Indonesia's Logistics: Dawn of a Regional Giant?
    Category: Column By : Gopal R, Frost & Sullivan Read : 2224 Date : Wednesday, June 10, 2015 - 01:57:12

    The Indonesian logistics companies have an enormous opportunity to become regional giants by leveraging off the integration arising from the implementation of the ASEAN Economic Community (AEC). The AEC has grown by 10% CAGR over the last five years, and is projected to grow at an 8% annual growth over the next five. The economic fundamentals of the AEC are shifting from trade to domestic consumption. For instance, domestic consumption now represents more than half of Indonesia’s economy. Integration on trade facilitation, transportation and logistics within the region is aimed at supporting the logistics industry through capacity building, capital building, safety and security enhancements along the supply chain.

     The transport and non-transport services are also planned to be liberalized progressively in ASEAN. Economic activity, coupled with regional integration, is expected to spur infrastructure development and improved logistics services, and consequently a greater need for outsourced logistics services. This trend represents a large growth window for ASEAN logistics service providers.

    What does Indonesia have?
    Indonesia is well positioned in the region with significant freight volumes, consistent growth and stable governance. In 2014, sea freight grew by 4.3%, rail freight by 8.5%, and air freight by 15.3% in volume terms, with overall volume growth during the period 2010-2015 at 5.4% CAGR expected to result in about 1.1 billion tons of freight in 2015. This volume handling places Indonesia in a key position within the region, much to the interest of liners, airfreight services providers and logistics service providers.

    Growing consumer spending and the 50% contribution of domestic consumption to Indonesia’s economy places importance on domestic inter-island freight movement, intra-island transportation, storage, distribution and value-added services. Local service providers have gained competence across industries, including time-sensitive and service critical products and specialty handling produces. E-commerce growth is resulting in service providers gaining competence in handling e-commerce logistics, as well as building capability in express logistics.

    Demand growth and capability augmentation is expected to improve volumes through alternate freight transport modes like air, rail and inter-island shipping, apart from increased ocean and air freight volumes. To manage volume and customer growth, companies are expected to collaborate and consolidate for economies of scale and better financial strength, offering more integrated services and creating ASEAN regional entities.

    What should be the areas to focus?
    To maximize opportunities in the AEC context, Indonesia should position its logistics industry as a regional competence center, rather than just a domestic industry. Indonesia’s logistics industry has gained competence in managing cost effective logistics solutions with limited infrastructure and transport constraints, been able to develop its local human resources, and is also willing to adopt technology and modern logistics solutions. These capabilities should be brought forth at a regional level to help domestic logistics service providers expand beyond Indonesia. With complete regional integration in 2016, it is important that the local logistics industry start looking beyond Indonesia. Indonesian companies are well positioned to become regional players. Having managed a challenging market like Indonesia, other ASEAN markets could be quickly added to their regional footprint, creating synergies and advantages.