The need for the Philippines to digitalise its logistics sector

The logistics industry in the Philippines is a key GDP contributor, but lags behind the country’s neighbours when it comes to digitalisation. A new YCP Solidiance report highlights the way forward for the sector.

Philippines is home to a staggering 7,600 plus islands, 2,000 of which are inhabited. Trade in the country is a logistical labrynth as a result, and transportation & storage – logistics as a whole – form key economic segments. In fact, strategic advisory firm YCP Solidiance values the segment at more than $13 billion as of 2019, accounting for 4% of the Philippines gross domestic product.

As the country’s economy has grown over the last half a decade, so too has the logistics sector, at a near similar rate. The GDP grew by a compound annual growth rate (CAGR) of over 8.5% between 2015 and 2019, while transport & storage alone grew by more than 7.5%. Moving forward, the sector is expected to continue upwards, faster than before.

The most notable driver of growth here is a booming ecommerce landscape – already on the rise across Asia Pacific and climbing with renewed gusto since the Covid-19 crisis. Storage and distribution centres are the backbone of a thriving ecommerce sector, which puts logistics at the heart of retail growth in the near future.

That being said, YCP Solidiance reports that Philippines’ logistics sector is not prepared for the economy of the future, despite contributing billions. The obvious deficit is a lack of digitalisation – a key component in serving the evolving APAC consumer.

As fear of infection persists and familiarity with ecommerce grows, consumers are increasingly relying on online retail channels for everything from luxury goods to basic necessities. In the Philippines alone, ecommerce is expected to grow from just 2% of the overall retail market to 7% in time to come.

With most retailers developing their digital channels in response, the biggest differentiators emerging are speed, reliability and transparency – all of which are central demands among most modern day consumers. In its current avatar, the logistics sector in Philippines simply cannot meet these needs, mainly due to a reliance on manual processes.

“Paper-based processes necessitate companies to still rely on analog processes such as having designated encoders that input and update the data on the system using documents that are filled out by truck drivers and warehouse managers,” explained Singapore-based YCP Solidiance partner U-Yun Wong.

“With high volumes and a complex network that requires coordination across various logistics companies with different database management systems, it becomes immensely challenging to ensure the integrity, accuracy, and timeliness of information,” he added. A clear example is the significant delivery delays felt in the wake of Covid-19, when online sales soared.  

And these are just the issues with inter-company coordination. Add to this the fact that many products require tying up with government agencies, on top of which customs clearance alone involves several steps of data entry and verification. With customers demanding delivery lead times of 3-5 day at the maximum, such a scenario is far from sustainable.

The way forward

According to YCP Solidiance, there is an urgent need for the Philippines to digitalise its logistics sector, as it could boost speed, efficiency and transparency all at once. Examples abound of success stories in digital logistics, even from neighbouring countries such as Singapore, Thailand and Indonesia.

The researchers highlight the example of TradeLens – a blockchain-powered global trading platform developed by IBM and shipping giant Maersk. “In essence, TradeLens provides a platform wherein various stakeholders in the supply chain – from Carriers, Shippers, 3PLs, Freight Forwarders, to Authorities, Ports, and Terminals, etc. – have real- time visibility on the various documents involved in a shipment – from Bill of Ladings, Commercial Invoices, Packing Lists, Booking Requests, to Booking Confirmations, Shipping Instructions, Customs Declarations, etc,” explained YCP Solidiance Director Anna Relamma. 

A similar solution could add tremendous value for logistics in Philippines, and the researchers urge companies to begin the digitalisation process. For those with capital in hand, digitalising is simply a matter of hiring the right experts or investing in the right technology. Other might choose the inorganic path – acquiring a digital logistics firm with the necessary expertise. Partnerships with tech experts can also be effective.

Avenues exist for those without capital as well: YCP Solidiance suggests participating in digital platforms, or availing digital services and integrating key processes across the organisational makeup. The bottom line is that digitalisation is a pressing need in the sector, and those who don’t take the right steps now might struggle with competitiveness in the near future.