Fighting Against the Logistics Cost Ghost

ANTARA FOTO/SIGID KURNIAWAN

A tugboat passes a container ship at Tanjung Priok Port, Jakarta, on Monday (23/7/2018). Bank Indonesia forecasts the economic growth rate in 2018 to reach 5.1 percent year-on-year, or at the lower end of the target range of between 5.1 and 5.5 percent due to decreasing contribution from export performance.

Following the rise in the competitiveness index and the ease of doing business index, Indonesia also recorded an improvement in the logistics index. Unfortunately, this has not been accompanied by a decline in logistics costs.

Indonesia\'s position on the logistics performance index, compiled by the World Bank, has risen sharply from 63^rd rank in 2016 to 46^th in 2018.

Despite many improvements, business actors still complain about the high cost of logistics. Besides difficulties in transportation access and limited infrastructure, they also complain about an increase in logistics costs, in the form of both official and unofficial levies. All this makes logistics so burdensome that they now account for one-third of the total cost of production in some industries, which obviously affects the country’s industrial competitiveness.

The problems in the flow of goods also lead to high cost for the national economy. The logistics problem causes the prices of basic necessities and other goods, from chicken eggs to cement, to be imbalanced among regions. The cost of transporting cattle from West Nusa Tenggara is 40 percent higher than from Australia. The high cost of logistics reflects also in the fact that logistics still add up to 24-25 percent of the GDP.

We appreciate the hard efforts of the Jokowi-JK government to solve the national logistics problem by speeding up the construction of roads, railways, ports, airports and sea transportation infrastructure to improve national connectivity over the last few years.

However, given the medium-long-term nature of infrastructure projects, these efforts are certainly not expected to instantly remove bottlenecks and drastically reduce logistics costs. At many important points of the national logistics paths, poor infrastructure, congestion and long queues to ports as well as illegal levies continue to haunt businesses.

Indeed, we have managed to cut dwell times at Indonesian ports from the longest in Asia (4-5 days) to 3.45 days or even less than three days. However, at the main ports of Tanjung Priok, Tanjung Emas, Tanjung Perak and Belawan, the dwell time is still above the three-day cap President Jokowi demands. By comparison, in Thailand and Vietnam it is 2-3 days and in Malaysia 1-2 days.

We have also recorded a sharp increase in the volume of shipments nationally and for export purposes. Direct export services of state-owned port management company PT Pelindo IV in eastern Indonesian regions have reduced export costs from domestic ports to the ports of destinations abroad by half and cut the distribution time of the goods to 20 days. The same can be seen in the government’s efforts to optimize sea lanes for inter-island transportation and to reinvigorate the small-scale shipping business.

However, we realize that building connectivity is not as easy as flipping a switch. Commitment and co-ordination are important, because frequent constraints include the absence of central-regional policy coordination and the administrative ego of ministries/institutions.

The high cost of logistics shows that dozens of economic policy packages launched by the government to support the national investment climate have not fully dealt with the biggest complaints of investors/businesspeople. Our homework is to untie the knots that have become the source of difficulties in reducing logistics costs and to speed up national connectivity through the development of an efficient and effective logistics system, which is linked to a reliable logistics and the development of a reliable national logistics information system.