MANAGEMENT AND OPERATIONAL CHALLENGES

a. 2GO GROUP INC- IN SHIPPING BUSINESS, EXPECT A SLOWING OF GROWTH IN

PASSENGER TRAVEL CATEGORY DUE TO TRAVEL RESTRICTIONS IN LIGHT OF

COVID-19

On March 8, 2020, the Office of the President, under Proclamation 922, declared

a state of public health emergency and subsequently on March 16, 2020, under

Proclamation 929, placed the entire Philippines under a state of calamity due to

the spread of the Novel Corona Virus Disease (COVID-19). As part of these

declarations and to manage the spread of the disease, the entire island of Luzon

was placed under an Enhanced Community Quarantine (ECQ), effective from

March 17, 2020, initially until April 12, 2020. The ECQ was further extended until

May 15, 2020 and was transformed into a Modified Enhanced Community

Quarantine (or “MECQ”) initially until May 31, 2020. These Government

mandated ECQs involved various attendant measures including, but not limited

to, travel restrictions, home quarantine, and temporary suspension or regulation

of business operations thereby limiting commercial and similar activities related

to the provision of essential goods and services.

2Go Group, Inc. and subsidiaries, being engaged in the shipping and logistics

businesses across its various business units, has been significantly affected by
 the aforesaid declaration. This resulted in limited business operations in Luzon

and in many other parts of the country. Given the restricted mobility in and out

of the country and the curtailed economic activities affecting demand not only in

the Philippines but in other countries, the Group expects a decline in

sales/revenue volumes during the period and the subsequent months beyond

the lifting of the aforesaid MECQ.

During the first quarter of 2020, the reduction in sales has not been very

significant thus far, and management continues to evaluate and forecast the

potential adverse impact of the Covid19 outbreak in future reporting quarters in

2020 and beyond. In Shipping, it is reasonable to expect a slowing of growth in

the passenger travel category as the national government is currently restricting

domestic travel throughout the Philippines. 2GO’s sea freight cargo services

category is expected to operate at below normal levels as local and multinational

customers focus on the movement of essential consumer goods throughout the

Philippines to supply and restock retail locations.

b. 2GO GROUP INC- CO’S EXPRESS AIR CARGO SERVICES MAY EXPERIENCE A

SLOWING OF GROWTH AS DOMESTIC FLIGHTS IN AND OUT OF METRO MANILA

In Logistics, warehousing, cross-dock, and land transport services are similarly at

below normal levels as 2GO delivers essential goods as customers supply and

restock retail locations. Express air cargo services have slowed as domestic

flights in and out of Metro Manila are currently restricted by the national
 government, however services continue for essential goods which shifted to

utilizing our sea freight cargo services. The Distribution business continues to

operate at near normal levels to fulfill customer orders of essential fast-moving

consumer goods in both the food and non-food categories. These are delivered

end to end by the Shipping and Logistics businesses.

c. 2GO GROUP INC- ALSO EXPERIENCING A SLOWDOWN IN ECOMMERCE

INBOUND TRANSACTIONS FROM OTHER COUNTRIES AND THEIR RELATED

LOCAL DELIVERIES

Group revenue declined 6% for the 1st quarter of 2020 compared to the same

period in 2019 primarily due to the reduced economic activity brought about by

the COVID-19 pandemic. Shipping revenue is at the same level as last year as

freight revenue increased, however this was weighed down by reduced travel

revenue especially during the last two weeks of March. for the period. Revenue

from Non-shipping (Logistics and Distribution) decreased by 9%, due to reduced

transport/delivery volumes for several of the Group’s Logistics services, which in

turn offset growth in the Distribution business. The Group experienced a

slowdown in ecommerce inbound

transactions from other countries and their related local deliveries as a result of

decreased output from China, ASEAN and the rest of the world. For the 1st

quarter of 2020, Shipping accounted for 34% and non-shipping accounted for
 66% of total revenue, compared to 32% and 68% respectively, for the same

period in 2019.

Revenue from the Shipping business decreased by 2% in 2019. Overcapacity in

the domestic interisland freighter market continued to weigh negatively on

freighter rates. As a result, during 2019, the Shipping business discontinued

operations of its interisland freighter vessels and short-haul fast ferry passenger

vessels as a part of Management’s plan to focus on improving core ROPAX

services and profitability.

The foregoing events as of the date of this report will ultimately be reflected in

the financial position and performance of the Group for the rest of the year

ending December 31, 2020. Considering the evolving nature of this outbreak, the

Group cannot reasonably estimate at this time the length and severity of this

pandemic, or the extent to which the disruption may materially impact the

Group’s consolidated financial position, consolidated results of operations and

consolidated cash flows for the year ending December 31, 2020 onwards.

III. MANAGEMENT AND OPERATUIONAL SOLUTIONS

As the battle against Covid-19 continues, a wise old proverb comes to mind: hope for

the best but prepare for the worst. State of the water in the Philippines transportation is

no exemption. Understandably, the world was caught off guard in 2020 by a pandemic

of such unpredictable proportions, but the subsequent fightback makes it feasible to

hope.
The ferry industry has shared the economic pain felt in every sector of society. Revenues

have plummeted by billions due to swinging travel restrictions that have reduced the

number of passenger traffic, such situation aggravated by the need to maintain lifeline

deliveries of essential goods despite unsustainable losses. For this, Water Philippine

transportation faces a lot of management and operational challenges that makes the

said industry vulnerable to the said pandemic.

The slowing of growth in passenger problem travel category due to travel

restrictions, express air cargo services may experience a slowing of growth as domestic

flights in and out of metro Manila and experiencing a slowdown in ecommerce inbound

transactions from other countries and their related local deliveries. This can somehow

be lessened or resolved by focusing on the areas that are less prone to the said virus,

following the rules and regulations imposed by the government, adapting to the new

normal (social distancing, wearing mask, bringing sanitizer or alcohol and etc.,), self-

discipline and most importantly-being aware or cautious of the surroundings. The

slowing growth of the domestic flight in and out of Metro Manila can be lessen by

implementing a one-pass requirement. Where the passenger is given an online account

and can directly upload their requirements to travel, but of course it should be updated

regularly. But this strategy will lessen the queue in the airport for verification along the

travel. Of course, we can’t say that we can resolve this problem easily since all

establishments or transportation capacity must be cut half to the normal number of the

passenger due to the pandemic. For this, domestic travel will increase if lockdowns of
 different cities will be lifted – Lifted but meeting the allowable requirement for the city

to open.

The slowdown in ecommerce inbound transaction from other countries and their

related local deliveries can be resolved by easing the government requirements to allow

the transactions to run smoothly without much hassle. Running smoothly by registering

and declaring the said packages or deliveries from the place of origin going to where it is

being delivered. This will increase the efficiency of the management as well as the

operation with much accuracy. Other proposed solutions as well are the following;

• Body temperature detection and access management- In transport terminals there is a

need to easily identify infected individuals among passengers, crew and staff on arrival

and departure.

- Contactless temperature control using thermal imaging cameras

- Supplementing existing access controls and site protection by detecting and

flagging potentially feverish subjects

- Thales Thermo Box system. High-precision thermal cameras

- Preconfigured secure server: for connecting to a screen and displaying video

imagery and the alerts generated

- Logging of alerts and statistics

• Resilient operations and systems- Keeping systems fully operative during the crisis.

- Integrating traffic data with public transport data

 - Monitoring public transport efficiency (KPIs and dashboards)

- Managing crises and incidents with a multimodal approach

- Managing large events with automated functions

- Simulation tools for better planning, preventive measures and service

optimization.

• Contactless passenger management- More efficient passenger management. Avoiding

crowds and queues

- Automatic checking of the name on the boarding card against that on the

passport

- Validation with passenger boarding systems

- Automated authentication of documents, either graphic or electronic

- Live biometric capture and quality assurance

• Multimodal supervision- Supervising all transport modes in a city or region

- Supervising all transport modes in a city or region

- Efficient management of contingencies

- Keeping the whole transport system working despite new restrictions and more

limited resources

- Coordinating public information

2GO Group Inc. (2020, June). 2GO updated DIS 2020 (No. 4409).

https://www.2go.com.ph/wp-content/uploads/2020/05/2GO-Updated-DIS-2020-with-

Q1-2020-FinancialsPSE-EDGE.pdf