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Today's Headlines Logistics Costs
Indonesia managed to rise sharply in the ranks of the World Bank's latest Logistics Performance Index (LPI). In the 2018 edition, which was released on Tuesday (24/07), Indonesia ranked 46th, up from 63rd in the preceding edition (released in 2016).
Exports of Indonesian fruit rose 6.13 percent year-on-year (y/y) to 325,236 tons in the first quarter of 2018 amid strengthening global demand for tropical fruit, specifically growing demand for mangosteen, bananas and pineapples. Largest demand for Indonesian fruit stems from China, Japan, Singapore, Australia and the United States (USA).
Indonesia rose six positions in the 2017 edition of the IMD World Competitiveness ranking. In this edition Southeast Asia's largest economy was ranked 42nd. This is positive because it shows the government's reform agenda is having an impact by improving the investment and business climate. However, Indonesia remains ranked behind its regional peers the Philippines (41st), Thailand (27th), Malaysia (24th), and Singapore (3rd).
The Indonesian government targets to see domestic steel production rise by 5 percent year-on-year (y/y) in 2017. Strategies to encourage Indonesia's steel output include tighter supervision on steel imports and offering energy price incentives to domestic producers (in an effort to boost the competitiveness of Indonesian steel).
Despite the Indonesian government being eager to push for infrastructure development, Southeast Asia's largest economy fell 10 positions in the World Bank's 2016 Logistics Performance Index (LPI), from 53rd position in 2014 to 63rd position this year. The LPI is determined through a worldwide survey involving operators on the ground (global freight forwarders and express carriers) that provide feedback on the logistics in nations where they operate and those with which they trade. High logistics costs are a problem for any economy as it makes products and services less competitive, while foreigners will think twice before investing in the country.
There are 30 projects that have been selected as priority infrastructure projects in Indonesia for the period 2016-2019. In total, all these projects together will require some IDR 5,519 trillion (approx. US $415 billion) worth of investment. However, the Indonesian government (including state-owned enterprises and regional governments) can only come up with IDR 1,400 trillion, or 26 percent of the required funds. The remainder therefore needs to be covered by the private sector. As such, the key for success is fruitful cooperation between the private and public sector (for example through public-private partnerships).
Per 1 April 2016 Indonesia's premium gasoline and diesel fuel prices decline by IDR 500 (approx. USD $0.04) per liter. Provided no shocks occur on the international crude oil market, these prices will remain at this level up to 31 September 2016. In January 2015 the Indonesian government scrapped generous subsidies for premium gasoline and capped the subsidy for diesel fuel at IDR 1,000 per liter. Ever since, Indonesian authorities evaluate prices of premium and diesel each quarter and determine prices based on crude oil price movements on the international market.
With the start of the ASEAN Economic Community (AEC) in 2016, Indonesia has to face tougher competition for its fruits exports. The AEC entails a high degree of free trade among its member nations and therefore competition for tropical fruit exports increases, not only in export markets in other parts of the ASEAN region but also on Indonesia's domestic market. Kafi Kurnia, Head of the Indonesian Export-Import of Fresh Fruit and Vegetable Association (Assibisindo), stated that, despite the great potential, Indonesia's fruit export volume remains small. The government is to blame as it fails to turn fruit into a key export commodity.
The government of Indonesia unveiled its eleventh economic stimulus package. The country's Chief Economics Minister Darmin Nasution presented the package at the State Palace in Jakarta on Tuesday (29/03). Indonesia's latest stimulus package includes a lower tax rate on property purchased by local real estate investment trusts, the harmonization of customs checks across the nation's ports (curtailing dwell time), government subsidies for loans taken up Indonesia's export-oriented small and medium enterprises, and the drawing of a roadmap for the nation's pharmaceutical industry.
Research institution Supply Chain Indonesia, which mainly focuses on logistics matters, requests the government to reevaluate its plan to use three ports in Banten (West Java) to take over some of the workload of Jakarta's Tanjung Priok port, Indonesia's largest seaport. Due to inefficiencies at Tanjung Priok, which handles about two-thirds of Indonesia's total international trade, dwelling time at this seaport is high and this gives rise to port congestion and high logistics costs. The government therefore wants three ports in Banten to support Tanjung Priok's trade activities.
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In the second half of September 2022 the Indonesian rupiah experienced some steep depreciating pressures, nearly touching IDR 15,300 per US dollar. It prompted Bank Indonesia to step and intervene in markets to limit the currency’s decline; a step that typically leads to a drop in the country’s foreign exchange reserves.
Those who have visited Indonesia should be well aware of the lack of infrastructure development across the country. Those who have been in urban centers (such as the capital city of Jakarta, Bandung or Surabaya) must have had the experience of being stuck in traffic as the number of road users (mostly cars and motorcycles) outpaces available road surface.
The Indonesian government is studying the possibility of cutting toll road prices for specific trucks, hence companies engaged in transportation logistics would be the key beneficiaries. The study comes after stakeholders have complained about the expensive prices that are charged by toll road operators (most of which are state-controlled companies). Indonesian President Joko Widodo said a price cut of up to 30 percent is possible. A cheaper price would improve the competitiveness in the logistics sector.
The Indonesian government plans to offer 10 toll road projects - with a total length of 520.83 kilometers - to investors before the end of the year. The projects are estimated to have a total value of IDR 109.58 trillion (approx. USD $8.3 billion). The offering of these projects are in line with the government's efforts to boost infrastructure development across the country. Such development will enhance inter and intra island connectivity, thus curbing the nation's high logistics costs and offer a more attractive investment climate to (potential) investors.
Investment in Indonesia's furniture and handicraft industries is expected to slow in 2016 due to subdued global demand and the lower competitiveness of these industries in Indonesia. Local furniture companies are moving away to Vietnam due to issues related to logistics costs, minimum wages and workers' productivity. For example, Taiwan-based Woodworth Wooden Industries Indonesia, the first Taiwanese furniture company that entered Indonesia (with a USD $40 million investment), decided to exit Indonesia, leaving 200 workers unemployed.
The central bank of Indonesia (Bank Indonesia) expects to see deflation at 0.15 percent month-to-month (m/m) in February 2016. Bank Indonesia Governor Agus Martowardojo said lower (government) administered prices in combination with low core inflation will be the recipe for deflation in the second month of the year. The lower administered prices that are primarily the cause of deflation consist of fuel prices, air fares and 12-kilogram liquefied petroleum gas (LPG) canisters. In the first month of the year Indonesian inflation accelerated to 4.14 percent (y/y).
The government of Indonesia decided to relocate the planned Cilamaya deep seaport project in West Java to a different location (possibly Subang or Indramayu) as the initially proposed location is too closely located to an oil and gas block operated by Pertamina Hulu Energi Offshore North West Java, a subsidiary of state-owned energy company Pertamina. Indonesian Vice President Jusuf Kalla said that it would be dangerous to construct the seaport close to this block as there is a high likelihood that ships will hit oil and gas rigs.
One of the key strategies to improve the economic fundamentals of Indonesia is to restructure and strengthen the country’s exports. This restructuring involves the transformation of Indonesian exports from being dominated by (raw) commodities to manufactured exports by developing downstream industries in Southeast Asia’s largest economy, including import substitution industrialization in order to curb the country’s demand for imported products amid Indonesians’ rising purchasing power.
Last week, Indonesian President Joko Widodo introduced higher subsidized fuel prices in Southeast Asia’s largest economy in a bid to shift generous public spending from fuel consumption to productive and structural economic and social development. Prices of subsidized low-octane gasoline (premium) and diesel (solar) were raised by over 30 percent, or IDR 2,000 (USD $0.17) per liter, starting from 00:00 on Tuesday (18/11). Widodo aims to reallocate these funds to infrastructure, social welfare and the maritime sector.
In 2015, Indonesia's Ministry of Public Works will start with the land acquisition process for the construction of the Trans-Sumatra Highway. This highway is a 2,732.2 kilometers-long toll road connecting Banda Aceh in the north of Sumatra to Bandar Lampung in the south through 23 routes that connect ten provinces. The total land area that needs to be acquired is roughly 218,976 million m² and is expected to cost around IDR 15 trillion (USD $1.3 billion). By 2025, construction of the project should be finished.
