In 2023, the Organisation for Economic Co-operation and Development (OECD) forecasts India to grow 6%, China to expand 5.4%, and Indonesia to grow 4.7%, while the global economy grows 2.7%. Over the secular horizon, we expect annual real GDP growth for India at 6-7% and Indonesia at 5-6% due to continued reform-oriented governance and macro stability.
Logistics Market
The Indonesian logistics market is revving its engines, propelled by a flourishing economy, a booming e-commerce sector, and a growing middle class with rising disposable incomes. Indonesia Logistics Market Outlook to 2027" predicts a robust 11.8% CAGR, translating to a staggering $322.4 billion market size by 2027. Thus, beyond simply transporting goods, plays a vital role in driving economic growth, creating jobs, and fostering regional connectivity. Here are delves into the diverse segments of the Indonesian logistics market, offering a comprehensive view.
- Transportation: Road transportation dominates (80%), followed by maritime transport (15%) and air cargo (5%). Multimodal solutions are gaining traction.
- Logistics Services: Third-party logistics (3PL) providers hold the largest share (60%), followed by warehousing and storage (25%) and freight forwarding (15%).
- End-User Industry: E-commerce & retail leads the demand (35%), followed by manufacturing (25%) and fast-moving consumer goods (FMCG) (20%). Healthcare and automotive are emerging segments.
Challenges of Logistics in Indonesia
Indonesia improved its Logistics Performance Index rating in less than ten years by strengthening its logistics and supply chain infrastructure, particularly roads and highways. These developments have allowed it to move up 29 ranks from 75th in 2010 to 46th in 2018. However, Indonesia’s performance still needs to catch up to other nations due to subpar logistics and supply chain services and many underlying problems. Thus, Indonesia must develop a mature logistics and supply chain industry with effective and affordable services.
The Indonesian government has actively worked on improving this, and they have made noteworthy improvements. President Joko Widodo has launched a big infrastructure campaign since taking office in 2014, investing as much as $450 billion in urgent infrastructure improvements. In addition to other infrastructure improvements, this has led to the construction of over 3,382 km of new highways, 782 km of new toll roads, 19 km of new seaports, and 10 km of new airports.
This improvement, nevertheless, has slowed. According to the most current World Bank evaluation of logistics in Indonesia, highlighted by the Ease of Doing Business Index, the country showed minor gains, rising to a score of 69.6 in 2020 from 68.2 in 2019.
The logistics industry in Indonesia is fragmented despite having one of the largest eCommerce markets in the world. The logistics industry must embrace digitalization if it hopes to maintain its expansion. Indonesia is an archipelago with thousands of islands.
An Expensive and Inefficient Supply Chain
There are many different obstacles that logistics service providers must overcome, particularly in the area of last-mile delivery. Due to strict timetables, conventional shipments, for example, take longer to arrive. On-demand services may deliver more quickly but at a higher cost and over shorter distances.
Indonesia’s logistics cost-to-GDP ratio is three times higher than in five benchmark countries (Germany, Japan, Singapore, South Korea, and China).
Many barriers on cross border management such as Customs clearance, regulation, traditional document management and process. Cross-border import freight into Indonesia is difficult and expensive and longer lead-time. There are several reasons why goods get stuck in customs. Some of the most common reasons include:
- No license. If the consignee does not have an import license, their goods cannot go through customs.
- Incomplete or incorrect supporting documents. Your shipment’s documents must be complete and accurate. For example, if the goods don’t match the goods declared in the documents, customs will hold the shipment. They will also hold goods if they suspect that the shipment value declared is incorrect.
- Additional permits are required. Some types of goods require additional import permits. Some examples include cosmetics, medicine, IT equipment, and steel among others.
- Red channel inspection. Customs personnel will physically inspect each item in red channel inspection. They will also verify relevant documents. We discuss the inspection of goods further below.
The issues above represent a great opportunity for businesses to use HAKOVO’s digitally connected and simplified IMPORT Customs and Compliance into Indonesia – Smartclear -
The Future of Logistics in Indonesia
All logistics players must adopt advanced technologies if Indonesia’s logistics industry is to be digitized. Although many participants in Indonesia’s logistics ecosystem have begun to use technology, it still needs to be improved. For instance, the quality of port operations is still largely dependent on manual labor. Last-mile services such as storage and in-land distribution still use outdated infrastructure. Service providers can study and compare the digital logistics solutions being used in Singapore, Vietnam, and Thailand. The government is already working with local start-ups that offer training and software to logistics providers. Better tools lead to higher-quality services, reduced national logistics costs, and more market competitiveness.
The essential building block for powering e-logistics is a national logistics platform. Opening the digital infrastructure will improve logistics and supply chain services and offer greater nationwide access with an integrated platform. The National Logistics Ecosystem (NLE) is an integrated platform that connects and streamlines Indonesia’s end-to-end logistics process. It was first introduced as the nation’s logistics platform in 2020. The adoption rate is still quite low, with less than 30 organizations now working together. The NLE platform is still not connected to other service platforms but presents a strong foundation for digitized logistics.