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OECD, PCC launch reviews to steer growth, competitive neutrality in logistics sector

04 February 2021
News Philippines

The Organisation for Economic Co-operation and Development (OECD) and the Philippine Competition Commission (PCC) launched 2 reports today, culminating an in-depth competition assessment of the logistics sector in the Philippines.

The OECD reports, “Competition Assessment Reviews: Logistics Sector in the Philippines” and “Competitive Neutrality Reviews: Small-Package Delivery Services in the Philippines,” studied 96 relevant laws and regulations and presented 99 specific pro-competition recommendations to support efforts in boosting the country’s logistics sector and leveling the playing field between private and state-owned firms.

“The PCC supports the pro-competition initiatives of government to modernize and simplify its processes and eliminate red tape. 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,” said PCC Chairperson Arsenio M. Balisacan.

The first report reviewed regulatory constraints on competition in the logistics sector for road and maritime freight transports, freight forwarding, and value-added services. The second study focused on small-package delivery services to demonstrate how competitive neutrality is applied in the logistics sector, in this case between private firms and the state-owned Philippine Postal Corporation (PHLPost).

The review recognized the logistics sector’s crucial role in the Philippine economic development with a market size of USD 11 billion, which accounts for approximately 4% of the country’s gross domestic product (GDP).

OECD found that the cost of logistics to sales remains high in the Philippines, approximately 27% higher compared to other ASEAN countries. The study cited that the country ranks 60 in the World Bank’s Logistics Performance Index (LPI) in 2018, with timeliness and customs considered as the two most challenging areas and low scores for infrastructure and logistics competence. The Build! Build! Build! (BBB) program, however, is expected to improve the country’s infrastructure and logistics performance.

The reports flagged competition issues in the logistics sector as 1) rules that may limit market entry, 2) exemptions from competition law, and 3) rules granting preferential treatment only to certain companies resulting in uneven competition in the market.

Recommendations from the OECD review follow pro-competition views and international best practices to benefit the logistics sector and the country as a whole, including:

  • Clear separation between the regulatory and operational functions within the Philippine regulatory environment. Regulatory bodies should avoid being operators themselves that compete with private firms in a sector they regulate.
  • Concentrating in a single ministry the responsibilities for the regulation of freight forwarders, regardless of their mode of transport, to decrease business costs.
  • Amending the Public Services Act to clarify that freight transportation and logistics are not public utilities to remove barriers to entry and encourage more firms in the market.
  • Ensuring adequate compensation to PHLPost for the execution of its public service obligations, including delivering letters to all parts of the country.

(See summary of main recommendations below)

“Ultimately, the policy recommendations in the reviews are about investment, jobs and growth. 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,” said Antonio Gomes, OECD Deputy Director for Financial and Enterprise Affairs.

The reports are part of a region-wide project to foster competition under the ASEAN Competition Action Plan 2016-2025. The assessments were conducted in partnership with ASEAN and the UK Government.

“The UK government fully supports the goals and initiatives under the ASEAN Competition Action Plan 2016-2025 to help member countries build a fair and competitive environment where innovation, entrepreneurship, investments, and trade and industry could thrive,” said Daniel Pruce, UK Ambassador to the Philippines.