If there is one thing that the Philippine consumer market is very good at, there is no doubt that it is “spending”, and manufacturing companies, and wholesale, retail businesses in the consumer market love it. With an approximately 7% growth projection, passing of TRAIN Law that allows consumer to have higher purchasing power, and other key inclusive growth initiatives, there is high hope that consumers will continue to spend more.
But with higher demand comes greater challenges, and manufacturing companies, wholesale/retail businesses in various consumer markets are no stranger to this. This results to companies outcompeting rivals and finding ways to improve customer experience through various strategies and one of those strategies is improving distribution practices. After all, no matter how good a product is, if it is not available on demand, customers will not buy.
Five challenges that manufacturing and wholesale/retail companies in the consumer market are currently facing in the Philippines.
Increasing Operating Costs
While the passing of TRAIN is good for the consumer, the same has adverse effects in business operations. Manufacturing companies, and Wholesale/ Retail companies operating their own Trucks to transport their consumer goods know this very well. In 2018, the prices of Fuel has increased approximately by ₱2.50 per liter and it will continue to increase because of the TRAIN Law alone by ₱4.50 in 2019 and ₱6.00 per liter in 2020 and may continue to soar – not to mention the continuous increase of the salaries and benefits of the trucking employees.Usually, companies with an in-house fleet feel the weight of price hikes more than those who outsource trucking services since the latter pay for packages and negotiated service rates.
Heavy Traffic Flow
Sadly, aside from daily commuters, various businesses are also threatened by the worsening heavy traffic flow not only in Metro Manila, but in other and many developing cities in the country. To avoid the rush hour and prevent any form of delay in business operations, delivery vehicles leave as early as 12AM to 3AM only to meet call time ranging from 8AM to 12AM. This operating behaviour now would increase cycle time to more than 24 hours to complete 1 trip alone leaving room for inefficiencies in logistics operations, and with inefficiencies come higher operating costs.
This only substantiates a study in 2014 made by Japan International Cooperation Agency (JICA) that Metro Manila is suffering a possible daily losses amount to ₱2.4B, an update was made and mentioned an almost 100% increase to ₱4.1B daily losses in 2017 still due to the worsening traffic conditions in Metro Manila.
Inefficient Government Processes Related to Trucking
Amidst the best intentions of the current Administration to improve business landscape in the Philippines, we are still far from realizing that vision. This is because grass-root issues, or those we encounter on a day to day level have not been improved over the years. Manufacturing companies, and Wholesale/Retail companies operating their own Trucks understand this issue very well. In operating their own Trucks, these companies have to go through the bureaucracy that surrounds the business environment in the Philippines.
For instance, the Land Transportation Office “LTO” is the government agency these companies know deeply, and key issues surrounding this government agency are not stranger even to the public. Issuing Driver’s License alone takes months to a full year because of backlogs, issuance of License Plates for registered Trucks would take more than two years for some. In addition, Local Government Units “LGU” is another government sector that these companies need to live with on a daily basis.
Each LGU has its own rules, other than those of the National Government. One pressing issue that has not been resolved in spite of numerous attempts to curb this practice is the imposition of pass through stickers. A Truck would need to secure a “Pass Through” sticker with City No. 1, 2, and 3, if it only needs to deliver to City No. 4 even if it passing through a National Highway. Each sticker would cost around ₱600.00 to ₱1,000.00 which is renewable annually, and is only applicable to a single Truck. The money worth involved here is further left to your imagination.
Rising Acquisition Cost of Vehicles
In 2017 a well Truck brand in the Philippines, made a remarkable milestone. Its Truck sales rose by 23% percent from previous year mainly due to strong economic performance of the Philippines causing demand for these Trucks to follow.
In theory, higher demand of Trucks increases its prices, but in reality not only demand caused the rise in acquisition costs of Trucks. Manufacturers, Wholesale/ Retail businesses know that the Department of Environment and Natural Resources “DENR” has passed DAO 2015-04 mandating the issuance of Certificate of Conformity (COC) only to Euro IV configured Vehicles. This means that Trucks that have engines configured to Euro III and Euro II emission levels will no longer be provided with COC, and without it, registration with LTO can no longer progress.
While there is no argument that its imposition is of the best intentions, it cannot be neglected that there is price to pay and may have allowed some dealers to ride on its fame. Price increase in the value of Trucks with Euro IV configurations which will force Manufacturing companies, and Wholesale/Retail businesses to pay more ranges approximately between ₱100,000.00 to ₱400,000.00 per Truck depending on classification.
Insufficient Professional Trucking Providers
Resolving Trucking challenges that Manufacturing companies and Wholesale/ Retail companies operating their own Trucks are easier said than done. This is because these challenges scale from Micro to Macro level, and a single company alone is too small to challenge head on these pressing issues. As a result, a lot of Manufacturing companies, Wholesale and Retail businesses have shifted long ago to outsourcing services from Trucking Service Providers. Benefits of sourcing from Trucking Service Providers are sustainable, and weigh more value in the long run than short term cost savings from operating an in-house fleet. For example, fixed costs are not permanent because the services provided by Trucking Service Providers are on demand making costs scalable only as the need arises.
Sadly, there is not just enough professional Trucking Service Providers available, as most have long been and deeply structured using a “backyard business model”. This practice results to many problems in distribution operations. One of those problems is the increase of unsafe, old, dilapidated, and unreliable Trucks traversing Philippine Roads.
There is no doubt that the Philippines will remain strong. In preparation, Manufacturing companies, Wholesale and Retail businesses competing in the consumer market need to prepare, plan ahead, and make wise business decisions. To operate an In-house Fleet of Trucks, or outsource from Truck Service Providers, will all depend on the business needs, and landscape of each company competing in the consumer market.
Understand that the consumer market is a fast pace environment, consumers are ruthless when it comes to delays hence laying down key issues Manufacturing companies, Wholesale and Retail businesses in the consumer market face hopefully would allow deep understanding to make better decisions that would give a competing edge over rival companies.
Manufacturing companies, Wholesale and Retail businesses needing assistance may talk to our experts to learn more.
You may also want to read Logistics-related Challenges in the Philippines.