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ITE Transport and Logistics

Transport & logistics in Indonesia: building a better future

The geography of Indonesia presents some big challenges for logistics and transport operators. Stretching across 17,500 islands, 5 million square kilometres of sea and a total land area of 1,919,317 square kilometres, the archipelago country is huge. 
 
Despite the geographical factors, the government has pledged to drastically improve Indonesia’s transport infrastructure. President Joko Widodo has pledged that his administration will massively invest in updating the nation’s roads, ports, railways and airports.
 
With this government in mind, why should transport and logistics firms look to the Indonesian market? There are many exciting developments occurring in the country and research firm Frost & Sullivan has predicted that the country’s logistics sector will grow by 14.4% by 2020. 
 
Sector composition
 
According to Frost & Sullivan, the services sector contributed 35.9% of Indonesia’s GDP in 2013. Of this, transportation and logistics contributed 3.6%. When split into individual transport sectors, which held a total market value of around $25 billion, we can see the following:
 
• Road transport – 53.09%
• Air transport – 21.65%
• Services related to transport – 14.51%
• Sea transport – 6.84%
• River, lake and ferry transport – 3.05%
• Railway transport – 0.86%
 
What is the future of Indonesia’s transport and logistics sector?
 
Logistics research firm Transport Intelligence has identified a number of reasons as to why logistics and transport is set to thrive across the archipelago:
 
• The government has pledged to tackle Indonesia’s endemic corruption and chronic infrastructure deficit
• Efforts towards simplifying domestic and international trade processes - making Indonesia a ‘world maritime axis’ between the Pacific and Indian Ocean
• Emphasis on allowing more Foreign Direct Investment
• ASEAN Economic Community launch will free up movement of people and goods across the bloc
• Rapidly modernising retail, e-commerce and a growing automotive sector provide opportunities for contract logistics and express providers
 
Indeed, the government has pledged to invest in a huge number of infrastructure projects that will have positive consequences for trade and transport across the region. Initial government projects, outlined in 2015, include the construction of:
 
• 2,650 kilometres of roads, 1,000 kilometres of toll roads & 46,770 kilometres of road maintenance
• 15 commercial airports & 6 developments for air cargo
• 3,258 kilometres of railway track split between 2,159 kilometres of intercity track and 1,099 kilometres of city track
• 24 sea ports
 
A number of logistics facilities, including warehousing and storage areas, are also planned for construction ready for opening in 2017. President Widodo announced in March 2016, the building of 50 such bonded logistics centres (PLBs) across the nation. This announcement follows a pledge to complete 11 PLBs in 2016. 
 
“This year, we want to complete the 11 PLBs and synchronize the system with Custom and Excise Office. Next year we are targeting 50 more PLBs. With these 50 companies, in the next two to three years, we expect Indonesia to become a logistics hub,” said Indonesian Finance Minister Bambang Brodjonegoro, describing the impact the government hopes the facilities will have. 
 
Constructing the road to logistics success
 
The vast majority of transport in Indonesia is conducted by road. As such, the nation is undergoing a frenzy of road construction activity across its many islands. Much of this work is in upgrading and maintaining the existing network, but there are plenty of large-scale projects underway – with significant investment levels. 
 
One such road under construction is the Trans-Sumatra Freeway. Stretching over 2,600 kilometres, the motorway will connect Serang in the Banten region to a number of Sumatra’s most economically strategic cities including Banda Aceh, Jambi, Tanjung Pinang and Bengkulu. The total cost is projected to reach over $11 billion.
 
Transport & logistics on track for a bright future
 
A number of new rail lines have been built, or are under construction, with the aim of vastly increasing the Indonesian rail freight sector’s market presence and capacity. Despite a bumpy start, a $5.5 billion high-speed link, stretching 173 kilometres between Jakarta and Bandung, is being built with completion scheduled for 2018. 
 
This comes as part of a planned total investment in new railways by the Indonesian government of $47.2 billion, according to Rail Journal. Rail construction was spearheaded in March 2014, with the completion of a 727 kilometre double-track corridor between Jakarta and Surabaya. 
 
Ports, ports and more ports
 
Sea freight is of course big business in an island nation such as Indonesia. With its strategic South-East Asian location, Indonesia is attempting to position itself as a sea freight hub with the planned construction of 24 sea ports including an updated facility at Priok harbour in North Jakarta, a joint project with the Port of Rotterdam Authority at Kula Tanjung and deep sea port at Kijing. 
 
On top of these multi-billion dollar construction projects, Indonesia has taken pride of place in the AESEAN economic group of South-East Asian countries and is eyeing up the idea joining the Trans Pacific Partnership. Joining such communities will likely increase Indonesia’s stature as an international sea freight hub. 
 
But what about airports? Expansions, such as adding a third runway to Jakarta’s Soekarno-Hatta International Airport, are planned as well as building completely new facilities. Indonesia’s first privately constructed airport, a $500 million project from Indian conglomerate GVK, is set to be built in the Yogyakarta. 
 
To demonstrate the commitment to increasing air freight in the country, the government is planning to invest over $12 billion until 2020 in airports and associated facilities according to aviation research company CAPA. 
 
South East Asia’s emerging transport & logistics hub
 
With massive government backing, Indonesia’s transport and logistics industry is set to rapidly increase. Alongside the country’s multiple infrastructure construction projects, Indonesia is planning to, or already has, join a variety of international economic and trade partnerships for an increased global presence. 
 
Logistics is set to transport Indonesia into a strong economic future and the opportunities for foreign firms are many. 
 

 

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