Investment in logistics sector grows 9-fold

Published May 26, 2021, 7:00 AM

by Bernie Cahiles-Magkilat

KMC Savills report

The local warehousing and logistics industry continues to be the ‘saving grace’ of the Philippine economy, with investment pledges for transportation and storage growing almost nine-fold in 2020, according to a real estate and brokerage firm.

In its Industrials and Logistics report, KMC Savills shared that the sector steadies the property market as it is geared towards the increased need for warehouses, distribution centers, and industrial lots that can support different business operations in the country and in a global scale.

According to KMC, a total of P37.5 billion worth of investments have been committed in 2020 for transportation and storage projects.

“Despite the country suffering in deep recession, transportation and storage remain an important factor in the growth of the economy, consistently accounting for 4 percent of the Philippine GDP,” said the KMC report.

Demand for highly specialized cold storage for pharmaceuticals, particularly vaccines, is expected to drive the sector for further growth, the report added. 

Under the Philippines Cold Chain Industry Roadmap 2021-2021, there is a current industry capacity of

400,000 tons or 500,000 pallets. The cold storage capacity is also expected to increase by 10 to 15 percent annually. The industry is also expected to generate some P20 billion in revenues by end 2023.

According to the report, the Philippine warehousing and logistics will benefit from relocation of manufacturing companies from China, which increasing wages have forced manufacturers to outsource to countries where worker wages are still low. 

In Asia, the Philippines has cheaper wages with monthly salary for the manufacturing  sector at $256 compared to China’s $935 and India’s $305. But other ASEAN countries are cheaper with Vietnam at $253, Indonesia at $203, Bangladesh at $159 and Cambodia at $117.

Philippines’ overall Logistics Performance Index (LPI) also improved 11 places to 60th spot out of 160 countries in the World Banks LPI buoyed by progress in infrastructure and economical pricing of international shipments.

Boosting logistics demand is the increase in e-commerce spending for warehouse space even in the provincial areas. 

According to KMC, revenue in e-commerce is expected to show an annual growth rate of 18.3 percent, resulting in a projected market volume of $4.4 billion this year. Aside from the big e-commerce players, SMEs are emerging within the online retail market due to the popularity of online shopping. 

Demand from e-commerce sector will continue to drive logistics leasing demand in 2021 as the pandemic accelerates the shift to omnichannel retailing. 

Warehouse demand is also increasing in Visayas-Mindanao as e-commerce companies expand in untapped markets. 

To date, almost 70 percent of available warehouse supply is in the South Luzon almost 60 percent of space demand is still in the National Capital Region where warehouses are mostly occupied. This resulted in accelerated lease rates in Metro Manila.

Countries in Southeast Asia are welcoming new manufacturing opportunities and streamlining the setup process for new companies.

However, the report noted that  the Philippines non-competitive cost and ease of doing business will pose a major challenge to the country’s logistics sector.

“Despite the country’s healthy workforce filled with able and highly skilled individuals, ease and cost of doing business in the Philippines has been a challenge compared to its ASEAN neighbors,” the report said. 

The Philippines ranked 95th in the last Ease of Doing Business global ranking by the World Bank. It ranked lowest among the 5 major ASEAN economies with Malaysia at 12th, Thailand at 21st, Vietnam at 70th and Indonesia 73rd. 

In conclusion, KMC said that regional logistics and warehousing will be a major catalyst for the sector in the long term. Demand for warehousing will continue to grow even in the provincial areas as e-commerce expand in untapped markets. 

As restrictions from the COVID1-19 ease up, demand is expected to further grow. 

“Without enough supply in the NCR, there is an opportunity to convert existing facility to vertical warehouses to address the demand-supply gap,” the report said.