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Logistics Firms Look to Expand

Logistics companies operating in Indonesia are expected to reap profit from rapid growth this year, driven mainly by buoyant domestic consumption and high levels of foreign investment.

The Indonesian government has estimated that the country’s logistic expenditure would be equivalent to 27 percent of gross domestic product this year. At that level, it would be valued at around Rp 2,000 trillion ($207.3 billion).
The market value may increase by 13 percent to 15 percent this year, in line with the country’s robust domestic consumption, Nofrisel, managing director of JNE Logistics, said on Friday.
“Logistics just follows people’s activities and consumption. In addition, the country is so vast and dispersed, which is a big plus for our business,” Nofrisel said.
Last year, the country’s GDP grew by an estimated 6.3 percent according to Bank Indonesia, the central bank, and the Finance Ministry. Authorities expect the country’s GDP to grow at least 6.5 percent this year, in line with an improved global economy.
“In fact, Indonesia’s logistics business is very resilient, despite the global slowdown last year that hit our exports,” Nofrisel said.
Ahmad Mohamad, a senior technical adviser at DHL Express Indonesia, shared Nofrisel’s sentiments, noting that strong inflows in foreign direct investment would help boost the logistics industry. Rising economic activity also translates into rapid growth of distribution of goods and services across the nation, he added.
FDI increased by 22 percent to Rp 56.6 trillion in the third quarter last year, from Rp 46.4 trillion a year earlier, according to Investment Coordinating Board (BKPM) data. Leading investments were in the mining, chemical and pharmaceutical sectors.
“With increasing investments made by foreign companies, this creates greater opportunities for the logistics industry to tap into these growing markets,” Ahmad said.
Ahmad said that he also sees bigger demand for logistic services to come from small and medium enterprises this year due to the government’s move to provide cheaper capital to boost those businesses.
The government plans to grow the amount of money disbursed through the People’s Enterprise Credit (KUR), a government-backed loan program for small and medium-sized enterprises, by 23.3 percent to Rp 37 trillion this year.
“SMEs will remain an important contributor to the Indonesian economy, in terms of industrial development, exports, employment and the creation of entrepreneurs,” Ahmad said.
DHL Express Indonesia has invested $7 million in the past three years, expanding its service network to tap the growing market.
The lucrative business in the logistics sector also drew postal service Pos Indonesia to devote more focus on the sector.
“Currently, logistics only accounts for 6 percent of our revenue,” said I Ketut Mardjana, Pos Indonesia’s president director. “We want to increase that, by spinning off our logistics business or even acquiring another logistics company.”
Mardjana expects the company would be able to acquire at least 1 percent of the country’s logistics market over the next few years.
Still, JNE’s Nofrisel said that local companies face severe talent shortages of workers capable of handling logistics.
“There should be more logistics programs in our universities. Income in this sector is lucrative and can double those in other sectors such as manufacturing,” he argued.
Nofrisel said that one challenge faced by the sector was red tape, on top of a lack of infrastructure.
“For example, too many fees are required by districts governments, making domestic logistics costs higher than imports,” said Nofrisel, a former secretary at the National Logistics System team under the Coordinating Ministry for the Economy.
Indonesia’s rank in the World Bank’s Logistics Performance Index rose to 2.94 in 2012 from 2.76 in 2010. The index ranges from 1 to 5, with 5 as the highest score.
Last year, Indonesia ranked 59th out of 155 countries. The LPI includes several categories including tracking and tracing, customs, logistics competence, infrastructure, international shipments and timeliness.
While there were improvements in some soft infrastructures — such as tracking and tracing — and in the logistics companies performance, customs and infrastructure — such as ports, roads and railways — remained stagnant.
The government has targeted to increase the index to reach 3.1 by 2015 and the country’s total logistic expenditures to be reduced to 24 percent of GDP.
(Source: Jakarta Globe)

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