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How logistics keeps the world turning

If business and enterprise is the beating heart of an economy, then logistics is the lifeblood. Just as blood transports nutrients to different parts of the human body to keep it whole, freight trains, cargo ships, and trucks deliver goods and resources to wherever they need to go.

As an economy grows, the more crucial the role logistics networks play to its development. More so with the rise of e-commerce.

Southeast Asia alone is predicted to become a $240 billion e-commerce industry by 2025. With such a massive market of buyers and sellers, the importance of a free-flowing transport network is evident.

“Infrastructure is an essential ingredient for economic development and growth. Transport infrastructure, for example, facilitates cheaper and more efficient movement of goods, people and ideas across places,” Ejaz Ghani, a lead economist from the World Bank, wrote on the organization’s Web site in 2015.

“It also impacts the distribution of economic activity and development across regions to the extent that agglomeration economies and efficient sorting can be realized, the levels of competition among industries and concomitant reallocation of inputs towards more productive enterprises are achieved, and much more.”

Many business leaders, policy makers, and academics, Mr. Ghani noted, point to inadequate infrastructure as a critical obstacle to sustained growth.

One recent example of logistics’ effect on economic growth is China’s Belt and Road Initiative (BRI), an effort to create jointly-built trade routes emulating the ancient and historic Silk Road and promote regional cooperation in Asia, Europe, and Africa.

In 2013, Chinese President Xi Jinping announced plans to build the BRI as a 21st century maritime Silk Road economic belt. The BRI is geared towards encouraging greater policy coordination, infrastructure connectivity, investment and trade cooperation, financial integration, cultural exchange and regional cooperation between Asia, Europe and Africa, by creating jointly-built trade routes emulating the ancient Silk Road. The BRI will encompass more than 70% of the world’s population (4.4 billion) and 62% of the world’s GDP (around US$21 trillion) illustrating the colossal scale of the initiative.

Research initiated by the RAND Corporation titled “China Belt and Road Initiative: Measuring the impact of improving transport connectivity on international trade” measured the impact that improving multimodal transport connectivity might have on multilateral trade and economic growth in countries and regions across the BRI.

The research found that multimodal transport infrastructure and connectivity can facilitate trade expansion, attract foreign direct investment, speed up the industrialization process, facilitate regional integration, and accelerate the process of economic growth. Additionally, they found that having a rail connection between trading partners has the largest impact on improving trade in the BRI region.

Logistics in a globalized world

The value of logistics is compounded in a rapidly shrinking world. As of 2018, the World Bank estimates the logistics industry to have reached $4.3 trillion, owing to the explosion of trade and commerce brought about by progress.

In nearly every country in the world, logistics is the network of services that supports the physical movement of goods within and across borders, comprising of an array of activities from transportation, warehousing, brokerage, express delivery, terminal operations, and even data and information management. The more efficiently this system can direct the flow of goods to their destinations, the easier it is for a country to facilitate trade and grow.

“Logistics are the backbone of global trade,” Caroline Freund, director, Macroeconomics, Trade & Investment Global Practice at the World Bank Group, wrote in the organization’s Web site.

“As supply chains become more globally dispersed, the quality of a country’s logistics services can determine whether or not it can participate in the global economy.”

That the world is connected through — and relies on — an unobstructed system of roads, bridges, and trade routes is clear in the manufacturing of modern everyday objects like the smartphone. In one device, there could be any number of mineral imports from mines in Europe or circuitry from China; one device could then have been assembled by robots in the US.

The relationship between economic development and logistics is further explored in the World Bank’s “Connecting to Compete” report, which evaluates countries’ logistical capabilities across a number of indicators, taking into account factors such as including logistics competence and skills, the quality of trade-related infrastructure, the price of international shipments, and the frequency with which shipments reach their destination on time. The Logistics Performance Index (LPI) aims to aid governments benchmark their progress over time and in comparison to similar countries.

The report scores countries based on two factors. Domestic LPI covers quantitative and qualitative assessments of a country’s services from logistics professionals working inside the country. Factors such as infrastructure, quality of service providers, border procedures, and supply chain reliability are detailed in this component.

International LPI provides evaluations of a country’s services by logistics professionals located outside the country. This component provides qualitative information of how a country’s trading partners perceive the efficiency and quality of its logistics services.

Not surprisingly, high-income countries, particularly those in Western Europe, emerge as world leaders on logistics, gaining scores 48% higher, on average, than low-income countries. Among the 30 top performing countries, 24 are members of the Organization for Economic Co-operation and Development (OECD).

“Across the board, we have seen most countries investing in logistics-related reforms, especially in the areas of building infrastructure and facilitating trade,” Jean Francois-Arvis, economist at the World Bank Group and report co-author, wrote.

“Despite these efforts to modernize services, developing countries face many remaining challenges. This explains a persistent gap between high- and low-income countries in terms of logistics performance.”

However, the report also found that among their respective income groups, Vietnam, Thailand, Rwanda, China, and India all outperform in logistics. These countries tend to have access to seaports or large international transportation hubs.

Meanwhile, the bottom 10 countries in the ranking are composed of mostly low-income and lower-middle-income countries. These are either fragile economies affected by armed conflict, natural disasters, political unrest, or landlocked countries that are naturally challenged by geography or economies of scale in connecting to global supply chains.

For individual countries, logistics performance could be the key to their economic growth and competitiveness is clear. The World Bank found that inefficient logistics raise the cost of doing business and reduce the potential for integration with global value chains. The toll can be particularly heavy for developing countries trying to compete in the global marketplace.

“The modern era of international trade is one of increasingly complex interactions between people, firms, and organizations. Supply chains cross countries and regions. Trade has become a 24/7 business and good performance in trade requires connectivity along not only roads, rail, and sea, but in telecommunications, financial markets and information-processing. Having inefficient or inadequate systems of transportation, logistics, and trade-related infrastructure can severely impede a country’s ability to compete on a global scale,” the World Bank wrote. — Bjorn Biel M. Beltran

Technological innovations that are remaking the logistics industry

Disruptive technological forces are reshaping the logistics industry in ways that are profound and unprecedented. And industry players, faced with the constant challenge of addressing rapidly evolving consumer needs and interests, have not been shy about embracing them.

Among the major tech-fueled shifts in the industry is toward automation. According to a 2016 report by the professional services firm PricewaterhouseCoopers (PwC), some of the industry’s labor-intensive processes, from warehousing to last-mile delivery, were already being fully or partially automated.

“Automated solutions in the warehouse are already being implemented and their level of sophistication is increasing. For example, automated loading and unloading systems are already available, but in the future these are likely to be able to bypass obstacles and adjust routes automatically. Advances in data processing and optics now allow tasks to be automated which were once thought too complex — like trailer loading and offloading at acceptable speeds,” the report said.

Meanwhile, the report said package delivery could actually make more use of automation, particularly through delivery drones and autonomous vehicles. “Google has already started working on self-driving lockers and the trucking industry is partnering with OEMs on partially automated truck convoys. Even if more radical solutions are a long time coming, other technologies which could make drivers more efficient are in the offing too, like augmented reality solutions that give drivers more information about their environment and the packages still on board,” it said.

An article published on the Web site of Innovation Enteprise, a business media company, said that the online retail giant Amazon’s experimentation with drone-based delivery services is “an awesome idea because drones and unmanned aerial vehicles offer incredible potential in this regard if only because they can provide a variety of economic and environmental benefits.”

A large number of transports and ground vehicles would disappear from roads if there was a major shift to aerial delivery, the article noted, and this would provide benefits like reduced traffic buildup, reduced costs associated with ground-based transportation and reduced greenhouse gas emissions.

The article also touched on another important tech trend in logistics: the Internet of Things or IoT. “IoT is often associated with consumer-level devices such as smart home technology. While it definitely has its place in that market, there are enterprise-level applications of the technology already in use. In manufacturing and development, for example, IoT sensors are used to monitor and maintain expensive equipment,” it said.

In logistics, meanwhile, IoT sensors and devices can be deployed by companies in order to have a more connected production floor that gives real-time alerts and updates, the article said. It added, “But these devices are also leveraged across the entire supply chain. Imagine enhancing in-transit visibility, being able to track entire shipments along every minute of their full route. Suddenly, equipment and employee monitoring are also possible much like you’d see in a modern fleet thanks to real-time GPS systems. The difference is, of course, you’re tracking goods, equipment and people with a great amount of detail.”

Then there are predictive maintenance solutions. According to a 2019 PwC report, they have compelling benefits, including cost reduction. “Predictive maintenance helps reduce downtime and allows companies to use their equipment without breaks. Moreover, regular periodic maintenance is a waste of money if the assets are in good condition,” it said.

It also helps improve the quality of service, the report added, by stabilizing delivery times and ensuring that a company’s entire fleet is not only available but also ready to work at full capacity. Even the environment can benefit from predictive maintenance. “Better maintenance has a positive impact on environment and waste management. Sub-optimal operation is spotted, allowing machines to be used for longer times, resulting in savings in raw materials and natural resources,” the report said.

Even blockchain and distributed ledger technologies are starting to make an impact on the logistics industry. They offer four advantages: security (End-to-end product identification and auditability while maintaining privacy with hash keys); efficiency (Reduced need for document processing); transparency (Easier and reliable tracking and source checking); and reliability (Once a piece of information is put into the network it cannot be easily changed).

“Overall, companies from the transportation and logistics sector tend to value blockchain-based solutions for the possibility to create internally robust, transparent and secure systems that allow them to deliver higher service levels at a lower cost,” the report said. However, the report also emphasized, “Blockchain, and in the wider sense all distributed ledger technologies, are expected to have a moderate influence on all T&L segments, with effects visible in three years’ time at minimum.”

Possibilities in a disrupting logistics sector

Logistics continues to be foreseen as a thriving industry in the Philippines. In a report by Ken Research, a global aggregator and publisher of market intelligence, equity, and economy reports, the Philippine logistics and warehousing market is projected to reach over P970 billion by 2023, along with a positive compound annual growth rate of 8.8% during the forecast period 2018E-2023E.

“The market is further expected to be driven by expanding industrial activities, growing e-commerce industry, upcoming infrastructure in the country & continuous investment by the government in development of logistics infrastructure and consistent economic growth,” Ken Research said in a statement.

On the other hand, the logistics industry is being disrupted on a global scale, creating possibilities that logistics firms should consider. In a recent report by multinational professional services network PricewaterhouseCoopers (PwC) titled “Shifting Patterns: The Future of the Logistics Industry”, logistics is perceived to be driven by disruptions coming from growing consumer expectations, technological breakthroughs, new entrants to the industry, and a redefined model of collaboration.

The first disruption comes from expectations of both individuals and businesses “to get goods faster, more flexibly, and — in the case of consumers — at low or no delivery cost.”

“Manufacturing industries are facing far greater expectations around efficiency and performance than ever before,” the report said of expectation in business-to-business (B2B) markets. “Their customers expect faster time-to-market, reduced defect rates, and customized products.”

Among business-to-consumer (B2C) markets, the report says that some parts of the sector are still struggling to keep up with consumers who have gone digital long before many of the retailers.

Emerging technologies such as data analytics, automation, and cloud technology are changing the way logistics operate, hoping to address the growing pressure to deliver a better service. However, while there is a huge potential provided by these technological breakthroughs, the industry has been slow to seize it.

“In our recent Industry 4.0 study, the percentage of [transport & logistics] companies that rated themselves as ‘advanced’ on digitization was just 28%,” the research noted. Thus, the lack of ‘digital culture’ and training is a challenge the industry must face and conquer, lest they risk being left behind.

Furthermore, start-ups with new business models, major players from other industries, and even the customers of logistics companies are entering the industry. Start-ups among the industry are taking advantage of new technology, especially in freight forwarding and last-mile delivery. Among the major players outside logistics, autonomous vehicles is cited as a possible entrant; while among the industry’s own consumers, e-commerce companies Amazon and Alibaba are apparent examples.

Redefining collaboration, being perceived as a means to increase efficiency, is another disruptor in the industry. Collaboration can become more dynamic through new technology, but inconsistencies in the processes make collaborations difficult. The report sees the concept of ‘Physical Internet’ (PI) as a viable solution. PI is based on the idea that “physical objects can be more efficiently moved around if they become more standardized and share common channels, like data packets on the Internet.”

“The Physical Internet could help address this ‘grand challenge’ by drastically increasing co-operation between companies and across transport modes through greater standardisation,” the research read.

Along with these key disruptions in the industry, the report looked at ways in how these changes might work together and shape logistics in 5 to 10 years. The report noted four possible scenarios: “Sharing the PI(e)”, “Start-up, shake-up”, “Complex competition”, and “Scale matters”.

Under the “Sharing the PI(e)” scenario, the dominant theme is the growth of collaborative working where current market leaders (or incumbents) retain their dominance.

“Incumbents increase their efficiency and reduce their environmental impact by collaborating more, and developing new business models, such as sharing networks,” the report explained. “Research around the ‘Physical Internet’ (PI) leads to shared standards for shipment sizes, greater modal connectivity, and IT requirements across carriers.”

Another possibility is the “Start-up, shake-up”, wherein new entrants in the form of startups will bring a bigger impact. With crowd-sharing platforms and blockchain as dominant technologies in this scenario, startups become significant players, take market share from the incumbents through new business models, and collaborate with them and complement their service offers.

“Complex competition,” meanwhile, is characterized by the expansion of logistics offerings of big retail players. As a result, they shift from being customers to competitors. “They purchase small logistics players to help cover major markets, and draw on their deep understanding of customer behavior to optimize supply chains,” the report further explained. From serving as suppliers to the industry, technology firms are also seen entering this industry and creating a wider competition.

On the other hand, incumbent firms further improve in the “Scale matters” scenario. As current market leaders, they “compete for a dominant market position by acquiring smaller players, achieving scale through consolidation, and innovation through the acquisition of smaller entrepreneurial startups.” — Adrian Paul B. Conoza

Connecting countries with improved logistics

In today’s modern world, international trade contributes significantly to the growth of the global economy that promotes progress and prosperity across countries, down to communities. The success of seamless trade activities between nations depends greatly on uninterruptible flow of goods within and across borders. In this matter, the need for improved logistics infrastructure cannot be overemphasized.

“Logistics plays a crucial role in today’s economy. Improved trade logistics infrastructure such as roads and highways, ports, railways, airports including dry ports, warehousing infrastructure and labs and testing facilities are necessary for sustainable and balanced economic development of all parts of the country,” market research company Export Genius said on its Web site.

According to a report, “Connecting to Compete 2018: Trade Logistics in the Economy”, prepared by the World Bank’s Global Trade and Regional Integration Team in the Macroeconomics, Trade and Investment Global Practice, good logistics services reduce the cost of trade.

Compared from 10 years ago, the role of logistics in the global economy is better recognized today, the report said. “The growing scope of logistics performance and increasing recognition of its contribution to growth and economic integration call for holistic policies. More and more countries, especially emerging economies, see logistics as a sector of the economy requiring consistent policy making that cuts across traditional logistics areas,” it added.

Logistics has become one of the most important sectors in the world. It is recognized as one of the core enablers of development, ensuring rapid economic growth, bridging the gap between demand and supply, and cutting business costs.

Export Genius said that the expansion in trade and logistics infrastructure creates demand in economic system for different products, such as iron and steel, cement and manpower. For instance, India, it said, has to make its logistical infrastructure better to not only grow its economy but also help its companies to accomplish a sustained superior performance in international markets through enhanced trade supply chain process.

In terms of demand and supply, Export Genius said that more efficient transportation of goods from one place to another guarantees timely supply of products, thus, meeting the demand from the market at a given time.

“For example, China with main economic clusters on the east coast results to transporting commodities at far-away regions in the western and remote northern parts of the country. This creates the problem of demand and supply in the country’s economic system. Better connectivity from road, rail network, airstrips and sea helps companies to distribute their resources between places where there are abundant resources and where there are scarce,” Export Genius said.

Moreover, the market research company said that improved logistics infrastructure helps cut the cost of doing business by means of providing uninterrupted flow of goods. It said that any delay in the transportation of goods not only extends trade cycle, the quality of certain goods also get poor and fetches lower prices in markets.

“For individual countries, logistics performance is key to economic growth and competitiveness. Inefficient logistics raises the cost of doing business and reduces the potential for both international and domestic integration. The toll can be particularly heavy for developing countries trying to compete in the global marketplace,” the World Bank report said.

Given the utmost importance of logistics, it has become an elevated priority for many member countries of the International Transport Forum (ITF), an intergovernmental organization with 59 member countries, said ITF Secretary-General Young Tae Kim.

“Because facilitating trade and transport is at the core of stimulating economic development, several countries have developed comprehensive national logistics strategies. Well-functioning domestic and international logistics is a precondition of national competitiveness,” Mr. Kim was quoted as saying in the same report.

Of all the countries, Germany has taken the top spot in terms of logistics performance, measured against benchmarks like logistics competence and skills, the quality of trade-related infrastructure and the price of international shipments. It was followed by Sweden, Belgium, Austria, and Japan.

“High-income countries occupied the top 10 rankings in 2018, eight in Europe plus Japan and Singapore — countries that have traditionally dominated the supply chain industry,” the World Bank report revealed.

Meanwhile, mostly low-income and lower-middle-income countries in Africa or isolated areas fell to the bottom of the list. These are Afghanistan, Angola, Burundi, Niger, Sierra Leone, Eritrea, Libya, Haiti, Zimbabwe, and Central African Republic.

Among the lower-middle-income countries, large economies such as India and Indonesia and emerging economies such as Vietnam and Côte d’Ivoire stand out as top performers, the report said, noting that most of these countries either have access to sea or are located close to major transportation hubs.

“The composition of the top-performing upper-middle-income economies has changed marginally, with China, Thailand, and South Africa leading the group. Romania, Croatia, and Bulgaria also improved their rankings. Among low-income countries, those in East and West Africa lead in this year’s edition,” the report said. — Mark Louis F. Ferrolino

June remittances smallest in 9 months

By Mark T. Amoguis
Senior Researcher

MONEY SENT HOME by Filipino workers abroad slipped for the first time in 10 months and marked the worst performance in a year, according to data the central bank released on Thursday.

Cash remittance from overseas Filipino workers (OFW) dropped by 2.9% to $2.29 billion in June from $2.357 billion a year ago and by 12% from May’s $2.609 billion, data from the Bangko Sentral ng Pilipinas (BSP) showed.

It was these flows worst performance since June 2018’s 4.5% contraction.

June inflows were also the smallest in nine months, or since September 2018’s $2.237 billion.

The central bank traced this to “the 5.4% year-on-year drop in cash remittances from land-based workers, which was mitigated by the 6.3% increase year-on-year in transfers from sea-based workers.”

Saudi Arabia and Qatar contributed to the decline seen for that month, the BSP said in a statement.

This brought the cash inflows last semester to $14.638 billion, up 3.2% from $14.179 billion in last year’s first half.

Similarly, personal remittances, which include transfers in kind, fell 2.7% to $2.545 billion in June from $2.615 billion a year ago and from $2.896 billion in May.

It was also the first drop in 10 months and the worst performance since June 2018’s 4.9% drop as well.

June personal remittances were also the smallest in nine months, or since September 2018’s $2.49 billion.

June’s tally brought personal remittances to $16.252 billion last semester, an increase of 2.9% from last year’s first half.

According to the BSP, the United States was the biggest source of OFW remittances in the first half. It was followed by Saudi Arabia, Singapore, United Arab Emirates, the United Kingdom, Japan, Canada, Hong Kong, Germany, and Qatar. These countries accounted for 78% of total cash remittances last semester, the central bank said.

The central bank sees personal and cash remittances growing by three percent this year.

Sought for comment, ING Bank N.V. Manila Branch senior economist Nicholas Antonio T. Mapa said that the drop in June “was to be expected” given seasonality.

“We’ve noted increased volatility in remittance flows over the past the years and this could be due to the fact that OFs (overseas Filipinos) may be getting their salaries delayed from time to time,” Mr. Mapa said in an e-mail.

“We’ve also noted nuances in exchange rates for the increased swings in dollar terms.”

On the other hand, UnionBank of the Philippines, Inc.’s Economic Research Unit forecast a stronger June remittance data, its economist said.

Ruben Carlo O. Asuncion, UnionBank’s chief economist, said in a separate e-mail that May was “the preferred month for remittance to afford the OFW families’ tuition fees and other school-related needs” ahead of start of the school year in June.

UnionBank’s Mr. Asuncion expects OFW remittances to grow this year, but “at a slower-than-expected rate.”

“This potential growth is despite global headwinds that may impact remittances level in the short and medium term.”

ING’s Mr. Mapa said that in the coming months, “we can expect increased flows of remittances as the ‘ber’ months show favorable seasonality…,” referring to the last four months of the year which Filipinos treat as Christmas season.

“We’ve noted that on an annual basis, OF remittances continue to chug along at a consistent 3-4% pace, bringing in a steady substantial flow of FX and sustaining peso purchasing power in turn,” he added.

Overseas Filipinos’ cash remittances (June 2019)

Overseas Filipinos’ cash remittances (June 2019)

MONEY SENT HOME by Filipino workers abroad slipped for the first time in 10 months and marked the worst performance in a year, according to data the central bank released on Thursday. Read the full story.

Overseas Filipinos’ cash remittances (June 2019)

Data show state offices catching up with spending plan

By Beatrice M. Laforga

SPENDING CATCH-UP was under way as of July, according to data the Department of Budget and Management (DBM) released on Thursday, as state offices moved to make up for subdued expenditures for much of last semester due to the four-month delay in enactment of this year’s national budget.

The DBM said in a statement that while notice of cash allocation (NCA) — the authority the department gives to state offices to use cash allocated to them — dropped 17% to P1.688 trillion as of July from P2.033 trillion in last year’s first seven months, and NCA used dipped 1.57% to P1.569 trillion from P1.594 trillion, NCA utilization actually improved to 93% from 78% in the same comparative periods.

Line departments themselves used P1.153 trillion out of the P1.244 trillion in NCAs released to them as of July, or about 93%.

Sought for comment, DBM Assistant Secretary Rolando U. Toledo; Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc.; and Nicholas Antonio T. Mapa, senior economist at ING Bank NV-Manila, attributed the lower NCA releases to delayed enactment of this year’s national budget that left new projects unfunded in the first four months. Mr. Toledo added that it did not help that there was a 45-day ban on new public works ahead of the May 13 midterm elections.

Still, higher NCA utilization reflected efforts by state offices to catch up with their spending program for 2019.

The DBM said in a statement that “[a] higher NCA utilization rate demonstrates the capacity of line agencies to timely [sic] disburse their allocated funds and implement their programs and projects.”

“These lower NCA releases year-on-year may have been the result of the delayed passage of the 2019 national budget,” Mr. Asuncion said, while Mr. Mapa cited the “backlog” in NCA releases, which have been “coming back on stream only last June”.

“… [B]ut a good sign is that, even in such a short time, the utilization rate is quite high at 93%, showing that some catch-up spending is being done,” Mr. Mapa said.

For Mr. Asuncion, “The DBM probably has been pushing hard for utilization to rise rapidly to help buoy economic growth in the second half of 2019.”

The government had operated on a reenacted 2018 budget from January to April 15, when Mr. Duterte signed this year’s national budget into law but vetoed P95.3 billion in funds that were not in sync with state priorities, slashing the total to P3.662 trillion.

The impact could be seen in official infrastructure and other capital outlays data showing that disbursements fell by 11.7% year-on-year to P311.4 billion last semester, missing a P392.9-billion program for that period by a fifth.

State economic managers and private economists blamed the delay in budget enactment — which left new projects unfunded — for the muted 5.5% economic growth last semester that compares to the year-ago 6.3% and an already reduced 6-7% target for 2019.

Having said earlier this month that the economy would have to grow by at least 6.4% in order to hit the lower end of the 2019 target, Socioeconomic Planning Secretary Ernesto M. Pernia told reporters on Thursday that in order to “hit higher growth rates… we are doubling our efforts… in spending.”

“With the need to increase government spending in [the second half],” I expect budget utilization to continue to rise and make up for the disappointing underspending in [the first half],” Mr. Asuncion said.

Michael L. Ricafort, economist at the Rizal Commercial Banking Corp., said separately that “[t]he government’s catch-up spending may have increased the latest budget utilization rate, which could still go up further with more catch up plans on, as well as further increase in infrastructure spending for the coming months of 2019.”

The DBM, Mr. Toledo said, is “looking forward this third quarter na mag-accelerate ’yan because… we have the catch-up plan for the infra[structure-related] departments — they are already fast-tracking the implementation of their projects.”

Bills cutting corporate income tax, raising alcohol levy to advance in next two weeks

THE BILL reducing the corporate income tax and streamlining fiscal incentives will likely be approved on second reading in the House of Representatives in two weeks, the head of the chamber’s Ways and Means committee said on Thursday.

“The week after next, we will try to have an approval. We are working with the Committee on Amendments and we have a technical working group,” said committee chairman Rep. Joey S. Salceda of Albay’s 2nd district said in a press briefing, adding that the chamber will be focused on the proposed P4.1-trillion national budget for 2020 which the Executive is expected to submit to Congress by Aug. 20.

Formerly known as “Tax Reform for Attracting Better and High-quality Opportunities” or TRABAHO, House Bill No. 313 or the “Corporate Income Tax and Incentives Reform Act” (CITIRA) authored by Mr. Salceda slashes corporate income tax rates but also streamlines investors’ perks by making them time-bound and performance-based. Among others, the bill seeks to cut the current 30% corporate income tax rate — deemed the highest among major Asian markets — by two percentage points every other year to 20% in 2029.

It was approved at committee level last Wednesday, while HB 1026, which proposed to increase the excise tax rate on alcohol products and e-cigarettes, bagged second-reading approval in the evening of that same day.

In the Senate, the Ways and Means committee will begin parallel hearings to tackle remaining tax reform packages, beginning with the first two measures that have advanced in the House.

Finance Undersecretary Karl Kendrick T. Chua on Thursday said the alcohol and e-cigarette tax bill is expected to bag final reading next week and may be transmitted in the Senate by end of August.

“It will be on third reading next week and it might be transmitted to the Senate the week after, so mga end of August the Senate might receive the bill already,” Mr. Chua said during the first Ways and Means committee hearing in the Senate.

The House committee applied Section 48 of House Rule No. 10, which allows immediate approval of bills that secured third-reading approval in the last Congress.

Among others HB 1026 will increase to 22% from 20% the ad valorem tax on the net retail price per proof of distilled spirits, and the specific tax to P30 per liter from P23.40 currently. The specific tax rate will be increased by P5 every year until it reaches P45 in 2022, and will be increased by seven percent annually beginning 2023.

This is lower than the DoF proposal to increase ad valorem tax to 25% and specific tax rate to P40 per liter. Under the DoF proposal, the specific tax rate was to be increased by P5 until it reaches P55 by 2023, and by 10% annually thereafter.

The House version is expected to generate about P33.3 billion in the first year of implementation, while the DoF’s version was estimated to bring in some P52 billion.

“Well, I intend to have weekly hearings, but in between I am encouraging my colleagues, encouraging DoF (Department of Finance) to meet with the other senators because we have different hearings going on at the same time,” Senator Pia S. Cayetano, committee chairman, told reporters in a briefing after the hearing. — Charmaine A. Tadalan and Vince Angelo C. Ferreras

Air fares poised to drop in next 2 months

AIR FARES are set to go down next month as the aviation regulator reduced the allowable fuel surcharge that airlines may implement for September and October.

The Civil Aeronautics Board (CAB) issued an advisory on Thursday notifying local carriers it is scaling down allowable surcharge from Sept. 1 to Oct. 31 to Level 2 from Level 3. A Level 2 fuel surcharge means airlines may charge an additional P45-P171 for domestic flights and P218-2,076 for international flights, depending on flight distance. The Level 3 surcharge it implemented in June to July allowed airlines to charge an additional P74-P291 for domestic flights and P381-P3,632 for international flights.

CAB cited a lower price of jet fuel in June-July, averaging $78.54 per barrel or P25.29 per liter. In the April-May period — which it used as basis for the allowable surcharge in June-July — the price of jet fuel averaged $82.96 per barrel or P27.24 per liter.

Prior to yesterday’s announcement, CAB Executive Director Carmelo L. Arcilla told reporters on Wednesday that the price of jet fuel in the world market has been easing recently. “May trend na pababa in the past two months. We will come up with the advisory… pero mukang pababa [There’s a trend in the past two months of a reduction in jet fuel price. We will come up with the advisory, but it looks like it’s going down],” he said.

Every two months, the CAB issues a notice on allowable fuel surcharge that airlines may implement, based on a surcharge matrix it has regularly released starting September last year.

The system is designed to help carriers mitigate the impact of fluctuating jet fuel prices. Airlines that want to impose the allowable fuel surcharge must file an application with CAB. — Denise A. Valdez

GT Capital Q2 income up as auto sales rise

By Arra B. Francia, Senior Reporter

GT Capital Holdings, Inc.’s attributable profit grew 15% in the April to June period, on the back of higher revenues from its auto unit and increased contributions from its associates.

In a regulatory filing, the listed conglomerate said net income attributable to the parent reached P3.92 billion in the second quarter, following a 3% increase in revenues to P57.26 billion.

“The increase was principally due to revenue growth from automotive operations, equity in net income of associates, and joint ventures and other income,” the company said.

GT Capital’s units include Toyota Motor Philippines Corp. (TMP), Federal Land, Inc., Metropolitan Bank & Trust Company (Metrobank), Metro Pacific Investments Corp., and Sumisho Motor Finance Corp. (SMFC).

On a six-month basis, GT Capital’s attributable profit was up 3% to P7.34 billion while revenues were also 3% higher to P104.27 billion.

“Easing inflation, coupled with declining interest rates, and improved consumer confidence created conditions for growth in GT Capital and its component companies…We are optimistic for the rest of 2019 as macroeconomic indicators improve,” GT Capital President Carmelo Maria Luza Bautista said in a statement.

TMP’s revenues for the first half was flat at P76.1 billion, following the sale of 73,454 units of retail vehicles — almost unchanged from the same period a year ago. However, it noted that Toyota remains to be the dominant automotive brand in the country with a market share of 37.6% by end-June.

For the second quarter alone, Mr. Bautista noted that TMP’s revenues surged 25% to P42 billion, due to improvement in the sales of retail vehicle units amid a slight decline in wholesale volumes. This led to a 44% increase in earnings to P2.6 billion for the quarter.

“The challenge now is how to maintain the momentum of the second quarter for the rest of the year,” Mr. Bautista said in a media and analysts’ briefing in Taguig Thursday.

TMP looks to end the year with 71 Toyota dealerships across the country, then further increase it to 83 by end-2021.

Metrobank realized an 18% jump in earnings to P13 billion, due to loan growth and margin expansion, higher fee-based income, and prudent operational expenditures.

For Federal Land, net income grew 10% to P572 million, boosted by a 12% uptick in revenues to P5.9 billion. Reservation sales climbed 52% to P8.9 billion, as the company launched several projects toward the end of 2018. Its inventory also increased by 30% to 1,774 units following the launch of two projects in the first half.

Infrastructure conglomerate Metro Pacific Investments Corp. saw a 1% increase in consolidated core profit to P8.7 billion, mainly due to the growth of Manila Electric Co. and Maynilad Water Services, Inc. MPIC also recorded traffic growth in its domestic toll roads, as well as more patients in its hospital network.

Insurance firm AXA Philippines posted a net income of P1.2 billion, 12% lower year on year due to a 59% drop in single premiums.

Shares in GT Capital rose 0.76% or P6.50 to close at P864.50 each at the stock exchange on Thursday.

Megaworld eyes P12 billion in sales from Pasig residential condominium

MEGAWORLD Corp. is aiming to generate P12 billion in sales from three residential towers in its Arcovia City township in Pasig City.

The listed property developer said in a statement that it will launch Arcovia Palazzo, a residential complex composed of three towers, namely the 40-storey Altea Tower, 45-storey Benissa Tower, and 49-storey Cantabria Tower.

The entire complex will offer 1,472 residential units sized up to 32 square meters (sq.m.) for studio, up to 46.5 sq.m. for one-bedroom, up to 77 sq.m. for two-bedroom, and up to 193.5 sq.m. for three-bedroom.

The company will likewise sell bi-level units for one-bedroom and two-bedroom configurations, offering up to 107 sq.m. and 139 sq.m., respectively.

Amenities include an infinity pool with pool deck, pavilion, jacuzzi, game room, fitness center, daycare center, outdoor seating lounge, children’s playground, function rooms, and a multipurpose lawn. The towers will also feature retail spaces in the ground level.

Arcovia Palazzo is scheduled to be completed by 2025. It will be the second residential project inside the 12.3-hectare Arcovia City, located along C-5 Road in Pasig City.

Megaworld last year unveiled the 37-storey 18 Avenue de Triomphe, offering 576 units worth a total of P4 billion. It noted that the project is “almost sold out,” and will be completed by 2023.

So far, only commercial establishments are operating in Arcovia City. The township houses a Landers Superstore and the Arcovia Parade commercial area, as well as a 19-meter high arch monument called Arco de Emperador by Spanish sculptor Gines Serran Pagan.

Megaworld will be building a museum next to the arch, in a bid to draw more people into the area.

The company of billionaire Andrew L. Tan has committed to spend P35 billion to develop Arcovia City in a span of 10 years, as it looks to add more office, residential, retail, and lifestyle components in the estate.

This is part of the 24 estates under Megaworld’s network, which is seen to rise to 30 by end-2020.

Megaworld booked a net income attributable to the parent of P4.5 billion in the second quarter of 2019, 15% higher year on year, on the back of a 20% increase in revenues to P16.8 billion.

This pushed the company’s attributable profit 16% higher in the first half to P8.3 billion, with revenues of P31.7 billion. — Arra B. Francia

Power sales fuel First Gen Q2 profit surge

FIRST GEN Corp. increased its net income attributable to equity holders of the parent firm by 87.4% to $84.67 million in the second quarter, as the Lopez-led company recorded a strong growth in its power sales.

Based on its financial report, revenues from the sale of electricity reached $575.14 million, higher by 16.7% from a year ago, while other income was a positive $3.1 million, reversing charges of $6.07 million a year ago previously.

In the first half, the listed energy company recorded an attributable net income of $165.45 million, up 95% from $84.86 million previously. Electricity sales rose 15.3% and hit $1.11 billion from P962.58 million.

“First Gen’s focus on clean, low carbon and renewable energy continues to pay off as our first semester results overtakes last year’s. For the remainder of the year, we expect all the platforms to continue to deliver stable earnings,” First Gen President and Chief Operating Officer Francis Giles B. Puno said in a statement.

He said work on the development of the country’s first liquefied natural gas (LNG) terminal continues. He added with the Energy department declaring the project as one of national significance, First Gen “will endeavor to deliver this project swiftly and efficiently given its criticality to the country’s energy security.”

The company said recurring attributable net income of the parent rose 36% to $156 million, as its portfolio of clean fuel platforms “all performed notably during the period.” The US dollar is the firm’s functional currency.

First Gen subsidiary Energy Development Corp. recorded recurring earnings from its geothermal, wind and solar platform of $49 million, higher by 48% from the previous year as its Unified Leyte and Tongonon geothermal plants continued to normalize their operations after the damage brought by a typhoon in December 2017.

First Gen said all four of its natural gas-fired power plants delivered higher recurring earnings. While the two older plants — the 1,000-megawatt (MW) Santa Rita and the 500-MW San Lorenzo — benefited from lower operating expenses, the newer ones — the 420-MW San Gabriel and the 97-MW Avion —generated higher electricity sales.

The company said its hydro platform also registered higher earnings at $13 million as it gained from higher sales to the wholesale electricity spot market and ancillary services.

On Thursday, shares in First Gen closed 0.78% up at P25.70 each.

EARNINGS OF LOPEZ-LED FIRM RISE
Separately, Lopez Holdings Corp. reported a second-quarter net income attributable to the parent firm of P1.89 billion, up 90.9% from P990 million previously.

Revenues rose 13% to P35.14 billion from P31.11 billion, the firm’s financial report showed. The holding company represents the Lopez family’s investments in major development sectors.

In the first half, Lopez Holdings said net income attributable to equity holders of the parent reached P4.18 billion, 99.7% higher than the level a year ago.

The company said the “steady performance” of the energy group under associate First Philippine Holdings Corp. (FPH), as well as the “strong recovery” of investee ABS-CBN Corp. accounted for the results.

Consolidated revenues rose by 16% to P67.91 billion. FPH registered a 76% increase in attributable net income and 35% rise in recurring net income as electricity sales expanded by 20%, the firm said. ABS-CBN’s net income rose by 98% as advertising revenues improved by 18%

As of June 30, Lopez Holdings owned 51% of FPH and 56% economic interest in ABS-CBN.

On Thursday, shares in Lopez Holdings were down 0.45% to P4.40 each. — Victor V. Saulon