Warehousing in Indonesia: underdeveloped but ready to expand
Published on 19/07/2017
Indonesia, with its massive population and rapidly rising economy, is certainly one of the transport and logistics markets to watch right now. While the sector continues to expand and mature, however, there are some big gaps have emerged that foreign companies are poised to fill.
Namely a demand for quality warehousing.
Indonesia nascent logistics sector means warehouse market underdeveloped
As an archipelago nation composed of over 17,000 islands, the prospects for transportation companies in Indonesia are huge. Yet, compared with its regional neighbours,
Indonesia’s logistics industry remains underdeveloped – and so too does its warehousing market.
The bulk of real estate can be found in Jakarta, the capital and largest city in Indonesia on its most heavily populated island of Java. Further industrial real estate is located in coastal city Surabaya (also on Java). Going forward, this is expected to change, but at the moment distribution remains focussed mainly on these two sites.
Many facilities are still in the traditional “gudang” style. Such legacy warehousing centres are often made of timber or reinforced concrete, with clear heights of between 5-6 metres, no or limited loading docks, and inaccurate floor loading data. These buildings tend to be leftovers from before the millennium, but the immaturity of the market means they are still very much a part of Indonesian supply chains.
Costs are a factor holding back the sector’s development – and indeed the entire transportation sector as a whole. In warehousing’s case, it’s land prices that are causing an issue. Rents in Greater Jakarta, for example, float around $6-7 per square metre at the moment, and are expected to enjoy moderate, single digit growth in the coming years. The trouble is land prices have risen 300% in recent years, making building on speculation a potentially risky business.
Built-to-suit facilities are now the preferred choice of companies and logistics firms.
But the outlook is anything but gloomy. Some key economic sectors are expanding at a rapid rate – pointing towards increased demand for fresh warehousing stock.
FMCG, pharmaceuticals, e-commerce driving Indonesian warehouse demand
The above three economic sectors are amongst Indonesia’s best performing industries at the moment. And, by their very nature, their expansion will necessitate commissioning and construction of new logistics hubs and warehouses.
E-commerce, for example, is now a $25 billion market in Indonesia. This has created a very real need for distribution centres, logistics hubs, and 3PL services, to ensure timely, cost-effective delivery of goods ordered online. The Lazada Group, Indonesia’s Amazon-equivalent, is expanding its bricks-and-mortar bases thanks to a) the rapid rise of e-commerce nationwide and b) a $1 billion cash injection/part buy-out from China’s online retail kings Alibaba.
In FMCG, several huge facilities have been constructed on built-to-suit agreements for major companies. Unilever, Dutch-British consumer goods giants, built its own 90,000 sqm distribution centre in 2011, for example, in anticipation of Indonesia’s retail market growth.
Pharmaceuticals is another Indonesia industry expanding rapidly. As of 2017, the sector is worth around $5 billion. The industry relies on temperature-sensitive transportation and storage. Cold chain is even less developed in Indonesia than warehousing – paving the way for international firms to supply specialist chilled warehousing facilities designed to cope with such goods.
Even the government is getting involved in funding logistics centre construction. Back in 2016, President Joko Widodo announced that 11 “Bonded Logistics Centres” had been built – and a further 50 are in the pipeline for 2017.
Amongst those constructed with government funds include:
• A site built by Kamadjaja Logistics for food and beverage storage and distribution in Cibitung, Bekasi, West Java
• A site for vehicle storage and distribution built by Toyota in Cibitung
• A site built by Gerbang Teknologi Cikarang for textiles in Cikarang, Bekasi, West Java
The main goal of these Bonded Logistics Centres is to grow available warehousing space while keeping logistics costs to a minimum.
Indonesian regulations relaxed for foreign warehousing companies
In order to foster direct foreign investment in the country, Indonesia’s government has relaxed regulations making it easier for foreign firms to enter the market.
While they must still partner with an Indonesian company, international businesses can now own up to 67% of Indonesia-based warehouse construction and distribution firms. This has been bumped up from the 33% allowance afforded earlier in the decade.
Certainly foreign investors are already beginning to make headway. LOGOS, a global real estate developer, has partnered with the Canada Pension Plan Investment Board to build $100 million worth of new facilities in 2017, for instance.
For cold chain specialists, it’s a different story. Foreign firms can 100% own and operate their Indonesian operations in this sector.
With an underdeveloped industry, and significant growth coming from major sectors of the economy, the time is ripe to enter the Indonesian warehousing market. These lapsing of regulations makes it an all the more enticing prospect too.
Uncover Indonesia’s warehousing demand at TransAsia
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