Indonesia already has a thriving domestic logistics market, supported by its population of 250m people. There is also ample room for international logistics expansion as the world’s fourth populous nation takes a larger role on the world stage.
For example, contract logistics is prospering thanks to the rapidly growing retail sector, of which around 40% is now considered to be ‘modern retailing’. This proportion is on an upward trajectory, as is the country’s outsourcing rate. Outsourcing however remains at a low base – most large local retailers still perform their logistics in-house.
In the automotive sector, vehicle production has grown from around 500,000 vehicles in 2005 to over 1.2m in 2013 (growth of 141%), and is primarily aimed at the domestic market. Volkswagen, General Motors and Toyota are just a few of the vehicle manufactures planning to invest hundreds of millions of dollars in new production facilities over the next few years. Thailand – often heralded as a beacon of success in the sector – has grown vehicle production by 119% over the same period. Indonesia’s booming production has, unsurprisingly, coincided with rapid growth for automotive logistics providers.
Domestic express similarly also offers tremendous opportunities. Pos Indonesia, the national postal provider and one of the leading players in the sector, reports that domestic express parcels have stimulated superior revenue growth compared to all its other services over the last five years. Of course, the primary driver is e-commerce. Although at a low base, e-commerce in Indonesia has one of the highest growth rates in the world – if not the highest according to Pos Indonesia’s President.
Domestically then, everything seems to be heading in the right direction. But what is the current situation and outlook for international trade?
Air freight volumes offer a mixed picture. Indonesia’s air freight export tonnage to the EU and US was actually lower in 2013 than in 2003, more or less remaining stagnant throughout that period. In fact, air freight to and from the US and EU is relatively unimportant for Indonesia, accounting for only around 25% of total imports and exports. On the other hand, overall air exports have gone up from 130,000 tons to about 210,000 tons over the same period, driven by 120% tonnage growth to the non-Western world.
For imports, the US and EU have fared better, but tonnage from everywhere else still dominates in both absolute and relative growth. Perhaps the most noteworthy feature of Indonesian air freight is how much faster domestic volumes have risen, increasing from around 200,000 tons in 2003 to around 500,000 tons in 2013.
The scenario virtually repeats itself in the ocean freight sector – containerized tonnage to and from the US and EU is relatively unimportant and has stagnated since 2008, while intra-Asia tonnage is far larger and has grown much more rapidly.
Overall, international logistics in Indonesia lags behind most of its regional competitors, and at first glance the prospects aren’t as good as in domestic logistics. However, Ti’s latest analysis Indonesia Transport & Logistics 2015 – A New Dawn? suggests all of this could soon change. Or at least, it could change if Indonesia can address its immense infrastructure gap between supply and demand and improve its trade facilitations systems and regulations to boost its export sector and attract more Foreign Direct Investment in manufacturing.
Much rests on the new government of President Joko Widodo. But initial signs are highly positive, both for Indonesia and logistics providers looking to expand their presence across the archipelago.
For more information about the Indonesian logistics market take a look at Ti’s latest report ‘Indonesia Transport & Logistics 2015 – A New Dawn?’ which is available now.
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