Logistics: conglomerates’ next arena
LOGISTICS has emerged as the next growth area for the country’s biggest conglomerates, as they hope to find opportunities in the highly fragmented sector that continues to suffer from longstanding inefficiencies.
Metro Pacific Investments Corp. ( MPIC) and SM Investments Corp. ( SMIC) have been busy acquiring logistics companies and more merger and acquisition (M&A) deals in the sector are in the pipeline, BDO Capital & Investment Corp. President Eduardo V. Francisco said, explaining: “It’s hard to start from scratch so it is better to buy existing ones because you need the location. That’s why it is better to do M&A’s because it will take decades for you to build the business.”
Ayala Corp., which is ramping up investments in manufacturing and e-commerce, may be next in line to venture into the logistics space, saying in a disclosure to the stock exchange it has evaluated the areas it was interested to participate in after studying the demands of its businesses.
Strong domestic consumption, the resurgence of manufacturing and the growth of e- commerce have contributed to the allure of the less regulated logistics sector.
“The logistics part is not transportation, but the valuable part is how to optimize the movement of goods… How you can minimize the time of transhipping is the logistics challenge kaya malaki
ang pera (that’s where the money is). It’s about how you can save and improve your gross margins,” Mr. Francisco explained.
There is much room for growth. The Philippines placed 71st out of 160 countries in the World Bank’s biennial Logistics Performance Index, which measured the weighted average across six dimensions: border clearance efficiency, infrastructure quality,
timeliness of shipment, ease of arranging competitively priced shipments, competence and quality of logistics services, as well as ability to track and trace consignments.
“The big conglomerates are realizing that efficient transportation of goods is key to expanding their businesses given that the country is an archipelago. With the advent of online business, an effective delivery option is key,” said Michael Gerard D. Enriquez, chief investment officer at Sun Life of Canada Philippines, Inc.
MPIC — which is invested in highly regulated businesses such as power, water utility and toll roads — is keen on acquiring more logistics companies “if the right strategic acquisition and deal comes along,” said its executive vice-president for Business Development, Karim G. Garcia.
In less than a year, MPIC has invested P2.45 billion to build its own logistics business after acquiring Basic Logistics Corp.; A1 Move Logistics, Inc.; Philflash Logistics, Inc.; BasicLog Trading and Marketing Enterprises and Ace Logistics, Inc.
“It’s a fragmented business plus it’s a business that could use more efficiency. If MPIC is successful in making the business less fragmented and more efficient, that will mean more shareholder value,” Mr. Garcia said.
Red tape, unclear and redundant government regulations, inconsistent policy execution and poor transport infrastructure were the main culprits for the inefficiencies in the supply chain that have translated to high transport costs, according to the Philippine Multimodal Transportation and Logistics Industry Roadmap released last year.
The Philippines has the highest logistical costs in Southeast Asia, accounting for 24- 53% of wholesale prices while shipping and port handling costs account for 8-30%, depending on goods and routes, and five percent of retail price of goods, the Department of Trade and Industry said.
Henry Sy, Sr.-led SMIC, owner of the country’s biggest retail and shopping mall network, has also entered the logistics business after sealing a deal to acquire a 30% stake in 2Go Group, Inc. for $ 124.5 million last week ( read story on S1/ 2).
“Logistics is a very good growth sector for an emerging country: industry growth is faster than GDP ( gross domestic product). Since 2GO is a market leader in logistics, it makes for a very attractive investment,” SMIC Senior Vice-President for Investor Relations Corazon P. Guidote said.
For SMIC, logistics is the next frontier of retail competition, constituting the so- called “last mile,” or the last distribution point of pre-ordered goods to the final destination, especially in ecommerce, said Cristina S. Ulang, First Metro Investment Corp.’s research head.
“As we have more manufacturing that needs to move and when you have more demand for retail and online shopping that needs to be delivered, there is potential for logistics so they need to take a position now,” said Richard T. Raymundo, Colliers International Philippines’ deputy managing director.
The Philippines’ transport and logistics market could grow by 10.5-16.7% to a €962-million to € 1.41- billion industry by 2020 from €478 million in 2013, should the government invest more in infrastructure, provide institutional support and adopt policy reforms, global research firm Transport Intelligence said in a 2015 report.
The timing may be just right for conglomerates to venture into logistics as the government undertakes massive investments in infrastructure.
The government is likewise crafting a National Logistics Master Plan to unlock the country’s economic potential through an efficient logistics sector.
“Infrastructure has a big role to play since we’re an archipelago. There needs to be some movement for goods and we are in this stage that the government is spending 5-6% on infrastructure and that’s gonna be massive,” Colliers’ Mr. Raymundo said.