GLOBAL research and analyst Transport Intelligence (Ti) said in its latest report that the Philippines can become a major growth market for logistics-service providers in the coming years, if the government will take steps to enhance trade flows and invest heavily in infrastructure.
While the country is considered one of the fastest-growing economies worldwide—with a thriving consumer market driven by its growing middle class, remittances and the offshoring of back-office functions by many knowledge and financial institutions—it still lags behind its peers in Southeast Asia, logistics performance-wise.
The study, titled “Philippines Transport & Logistics 2015,” revealed that if policy reforms were done to invite investments by manufacturers—alongside the support of more investments, especially from the private sector in infrastructure—there will be a rise in demand for contract logistics and forwarding.
In addition, if the country can surpass the infrastructure challenges it currently faces at its ports and airports, as well as on Luzon’s highways, then it is poised to turn into a key growth area for manufacturers to move in, according to Ti Head of Operations in Asia Michael King.
“By removing existing logistics-performance issues and the many obstacles to doing business in the country, Ti believes that it is well-placed to become a growing market across the various logistics sectors,” he said.
But since the current administration of President Aquino ends in about a year, he stressed that a lot will depend on the determination of whichever candidate wins the coming presidential elections next year to drive through policy reforms.
“Ti believes that if the next Philippines’s government embraces policy change to address its current LPI [Logistics Performance Index] performance, then it will become a major regional growth engine for both contract logistics and forwarding,” King said.
This, he added, could be improved further by the free-trade options, as the economies of the 10 member-states of the Association of Southeast Asian Nations begin to integrate in December of this year, and current restrictions on trade and migration are removed or reduced.
“All of this should boost economic growth and transport demand. But the Philippines will only see the benefits of this if it takes steps to improve trade flows,” the executive said.
In analyzing the local market’s size, Ti looks at every key logistics sector using three growth scenarios—low, medium and high—from 2013 to 2020, depending on the Philippines’s LPI reaching a certain threshold. Many differences in growth rates are predicted when LPI scores differ.
At the upper range of LPI improvement, the provider of global logistics analysis believes the size of the domestic contract logistics market will expand from €478 million in 2013 to €1.412 billion by 2020.
The latter sizing will represent a compounded annual growth rate (CAGR) of 16.7 percent over the periods in review.
But if political leaders will not make business-friendly reforms, the CAGR will increase only by 10.5 percent to a total of €962 million.
Some of the contract logistics market’s growth drivers will, likewise, determine expansion rates for forwarding.
Ti concluded that the overall freight forwarding market can surge by a CAGR of 15.1 percent from 2013 to 2020 under the “high” LPI increase scenario, but only by 9 percent at a “low” forecast.
Image credits: Julian Abram Wainwright/Bloomberg
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