Further Investment And Development Required
The Philippines' container shipping sector needs considerable investment if it is to keep pace with its regional peers and develop to play a role in intra-Asia trade.
According to the World Economic Forum's Global Competitiveness Index the Philippines ports rank lowest out of its 13 regional peers. Despite this the country's port sector handles over 4mn twenty-foot equivalent units (TEUs), the majority of which are shipped through the country's main container port of Manila, a situation that is causing congestion at the port.
|LHC: World Economic Forum's Global Competitiveness Index Port Infrastructure Ratings For Asia. RHC: UNCTADstat Liner Connectivity Index For Asia|
|Source: World Economic Forum and UNCTADstat|
While the development of the Philippines' container shipping sector will be a long journey, the country is at least setting off on the right path, with a three-prong strategy to address the issue of underdevelopment in the country's port sector. We have outlined this strategy below.
Expanding Existing Facilities
The first prong in this strategy is the continued development and investment in the country's main container port of Manila. In July, berth 6 of the Manila International Container Terminal (MICT) was launched by its operator, Philippines-based global terminal operator ICTSI. The terminal, which boasts the most modern equipment will boost the port's box capacity by 32% from 1.9mn TEUs to 2.5mn TEUs.
The expansion comes just in time with the facility nearing its installed capacity, with the port estimated to have handled 1.8mn TEUs in 2011. The new terminal will also be able to handle larger ships, with a draught of 12m, there is the possibility to dredge this to 14.5m, which BMI believes the port will have to invest in, in the medium term to ensure that the facility can keep pace with the trend of larger box ships being utilised in the shipping sector.
Diversifying With Incentives
The second prong of the Philippines box shipping strategy is to diversify its box port sector. The country, as highlighted, is heavily dependent on the port of Manila. In order to tackle this problem the Philippine government is offering incentives for exporters to utilise other ports. The Philippines' Port Authority announced in July 2012 that it will offer a 50% discount in port fees to the country's exports from the Calabarzon region if they switch their export ports from Manila to the Batangas International Port.
The port of Batangas is closer to the Calabarzon region, but so far is only serviced by one liner calling at the port twice a week. The port authority hopes that by offering this incentive for a short period (one year) exporters will switch ports and carriers noting the uptick in shippings from Batangas will lay on more services.
Looking At Other Options
The third and final prong of the Philippines' strategy to develop its container ports is to investigate the possibility of developing a new facility. A study by Fernando Roxas of the Asian Institute of Management (AIM) has found that the country could play a role in container transshipment, if it developed a port on its eastern seaboard.
Roxas suggests Dingalan Bay, due to its natural depth, which would save on dredging costs, but also highlights the ports of Irene and Real.
Domestic Consumers Driving Growth, But Intra-Asia Role Also Key
The need for the Philippines to develop its container ports stems primarily from the country's need to cater for its domestic demand. The country's exposure to the US, and the Philippines being the US' largest export partner, the Philippine's economy is benefiting from the recovery in the US. BMI forecasts the Philippines' economy to expand by 4.2% in 2012 up from 3.7% growth in 2011.
|Postive Consumer Demand Outlook= More Boxes|
|LHC: Philippines Real GDP % Change. RHC: Philippines Population Total (mn)|
|e/f= BMI estimate/ forecast. Source: National Statistical Coordination Board|
Over the longer term, the Philippines' container shipping demand will be driven by a positive consumer outlook. The country's population is set to expand by 17.5% from 94.85mn in 2011 to 111.41mn in 2021.
Unemployment in the country is dropping and is set to fall to just 6% of the population in 2021. At the same time the percentage of the population that is active is increasing from an already relatively high 61.3% in 2011 to 63.7% in 2021. This active population is, in turn, driving consumption and by extension demand for manufactured goods shipped in boxes.
As well as catering for the country's domestic needs BMI projects higher demand for containers with the Philippines set to play an important role in intra-Asia trade. A free trade agreement (FTA) was signed between China and the founding ASEAN nations, which includes the Philippines, in January 2010. The FTA eliminated tariffs on 90% of goods traded between the countries and China; a reduction in import tariffs boosted trade between the two by 47% to US$185bn in the first eight months of 2010.
Growing domestic and regional demand coupled with the development of the country's container shipping infrastructure will serve to boost the Philippines' connectivity. Just as with the country's rank in terms of infrastructure, the Philippines ranks last out of its regional competitors in terms of connectivity.