Discussion Paper on Port Congestion

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House of Representatives Congressional Policy and Budget Research Department (CPBRD) discussion paper entitled Learning from the Manila Port Congestion.

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<ul><li><p>Learning from the maniLa Port Congestion By RicaRdo P. MiRa</p><p>Issue No. 1 - May 2015</p><p>CPBRD Discussion PaperCongressional PoliCy and Budget researCh dePartmenthouse of rePresentatives</p></li><li><p>Learning from the maniLa Port Congestion </p><p>Congressional Policy and Budget Research DepartmentHouse of Representatives</p><p>Batasang Pambansa, Quezon City, Metro ManilaTel. Nos. 931-60-32 or 931-93-92</p><p>Website: http:www.cpbo.gov.ph</p><p>CPBRD</p></li><li><p>The views and opinions in this report do not necessarily reflect the perspectives of the House of Representatives as an institution or its individual Members.</p></li><li><p> One of the most pressing challenges facing the Philippines today is the congestion problem in Metro </p><p>Manila. Infrastructure development in the country has not kept pace with rapid urbanization and the increasing </p><p>demand for infrastructure services. Last year, the imposition of the truck ban magnified the congestion problem </p><p>not only at the Port of Manila but also in the entire National Capital Region. This has disrupted normal </p><p>port operations causing significant delays in sending out exports and releasing imports. Although the truck ban </p><p>has been lifted in September 2014, various factorse.g. Christmas holiday rush, Papal visit in the country in </p><p>January 2015, etc.have exacerbated the port congestion problem and the ensuing transport bottleneck with the </p><p>concomitant ramifications on the whole expected to make a dent on the growth of the economy. Despite the recent </p><p>pronouncement by government officials that Manila port operations have been back to normal, critics claimed that some </p><p>backlogs remain and key reform challenges necessary to avert the same problem in the future are yet to be made. </p><p> This paper seeks to draw lessons from the said port congestion. It delves into the factors leading to the </p><p>crisis, effects on the market, as well as the proposals to mitigate the problem. At the policy front, it is important to </p><p>highlight the need to formulate a comprehensive national transport policy, a long-term policy framework aimed at </p><p>achieving an integrated and well-coordinated national transport plan. </p><p>the truCk Ban and the Port Congestion</p><p>The Port of Manila (POM) is an important node in the supply chain especially for the growing </p><p>manufacturing sector in Luzon. More than 70% of container traffic in terms of twenty-foot </p><p>equivalent units (TEUs) in the country is cornered by the POM (Figure 1). In 2013, about 45.4% </p><p>of import- and 35.5% of export-cargo throughput (in metric tons) for Luzon were channeled </p><p>through the POM. </p><p>Vibrant ports are catalysts for progress because they hasten the flow of goods in the market. </p><p>Hence, efficient movement of freight is essential in ensuring the sustainability of the supply chain </p><p>of many industries necessary for economic growth. Despite the long-time implementation of the </p><p>truck ban in major thoroughfares in Metro Manila by the Metro Manila Development Authority </p><p>(MMDA), the problem of congestion was brought to the fore by the Manila port congestion, </p><p>which peaked some time in the second semester of 2014. </p><p>Learning from the maniLa Port Congestion* By RicaRdo P. MiRa</p><p>* This paper benefited from the discussions with Director Manuel P. Aquino, Director Dina de Jesus-Pasagui and CPBRD Acting Director General Romulo E.M. Miral, Jr. Ph.D.</p></li><li><p>2 Learning from the maniLa Port Congestion</p><p>In February 2014, the City Government of Manila issued Ordinance No. 8366 which banned </p><p>trucks from plying its city roads from 5 am to 9 pm every day, except on Sundays and holidays. The </p><p>truck ban was Manilas answer to the internal traffic jam in the city, which was said to have caused </p><p>businesses and the public around P30 billion in economic losses per day (Cruz 2014). </p><p>According to critics, the Manila truck ban aggravated the situation creating even more chaos than </p><p>order. While the truck ban eased traffic in Manila, cargoes piled up at the POM. The restricted </p><p>road access for trucks adversely affected the natural flow of cargoes in and out of the POM. </p><p>Delays in the unloading of international vessels increased container inventory resulted to slower </p><p>yard production and higher vessel dwell time and caused undue strain on port resources. Truck </p><p>turnaround worsened affecting the normal delivery of supplies and aggravated traffic along major </p><p>roads. In short, the whole domino effect led to a breakdown in road logistics cycle, which disrupted </p><p>the supply chain especially in Metro Manila area (Perez 2015). What was once a local traffic problem </p><p>turned into a national economic concern of crisis proportion. </p><p>figure 1. Container traffiC (in teus)Port of maniLa versus other Ports in the PhiLiPPines</p><p> Source of basic data: ADB Key Indicators for Asia and the Pacific 2013</p><p>.</p><p>Despite the lifting of the truck ban in September 2014 through Executive Order No. 67, the port </p><p>congestion have been exacerbated by the influx of cargoes in anticipation of the Christmas season </p><p>and series of events including the Papal visit in January 2015. At the height of this port congestion </p><p>problem, industry experts have devised some measures or indicators in determining the magnitude </p><p>of the port congestion problem, as follows:</p></li><li><p>3Congressional PoliCy and Budget researCh dePartment</p><p>1 As cited by Kritz, Ben D. and Periabras, Rosalie in Manila Ports Congestion: Symptom of a Bigger Mess, Manila Times, 21 September 2014. </p><p>1. Yard Utilization Rate. Utilization rate refers to the percentage of the terminals available space occupied by the shipping containers. According to the Philippine Ports Authority </p><p>(PPA), container yard utilization in the POM jumped from 47% to 110% between February </p><p>and May 2014. An ideal level of utilization is around 75% to 80% (PPA 2014). Container </p><p>terminals, as a rule of thumb, reduce production capability when yard utilization edges up </p><p>75%. Thus, utilization rate of 90% and above for months during the port congestion is </p><p>unprecedented.</p><p>2. Flow Rate of Containers and Port Productivity. Movement inside the POM became extremely difficult as the release of containers had been significantly reduced to about </p><p>3,500 TEUs to 3,900 TEUs daily at the height of the congestion from an average of </p><p>5,000 TEUs to 6,000 TEUs daily prior to the truck ban (Hoad 2014).1 Meanwhile, port </p><p>productivity or the number of container movement inside the ports was likewise reduced </p><p>from 25 moves an hour to only 15 moves in the case of the International Container </p><p>Terminal Services, Inc. (ICTSI), and 10 moves per hour from 20 moves per hour in the </p><p>case of the Asian Terminal Inc. or ATI (Macairan 2014).</p><p>3. Dwell Times. According to Hoad (2014), the dwell timesthe amount of time a container remains at the port after discharge from the vessel to pick up at the gate by the </p><p>truckis 6 to 7 days under normal operating environment. Following the truck ban, the </p><p>dwell time stuck at 13 to 15 days because many importers have used the ports as warehouses </p><p>rather than a transit zone. In August 2014, ATI had approximately 8,000 TEUs with dwell </p><p>times between 7 to 29 days, and another 4,000 TEUs with dwell times above 30 days or </p><p>those defined as overstayers by the Bureau of Customs (BOC).</p><p>4. Number of Queuing Vessels. The number of ships waiting in anchorage at any given time for port berths to be able to unload their cargoes has reached about 30 vessels from an </p><p>average of about 8 to 10 vessels during summer. Given the seven-month implementation </p><p>of the truck ban, a total of 37,000 Manila-bound TEUs have reportedly piled up in the </p><p>ports of Hong Kong, Singapore, and Kaoshiung in Taiwan. Foreign shipping lines, i.e. </p></li><li><p>4 Learning from the maniLa Port Congestion</p><p>Hapag Lloyd, Hanjin Shipping and American Presidents Line, have even temporarily </p><p>pulled out their vessels from calling at the POM due to the long queuing for berthing as </p><p>well as the difficulty of shipping out empty containers (Bayos 2014). </p><p>other ContriButors</p><p>Aside from the backlog at the POM as a result of the 7-month implementation of the truck ban </p><p>in Manila, the following factors also contributed to the port congestion:</p><p>Anti-Colorum Truck Campaign. In June 2014, the Land Transportation Franchising and Regulatory Board (LTFRB) and the Land Transportation Office (LTO) issued the </p><p>joint administrative order (JAO) 2014-01 which imposed a fine of P200,000 for operators </p><p>of unregistered or colorum trucks/trailers-for-hire.2 Relatedly, the LTFRB also issued a </p><p>regulation barring trucks at least 15 years old from securing a franchise. Under this policy, </p><p>about 75% of the trucks in the country would be phased out (Port Users Confederation </p><p>2014). In effect, the new regulations have worsened the scarcity of trucks and trailers that </p><p>could carry, pick up and deliver cargo containers from the ports to regional markets. </p><p>2 A colorum truck/ trailer refers to those with green plate instead of the yellow plate used by public utility vehicles. This means that these trucks should not be hired to carry cargo of third party. </p><p>taBLe 1. ComParative numBer of registered truCks, asean (in thousands)</p><p> Source of basic data: ADB Key Indicators for Asia and the Pacific 2013</p><p>Indonesia Malaysia Philippines Singapore Thailand Vietnam2008 4,452 909 296 156 772 3982009 4,498 936 312 158 791 4762010 4,688 966 318 158 817 5522011 4,959 998 329 160 853 5972012 5,286 1,032 342 160 898 651</p><p> Comparative data in the Association of Southeast Asian Nations (ASEAN) show that the </p><p>Philippines has consistently been the second lowest in the number of registered trucks </p><p>from 2008 to 2012, only higher than Singapore (Table 1). Comparing the data from the LTO </p><p>and LTFRB, out of the 358,445 trucks in the country, around 44,996 have franchises; and </p><p>of the 40,145 trailers trucks, only 7,936 have franchises (LTFRB 2014). The lack of trucks </p><p>and trailers to handle cargoes obviously does not bode well especially with the coming of </p></li><li><p>5Congressional PoliCy and Budget researCh dePartment</p><p>the ASEAN Economic Community (AEC), which is expected to boost international trade </p><p>among ASEAN-member countries and the rest of the world. </p><p>Import Clearance Certificates. According to the World Bank (2015), the complexity of securing import clearance certificates also contributed to the crawling pace of shipment </p><p>releases at the POM. While processes in the BOC have been streamlined, processes in the </p><p>Bureau of Internal Revenue (BIR) have seen little improvement as shown in some redundant </p><p>and cumbersome processes namely tax declaration, certified true copy of BIR certificate </p><p>of registration, authenticated copy of income tax return, details of registration address, </p><p>personal profile with ID picture for individuals, standard registration requirements from </p><p>Securities and Exchange Commission (SEC) for corporations, and standard registration </p><p>requirements from the Cooperative Development Authority (CDA) for cooperatives. </p><p> Meanwhile, the Philippines slipped to 65th place in 2015 from 53rd in 2014 in Trading </p><p>Across Bordersone of the key criteria used in measuring Ease of Doing Business. </p><p>Although higher than Vietnam (75th), the Philippines is lower compared to Indonesia </p><p>(62nd), Thailand (36th) and Malaysia (11th). Based on the World Banks Ease of Doing </p><p>Business 2015, although the countrys nature of export and import procedures in terms </p><p>of documentation, and the amount of time to export and import is within the benchmark, </p><p>the cost to export and import is higher than the regional average for East Asia and Pacific </p><p>(Table 2). </p><p>taBLe 2. trading aCross Borders (ranking) and indiCators </p><p> Source: World Bank Ease of Doing Business 2015 </p><p>Philippines Indonesia Malaysia Thailand VietnamEast </p><p>Asia &amp; Pacific</p><p>Trading Across Borders (Rank) 65 62 11 36 75 --Documents to export (no.) 6 4 4 5 5 6Time to export (days) 15 17 11 14 21 20.2Cost to export (US$/container) 755 571.8 525 595 610 864Documents to Import (no.) 7 8 4 5 8 7Time to Import (days) 15 26 8 13 21 21.6Cost to Import (US$/container) 915 660 560 760 600 895</p><p> Road Repairs, Constructions and Informal Settlers. The port congestion problem came at a time when the Department of Public Works and Highways (DPWH) was </p><p>implementing major and minor roadwork projects. The traffic congestion partly explained </p><p>the slowdown in the truckers turnaround time causing delays in the delivery of cargoes </p></li><li><p>6 Learning from the maniLa Port Congestion</p><p>and containers. According to the Port Users Confederation (PUC), from the 3 to 5 trips </p><p>per week, truckers only made 1 to 3 trips per truck per week around Metro Manila. The </p><p>growing informal settlers at the port area especially in R10, Anda Circle and Bonifacio Drive </p><p>not only worsened traffic congestion but also hampered port operators from expanding </p><p>their container yards. </p><p>Cost of the Port Congestion</p><p>The truck ban that was supposed to address a local traffic problem in Manila triggered the port </p><p>congestion issue that had adverse effects in the countrys supply chain networks. </p><p>The problem of congestion and the resulting inefficiency of the delivery system in the POM </p><p>jacked up prices of related port services including shipping (Table 3 and 4) and trucking services </p><p>(Table 5). Local traders complained of higher demurrage and detention charges by shipping </p><p>lines that eroded their profitability and the countrys overall competitiveness. Trucking fees also </p><p>increased due to higher demand for trucking services and the general uptrend in related costs </p><p>such as fuel, spare parts and labor cost. These price increases would later drive higher prices for </p><p>imported commodities including those products with imported components at the expense of the </p><p>consuming public. </p><p>taBLe 3. standard shiPPing Line rates for 20- and 40-feet Containers(seLeCted shiPPing Lines)</p><p> Note: 1Does not include chemical washing of containers charge by some shipping lines Source: Various sources</p><p>Shipping Lines Doc Fee ($)Amount of Container </p><p>Deposit (P)Cleaning1 Terminal Charge (P)</p><p>20 40 20 40 20 40 20 40Alexandria Marine &amp; General Shipping Agency Inc. 50 50 2,500 5,000 P300 P600 5,645 7,055Benline Agencies Philippines International 50 50 7,500 10,500 $10 $20 5,645 7,055China Shipping Manila Agency Inc. 45 45 6,000 8,000 P400 P800 5,645 7,055CMA-CGM Philippines, Inc. 45 45 7,000 12,000 P500 P800 5,645 7,055COSCO Philippines Shipping Inc. 45 45 6,000 8,000 $10 $20 5,645 7,055Evergreen Shipping Agency Philippines Corp. 45 45 10,000 15,000 P400 P800 5,645 7,055KMTC Philippines Corp. 45 45 5,000 5,000 P350 P650 5,645 7,055MCC Transport Singapore PTE. Inc. 50 50 5,000 10,000 P1,000 P1,000 5,645 7,055Orient Overseas Container Line, LTD. 35 35 7,000 12,000 $20 $20 5,645 7,055RCL Feeders Philippines Inc. 60 60 9,000 12,000 P800 P800 5,645 8,140SITC Container Lines Philippines, Inc. 50 50 7,000 14,000 P445 P883 5,645 7,055Sky International Inc. 50 50 8,000 12,000 $10 $20 5,645 7,055Uniship Inc. 50 50 2,500 5,000 P300 P600 5,645 7,055Wallem Philippines Shipping Inc. 45 4...</p></li></ul>