It might seem like the worst is over. We have seen oil prices roll back here in the Philippines, and we are poised for another series of reductions tomorrow. The fighting has mostly stopped, with the United States and Iran at the negotiating table, looking to at least extend a ceasefire that gave the world some space to breathe. As I write this, Israel and Lebanon have also agreed to a ceasefire.
Even then, there remains some uncertainty. All parties have mostly refused to budge in their positions. Iran responded to an American blockade of the Strait of Hormuz with a blockade of its own, while Israel is still keen on removing Hezbollah forces north of its border. Perhaps most importantly for us monitoring global supply chains, there is still less certainty about the free movement of goods, with Iran maximizing its hold on the strait by charging tolls for ships to pass through. That will still have a knock-on effect on overall costs.
So, there remains some – actually, a lot of – uncertainty for us here at home. The next trigger could be just around the corner. Compounding this is the government’s slow response to mitigate the rising cost of fuel in the country. I’m not saying it’s all bad – securing supply is arguably more important, because no fuel supply at all could spell much worse things for the economy – but the fact that it took our leaders six weeks to scramble for a strategy says a lot about how, as a country completely reliant on oil imports, we have not established any safety nets whatsoever. They have completely outsourced this to the private sector – from the construction of fuel storage facilities to the temporary reduction of commissions to increase take-home pay for TNVS drivers – and we know companies will only go as far as profitability and PR values allow.
There are other approaches, of course, but here we have seen where the government’s priorities lie. The suspension of excise tax only on LPG and kerosene seeks to address cost of living and inflation concerns. The argument is that, with the way gasoline and diesel prices have gone up, any suspension of taxes on either would have little impact on our pockets, and would deprive the government of funds that it could use for other interventions. But one-time fuel subsidies and other forms of monetary assistance will not go as far as they hope. This crisis still does not have a definite, or even a potential, end date, similar to the “end” of COVID-19 being pegged on the development of vaccines. More importantly, with fuel prices still higher than they were just six weeks ago, the domino effect on the cost of virtually all goods Filipinos rely on remains inevitable. No increases in the price of basic goods until the 30th of this month? The government can only hold off for so long at this rate.
And even then, I fear that the worst is yet to come. Even if a peace deal is made now and, somehow, holds for the next few months, the cost pressures on our economy will not immediately go away. Companies that have absorbed so much of these costs in an effort to keep their competitive advantage will have to recoup them somehow. It’s like the supply chain concept of the bullwhip effect: the worst impacts – and any mitigation from all the scrambling we did over the last few weeks – will only be felt much later. And in any case, the impact of the first few weeks of this crisis – particularly on the lower and middle classes who have little, if any, cushion – will affect consumption habits in the weeks and months to come. This is not good news for the Philippine economy, which has already seen a slowdown in gross domestic product over the last few months, as reduced spending in construction projects, as well as softer consumer sentiment – both caused, undoubtedly, by those corruption scandals – took hold.
Now, pay attention to what you see on social media. Pay attention to how your colleagues and friends are talking about how they are affected by the ongoing crisis. Pay attention to how those with partisan interests are seeking to frame this crisis, and particularly, the government’s response to this crisis. I’m seeing some degree of agitation, and not just from those with an interest to see those in power changed. I see talk of how we are “not really in the middle class” because of the government’s shortcomings. I feel trust in our leaders is very much at an all time low at this point. I can see all of this snowball towards another level of uncertainty – towards domestic and political uncertainty. Could there be unrest? I hope not, but if there is, it’s just going to make our economic prospects worse.
You can say I’m just overthinking this. A habit of the twenty- and thirtysomethings you have encountered, you might say. But the benefits of working in supply chain is being able to see the whole picture, of being able to connect the dots and, perhaps, to foresee outcomes not necessarily portrayed by the data we have at hand. Maybe I am overthinking, but all this could happen. The Philippines is heavily reliant on transport to power the economy and spur private consumption. The Philippines is heavily – no, entirely – reliant on imported fuel to make this work. When that is hit, everything else is hit. When you hear experts talk about an energy crisis and a food crisis and whatever sort of crisis, they are connecting the dots. I hope the government did it sooner. But maybe it’s not too late.
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Henrik Batallones is the marketing and communications director of SCMAP, and editor-in-chief of its official publication, Supply Chain Philippines. More information about SCMAP is available at scmap.org.
