A colossal contradiction

Did you know that government borrowed billions of pesos to build two major infrastructure projects that are now grossly underutilized—at only about one-twentieth of capacity—five years after completion? How would you feel if you learned that it is government itself, by its subsequent moves, which had undermined the use of these facilities? And how would you feel knowing that those projects promise far-reaching benefits ranging from decongesting Metro Manila to spurring more broad-based economic growth? But by undermining them, government has effectively moved us in the opposite direction? To me, this is worse than failing to take President Aquino’s proverbial “daang matuwid” (straight path); it also means moving backward on it.

Five years ago, construction was completed on the Subic Bay Port Development Project and on the Batangas Port Development Project Phase II, both funded by loans, totaling P16.8 billion, from the Japanese government. Both were envisaged to decongest the Port of Manila by redirecting cargo traffic to these two ports, promoting regional development in Central Luzon and Calabarzon in the process. Developing these ports was part of the 2004 Master Plan for the Strategic Development of the National Port System, a major aim of which was to spread across a wider area the containerized cargo traffic concentrated in Manila. It would also ease Metro Manila road traffic, where container trucks are estimated to take nearly half (44.2 percent) of road space in routes that feed the Port of Manila.

It would make eminent sense, then, to deliberately shift cargo traffic away from the Port of Manila toward either Batangas or Subic over time. But so far, port capacity utilization in Batangas has been a measly 4.2 percent, while for Subic, it has been 5.6 percent—a huge waste of resources by anyone’s measure. What appalls me even more is that certain firms operating in the economic zones adjacent or near the Subic and Batangas ports actually ship their cargo out of the Port of Manila! Something is very wrong here, suggesting that the problem is much more complex than meets the eye. And it is.

As things stand, the Port of Manila is the port of call of 23 container liner shipping companies serving intra-Asian trade. Meanwhile, the Port of Batangas gets only one ship call every week—by MCC Transport. Subic has only two, Wan Hai and APL, making direct ship calls every Wednesday and Thursday, respectively. As such, 98 percent of the foreign container traffic in Luzon is handled at the Port of Manila. New expressways to both the Batangas and Subic ports are now in place. So why does Manila continue to dominate?

To cargo shippers, it’s plain economics: Basic ocean freight charges are significantly lower when shipping to or from Manila. Inbound freight from Singapore to Manila costs $100 less per 20-foot container ($170 less for a 40-foot container) than to Batangas, for example. For exports, ocean freight via Subic is $100-$150 higher than ocean freight out of Manila. On the other hand, port-related charges including trucking services are 10 percent cheaper for Batangas and 52 percent cheaper for Subic compared to Manila. Subic’s cargo handling fees are also significantly lower than those at Manila Port, although administrative and inspection charges are higher. Still, all these could not offset the freight cost disadvantage for both Subic and Batangas relative to Manila. On top of these, truckers, freight forwarders and logistics companies are mostly located in Metro Manila, and would thus naturally favor working with the Port of Manila.

Why does Manila enjoy this freight cost advantage? It’s called economies of scale: The much larger volumes handled make it possible to offer lower unit rates. And Manila handles much larger volumes owing to historical advantage—it used to be the only choice. If left alone, shippers will logically continue to prefer the Port of Manila, and the cost disadvantage of the Subic and Batangas ports will persist and possibly even grow over time. Developing these latter ports was not enough; the goal of having them to relieve and decongest the Port of Manila (and with it, Metro Manila’s traffic) simply will not happen unless government actively intervenes. It can make it more attractive for ships and shippers to use Batangas or Subic rather than Manila; the textbook market-based solution would be to tax shipments going through the Port of Manila at a rate high enough to offset the cost disadvantage of the other two. Or government can force the shift outright, by halting any further growth in capacity in the Port of Manila as a start.

But herein lies the whole problem. With decongesting Metro Manila as a prominent item in its 10-point agenda, the previous administration borrowed billions to develop the Subic and Batangas ports. But in a colossal contradiction, it allowed private concessionaire International Container Terminal Services Inc. (ICTSI) to substantially expand the capacity of the Manila International Container Port (MICT). ICTSI inaugurated MICT’s Berth 6 with much fanfare last June, raising capacity by 30 percent at a cost of $200 million. But that’s not all.

ICTSI claims it is spending another P135 million in preparation for Berth 7. And yet the direction that makes sense is to actually phase down the Manila port’s capacity, not expand it—or, at the very least, arrest further capacity growth and stop at Berth 6.

I see in all this a colossal failure in holistic planning and coordination. The solution will not be easy, but it is incumbent on government to bring all concerned parties together to find it. And it should have done so yesterday.

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E-mail: cielito.habito@gmail.com