Port system needs comprehensive reform to cope with Asean integration
First of two parts
In February of this year, the City of Manila implemented an ordinance placing significant restrictions on truck traffic in the city. The ordinance called for an expansion of a similar set of regulations implemented Metro-wide by the Metro Manila Development Authority in 2012, which was followed by similar rules in the neighboring cities of Navotas and Caloocan.
In the weeks and months that followed, the country’s main seaport – the Port of Manila – became the center of a crisis as a huge volume of both laden and empty shipping containers quickly filled the two main cargo terminals of the port, the Manila South Harbor and the Manila International Container Terminal.
The port congestion and the resulting slowdown in the movement of goods in and out of the port have been blamed, rightly or not, for significant economic impact, including higher food prices, an increase in the overall inflation rate, and even the lower-than-expected GDP growth rate in the first quarter of this year.
Manila’s “truck ban” was, in turn, blamed for the port congestion by many concerned parties, such as trucking firms, local business groups, local politicians, and some economic analysts. The stakeholders who know the port best, however – the operators of the two container terminals in Manila, shipping companies who call at the Port of Manila, and the government agencies responsible for overseeing the country’s seaports – present a slightly different perspective:
While agreeing that the “truck ban” did create very serious problems, their views reveal that the ports are part of a more complex, integrated infrastructure, a system in which problems are neither caused nor solved by any one factor or responsible party.
And it is a system which the problems in Manila have revealed might not be getting the attention it deserves, which some might regard as a surprisingly dubious situation given the Philippines’ long history of maritime experience. Although the key stakeholders—the Philippine Ports Authority, and the country’s two biggest private operators, International Container Terminal Services Inc. (ICTSI) and Asian Terminals Inc. (ATI)—are complementary of each others’ efforts and upbeat about the future, their assessments, as well as those of port users, suggest the overall port system is only just keeping up with the current state of trade in the Philippines, and will need to develop even more quickly if it is to successfully meet the future challenges of Asean integration and a steadily growing economy.
Sorting out the mess.
The immediate problem, of course, is to relieve the pressure that has built up in the Port of Manila’s two container terminals. On September 13, Manila Mayor Joseph Estrada suspended the city’s “truck ban,” a voluntary move, he said, to allow a newly formed government task force comprising the MMDA, the National Capital Region Police Office (NCRPO) and local government units flexibility to resolve the congestion at the port.
According to the Philippine Ports Authority (PPA), two parameters are used to measure port congestion: The utilization level of the terminal, which is expressed as a percentage of the terminal’s available space occupied by shipping containers, and the flow rate of containers into and out of the terminal. An ideal level of utilization according to ICTSI and ATI is 75 to 80 percent, and ideally the flow of containers should be balanced, or biased in favor of outflow, i.e. away from the port.
“The truck ban congestion has had a significant detrimental impact on our business,” ATI Executive Vice President Andrew R. Hoad explained frankly. “Men and machinery have effectively been working around the clock 24/7 to handle the very high utilization levels in the yard.”
The problem is that high levels of utilization result in extra handling, as there is no space to efficiently sort containers waiting for loading on a truck or a ship. “Every time a box [container]is needed for a ship or for delivery landside, a pile of boxes needs digging through as the yard has been in excess of 90 percent for most weeks since the extended truck ban took hold. Container terminals, as a rule of thumb, have reduced production capability when yard utilization starts to edge above 75 percent; sticking at 90 percent-plus for months on end is unprecedented in recent memory.
This racks up significant extra cost in fuel, power, maintenance and manpower, while also slowing productivity to the detriment of all stakeholders,” Hoad explained.
Addressing the flow of truck traffic to and from the port affects the flow rate of containers, and according to the PPA, the implementation of new rules under “Task Force Pantalan” has had a positive impact, although the data provided by the agency indicates the problem has not been entirely resolved. The flow rate into Manila’s terminals is a fairly constant average of 5,000 TEUs (20-foot container equivalent unit) per day. Prior to the February imposition of the “truck ban,” the flow of containers out from the port was about 6,000 TEUs per day, which dropped to an average of 3,500 TEUs per day during what is considered the peak of congestion crisis, the months of May, June, and July. Since the lifting of the “truck ban” by the City of Manila and the implementation of new truck routing schemes by the government task force, that outflow has improved, but only to about 4,200 TEUs per day.
ATI’s Hoad explained one key issue that might, in turn, explain why simply lifting the “truck ban” has not returned the movement of cargo to its previous state:
While endorsing current efforts to clear the Manila terminals as “a move in the right direction,” Hoad pointed out that, “moving ‘long stayers’ out of Manila to outports is important. The latter is something that especially needs focusing on as it relates to the very high dwell times which are not about congestion in the port per se, but about a complex set of decisions made by cargo importers outside the port related to trucking, customs, warehousing and factory openings.”
“The dwell times [amount of time a container remains in the port from discharge from a vessel to pick up at the gate by a truck]are typically 6 to 7 days in a normal operating environment. The congestion period has witnessed the dwell stick stubbornly at 13-15 days,” Hoad continued. “Seven extra days don’t sound like much to the man in the street, but effectively it halves the storage space in the yard. No terminal anywhere in the world can operate if importers use it as a warehouse rather than a transit zone; ports are designed to be transit zones.
Last month [August] at any time we had approximately 8,000 TEU with dwells between 7 and 29 days, and another 4,000 TEU with dwells above 30 days defined as overstayers by the BOC [Bureau of Customs].”
The Department of Transportation and Communications (DOTC), the parent agency of the PPA, agrees that there are factors in parts of the supply chain outside the port that have contributed to Manila’s mess.
“The port congestion problem in Manila is not solely attributable to the port,” DOTC spokesman Michael Arthur Sagcal explained. “There are other factors which contribute to the problem, since it is merely part of the demand-supply chain. Logistics networks include customs processing, storage availability, trucking requirements, and the efficiency of distribution.”
In the short term, however, the available solutions seem limited to addressing transport issues. “In the transport sector, immediate adjustments are being made, such as increasing port storage fees in order to free up port space, identifying possible container yards outside of the port for the same purpose, and identifying truck routes to optimize their movement,” Sagcal said. “In the medium to long term, we are also encouraging higher utilization of the Batangas and Subic ports as an alternative to Manila.”
Spreading the problem?
From the point of view of the PPA, the congestion problem in Manila is an aberration. “The congestion being experienced in Manila is just a situation, an isolated case brought about by unsynchronized truck ban rules and not trade-related congestion,” a PPA spokesman said.
But the acknowledgments from other stakeholders that the problem is the result of a whole chain of interconnected factors might suggest that the circumstances in Manila, while perhaps an extreme example, are simply that: An example of conditions that could occur at any of the Philippines’ seven container ports, or 55 other significant ports.
According to Virgilio “Gil” Angeles, General Manager at Cosco Philippines, the local office of the world’s fifth-largest container shipping company, Cosco Shipping Lines, the Port of Cebu is already experiencing congestion similar in nature if not yet in degree to the congestion in Manila. Angeles also cited the Port of Davao as another potential trouble spot.
Davao’s aged Sasa Port, for instance, has been handling 500,000 to 600,000 TEUs per year without the benefit of the large, pier-mounted gantry cranes that are standard equipment in most container terminals.
As a result, explained DOTC Undersecretary Rene Limcaoco at the recent UK Transport Solutions Business Forum, unloading a ship in Davao takes 16 hours, four times as long as it takes in a modern container terminal.
The Davao International Container Terminal (DICT), which opened in January of this year and is managed San Vicente Terminal and Brokerage Services Inc. (SVTBSI), a unit of the Floirendo-owned Anflocor Group of Companies, currently has a capacity of about 200,000 TEUs per year; a P2.7 billion expansion plan approved by the government in April is projected to double that capacity. The projected cargo transit through Davao in the next few years, however, is expected to reach up to 1.2 million TEUs —even with the planned expansion, and planned upgrades of the Sasa Port, Davao’s anticipated total capacity will still be somewhat below that projection, raising the possibility of future congestion problems.
ATI’s Hoad does not necessarily see other areas at risk of the same pressures as have been experienced in Manila because of the great difference in the sizes of the connected markets, but raises some concerns that the present solutions might not be comprehensive enough. “ATI operates Batangas Container Terminal (BCT), and BCT has made a significant contribution to handling volume to help Manila,” he said. “In August over 11,000 TEU were handled for the first time. Year to date the throughput is more than 450 percent above the same period last year, with multiple shipping lines now calling.”
“However it is important to understand two things,” Hoad continued. “First, Manila is a giant market of 20 million consumers and has to be allowed to have functional ports; however well Batangas does it was never designed to replace a consumer giant altogether, but rather to act as a supplementary market facilitator for importers and exporters located south of Metro Manila. Second, the same trend of importers taking decisions which create long dwell times in the port is showing now in Batangas. If importers behave in Batangas like they do in Manila, then Batangas will get the same congestion issues.”
Cosco’s Gil Angeles put it in slightly stronger terms. “As regards the port infrastructure and the activities of government and stakeholders, we must all adopt a can-do, must-do attitude and stop the crab mentality attitude that would lead us to nowhere,” he said. “Everybody must sacrifice and contribute and plan – be proactive, not reactive – to the needs of our country in order to be competitive in all areas of business, be it in infrastructure projects, i.e. passenger and freight trains from south to north and vice versa, and feeder roads, or clearing of illegal settlers to provide the much needed expansion of both MICT and South Harbor.”
“The Manila North Harbor, for example, is an area which the government could consider as an alternative international port, considering its proximity and that it’s underutilized now.”
“The band-aid solution must be discouraged because how could we solve the situation if we have a bleeding elephant on hand?” Angeles added.
The next installment, or Part Two, of this week’s special report will look into prospects for growth in the Philippine port sector and the solutions proposed, ‘band-aid’ or otherwise, to help ports and markets across the country manage that growth effectively.