Currently Indonesia has one the world’s highest logistics costs, on average about 26% of gross domestic products (GDP). In practice this ranges from 5 to even levels of 40 percent of sales value. In comparison, for Malaysia this is 13 percent! The Indonesian government is determined to bringing down logistics costs to 19 percent of its GDP by 2020, thanks to government efforts to modernise ports and open up the logistics sector to foreign investment.
The upgrading of its existing ports as well as many new port developments will allow for a better access of large industrial parks to ports. Currently much of industrial traffic between industrial parks and ports passes through Indonesia’s largest cities like Jakarta, Surabaya, and Medan. Another strategy, better know as model shift, is targeted at removing freight vehicles from road to rail through expanding rail infrastructure. Rail infrastructure is limited to the Islands of Java and Sumatra, mainly using the rail track developed during the Dutch colonial era. Although the expansion of rail is a critical backbone for ports, rail infrastructure developments in Indonesia will take massive investments over many decades to come in order to be able to make any serious impact in volume percentage of cargo moved by rail.
Logistics costs are also high in Indonesia due to a lack of both ambient and cold room warehouses throughout the archipelago. A few traders have invested in their own warehouses in various parts of Indonesia, monopolising distribution channels and hereby artificially increasing supply chain costs. These monopolies of warehouse infrastructure are also not very beneficial for the quality of facilities and the resulting food safety. Both government-linked and private sector logistics service providers are slowly investing in warehouse infrastructure on the islands other than Java, Sumatra and Bali. One of the important economic stimulus packages unveiled by President Joko Widodo in 2015 is the Bonded Logistics Center (Pusat Logistik Berikat) licence. The Bonded Logistics Center is a multi-functional logistics warehouse for stockpiling goods imported or locally with the ease of tax privileges by withholding the payment of import duties and free of VAT or sales tax, as well as operational flexibility. These privileges are not only given to local but also foreign logistics service providers.
With the possibility to massively reducing supply chain lead-times and costs, Indonesia is a rather pristine area for professional logistics, open for investors in transportation and logistics infrastructure. With the projected mega investments in the Indonesia transportation and logistics sector over the coming years, Indonesia will be narrowing the logistics gap with other ASEAN countries. Indonesia’s logistics progress will be important for the logistics integration of ASEAN and the economic performance of ASEAN and its member countries. In other words, great opportunities for the logistics sector to expand to Indonesia.
This article was published in the New Straits Times of 8 March 2017. For more information on logistics in Indonesia, please visit www.lbbinternational.com.
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