logistics cost. The Philippines had the highest unemployment rate (excluding underemployment) in Asean at 7.3 percent and also had the highest logistics cost at 27.16 percent, followed by Indonesia with a 6-percent unemployment rate and a 21.40-percent logistics cost. Vietnam with a 1.9-percent unemployment rate has a 16.3-percent logistics cost, while Thailand, with an unemployment rate of only 0.8 percent, only has a logistics cost of 11.11 percent.
Do these figures make sense? It certainly does, and you do not need to be an economist to understand the correlation of unemployment with uncompetitive costs. A closer look at the largest component of logistics cost is transportation, in the case of the Philippines this is at 10.71 percent, while Thailand is at only 5.57 percent. Is it any wonder why Thailand has more foreign investments than the Philippines?
Under the ongoing tax-reform program, we have to laud our government for taking steps to ease the burden on the common Filipino tax payer by lowering the tax rates and increasing the tax brackets at least for those that need it the most. However, to compensate for this, there is the move to raise the taxes elsewhere, particularly in the transport sector, where additional excise taxes on fuel has already been approved by Congress. As an example, diesel, which used to have no excise tax, will now be taxed at P3 per liter starting January 1, 2018, P5 by January 1, 2019, and P6 by January 1, 2020. Of course there are other tax measures included in the package, such as excise tax on vehicles and sugary drinks, but that is another story.
What does this mean? This will make Philippine industries less competitive and taking into account that we already have the highest logistics cost in Asean, such tax measures will only add to our lack of competitiveness. While it remains to be seen what this will do to the unemployment rate in the country, we all know for sure these taxes will not generate more employment. It seems like a paradox that the initial intent of the government to help ease the burden on the common worker, will end up in taking away his job!
Perhaps, our leaders in the government can still review their planned tax-reform program and raise the funds elsewhere, like from those that are not paying the correct taxes or not paying taxes at all! Such as from smugglers…
Comments may be sent to georgechuaph@yahoo.com.
1 comment
dati ngang mataas ang preso ng gasolina at diesel due to world price pero ganun din ng bumaba di rin naresolba yang logistic cost na sinasabi mo..di yan sa presyo ng gasolina lang..maraming factor yan..isa na yan ay kulang sa infra at development sa probinsya.
we are 7000+ island kaya mahal ang transportation kase ibabarko pa or eroplano..pero kung meron rail at bridge connecting island to island mababwasan yang logistic cost..at kung yung ibang factory mag branch out sa ibat ibang lugar, baba yang logistic na yan