Opportunities abound for Malaysian logistics firms in Indonesia

With the projected mega investments in the Indonesian transportation and logistics sector over the coming years, Indonesia will be narrowing the logistics gap with other Asean countries.

week CeMAT Southeast Asia hosted Indonesia’s largest logistics conference and exhibition in Jakarta.

The theme was “Accelerating interconnectivity: Asean and beyond”. Indonesia is the largest Asean member country, in terms of size and population.

Under the leadership of the President Joko Widodo, it is transforming its transportation and logistics sector quickly.

According to the transport minister the government is committed to heavily investing in transportation and logistics infrastructure in connecting the archipelago through sea, road, rail and air.

Currently, Indonesia has one the world’s highest logistics costs, on average about 26 per cent of gross domestic products (GDP).

In practice, this ranges between five and 40 per cent of the sales value.

In comparison, it is 13 per cent for Malaysia. The Indonesian government is determined to bring down logistics costs to 19 per cent of its GDP by 2020, with government efforts to modernise ports and open up the logistics sector to foreign investment.

The upgrading of its 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 known as model shift, is targeted at removing freight vehicles from road to rail through expanding rail infrastructure.

Rail infrastructure is limited to Java and Sumatra, mainly the rail track developed during the Dutch colonial era.

Although the expansion of rail is critical for ports, rail infrastructure developments in Indonesia will take massive investments over many decades in order to make any serious impact on volume percentage of cargo moved by rail.

Logistics costs are also high in Indonesia due to a lack of ambient and cold room warehouses throughout the country.

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 food safety.

Both government-linked and private sector logistics service providers are slowly investing in warehouse infrastructure on islands other than Java, Sumatra and Bali.

One of the important economic stimulus packages in 2015 was the Bonded Logistics Centre licence.

The Bonded Logistics Centre 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 value-added tax (VAT) or sales tax, as well as operational flexibility.

These privileges are not only given to local logistics service providers but foreign ones as well.

With the possibility of massively reducing supply chain leadtimes and costs, Indonesia is a rather pristine area for professional logistics, open to investors in transportation and logistics infrastructure.

And with the projected mega investments in the Indonesian transportation and logistics sector in 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 member countries.

In other words, great opportunities abound for Malaysian logistics firms wanting to expand to Indonesia.