Philippines Freight Transport Report Q3 2012

A decent rate of Philippine economic growth is projected for 2012. BMI is sticking to its forecast of 3.9%, behind the government's ambitious 5.0-6.0% target. However, this does mask the actual reality of just how far the country must go in terms of matching its neighbours in the infrastructure stakes. Indeed, while the Philippines struggles under the yoke of an entirely insufficient infrastructure, government plans to spur the development of infrastructure projects such as new roads, airports and power generators are continuously hamstrung by both a lack of political will and efficacy.

We still expect to see exports posting modest growth of 2.2% this year amid a backdrop of weak external demand and fixed capital spending growth remains strong at 9.0%, providing perhaps a hint of solace for the country's freight industry. However, back in March 2012, Philippine President Benigno Aquino was forced to admit that eight PPP projects would be expedited in 2012, already indicating a considerable downgrade from the original target. He also lamented the government's inability thus far to take advantage of timely opportunities to improve the nation's infrastructure, and cautioned that the country does not have decades to address these problems.

Increased government spending may well struggle to offset softening demand from top export partners in the short and medium term, to the detriment of the freight industry in the Philippines. Like so many other developed and developing economies alike, the fortunes of the Philippines are very much tied up with those of the US, China, Japan and the eurozone.

Headline Industry Data

2012 air freight tonnage forecast to grow 10.06% to 654,000 tonnes.

2012 Port of Cebu tonnage throughput forecast to rise by 8.43% to 29.87mn tonnes.

2012 Port of Manila International Container Terminal tonnage throughput forecast to increase 7.40% to 20.08mn tonnes.

2012 total trade forecast to grow 3.85%, with exports growing 2.2% compared with import growth of 5.5%.

Key Industry Trends Mitsui OSK Lines Announces Student Graduations Japanese shipping company Mitsui OSK Lines announced in March 2012 that some 84 students graduated from the Magsaysay Institute for Shipping's Third Year Programme after enjoying an education in seafaring safety and practical training. The programme, which targets Philippine students at seven maritime schools in the country, was launched in June 2011.

PPA Posts 12% Increase In Container Handling Container throughput grew by 12% per annum between January and November 2011 across facilities in the Philippines to 4.55mn twenty-foot equivalent units (TEUs), the Philippine Ports Authority (PPA) declared, as reported by the Philippines Business Mirror in February 2012. Domestic container and foreign container capacity increased by 21% and 7% to 1.76mn TEUs and 2.78mn TEUs respectively.

MCT Records Higher Containerised Cargo Volume Increased box throughput was achieved in 2011 at the Mindanao Container Terminal (MCT), operated by Philippines-based global terminal operator International Container Terminal Services (ICTSI), reported Business Mirror in February 2012. The growth was attributed primarily to rising export volumes of wood products. ICTSI has seen an improvement in cargo volumes during the last three years, with throughput rising by 51% y-o-y to 180,308TEUs in 2010.

Key Risks To Outlook On the upside in terms of risk is the government's announcement that the Port of Davao's operations are to be privatised in 2013, which will hopefully provide a boost to the port. The port is currently operated by the Philippine Ports Authority (PFA), a subsidiary of ICTSI and the privatisation is aimed at catering for the pace of fast-growing cargo volumes at the port.

With exports growing only moderately at a forecast 2.2% this year as headwinds from a hard-landing in China and weak growth in the US and Japan continue to weigh on the external demand outlook, a worsening of these conditions could have a very negative effect on the Philippines freight industry going forward.