Infrastructure & logistics: Deficient but critically needed

Infrastructure is a word for encompassing highways, roads, and bridges; mass transit; ports, airports and airways; water supply and water resources; wastewater management; solid-waste treatment and disposal; electric power generation and transmission; telecommunications; and hazardous waste management. 

Economic development necessarily means their accumulation in ever-rising level of quantity, quality and networks. Infrastructure development is critical to the growth process. Proper and adequate infrastructure facilitates economic activity to take place at lower cost.

“Connection between infrastructure and logistics.” Countries that invest in infrastructure sufficiently improve the flow of goods and services between their users and their suppliers. “Logistics” is a term describing how this flow works out through low cost, efficient and timely operations.

A more involved definition is that logistics is a detailed coordination of complex operations that facilitates the movement of supplies to their end-users whether this is at the point of production to where it is finally sold at retail. In this sense, it is as much people centered as it is one that is dependent on the presence of the physical structures critical to the operation.

Transport system issues highlight the connection between infrastructure and logistics. In discussing this, I quote and rely freely from the Arangkada monitoring document (March 6, 2013). Their recommendations or observations make a lot of sense. I must note that many items discussed below have not fully prospered and were relegated to their dormant list of recommendations.

“Seaports infrastructure.” As an archipelago, the Philippines depends on the development of seaports to move domestic and international commerce. Efficiency of marine transport is critical to competitiveness. Transport costs in shipping are high and are one of the reasons for the country’s low competitiveness.

The volume of international container shipments in the Philippines is small compared to those in East Asia’s export economies. The Philippines ranks 120th out of 144 countries in quality of port infrastructure in the WEF Global Competitiveness Report, the lowest among the ASEAN-6 (Singapore, Thailand, Malaysia, Indonesia and Vietnam).

Manila is 99th worldwide in tonnage volume and 37th in container traffic. Over the last decade, there have been significant investments in the international ports of Batangas, Davao, Cagayan de Oro, and Subic, almost doubling their combined capacity, Yet Manila is highly congested and Batangas and Subic underutilized.

The RORO (roll-on, roll-off) nautical highway, with three routes connecting Luzon-Visayas-Mindanao, can be expanded and made more efficient. Regional ports need modernization with feeder links.

Ports should improve inter-modal connectivity. Batangas port has a bus terminal, park-and-sail, and shuttle service inside the port facility and it is the only such port with extensive connectivity with land transport.

Key domestic and international ports need bulk and break-bulk facilities. If the government priority for agriculture and food security is serious, there is need for more bulk ports. If mining is to take off, there must be bulk terminals. The country’s requirements for coal, LNG and the like also call for bulk port handling facilities. The location specific character of some of these requirements means that port handling facilities need private port franchises if not ownership.

“International port handling facilities: Subic-and-Batangas vs. Manila.” If the country is to turn the industrial zones located in Clark and in the Calabarzon regions into more integrated manufacturing and industrial hubs, big decisions have to be made in relation to the flow of international trade port traffic.

Due to previous investments, Subic and Batangas ports are at present badly underutilized. Both ports have new infrastructure that can help lower international shipping costs. A shift of traffic to them will not only decongest Manila’s port but also create new opportunities for agricultural, industrial and manufacturing investments along these two regional segments in the central and southern Luzon regions.

Manila’s traffic gridlock is partly the outcome of 40 percent of the traffic arising from international and domestic port traffic operations of the city. This is based on transport studies of Metro Manila.

Any decision that speeds up the interconnection of the NLEX (Northern Luzon Expressway) and SLEX (Southern Luzon Expressway) would create efficient road links between the ports of Batangas and Subic. That connection will bypass Manila, thus decongesting the city of un-essential motor traffic.

“The freeport logistics idea: Subic.” The Philippines is well-positioned to become a regional distribution center for goods destined for world trade. It has comparative advantage for storage and distribution of goods to Asia, North America, and Europe through the Middle East.

If Subic is turned into a true freeport as was initially intended when it was transformed as an export processing zone, the Subic-Clark-Tarlac corridor could become a regional distribution hub with cost advantages over Singapore and Hong Kong. This could be done by transferring international container cargo to Batangas and Subic. But this involves, initially, closing Manila port to international cargo over five years to redirect that container traffic.

Such a move will support the further development of industry and trade sectors. This requires that government departments responsible for the promotion of trade and industry, of agriculture, and of transport and telecommunications and of the private sector stakeholders to pull their plans together.

Imaginative new policies have to be put in place that will take advantage of this desirable direction. The other imperative is to take firm decisions that have long term implications on pursuing such a position.

The freeport idea is also a good framework for food security and stable food prices in the country. The constant availability of supply of food chain – essential to world needs – will have a permanent station in the country that could secure access to world supplies of food when domestic needs are threatened by supply disruptions.

“How to reduce shipping costs.” Presently, it is cheaper by about 40 percent to transship a container from Manila to Cagayan de Oro via Hong Kong or Kaohsiung than shipping it directly from Manila. Foreign companies are not allowed to provide maritime transport services. Domestic shipping industry is not competitive due to the use of small ships.

Domestic transport costs involving interisland goods movement need to be brought down. The main lesson from development experience is that economies of scale help to reduce costs. Scale implies largeness which is insufficient at the present volume of trade. Part of the issues can be resolved through the amendment of the restrictive provisions of the Philippine constitution on economic issues.

In the Philippines, the whole system of fees, roads, truck bans, traffic, and port modernization also contribute to the high cost of transport. Some of the measures require definite policy changes affecting the operations of the Philippine Ports Authority (PPA) that cannot be discussed here for lack of space.

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