INTEGRATED PORTS DEVELOPMENT

SPECIAL REPORT: Vital missing link to PH global future

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Last of two parts

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If everything goes according to plan, the 10 members of the Association of Southeast Asian Nations (Asean) will complete the long-planned integration of their trade sometime in 2015, reducing tariffs on many goods and presumably increasing the flow of intra-regional commerce. That potential increase in trade is reflected significantly in growth projections for Philippine ports, and has added urgency to efforts to solve the current congestion at the Port of Manila.

While the consensus among stakeholders seems to be that those efforts are having positive results and that at least the worst of the crisis has passed, there are concerns that not enough is being done to prepare for the future.

The linchpin of plans for the future, as well as improving the current productivity of Philippine ports is integration, as several industry stakeholders mentioned in the first part of this special report on Monday.

The “truck ban” imposed in February by the City of Manila was seen as, perhaps, the most significant contributor to congestion at the port, but just as significantly, not the sole cause of the problem. That was rather attributed to flaws or obstacles in different parts of the entire supply chain involving shippers, transport companies, port operators and government agencies, and customers.

While there are ideas to improve the capacity and productivity of the nation’s ports, what appears to be lacking is sufficient planning and development support from the other parts of the supply chain. Port industry stakeholders know what needs to be done and can explain it in some detail; getting the parts of government and the private sector to take notice and act, however, seems to be an altogether different matter.

Growth prospects
As a baseline, the figures compiled by the Philippine Ports Authority (PPA) for the first quarter of this year—the last quarter before the effects of the port congestion began to be felt—provide a good indication of the growth trend.

There were 85,089 shipcalls at Philippine ports in the first three months, a year-on-year increase in traffic of only 0.88 percent. Thanks to geography, the Visayas region typically sees the heaviest amount of traffic in terms of number of shipcalls – 40.5 percent of the total in the first quarter of 2013, and a slightly lower 39.9 percent in 2014.

Domestic inter-island shipping makes up the vast bulk of port traffic across the whole country, 97.2 percent in both periods. A large part of that is passenger traffic, which increased by 4 percent to 12.65 million in the first quarter of this year from 12.16 million passengers a year earlier; of the five PPA port districts, Manila/Northern Luzon and Northern Mindanao saw declines in passenger traffic of 4.5 percent and 6.7 percent, respectively, while Southern Mindanao posted the biggest increase of 26.7 percent year-on-year.

While the Manila/Northern Luzon port district accounts for only 5 to 6 percent of total ship traffic, it handles a little more than half of the country’s incoming and outgoing foreign traffic and about 45 percent of the country’s total cargo tonnage, the majority of which passes through Manila.

Cargo volume rose 6.2 percent year-on-year across the whole country, but in the Manila/Northern Luzon area it grew by 8.2 percent in the same period, from 18.5 million MT in Q1 2013 to just over 20 million MT in Q1 2014. Both Northern and Southern Luzon typically have more foreign than domestic cargo volume, while the situation is reversed elsewhere. The pattern is reversed in terms of imports and exports, however; the two Luzon districts import more than they export, while the rest of the country exports more than they import.

In terms of container traffic, volume increased in Q1 2014 by 5.2 percent year-on-year, from 1.22 million TEUs (20-foot equivalent units) to 1.28 million TEUs; the share of that volume passing through the Manila/Northern Luzon port district increased by 6.3 percent from 894,000 TEUs to 950,000 TEUs, or from 73.5 percent of the nationwide total in Q1 2013 to 74.2 percent in Q2 2014.

According to the PPA, the growth trend, apart from the temporary downturn caused by Manila’s port congestion that would be reflected in the second and third quarters of this year, is fairly typical and expected to continue: a steady increase in cargo volume of 5 to 6 percent in either total tonnage or TEU terms, with Manila driving most of the growth.

“We don’t see any dramatic change in the growth path in the near future,” a PPA spokesman told The Manila Times. “Growth in the countryside will still be dependent on the performance of Manila, the country’s biggest growth center.”

Cosco Philippines General Manager Virgilio Angeles provided a similar forecast. “With the Asean integration scheduled to happen in 2015, we expect yearly growth in incoming volume of at least 5 to 7 percent and hopefully 7 to 10 percent on export goods,” he said.

A quick survey of several other shipping foreign and domestic shipping companies calling at Philippine ports indicated that outlook is commonly shared, with growth forecasts ranging from 5 to 10 percent annually for the next three to five years.

While not putting a specific figure to growth prospects, Asian Terminals Inc. (ATI), the operator of Manila’s South Harbor, the Port of Batangas, and the Port of General Santos in Mindanao, has a bullish outlook:

“The outlook for the Philippines is very good,” said ATI Executive Vice President Andrew R. Hoad. “There is strong economic growth and consumer demand, and there is plenty of port capacity in Manila to cope with this growth, because both international terminal operators (ATI and International Container Terminal Services Inc., which operates the Manila International Container Terminal) have spent significantly on expanding space and machinery. ATI is engaged in the biggest investment program in its history over the next three years, with capital expenditure in excess of $50 million in each of those years.”

The PPA and its parent agency, the Department of Transportation and Communications (DOTC), are putting forth efforts to upgrade and improve Philippine ports in anticipation of future growth as well.

“With increasing international and even inter-island trade, as well as the impending Asean integration, many Philippine ports must be developed in order to meet anticipated demand,” said DOTC spokesman Michael Arthur Sagcal. “The DOTC and the PPA have numerous port upgrading and rehabilitation projects every year in order to provide the necessary infrastructure.”

On the DOTC website Sagcal referred to, the agency does have an extensive list of port-related projects either planned or underway, including 11 new projects costing a total P360 million posted just this month. Most of the projects on the DOTC list, however, are smaller projects focusing on domestic shipping and passenger service, and maintenance upgrades.

Beyond easing traffic flow
Despite the upbeat outlook among shippers, the port operators, and the concerned government agencies – whose efforts, particularly those of the PPA and its current general manager Juan C. Sta. Ana, are generally commended by other industry stakeholders – there is still an undercurrent of frustration that preparations for future growth could be easily undone by other factors.

“If we do not restrict the movement of goods to and from the ports, we will not see such a situation [i.e., Manila’s port congestion] happen again, as we continue to build port capacities not only in Manila but also in other areas to properly react to and address demand,” the PPA explained.

The agency pointed out, however, that avoiding congestion is not just a matter of reducing traffic restrictions. “The private sector, however, will play a vital role in this. As long as they keep on withdrawing their cargoes the soonest time possible, including withdrawing the same amount of cargoes during weekends and holidays, we will never see this kind of problem again. Shipping lines, of course, should have enough depots for their empties [containers],” the agency said. And providing an example of large-scale thinking some might consider rare for a government agency, PPA’s spokesman added, “We are also asking the business sector to bridge the gap in our trade in order to reduce the number of empties in the country.”

In terms of specific plans to improve the flow of goods, one immediate solution proposed by ATI is a Vehicle Booking System (VBS), which would schedule truck pick-up and delivery of cargoes to the port more efficiently.

“It works like an airline booking system with truckers and brokers booking service time slots, and the terminals making resources available closely aligned with the moment trucks turn up,” ATI’s Hoad explained, describing it as a practical alternative to a “truck ban” or other blanket traffic restrictions. “We can have the box ready to go because we know when the truck will come, rather than the process kicking off when the truck turns up.”

Another recent proposal by the DOTC and approved by President Benigno S. Aquino 3rd with the signing of Executive Order 172 on September 13 designates the ports of Batangas and Subic as extensions of the Port of Manila, with the objective of spreading out the concentration of trucks and containers at the two main terminals. The effect of this order, whose impacts remain to be seen, allows shippers to deliver goods to the alternative ports instead of Manila without incurring a penalty for violating their contracts of carriage. In other words, a shipment specified for delivery in Manila would still be considered delivered as required if the ship unloaded in Batangas or Subic instead; provided, of course, as DOTC spokesman Sagcal explained, the faster turnaround and processing times outweigh potentially higher trucking costs.

The missing link
Nevertheless, the DOTC, PPA, and the port operators all point to “road infrastructure” as the missing ingredient in the solution, an important factor that is entirely outside their control.

ATI’s Hoad, while describing his company’s planned capacity expansion, pointed out that, “it’s important this capacity isn’t artificially reduced by truck bans or under-investment in roads outside the ports,” a worry that seems to have encouraged the company to respond proactively by proposing the VBS alternative.

The PPA for its part commented, “We are also asking Government to invest more in road infrastructure, not for all the vehicles but only for trade trucks. Right now, there are two connector roads being built by the private sector north and south of the port. If we can only build dedicated elevated roads for trade trucks and connect these to the connector roads, it will greatly facilitate the movement of trade in the Metro. Of course, we should also try to disperse business activity out of the Metro since right now activity is mostly concentrated in Manila.”

“If we can only build dedicated elevated roads for trade trucks and connect these to the connector roads, it will greatly facilitate the movement of trade in the Metro. Of course, we should also try to disperse business activity out of the Metro since right now activity is mostly concentrated in Manila.”

What contributes to the uncertainty and apparent frustration of port stakeholders is that the issue of inadequate infrastructure is not a new problem, and was recognized long before the port congestion that followed the Manila “truck ban” made it obvious to the public.

An October 2013 article of the Journal of Commerce, citing several global shipping companies, concluded that “trade growth is being stifled by a lack of suitable facilities to serve the major industrial and population centers of the 7,000-island nation.”

In its Philippine Economic Update published just last month, the World Bank observed, “In addition to recurring bouts of political and macroeconomic instability, the country’s dire state of infrastructure was one of the reasons why it was generally bypassed by many foreign investors in the last three decades. Weak transport infrastructure and the high cost of cargo handling and shipping have translated into high logistics costs, further making the country less competitive.”

Unfortunately, there is some indication that supporting infrastructure for the Philippine port sector might not be on the government’s development menu for some time to come. In the Japan International Cooperation Agency’s (JICA) “dream plan” for the Greater Manila transport infrastructure – an extensive proposal which will keep the government, which approved the plan on September 2, busy until 2030 – the ports receive little attention, and not in encouraging terms.

While recognizing that replacing the Port of Manila is “untenable” for the foreseeable future, the study recommends halting any further expansion or upgrades there, and as an alternative only suggests that further efforts be made to transfer its traffic to Batangas and Subic – facilities that even their operators say are suitable only as supplements to and not replacements for Manila – without proposing any significant additional development in those areas. The study does propose some P52 billion for port-related development, but the bulk of that – some P40 billion – is designated for the redevelopment of Manila North Harbor as an urban center, while the rest is divided among some 14 regional ports for primarily passenger-related upgrades.

CORRECTION FROM THE SOURCE: In Monday’s first installment of this special report, the figures for cargo volume taken from a DOTC presentation were apparently erroneous. The correct figures for 2013, as supplied by Cosco Philippines GM Gil Angeles, are as follows: Import laden and empty containers, 66,332 TEUs and 53,878 TEUs, respectively; export laden and empty containers dispatched from Davao were 101,806 and 31,954.75 TEUs respectively, for a grand total of 253,970.75 TEUs, and not ‘500,000 to 600,000 TEUs per year’ as shown by the DOTC presentation.

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