BMI's Executive Summary

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In August, Philippines port operator International Container Terminal Services (ICTSI) said its net profit in the first-half increased 23% to PHP1.04bn (US$23.17mn) from a year ago, boosted by its expanding operations overseas. Its revenue for the same period rose 16% to PHP6.4bn. ICTSI's second quarter net profit rose 12% year-on-year to PHP535mn. The company said its second quarter revenue, which grew 16% to PHP3.2bn, came mostly from the combined operations of its ports in Manila, Poland, Brazil and Madagascar, accounting for 71% of total revenue. The rest were from its new subsidiaries in Indonesia, China and Davao in southern Philippines. ‘The solid financial results of the first six months of the year are a result of the good execution of the company's growth strategy by our business units,' ICTSI chairman and president Enrique Razon Jr said in a statement. ICTSI recently won a 20-year concession to operate a cargo terminal in Ecuador and acquired a stake of 60% in Yantai Gangtong Container Terminal, which manages a port in China. At present, ICTSI operates container terminals in the Philippines and in Poland, Brazil, Madagascar, Indonesia, Japan and Syria.

At home, earlier in December 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 will grow by an annual average of 5.7% in 2007-2011, a rate still somewhat constrained by slow port infrastructure growth. Coastal shipping freight tonnage will rise by 6.5% 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 2007-2011. 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 6.0% per annum over the forecast period, ahead of overall GDP by 0.4 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 airfreight sector is expected to experience the most significant growth rate, averaging 9.8% year on year (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 6.7% 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 6.1% during the forecast period. One constraint facing the industry is the operating environment.

Comparatively speaking, the Philippines' BMI freight industry Business Environment Rating comes at the bottom end in relation to regional peers, with an overall score of 37.0 (out of a potential maximum of 70.0). 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 2007-2011 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 5.8%, 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$13.3bn in nominal terms by 2011, representing 7.1% of the Philippine's GDP.

Contents

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Chapter 1 - Executive Summary

Chapter 2 - SWOT Analysis

Philippines Air Freight SWOT

Philippines Economic SWOT

Chapter 3 - Business Environment Overview

Table: Asia Pacific Freight Business Environment Ranking

Business Environment Ranking

Economics – Long-Term Risk

Politics – Long-Term Risk

Freight Transport Growth

Transport Infrastructure Growth

Regulatory Environment

Competitive Environment

Transport Intensity Index

Political Risk Summary

Economic Risk Summary

Business Environment Risk Summary

Legal Code/Corruption

Red Tape

Chapter 4 - Industry Trends And Developments

Road

Rail

Air

Sea

Chapter 5 - Industry Forecast Scenario

Macroeconomic Environment

Table: Philippines: Macroeconomic Data And Forecasts

Chapter 6 - Country Snapshot: Philippines Demographic Data

Section 1: Population:

Table: Demographic Indicators (2005)

Table: Rural/Urban Breakdown

Section 2: Education & Healthcare

Table: Education

Table: Healthcare: Vital Statistics

Table: Healthcare: Expenditure

Section 3: Labour Market And Spending Power

Table: Employment Indicators

Table: Consumption and Stratification

Table: Wages per year

Transport Outlook

Table: Freight Carried (domestic and international)

Table: Philippines Transport & Communications Industry Forecasts

Chapter 7 - Trade Environment

Table: Value of Imports by Category (US$mn)

Table: Value of Exports by Category (US$mn)

Table: Top Export Destinations, US$mn

Table: Export Trade, % y-o-y

Table: Top Import Sources

Table: Import Trade, % y-o-y

Foreign Trade Regime

Overview

Trade Agreements

Tariffs/Non-tariff Barriers

Chapter 8 - Market Overview

Multimodal

Competitive Landscape: Multimodal

Road

Infrastructure

Competitive Landscape: Road

Rail

Infrastructure

Competitive Landscape: Rail

Company Profiles

Air

Infrastructure

Competitive Landscape: Aviation

Company Profiles

Water

Infrastructure

Competitive Landscape: Maritime

Company Profiles

Pipelines

Chapter 9 - BMI Forecast Modelling

How we generate our industry forecasts

Transport Industry

Sources

Chapter 10 - Appendix: Regional Demographic Data

Table- Manufacturing Wages (ave per annum)), US$

Table: Population

Household Spending Per Capita, US$

Private Consumption Per Capita, US$ PPP

Market Size, GDP, US$bn

Competitive Landscape for Asia Freight Transport Reports: Sample of Companies Ranked

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Analysis of latest projects across the freight transport sector – road, rail, air, sea, logistics – including market overview which provides an outline of the key elements driving development. SWOT analysis of the state’s business environment, transport sector, politics and economics, which carefully evaluates the short- and medium-term issues facing the industry.

Network of Asian Freight Transport Sources

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BMI's Asian Freight Transport Reports are based on an extensive network of multilateral organisations, government departments, freight transport industry associations, chambers of commerce and company reports. Information sources include: