Regulations, Bureaucracy & Infrastructure Hamper Logistics

Cheap Marine Transport Not Developed

JAKARTA – Logistics costs in Indonesia are high, thus reducing the competitiveness of national products. Transportation is dominated by land transport, whereas sea transport, which should have been cheap, turns out to be more expensive and it takes a lot of time at the harbour.

The best ground transportation infrastructure is available mostly in Java, so that economic value adding amasses on the island. In contrast, the inhabitants of small islands that depend on sea transport have been impoverished, hammered by very expensive prices of goods.

This has been complicated with the low quality of human resources, which can be identified as one of the factors causing Indonesia’s Logistics Performance Index (LPI) to be low. Regulations have not been clear until now, and the process to obtain business licenses has often been arduous. Meanwhile, the realisation of port, road and other infrastructure construction projects has proved to be protracted, although they have long been planned.

Such was the summary of a seminar on logistics held by the Ministry of Trade of the Republic of Indonesia (RI) in cooperation with Australia Indonesia Partnership for Economic Governance (AIPEG) in Jakarta, Tuesday (12 June).

Under these conditions, oranges from China are cheaper than those from Pontianak. Invasion of garments has also come from People’s Republic of China, Vietnam and Cambodia. Transportation infrastructure as well as regulations in Indonesia must be corrected immediately, so as to reduce transportation costs. This will support the creation of a national service industry that has high competitiveness.

RI’s Deputy Minister of Trade,  Bayu Krisnamurthi, said that poor logistics services have been one of the causes rendering local products to be less competitive than imported products. He pointed out that cattle from East Nusa Tenggara have been less competitive than those from Australia, not because of their quality, but rather the high selling price is due to inadequate logistics facilities at home.

Based on the 2011 data from Indonesian Chamber of Commerce and Industry (Kadin Indonesia), the cost of logistics in the country accounts for 17 percent of a company’s total expenditures. That figure is the highest compared to the cost of logistics in Japan, which is only five percent, Singapore six percent, the Philippines seven percent, and Malaysia eight percent.

Chairman of Indonesia Logistics Association, Zaldi llham Masita, explained that the main factor that makes the high cost of logistics is inefficiency in logistics lines today. “For example, 60 percent of cargo trucks only transport goods one way, carrying nothing on the way back,” he said.

The transport time of sea freight is also uncertain, thereby contributing greatly to the high cost of domestic shipping. The voyage from Jakarta to Banjarmasin, for example, can take 4 – 7 days. Meanwhile, the waiting time (dwell time) at the port in Jakarta continues to increase from an average of 4.9 days in 2010 to 6.7 days in 2012.

High uncertainty in the arrival of goods has become one of the major factors in the swelling of logistics costs in the archipelago. In addition to the cost of transport being expensive, many companies need to accumulate stocks in the market so that the cost of inventories rises accordingly.

Research Associate of the Institute for Economic and Social Research of the Faculty of Economics of University of Indonesia (LPEM-FEUI), Arianto Patunru, said that transportation by water/ sea in Indonesia is very inefficient. In fact, sea transport is a major promoter of world trade since the cost is normally cheaper than land transport, let alone air transport.

“The average cost of land transport in the Asean region is US$ 0.22 cents per km. In contrast, in Indonesia it reaches US$ 0.34 per km, even for water transport the cost is US$ 0.54 per km,” he said.

The high cost of sea transport is attributable to the inadequate support of logistics services in the port, due to the prevalence of bribery and other obstacles. The World Bank’s Senior Trade Specialist, Henry Sandee, said that the cost of logistics in Indonesia, from the industrial area to the port, is higher than in Malaysia.

“Making a comparison with a similar travel distance, the cost of logistics in Indonesia could reach US$ 750, while in Malaysia it is only US$ 450,” he said.

Indonesia is still ranked low based on the calculations of LPI conducted by the World Bank in 2007, 2010, and 2012. Of the logistics performance of 155 countries, Indonesia is in the 59th position this year, up from the 75th ranking in 2010. Meanwhile, the ranking of Indonesia’s infrastructure has deteriorated compared with two years ago.

Meanwhile, Vice Chairman of the Standing Committee on Intermodes and Logistics of Kadin Indonesia, Anwar Satta, said that a number of Kadin members are ready to invest in logistics-supporting transport to the amount of Rp 53 trillion. This is aimed at lowering logistics costs, facilitating the flow of goods, and improving logistics services in order to improve the competitiveness of national products.

“The move will ensure the availability of basic and strategic commodities, at affordable prices. This is done [by the members of Kadin] in order to prepare themselves to achieve the target of Asean logistics integration in 2013, Asean market integration in 2015, and global market integration in 2020. Currently, the high cost of logistics and substandard services are encumbering the competitiveness of Indonesian businesses in the global market,” he said. [ID/YHD/H-12]

Ranking of Logistics Competitiveness (Logistics Performance Index)

Country 2007 2010 2012
Singapore 1 2 1
China 30 27 26
Malaysia 27 29 29
Thailand 31 35 38
Philippines 65 44 52
Vietnam 53 53 53
Indonesia 43 75 59

Logistics Cost Burden

Country % GDP % Production Cost
Japan 10 5
Singapore 8 6
China 19 12.5
Malaysia 13 8
Thailand 15 10
Indonesia 27 17

Logistics Cost Components (% Total Logistics Cost)

Transport Cost 66.8
Supply Handling 27.56
Administration 5.64

Sources: The World Bank, Kadin, LPEM UI



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