Philippines Freight Transportation Report Q2 2008

Port operator International Container Terminal Services Inc (ICTSI) said in December that it had signed an agreement with a consortium of international banks for a US$250mn credit, designed to refinance various other loans, fund new acquisitions, and provide general working capital. ICTSI operates port terminals in the Philippines, Poland, Brazil, Madagascar, Indonesia, Syria and Japan. It is also acquiring ports in Ecuador and China. In August, ICTSI said its net profit in the first-half increased 23% to PHP1.04bn (US$23.17mn) year-on-year (y-o-y), boosted by its expanding operations overseas. At home, at the end of 2006, ICTSI saw its cargo handling contract at the state-owned Manila International Container Terminal (MICT) renewed for another 25 years. BMI's newly released Philippines Freight Transport Report concludes that international shipping volumes should grow by an annual average of 5.5% in 2008-2012, a rate still somewhat constrained by slow port infrastructure growth. Coastal shipping freight tonnage should rise by 5.0% per annum, restricted by the lack of open competition on freight rates.

Our shipping forecast is in line with prospects for the freight industry in general. The outlook for the Philippines economy over the next five years is for moderate to strong growth, averaging 5.6% per annum in 2008-2012. The effect is to give freight transport a good, but not spectacular platform for development.

We expect overall freight tonnage volume to increase by an annual average of 5.7% per annum over the forecast period, ahead of overall GDP by 0.1 percentage points. While in many developing economies freight growth usually exceeds GDP growth by a significant margin, the narrower gap between the two rates in the Philippines shows the extent to which the transport sector is failing to live up to its full potential.

The air freight sector is expected to experience the most significant growth rate, averaging 7.8% y-o-y.

This takes account of the recent negative impact of record jet fuel prices. Next in importance will be rail freight, growing by 6.6% from a low base as a result of the Northrail and Southrail projects. Despite the unavailability of official figures for road haulage, based on our estimates, we are expecting that the segment will continue to experience positive growth rates. We expect tonnage carried by road to grow at an annual average rate of 6.0% during the forecast period. One constraint facing the industry is the operating environment. Comparatively speaking, the Philippines' BMI freight rating comes at the low end in relation to regional peers, with an overall score of 44.8 (out of a potential maximum of 100.0).

Under most categories, the national industry received a medium to low score. Freight and infrastructure growth rates, together with the transport intensity index (a measure of the dynamism of foreign trade) are all at the lower end of the scale.

For the 2008-2012 forecast period, we expect the transport and communications sector to outpace the economy as a whole by a small margin, as far as value of output is concerned. It will achieve average annual growth of 5.7%, versus 5.6% for overall GDP. Again, the gap between these two rates is narrower than experienced in many other emerging economies. The total value of transport and communications GDP will rise to US$14.1bn in nominal terms by 2012, representing 7.1% of the Philippine's GDP.