Logistics : The driving force of Indonesia’s economy Udo Westphal  ;   Managing director of ISC Far East

JAKARTA POST, 11 Agustus 2014

                                                

                                                                                                                                   

Indonesia is at the peak of global attention due to its ability to maintain economic stability, slowing inflation rate and improving business climate. Coupled with the recent democratic victory — where Joko “Jokowi” Widodo was only the second president elected by full and direct democracy — which received a warm response from around the globe and resulted in the immediate strengthening of the rupiah, the country is brimming with new hope and has continued to gain higher recognition from the international community. However, leading Southeast Asia’s biggest economy with a population of more than 250 million is not an easy task. Despite a stable economic performance and a booming middle class, disparity between the rich and poor remains remarkably high. For an archipelago, with more than 17,000 islands, infrastructure continues to an alarming issue hindering Indonesia from achieving its goal of becoming one of the world’s 10 largest economies by 2025. Road congestion, worsening traffic and the cost of logistics have contributed to mounting public frustration as they impact the economy. Data from the Industry Ministry shows that Indonesia’s logistics accounts for approximately 23.6 percent of the country’s gross domestic product (GDP). The number is far higher than other countries such as the United States at only 9.9 percent, or even South Korea at 16.3 percent. Despite climbing up the ranks of the World Bank’s Logistics Performance Index from 59 to 53 this year, Indonesia still lags behind neighboring countries such as Singapore and Malaysia. Unsolved problems in transport logistics significantly impact residents in the respective regions, especially when it involves their major commodities. Regions in this massive archipelago rely heavily on transport logistics to meet the daily needs of their residents. The price of primary commodities in Papua, Indonesia’s easternmost province, for example, can be up to 20 times higher than in Java. While this may seem unnatural, such a case is highly common in Indonesia’s rural areas, creating heavier burden for those already living below the poverty line. The price of fuel is another example, where one liter can cost a staggering Rp 100,000 (US$8.4) in Puncak Jaya, Papua, while consumers in Jakarta and other major cities enjoy a stable Rp 6,000 to Rp 9,000 per liter. The high price of commodities not only affects people in rural areas in Papua, but also developing provinces such as Kalimantan, ironically known as Indonesia’s key source of oil and gas supplies. There are a number of factors behind this price hike, but the most significant impact can be felt from inefficiencies in transport logistics. It is common to find that ships supplying goods outside Java return to the province without bringing any cargo, while still having to splurge on fuel costs. To deal with the loss, they generally charge a hefty price tag for shipping to the regions. Another factor is the lack of proper infrastructure itself, especially in rural areas, where a simple shipment to a customer needs to be delivered through the rivers due to poor land access. Industry players have argued that with the current condition of infrastructure, the ASEAN single market slated to begin at the end of 2015 could become a threat instead of an opportunity for Indonesian companies. Much work still needs to be done to improve international connectivity and Indonesia’s export competitiveness. To address these conditions, it is important for Indonesia’s logistics sector to start adopting a more integrated approach that ensures efficiencies of the entire supply chain. In today’s increasingly complex logistical industry and particularly in Indonesia, there is a need for a comprehensive solution that is capable of managing multiple aspects of a business. This includes full optimization of transport, cash flow, warehousing, as well as customs management for companies to accelerate their time to market. Today’s complex logistics requirements are in need of an effective solution that can help regularly monitor and manage companies’ entire supply chains to minimize costs and improve efficiency. Under the concept of fourth-party logistics (4PL), instead of organizing supply chains with multiple service providers, companies only have a single contact who, as experts in supply chain management, oversee the management of the entire supply chain with the aim of optimizing and minimizing costs. While being relatively new, the concept is currently revolutionizing the identification of pain points and opportunities to optimize logistics. Not only will it help reduce workload, but companies can also save on rising labor costs and streamline their supply chain in order to remain competitive in today’s business landscape. Healthier supply-chain management will consequently reduce the gap between the rich and the poor, which aligns with Indonesia’s Sustainable Development Goals initiative. Currently there is a tremendous opportunity for Indonesia’s logistics and infrastructure sectors to optimize. With industry players and experts calling for logistics reform, to brace for the upcoming ASEAN Economic Community, both sectors, business and government play an integral part in returning investors’ confidence and proving that Indonesia’s economic resilience is more than just a short-term achievement. Proper infrastructure is key to achieving Indonesia’s ambition in accelerating its economy, as stipulated in the nation’s economic master plan. The newly elected president and his administration have also vowed to prioritize Indonesia’s infrastructure improvement plan, once their term starts. As soon as the right solutions are implemented, primary goods will then be distributed evenly, and those living in rural areas can enjoy wider and easier access, as part of efforts to improve welfare and economic status. A focus on improving these key sectors will not only allow Indonesia to further prove itself as ready for regional open trade, but also to send a global message that the country’s economic resilience is here to stay. ●