1.1.

Social Factors
1.1.1. Diversified needs of Customers
Customers are increasing their use of outsourced services at 1% CAGR and tightening
the number of Third Party Logistics (3PL) they use. This indicates that customers
continues to avail outsourcing and uses more than one vendor for their outsourced
services.
From Armstrong & Associates 2013 report, Procter & Gamble ranked first in 3PL
use with 53 3PL relationships followed by Walmart with 51 3PL relationships 1. As per
Capgemini, shippers that use 3PL services has increased from 65% in 2012 to 67% in
2015. With the increasing usage growth for outsourced services, Customers are
demanding more responsiveness from logistics service providers. As such, logistics
companies are investing in alternative solutions and expanding their services to meet
these needs2. In addition, the most frequently outsourced activities are domestic and
international transportation, warehousing, customs brokerage, and freight forwarding.
Importance: Customers continuing to leverage their outsourced services means it
recognizes the tangible benefits brought by 3PL services. Asset-based logistics firms
which offer a broad range of services, competitive prices, and more control over its
resources will have an edge over nonasset-based logistics. This is a threat to the
company.
1.1.2. Population Growth
Population in the Philippines is projected to increase from 103 million in 2015 to 112
million in 2020. The projected population by sex and region shows that CALABARZON,
NCR, and CENTRAL LUZON are the top 3 populated regions in which CALABARZON
has the highest CAGR at 1.80%.
The business process outsourcing (BPO) industry in the country has the potential
to grow exponentially over the next decade because the country has a high literacy rate
of more than 90% and population that speaks English with neutral accent 3. Since this will
induce consumption, industries that cater to consumer demand will benefit in the long
run. This is evident under food and beverages sector that are increasingly influenced by
western branding and consumption habits. Busy lifestyles, particularly in urban areas
where western influence is at its strongest, have fuelled the interest in imported

1 Armstrong & Associates / 3PL Customers Report July 2013

2 Capgemini / 2015 Third-Party Logistics Study
3 BMI Research / Country Business Forecast Report Q1 2015

packaged and convenient foods, spurring growth on this sector4.

The figure below

shows the forecasted population in the Philippines.

Importance:

Increase in population means creating a potential for a new market.

Information about dominant gender will be beneficial for selecting what product or
service to market in populated geographical locations. Primary commodities that are
imported and transacted throughout the country are food, machinery and transport
equipment, manufactured goods, and mineral fuels, where the least are animals and
vegetable oils, fats, and waxes. With this demand, the industry can target potential
business partners that engage in retailing and wholesaling business in the region and
offer services at competitive price. This is an opportunity for the company.
1.1.3. Increasing usage of Internet and Social Media
Filipinos registering to internet services will increase at an 11.3% growth rate until 2016,
and it is forecasted that 59% Filipino users will be online users at that time5.
As per We are Social Singapore 2015, Philippines internet penetration is up from
36% to 44% while Social media penetration is up from 32% to 40%. This translates to
Filipinos spending 6.1 hours in the internet, 4.1 of which in social media, and 2.4 in
viewing television. Moreover, 64% online Filipinos are relying on social media channels
for their purchase decisions while 89% online Filipinos read others people post or
comment about a particular brand, product or service6.
Importance: With the increasing trend on social media and internet usage of Filipinos,
small to mid-size firms searching for economical ways to advertise their brands are
leveraging the power of digital marketing. Others used this as a listening tool to keep
track of relevant trends, monitor competitors, and learn more about their potential
customers businesses. Furthermore, companies use social media to connect with their
existing and new clients and partners. With the proven effectiveness of digital marketing
to business to business marketing, this is an opportunity to the company.
1.2. Environmental Factors
1.2.1. Quality of Roads

4 BMI Research / Food and Drink Report 2015

5 Digital Marketing Philippines / Infographic - 2015
6 Digital Marketing Philippines / Infographic - 2015

The quality of roads is decreasing at 1% CAGR due to limited investment in

maintenance, limited number of roads around ports, and overcrowded roads.
The quality of roads indicator in the Philippines from 2012 to 2015 averages 3.5,
in which rating of 1 is extremely underdeveloped while rating of 7 is extensive and
efficient7. The Philippines having a low rating means that the quality of its roads has
caused delays, traffic, and high cost on road transport. It also contributed to severe port
congestion that extended the delivery times of imported goods. In addition, the
overcrowding of roads has led the government to enforce truck ban that eventually
resulted to a loss of Php 30bn per day in the form of lost man-hours8.
Importance: Deteriorating road and rail transport networks in the Philippines has been a
challenge for the logistics sector since it results to heavy traffic that interrupts on-time
delivery of goods leading to an increase in transport costs. This is a threat to the
company.
1.2.2. Natural Calamities and Change in Climate Patterns
Typhoons and Extreme Rainfall Events
From 1948 to 2012, the country is experiencing 19-20 typhoons in a year, six of
them are classified as extreme (150 kph and above). Heavy daily rainfall will continue to
become more frequent while extreme rainfall is projected to increase in Luzon and
Visayas only. However, the number of dry days is expected to increase in all parts of the
country in 2020 (year 2006-2035) and 2050 (year 2036 2075).
Changes in Climate Patterns
The annual mean temperature chart projects an upward trend that shows a
significant increase in the number of hot days and decrease in the number of cool nights.
Importance: Unpredictable typhoons and extreme rainfall events have a negative impact
to the logistics industry since these will disrupt the companys operations in delivering
goods to customers. Climate change is caused by the accumulation of greenhouse
gases in the atmosphere, trapping the suns heat commonly known as greenhouse
effect. The major effects of climate change are sea level rise, extreme weather events,
rainfall, and increase in temperature. Both are a threat to the company.
1.3. Political Factors
1.3.1. Customs Modernization

7 World Economic Forum / Global Competitiveness Report 2012 - 2015

8 BMI Research / Country Business Forecast Report Q1 2015

Customs Modernization Bill No. 5525 is on its final stage and needing the approval of
the Senate by the end of 2015. The bill introduces efficiencies in customs and trade
such as computerization that will lessen face-to-face transactions with BOC.
Better trade facilitation will eliminate corruption and technical smuggling which
translate to faster release of goods and reduction of trade transaction costs by 2-3%.
Delays in Bureau of Customs are very costly which adds up to substantial storage and
manpower expenses9.
Importance: Importers and exporters select the best customs clearance service of
logistics companies that can help them navigate through bureaucracy. If computerization
translates to faster release of goods, then this will increase the bargaining power of
buyers since they do not have to search for a logistics company that offers a competitive
customs clearance service. This is a threat to the company.
1.3.2. Government Infrastructure Projects
Php 831.8 billion is targeted budget for 2016. The highest share of 2016 investments
will go to the transportation sector at 432.9 billion.
Projects implemented under road category are the Tarlac-Pangasinan-La Union
Expressway (TPLEX), NLEX-SLEX connector road, and Cavite-Laguna Expressway
(CALAX) while the NAIA Expressway and Daang Hari-SLEX Link Road Project are
targeted to be finished by 2016. Projects under seaport category includes
Batangas/Subic International container port utilization project, Hub port facilities, RORO
with terminals, and Manila cruise ship terminal10.
Importance: Such projects offer a significant reduction in risks to logistics and supply
chain, as the quality of the road networks will reduce delivery and costs. The better the
infrastructure, the easier for the goods to move from ports to its destination. These
developments are important provided the high instances of road accidents due to poor
quality and congestion in most areas in the Philippines. This is a threat to the company.
1.3.3.

Minimum Wage Rate

Wage Order No. NCR-19 Minimum wage rate effective April 4, 2015.
Importance:

Logistics companies rely heavily on its skilled workers who play a

fundamental role in providing logistics services. The new wage hike implemented this

9 Ramos-Mejia / Briefer on CMTA October 2014

10 National Budget Memorandum No. 124

2015 will increase the labor cost of the firm. The increase in wage is a threat to the
company.
1.4. Technological Factors
1.4.1. Advances in Logistics Industry
Uber for Logistics
Cargomatic is a technology that connects shipper to truck carriers that have
underutilized capacities on their trucks. It debuted in Los Angeles in 2014 and was
deployed in New York this August 2015. The application completely removes inefficiency
and enables the shipper to track its packages in real time and on demand 11. Key Chain
Logistics creates a virtual marketplace where shippers and commercial truckers can
book directly to freight carriers. The application bypasses freight brokers who originally
book shipments to carriers and charge them for commissions. This was launched in the
US in 2012 with over 10,000+ carriers and quickly growing nationwide 12. Both solutions
will provide cost savings to consumers but will be a challenge for logistics companies in
the near future.
Importance: When Uber deployed its application in San Francisco in 2011, it instantly
became a hit and stormed across the globe in just three years. With the success of Uber
in the Philippines, it is also expected that the new, hassle free, and easy to use
technologies such as Cargomatic and Key Chain Logistics will be available in the
country within two to three years from now. This trend will change the traditional way of
transporting goods, charging of broker rates, and service offerings of logistics
companies. Although intermediary of information channels may not be a direct
competitor for this industry, it is a new leg that will bypass brokers and attract customers
with its advanced technology application that gives them control in terms of reach, ease
of service and pricing. This is a threat to the company.
2. INDUSTRY AND COMPETITOR ANALYSIS
2.1.1.
Inbound Logistics
The first step in the industry starts with receiving a booking confirmation from the
customers. Booking confirmation contains information on carriers bill of lading, packing
list, and shipment details. This is also where activities begin such as preparing the
necessary services required for import and export such as truck, freight forwarder, and

11 www.cargomatic.com
12 www.keylogistics.com

customs broker. Competitors in this industry may have their own resources or outsource
these services. The first stage comprises 75% of the cost.
2.1.2.

Operations

The next step in the industry value chain is clearing of goods from custom and
delivering of goods to clients. Direct labor such as staff processing of documentation,
securing approval, coordination of activities, monitoring, and loading of goods to trucks
are included in the cost. This step in the industry value chain accounts for 10% of the
cost.
2.1.3.

Overhead

Overhead is included in the costing of profitability as support to inbound logistics,

operations, marketing, and distribution. Overhead consists of administrative and
miscellaneous expenses of the company such as electricity, water, insurance, supplies,
and maintenance. Overhead components contribute indirectly to the income of the
company but are considered important in achieving the revenue. This step in the
industry value chain accounts for 5% of the cost.
2.1.4.

Sales & Marketing

Firms start promoting their services through affiliations, key management accounts, and
relationship management that includes online marketing, advertising, attending business
events, and establishing networks. The final activity would be closing the contract with
clients availing the services. This step in the industry value chain accounts for 5% of the
cost.
2.1.5. Distribution
Distribution is a process where products are ready to be dispersed to distribution
centers of importers and wholesalers. This step will start when requirements are fulfilled
and approved by the Bureau of Customs. Activities such as loading the goods into
trucks, transport of goods, and unloading of goods to warehouse will be critical in terms
of safety and timeliness of delivery. The last activity is storing of goods to warehouse
owned or rented by clients. This step in the industry value chain accounts 5% of the
cost.
2.1.6. Consumption

The final step of the industry value chain is the actual delivery of the goods. The
goods are received by importers, wholesalers, and retailers that are sold to consumers.
2.1.7. Key Findings and Insights
Macoda Logistics Inc. is directly involved across the stages in the value chain. It is
significantly encompassed in operations that begin with processing requirements,
completing documentation, clearing of goods in customs, monitoring, and coordinating
activities related to the smooth movement of goods to clients warehouse. While some
competitors perform end to end logistics activities in-house, Macoda uses
subcontractors for its inbound and outbound deliveries of goods to customers. The firm
is very active in sourcing for vendors that offers remarkably low prices for bulk
shipments since the company competes as a low-cost service provider. Marketing
activities are practiced in a number of ways by each competitor in the industry. Some
opt for high-scale advertising by acquiring industry certifications, affiliations through
memberships, sponsoring events, and close partnership with large volume importer and
exporters. Some engage in tactical advertising via online activities. Macoda Logistics
Inc. promotes their services through client-to-client referrals and face-to-face meetings
for presentation and negotiation. Another activity is advertising their services through
Internet websites and email broadcasts.
Value is added significantly in operations, distribution, and marketing steps. In
operations, the company coordinate closely with the freight forwarder and ensures
completion of trade documents prior to the arrival of the vessel. Once confirmed,
documents required are submitted to Bureau of Customs for approval. Compliance is
particularly important in making sure that there are no misses and lack of information in
documents to avoid further delays in the release of goods by customs. For distribution,
safety and timely deliveries of goods are crucial to customer satisfaction. For marketing,
value is added in relationship management with vendors, partners, customers, and
custom connections. The better the performance of employees in terms of speed of
delivery and customer satisfaction, the higher the revenue.
Shortcomings that the company needs to prepare on is the moderate bargaining
power of suppliers and buyers. Outsourced partners prices can increase based on the
market price while the buyer has the power to dictate pricing and switch quickly to other
vendors without incurring cost. In addition, the buyers and the sellers are capable of
building and extending the same services offered by the company.

Relevance to the firm: Given the factors and mechanisms of the logistics industry value
chain, Macoda must consistently search for alternatives to increase its revenue, lower
costs, hike up quality, and create more value in each stage. Transforming outsourced
services to in-house can be revisited by the company though this may be challenging
since this will require expertise on other services and high capital investment. On the
other hand, additional steps in the value chain can still be enhanced by creating more
value to them such as investing on technology and cost improvement process. There is
also an opportunity to improve marketing expenses by pursuing industry certifications,
affiliations, and aggressively offering special discounts to bulk traders. Advertising has
not yet been explored by the company since it has been dependent on client-to-client
referrals. Aside from these, the company must also be cautious of possible threats in
each step of the value chain. The imminent variation of outsourced prices and quality of
vendors are highly disadvantageous for the company. Outsourced resources already
compose 75% of cost and increase in vendor prices will further increase cost.
Competitors in the industry are able to increase their net income margins by expanding
their services, investing on revenue generating assets, and achieving quality
certifications. Fluctuating prices and quality of the firms outsourcing components will
further decrease the profitability of the company. Another consideration to heighten
revenue is to increase the service price, but a careful approach must be done first to see
whether an increase in service price would gain customer acceptance.
2.2. Porters 5-Forces Model
2.2.1.
Industry Definition and Direct Competitors
As per Philippine Standard Industrial Classification (PSIC), Macoda Logistics
Inc., belongs to the Transportation and Storage Industry, mainly in Logistics Services
under subclass code 52293. Logistics services organize the physical movement of
goods through various activities that include transportation, storage, loading and
unloading, consolidation, packaging, transhipment, off docking, courier, and distribution.
It incorporates the functions performed by transport intermediaries such as freight
forwarders and multimodal transport operators. The company competes in providing
logistics services that focus on inbound and outbound importation and exportation of
goods from port to warehouse through the freight forwarder, customs clearance, and
trucking services. Direct competitors are those that offer the same services to industrial

customers in National Capital Region. The distinguished ones are Logistics Cargo, RV
Marzan, Time Cargo, GTLI, and Cyrus Logistics.
2.2.2.

Rivalry of Competition

RATING: MODERATE
As of 2012, there are 638 companies in the National Capital region engaged in
freight forwarding and custom brokerage services 13. With the high availability of players
in the industry, new players need to push for low prices, innovation, speed of delivery
and customer relationship to acquire customer satisfaction and loyalty.

In addition,

asset-based companies have greater advantage than non-asset-based players that

could be evident in the trucking service, when rates went up twice due to the
implementation of truck ban14. It is expected that there is an intense competition resulting
to high barriers to entry of new players.
However, the increasing volume of import and export trade at 12% CAGR drives
the need for logistics services. To support such demand, huge logistics companies who
have the capacity to gain full control over the entire value chain are starting to recognize
that it is economically advantageous for them to outsource non-core activities, hence
giving the opportunity to contract logistics companies. Transport Intelligence study
forecasts that the size of the Philippines contract logistics market will increase from 478
EURmn in 2013 to 1.4 EURbn by 2020. This opportunity lowers the barriers to entry of
new players15.
Moreover, the fixed cost in this industry is low since non asset-based logistics
services can specialize and outsource based on the needs of the client. Eventually,
small companies that become profitable begin to purchase trucks and warehouses to
add value to customers. Starting a non-asset-based specialized logistics that depends
solely on outsourcing lowers the barriers to entry of new players.

13 Philippine Statistics Authority / 2012 Census of Philippine Business and Industry

December 2014
14 PIDS / A System-wide Study of the Logistics Industry in the Greater Capital Region
March 2015
15 Transport Intelligence / Philippines Transport & Logistics 2015