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Services | Indonesia’s Shipping Sector

Sea transportation is a vital aspect of Indonesia’s trading infrastructure carrying over 90% of internationally traded goods. Yet existing infrastructure is inadequate to meet the current volumes of trade being carried out. This has given rise to high logistical costs for both domestic, local and international transport due to congestion at current ports that make turnaround times considerably high. Construction of new facilities are being undertaken by the government as well as increasingly by the private sector in order to prepare for the growth in activity as the ASEAN one market approaches in 2015.

Indonesia has hundreds of small ports throughout the islands making up a total of 1,700. Of these, 111 of these are commercial ports while only 11 are container ports. The shortage of large scale ports capable of receiving trans-oceanic vessels and the overcapacity of current ports has given rise to a highly inefficient system. As a result, much of Indonesia’s cargo has to go through Malaysia and Singapore. Existing facilities are being overloaded with the main port in Jakarta, Tanjung Priok handling 70% of Indonesia’s total import and export flow. The port is due to exceed its capacity of 5 million TEU limit in 2011. The congestion and resulting bottlenecks have made shipping costs in Indonesia the highest in the ASEAN making up 15% of the final price of goods (KADIN). Such conditions make the price of inter island transport more expensive than that of international; the price of shipping a standard container from West Sumatra to Jakarta is over three times the cost of Jakarta to Singapore.

The high logistical costs are burdensome for competitiveness and are reflected in international rankings on the business environment. The World Economic Forum’s Global Competitiveness Report 2010-2011 where Indonesia ranked 44th overall, put the country at 90th for infrastructure and 96th for port efficiency. Similarly, the World Bank Logistics Performance Index places Indonesia at 75th out of 155 countries. While conditions have been improving from five years ago, as illustrated in the World Bank Doing Business Report, it is not improving fast enough compared to regional counterparts.

Ports are managed by four state owned companies PT Pelindo I, II, III and IV while the sector has been recently opened up to private sector and foreign involvement in 2011 under the 2008 Shipping Law.

World Bank Doing Business Report 2011 – Trading Across Borders, Indonesia

Source: World Bank Doing Business Report 2010-2011

The need to radically upgrade facilities is recognised by the government and a new drive is underway as part of the national infrastructure development master plan. New ports are being planned to relieve some of the congestion. In North Jakarta, Kalibaru Container Port is due to begin construction at the end of 2011 to easy off some of the pressure from the main Tanjung Priok Port that has been stagnating in terms of capacity. It will accommodate 6.5 million TEUs as well as host an oil and gas terminal. Further upgrade plans under the SOEs PT Pelindo I, II, III & IV are underway to expand the capacity of Tanjung Priok by 1.7 million TEUs as well as the construction of new ports at Ancol, North Jakarta and Lamong Bay in Surabaya.

Private companies have also moved in to fill the gap by constructing their own ports and terminal facilities such as AKR Corporindo and property developer Jababeka’s dry port in Cikarang. With the break of PT Pelindo’s monopoly on port management under the 2008 Shipping Law thus opening up the sector to private players in 2011, this should see greater competition as well as improved efficiency. Increased private sector involvement will bring a much needed boost to improve both turnaround times and high costs. This move is necessitated by the upcoming ASEAN single window in 2012 and the single market in 2015 which will see further intensification of regional trade.

The introduction of cabotage through Presidential Instruction No. 5/2005 and Law No. 17/2008 signalled a shift by the government towards actively supporting the development of the domestic shipping industry. The measure, which became effective at the beginning of 2011, stipulates that domestic shipping routes can only be undertaken by Indonesian vessels or by international vessels only with a fully Indonesian crew on board. Otherwise, foreign vessels may only enter international ports and must transfer their cargo for domestic shipping. This has since been revised for specialised oil and gas vessels following protests from energy companies, including state owned Pertamina, that local providers did not have adequate facilities for deep water drilling. The lead up to the introduction of the measure has witnessed a revival in the local shipping industry that had previously come to be dominated by foreign operators. Frost and Sullivan, a consultancy firm, estimates that the application of the law will reap up to $3.2 billion USD for the Indonesian shipping companies in 2011 alone. The share of both domestic and international freight being carried out by such companies stood at 55.5% and 5% respectively in 2005 and is projected to reach 97% and 10.4% in 2011.

Indonesia’s domestic shipping industry has a bright future ahead under the cabotage principle which will see it benefit from the recovery in regional and global trade. The liberalisation of port management and the much needed opening of new facilities will also see improved productivity and efficiency, to bring the industry up to the level of its regional counterparts. Securing and attracting investment to upgrade local company’s facilities and vessels is a challenge that lays ahead in order for the industry to fully meet the needs of the domestic energy and mining sector. This also brings with it the need for qualified human resouces in the areas of port management, vessel and cargo handling to ensure that the sector can remain competitive.

Global Business Guide Indonesia - 2012

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