(Below is the speech delivered by Mr. Christian R. Gonzalez, Asia Pacific Head of the International Container Terminal Services Inc. He was one of the speakers in “Improving Turnaround Time,” the third session of the BusinessWorld Economic Forum.)
FROM a turnaround time point of view, which is what we’re really meant to talk about today, with ports you need to to look at it from two different angles.
One is the big existing international ports that the Philippines already has in Manila and another is from the seriously inadequate ports or pieces of land by water, actually it’s what they are, in our provincial areas.
So looking at what we have now from an international port point of view in Manila, there are two significant issues related to turnaround time.
The first is how to actually move the goods around without disrupting the lives of the people who live in the cities. And the second is how to address one of the biggest hindrances to quick turnaround time in logistics which is corruption, which by the way exist in every country around the world so it’s not anything unique to us here.
When you look at how to move the goods in and out of what frankly are fairly efficient ports in Manila, we go to the issue of roads and how to manage the supply and demand. Unfortunately, a lot of the projects that were spoken about earlier are gonna take years to build, we saw numbers up there like 2024 and 2025 and 2022.
But what are we to do today? The population is growing.The population is becoming richer. As much as we want to avoid it, people are buying cars. How do we move goods in and out of the ports, which aren’t gonna move, and make them more efficient without disrupting all your commutes to and from your work and the commutes of your children, and the commutes of your family.
The way to do it is to actually look at, or spend a lot of time looking at the roads and seeing when the regulatory bodies have kind of forced the general public to use them and when the regulatory bodies have forced trade to use them.
And if you actually studied that and looked at that, you’ll realize that the trucks are only using the road five to seven hours a day. And you realize when you study Russia that most of them are all on the roads at the same time. So from a freight perspective, we looked at systems, we looked at things in other countries, truck appointment systems, for example, to spread that across the entire 24 hours, seven days a week, to ensure that we can get to 2024 when all the roads are done without disrupting our daily lives. That’s actually been very successful and I think it would be very interesting to talk about later.
Curbing corruption via automation
The second thing about existing international ports is corruption. We all know that if you need to go get a signature, and you need to pass money under the table and all of that, you know, it takes a lot of time. It’s very easy to talk about idealism and say “okay we’re gonna stamp out corruption” but this is not a one- or two-year thing. This is a multi-generational ideology.
So how do we get again from now to two or three generations down the line? We eliminate the interaction between people. You could only have corruption if people are dealing with one another. So how do we do that in the port sector, we automate. And we try to learn from other projects we have around the world to ensure that whatever we can automate in places like Manila we do because when you automate, you ensure that your process is guaranteed to take 10 minutes [or less] without having the human interaction. And when corruption element comes in, it can turn it into three to five hours or three to five days.
Developing provincial ports
So moving from existing ports now to the development of ports in our provincial regions which is sadly lacking.
It’s critical that we allow our agriculture and manufacturing economists to thrive and the only way to do that is to ensure that they are connected to the rest of the world. That’s where the money comes from. The only way to do that is to make sure that they have water-borne access and air-borne as well depending on the type of manufacturing but primarily sea-borne access.
This is not done by saying “okay we’re gonna spend $70 billion and we’re gonna build a port on every single island.” This is done in coordination between private sector and public sector to ensure that we put the ports around these economic clusters and make sure that we have bridges, roads and all the support infrastructure around them to make sure that the products are connected to the global economy.
Now, the most important thing I can say about this is that the private sector is willing to spend the money. The problem is the government needs to realize that the private sector when they spend money want to make money. And there’s nothing wrong with turning a profit, that’s why we read BusinessWorld everyday, we want to see how people are making more money. In order to make money you need to be able to generate a return on your capital that means you need to be able to charge a fair fee.
Now people like Doris Magsaysay [of A. Magsaysay Inc.] want their ships to come in and out and they’re willing to pay a fair fee for this, right?
But if you’re hampered by a regulatory environment that does not allow you to charge a fair fee then nobody is gonna put the money into the ground because nobody is going to make a return.
If you want to build a port on Panay Island somewhere to catalyze the growth of the economy there, you are going to need to have a road, most likely a toll road in some cases if you are talking about big volumes because of the magnitude of investment required, and you’re going to need a port. Now if you are only charging at the port $20 for someone to move a 20-ton box and you’re only allowed to charge on the road, I don’t know, $20, to move a truck 30 kilometers, either the people that built these pieces of infrastructure are going to go bankrupt or nobody’s gonna build them at all. Which means none of us are gonna have our roads and none of us are gonna have our ports. So we need to be pragmatic about what the private sector is allowed to charge.
A fair return on infrastructure investment
Now people say there’s Chris Gonzalez again trying to make a ton of money.
The reality is you need to look at how much ports, roads, and the infrastructure components from a cost point of view actually contribute to the overall cost of goods.
If you ship, if you land a container on one of these islands and you ship this container to a factory, the infrastructure charges — port charges and road charges — probably only make up 10% of the total cost of moving the goods. But the people who have built the roads and built the ports and built all of these other stuff have actually spent 95% of the capital required to move the goods. So I’m trying to figure out how that’s fair. Spend 95% of the capital but take 10% of the revenue. Doesn’t really make any sense. There’s something wrong with that math.
So we need to find ways to ensure that the people building the infrastructure are making a fair return on that infrastructure they put in. And we need to find ways to lower the cost of the other 90%, which right now is hidden. People don’t know what it is. People don’t know why someone in a warehouse charges P15,000 to move a one-square meter balikbayan box. Nobody knows. Of course there’s a lot of transparency with the government projects but everything else along the supply chain lacks transparency. We need to understand and the regulators need to understand that we need to start looking at that.
So again, from a port perspective, we look at it from the existing international ports, and we also look at it from how to increase turnaround time and improve turnaround time and actually lower cost in places where new ports need to be developed.