Indonesia to reduce logistics costs to 17% from 24% by 2024

In the fifth brief from our Emerging Markets series, we take a look at Indonesia, the country ranked number five in the Agility Emerging Markets Logistics Index.

Whilst offering impressive opportunities, Indonesia has many supply chain and logistics challenges, a fact illustrated by its high proportion of logistics costs to GDP. Despite its strong position in the top ten of the rankings, many in the country believe that progress is not being made as quickly as might be expected, especially given the government’s aim to reduce the logistics cost ratio to 17% from 24% by 2024.

In order to provide the basis for an economy-wide transformation, the Indonesian government has adopted a ‘Making Indonesia 4.0’ programme. This will focus innovation and development on five key sectors comprising electronics, chemicals, automotive, food and beverage and textiles, all underpinned by enhanced logistics and supply chain processes. However, whilst the intention may be very sound, considerable progress will need to be made before companies in the market will have Industry 4.0 capabilities.

One way to facilitate this would be to remove many of the regulations relating to foreign investment. The easier entry of international companies into Indonesia would allow local businesses to benefit from the transfer of advanced technologies, especially those in the logistics sector which would gain from the introduction of digital platforms, GPS and IoT sensor technology, robotics and automation to name just a few.

Indonesia has recently adopted a digital National Logistics Ecosystem (NLE) plan which is designed to improve the flow of logistics data and goods, domestically and internationally. Its aim is to simplify business and government processes; enhance public and private collaboration as well as creating a digital payment service. Two of its major goals are to reduce transit times from arrival at port to arrival at warehouse and reduce congestion on Indonesia’s roads through better planning.

However, according to reports, take up has been slow and connectivity with other platforms low, showing the progress that still has to be made if the government is to
fulfill its ambitions.

Indonesia has very close links with China which is its largest trading partner (both in terms of imports and exports) and second largest provider of foreign direct investment. China’s zero tolerance approach to Covid and the disruption this caused for its manufacturing and supply chain industry has had a significant impact on Indonesia’s economy.

Whilst China plus sourcing strategies may have mitigated the effects of the policy to some extent, the renewed growth of the Chinese economy; the relaxation on mobility restrictions for Chinese business travelers; increased investment activity and the cessation of ‘stop-start’ production would far outweigh these benefits.

To find out more about Indonesia and our Index top ten (China, India, UAE, Vietnam, Malaysia and more):

Download our free report: Agility Emerging Markets Logistics Index

The Agility Emerging Markets Logistics Index from Agility & Ti Insights, ranks countries for overall competitiveness based on their logistics strengths, business climates and digital readiness – factors that make them attractive to logistics providers, freight forwarders, air and ocean carriers, distributors and investors.

Source: Agility & Ti Insights