Industry Report

Outlook, Opportunities and Challenges of the Logistics Industry in Philippines

The logistics market in the Philippines is experiencing significant growth and presents numerous opportunities. That’s why businesses need to pay closer attention to the country’s logistics landscape to make informed decisions and leverage the growth potential.

With a burgeoning population exceeding 100 million, a rapidly evolving urban landscape, and a strategically advantageous position in the heart of Southeast Asia, the Philippines emerges as an attractive market for logistics services. Yet, it is imperative to acknowledge that several logistics challenges persist within the nation, posing intricate obstacles to this sector’s development.

In this excerpt from our industry report, State of Logistics in Southeast Asia 2023, you will dive deep into the challenges and opportunities for logistics companies in Indonesia.

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Outlook of the Logistics Industry in the Philippines

The Philippines is home to over 115 million people, with 48% of the population concentrated in urban regions and 52% distributed across rural areas, with the country’s land area covering 298,170 km². However, the country’s logistics industry faces challenges in inefficient customs clearance processes, high dependence on human resources, and traffic congestion in major regions, indirectly affecting the freight industry. 

These issues are reflected in the country’s falling Logistics Performance Index (LPI), with a customs score of 2.80, an International shipments score of 3.10, and an overall score of 3.30. With those scores, Philippines LPI is currently ranked 43rd globally.

(Source: Philippines LPI Score by WorldBank, 2023)

The Challenges

The logistics industry in the Philippines grapples with multiple challenges that intersect and collectively impact its efficiency and cost-effectiveness. Inefficient customs clearance processes present a significant barrier, with completion times sometimes stretching to 251 days, mainly due to outdated procedures and high yard utilisation rates. This inefficiency leads to delays and increased operating costs, further compounded by the industry’s heavy reliance on manual processes, raising the potential for errors and customer dissatisfaction. 

Moreover, the country’s unique geography contributes to high logistics costs, particularly for islands distant from economic hubs, due to limited connectivity. Traffic congestion in major regions like Metro Manila exacerbates the issues, with inefficient road structures and a growing population contributing to extended delivery times and higher operating expenses. Additionally, geographical disruptions caused by typhoons and floods disrupt supply chains and sea transport, leading to further increases in operating costs. As mentioned in the update, these challenges, including high traffic congestion and geographical disruptions, create a cascading effect that strains the logistics industry’s ability to operate efficiently and cost-effectively in the Philippines.

The Opportunities

While the challenges facing the logistics industry in the Philippines are substantial, the Philippines Logistics Market is experiencing significant growth, driven by various factors. One key driver is the government’s commitment to improving infrastructure. The government has implemented a Regional Development plan (2017-2022) with specific regional strategies. This plan aims to reduce regional disparities and enhance the smooth movement of goods and services throughout the country, ultimately boosting the logistics sector. 

Another significant factor driving growth in the logistics sector is the growth of the digital logistics market, which is contributing significantly to the overall industry’s development. The digital logistics market is thriving due to the pervasive trend of digitisation and the increased need for efficient fleet and warehouse management systems. Digital logistics promotes better collaboration among diverse internal and external stakeholders, reducing data silos and creating profitable opportunities for the broader logistics industry, as explained in the update.

With those opportunities, the Philippines has showcased remarkable economic growth in recent years. In 2022, the country’s GDP surged to 404,488 million US dollars, with a noteworthy growth rate of 7.66%

(Source: Philippines Total Merchandise Trade by UNCTAD)

This growth indicated that the country’s merchandise trade experienced a robust uptick with a growth rate of 5.8%, boasting merchandise exports totalling 78.930 US dollars and merchandise imports amounting to 145,867 US dollars. These statistics underscore the Philippines’ resilience and potential as it progresses in the global economic landscape.

The statistics also reveal that this growth is supported by positive trends in the Philippines’ international trade, with the United States leading the country’s exports and other significant economies following closely behind, as pointed out in the report.

(Source: Philippines Top 5 Partners by UNCTAD, 2022)

Given these critical partnerships, the country has forged various FTAs with multiple nations to decrease import costs, enhance customs clearance, and broaden access to products eligible for preferential treatment.

These positive advancements are closely tied to the country’s impressive surge in e-commerce, as highlighted in a report by GlobalData. The Philippines has witnessed a significant boost in its e-commerce sector, resulting in substantial growth. According to the report, the value of e-commerce transactions in the country increased by 11.8% to reach PHP229.8 billion ($4.8 billion) in 2020. The report adds that the projections indicate a further 15.1% increase in 2021, with an estimated value of PHP 264.5 billion ($5.5 billion).

(Source: Philippines E-Commerce Value by GlobalData)

This growth can be attributed to a rise in demand from the e-commerce sector, marked by tremendous Gross Merchandise Value (GMV) growth, surging from $745 million in 2017 to $17.9 billion in 2022. This boom is further fueled by the increasing number of Internet users, rising from 47.4 million in 2015 to 76.0 million in 2022. The introduction of faster delivery options and minimum cart order requirements by online platforms like Lazada, Shopee, and Zalora has significantly bolstered the logistics market, as shown in the update.

To delve deeper into these insights and explore comprehensive strategies for navigating the Philippines’ logistics landscape, we invite you to download the full report by clicking the following link: Download the Full Report.