Transport and logistics are a crucial part of Indonesia’s economic growth strategy. As such, 2016 has so far seen some exciting developments in the industry – both for domestic firms and international companies. 

 

A “big bang” promised for transport & logistics
 

February 2016 saw President Joko Widodo unveil plans for a “big bang” economically across a range of sectors, including logistics, with a loosening of FDI restrictions. A space for international companies to expand into Indonesian markets has subsequently been established.
 

Indonesia, in a bid to protect its domestic industries, has what is called the Negative Investment List. This document stipulates to what extent foreign investors can own businesses in the country. Previous restrictions affecting air cargo, relating to the transport supporting services sector, warehouse distribution and cold storage, have been severely liberalised.
 

Foreign ownership opportunities in the above sectors have been greatly expanded. International companies can now own the following percentage of an Indonesian business in the aforementioned industries:
 

• Air cargo related to the transport supporting services sector – 67% (increased from 49%)

• Warehouse distribution – 67% (increased from 49%)

• Cold storage – 100% (increased from 33%)
 

The changes have been welcomed by many in Indonesia. Zaldy Ilham Masita, Chairman of the Indonesian Logistics Association, has said these measures will help cut the nation’s spiralling logistics costs. Given that Indonesia is a member of the freshly launched AESAN economic community, any subsequent cost-cutting measures will increase the country’s regional and global competitiveness. 
 

Indonesia’s Transportation Minister, Ignatius Jonan, also revealed Indonesia’s intention to open air and sea ports to overseas investors. However, caps have been put in place, due to “sovereignty issues”, that restrict foreign ownership levels at 49%. Still, once the liberalisation plans are pushed through, a number of vital transportation sectors will be released to foreign firms including port management, air traffic control and cargo handling. 
 

Solid growth forecasts for Indonesia’s logistics sectors
 

Several essential logistics sectors will experience solid growth in 2016, according to findings from BMI Research. Take air freight for example. BMI suggests that the air cargo sector will grow by 3.5%. While relatively small, this is still an increase from 1.75% growth levels observed in 2015. A growing taste for imported goods is expected to act as a major growth driver in coming years.
 

An internal drive to upgrade railway links across Indonesia is also expected to translate to growth in rail freight. BMI suggests a growth rate of 4.4% for the sector across 2016. If this prediction is correct, rail cargo volumes would increase to a total of 39.8 million tons. 
 

2016 will also see road freight expand at a rate of 3.7%. While these growth levels do appear modest, Indonesia is preparing to enter the third phase of the National Long Term Transportation Plan. Running from 2015-2019, this project is aiming for the improved integration of infrastructure networks across the country. 
 

As a whole, the industry is looking positive. The Indonesian Logistics Association (ALI) is optimistic. It is hoped by the ALI that the logistics sector could post double digit growth rates in 2016 – in the region of 10-12%. The domestic market size is estimated at $163.4 billion. Further growth could ensure the industry remains in rude health in the near future.
 

Billions of dollars’ worth of funding is being poured into large-scale infrastructure projects across the archipelago. An expanded toll road and highways network, longer, more convenient rail links, deep sea ports and international airports are under construction. Lower transportation costs and improved efficiency are likely to be the results of this nationwide building scheme.
 

AESAN Community Launched
 

The January 1st launch of the ASEAN Economic Community (AEC) could prove a watershed moment for transport & logistics in Indonesia. The nation is already in an enviable strategic location and is a major sea freight hub. By joining the AEC, cross-border cargo should become an easier prospect in Indonesia – a very pleasant prospect for logistics suppliers.

A number of favourable core elements are included in the AEC’s provisions: 
 

• Free flow of goods

• Free flow of services

• Free flow of investments

• Free flow of capital

• Free flow of skilled labour
 

One major positive aspect of Indonesia’s AEC membership is a further reduction in logistics costs. This will be essential in attracting overseas transportation firms. Logistics costs are a major cause of concern for the government. At present, around 25% of Indonesia’s $895 billion GDP stems from transportation expenses. Potential expenditure reducing measures are being pursued by the government. However, joining the AEC is a step in the right direction.
 

Warehousing costs to be slashed
 

Warehousing is an area that the government has identified as potential money-saver. In March 2016, a brand new warehouse-sharing initiative was launched by President Widodo. Companies can share their goods in warehouses for up to three years. During this period, firms can enjoy significant tax incentives.
 

There exists significant demand for warehousing, storage and effective distribution facilities in Indonesia. As FDI restrictions have been lifted in this area, foreign firms now have the opportunity to fill this gap. And this gap will only grow larger. Levels of e-commerce spending are on the rise. Coupled with an expanding demand for imported goods, expect warehousing requirements and fulfilment opportunities to expand across 2016.
 

Transport & Logistics in Indonesia 2016
 

Indonesia’s transportation costs are currently 2.5 times higher than neighbouring Singapore. It appears the government’s main focus, logistics-wise, in 2016 will be the reduction of costs. 
 

The above measures, alongside significant domestic infrastructure investment, point to Indonesia becoming a more desirable locale for transport & logistics companies.