OBG talks to Doris Ho, President and CEO, Magsaysay Group of Companies

Interview: Doris Ho

How should the enhancement of the domestic transport infrastructure fit into a broader vision for the country’s development?

DORIS HO: One key challenge to development is finding a way to build the country’s infrastructure in a way conducive to efficiently distributing goods and commodities using economies of scale. Overcoming these logistical challenges would result in lower costs.

The present inability to build efficiencies through economies of scale is what makes the challenge so great. Distribution is much more difficult outside of large cities when goods have to reach small and marginalised communities in far-flung areas where parcel delivery sizes become smaller. The sad part is that the largest percentage of people in the Philippines are scattered and difficult to reach and thus must pay more to have access to their needs. So instead of having larger ships and trucks delivering to huge wholesale stores, goods are distributed in smaller vehicles delivering to a sari-sari store. Our challenge is consolidating these small parcels into one truck, making goods cheaper for everyone.

Domestic corn, for example, is shipped in 19-tonne lots separated into bags in a container while corn from the US is shipped in 60,000-tonne lots. Domestic container ships do not exceed 1000 container units, and this compares unfavourably to larger international trade ships. New jumbo ships are being built with a capacity of over 15,000 container units.

The roll-on roll-off (ro-ro) network, bridging islands with ships, has been successful in providing people and businesses access to travel as well as to new markets for their products. Pure container vessels provide services for larger volume distribution on long-haul routes. In both cases, it is not only because of the lack of infrastructure that ships are constrained to be small, but mostly because of small trade sizes.

One way to develop economies of scale would be to build a hub-and-spoke network as part of the transport infrastructure plan. Cargo from smaller towns and cities should be transported quickly and efficiently to a hub port via road, rail or smaller ships. Because of economies brought about by consolidation, the hub port would be developed with cranes and equipment for greater productivity. This is, however, a politically sensitive issue as provinces and cities fight for budget allocations to develop their ports, therefore strong political will would be necessary.

To what extent will improving the country’s transport infrastructure facilitate trade?

HO: Philippine exports and imports are more expensive because we are a “feeder” economy when it comes to importing and exporting goods and commodities. People often think that building a logistics hub will mean that trade will come. Instead, increased trade will attract larger ships until we can cut out the added cost of a feeder and attract the large “mother” vessels to our main ports, similar to international hub ports such as Hong Kong and Kaohsiung.

An important strategy to develop economies of scale would be to cluster industries in targeted locations. With Chinese labour shortages, the Clark-Subic transport corridor presents a unique opportunity to aggressively market and attract manufacturers that would result in creating a critical mass of exports and imports. This would attract more airline and shipping companies into Clark and the already modernised Subic Port, which would readily respond with larger airplanes and vessels as the demand grows. The shipping industry can respond quickly to demand, so investment in export-related industries will lead directly to a more competitive shipping industry overall.

Most importantly, both the government and private sectors must work together as allies towards these goals. If we are to have meaningful solutions to bring lower cost goods to our people, it is important that we work together towards a long-term vision and sustainable plan for a transport infrastructure that is responsive to the needs of people and trade.