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Barriers to entry seen limiting growth of local logistics industry

THE competitiveness of the logistics industry has been hampered by rules limiting market entry, according to a joint report issued by the Organisation for Economic Co-operation and Development (OECD) and the Philippine Competition Commission (PCC).

The report, released Friday, said other competition issues in logistics include exemptions from competition law and rules allowing preferential treatment for certain companies.

The Philippine logistics market was estimated at $11 billion, equivalent to 4% of gross domestic product.

The OECD made 99 recommendations to improve competition in the sector after studying 96 laws and regulations in its report, which was funded by the British government.

The organization said there should be a single regulator in charge of freight forwarders, with clear separation between regulatory bodies and operations.

“Regulatory bodies should avoid being operators themselves that compete with private firms in a sector they regulate,” according to a summary of the findings provided by the PCC.

The OECD also supported amendments to the Public Service Act, which would remove logistics from being classified as a public utility subject to limits on foreign participation.

Domestic firms are also preferred for contracts in public bidding, as they are awarded contracts even if they exceed foreign bids by up to 15%.

“Eliminate preference for nationals where foreigners are allowed to participate in procurement processes to ensure that the most competitive bid is chosen,” according to the report. “If necessary, implement a transition period. Direct subsidies could be considered if the aim is to help develop national industries.”

The lack of roadworthiness standards and conflicting road-use policies, according to the report, were a source of uncertainty impeding market entry.

“Anti-competitive regulations that hinder market entry and expansion may be particularly damaging for a country’s economy as they reduce productivity growth, limit investment and innovation, harm employment creation, and may favor certain firms over other firms and consumers, with consequences for income inequality,” according to the report.

“A competitive logistics industry is vital to recovery and key to increasing consumer welfare in the new normal, especially with the rise of digital commerce in bridging supply and demand in our markets,” PCC Chairman Arsenio M. Balisacan said.

OECD Deputy Director for Financial and Enterprise Affairs Antonio Gomes said that the recommendations are about improving the investment and jobs environment.

“There is a need to reduce unnecessary legal and regulatory restrictions to competition, thus bringing prices down, and improving the quality of goods and services and increasing innovation,” he said.

The demand for logistics space in the Philippines is expected to grow by 160,000 square meters per year over the next decade due to a spike in e-commerce demand, JLL Philippines estimated last year. — Jenina P. Ibañez

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