JAKARTA, Indonesia, April 11, 2013 /PRNewswire/ -- Frost & Sullivan is forecasting the Indonesian logistics industry to grow 14.5 per cent to IDR 1,634 trillion in 2013 as compared to an estimated IDR 1,427 trillion a year ago, fuelled by the Government's initiatives and development of the logistics industry and strong economic growth.
Mr. Gopal R, Global Vice President, Transportation & Logistics Practice at Frost & Sullivan said that the relocation and strong flows of capital are also expected to drive manufacturing activities in Indonesia and boost logistics demand.
He added that external trade for Indonesia is expected to see a moderate growth of 16.7 per cent to reach US$446 billion in 2013.
"Import/export forwarding, shipping and airfreight related businesses will benefit from sustainable growth of external trade activities," he said.
Mr. Gopal said that the growth of foreign direct investment (FDI) is expected to continue in 2013, with an estimated value of US$42.7 billion. He added that FDI realization in transport & storage sector reached US$ 2.8 billion in 2012, which was the second largest share out of overall FDI, after mining sector around US$ 4.3 billion. He also said that the strong FDI flow into the mining industry will continue to boost the industrial growth and offer business potential to transportation & logistics industry.
He predicts the transportation & logistics market in Indonesia to grow at a compound annual growth rate (CAGR) of 14.8 per cent for the forecast period 2013 to 2017. "However, underdeveloped infrastructure will slow down the growth if the bottleneck persists in the coming years," he said.
Mr. Gopal said that the result of poor connectivity, process and weak infrastructure is evident in many price differentials and transport problems in Indonesia.
He added that trade facilitation is still mainly 'paper-based systems', which increases the cost of logistics in addition to reduced efficiency. Other bottlenecks in the Indonesia transportation and logistics industry include goods to be exported leaving the ports too late and consequently do not reach the regional transshipment ports on time. He added that ships destined for local destinations are also frequently delayed.
'The Indonesian logistics market is highly fragmented with abundance of small to mid size companies in the market, even the big players are facing stiff competition from these companies," Mr. Gopal said. He added that the fragmented market pushes smaller logistics service providers to go for economic pricing strategy rather than focusing on service quality and breadth of services offered.
Freight movement in Indonesia
Mr. Gopal forecasts Indonesia's total ocean cargo volumes to increase 6.1 per cent to 1 billion tons in 2013 as compared to 943.1 million tons in 2012. He added that seaports handle more than 90 per cent of total non-road freight traffic in Indonesia.
He also said that the shipping industry could be affected by further global slowdown especially from the Euro zone crisis and decreasing demand from China. "However, it is expected to maintain a steady growth driven by the strong domestic demand and the availibility of new vessels particularly for oil and coal industries," he added.
Mr. Gopal said that cargo volume by rail is expected to increase 8 per cent to 25.5 million tons in 2013 as compared to 23.6 million tons in 2012. "The Government's plan accelerating the construction of the double track between Jakarta-Surabaya in Java and adding railway cars and locomotives in Java - Sumatera tracks will likely push the amount of freight transport capacity up to threefold along with reduction of burden on road as well as cutting down logistics cost and time," he added.
He expects airfreight volume to rise 19.6 per cent to reach 1.16 million tons from 970,000 tons in 2012. "There's significant potential for air cargo from seasonal perishables as well as time sensitive and high value components and equipment," he added.
Mr. Gopal also said that Soekarno Hatta Airport contributed approximately 36.7 percent of the total air cargo volume in the country.
Key industry trends
Mr. Gopal said that there is a higher inclination towards outsourcing a variety of value added services in the Indonesian market. He added that logistics service providers need to work toward more value-added services while strengthening the intermediate services.
He said that logistics end users are also moving towards integrated supply chains with professional service providers. He added that Indonesia is determined to become an important player in international trade & markets. The government focuses particularly on 6 key areas with the objectives of ensuring the availability of strategic commodities, promoting low cost economic activities and strengthening national competitiveness.
Mr. Gopal said that the ASEAN Economic Community (AEC) in 2015 will amplify the export value to ASEAN countries.
Mr. Gopal said that logistics service providers in Indonesia should move towards offering specialized logistics solutions for specific industries such as FMCG, construction, service parts and mining as compared to the current basic logistics services with common value-added services.
He added that a logistics network of industrial centers should be developed on the outskirts of Jakarta for improved access to the Port of Tanjung Priok as the current high traffic congestion in Jakarta resulted in a longer lead time, shipment delay and an inefficient supply chain.
The Indonesia Government should also integrate transportation hubs – seaports, airports, terminals and distribution centers – with the transport network and develop state-of-the art logistics infrastructure for efficient distribution.
"Companies should also strengthen its human resources capabilities with professional and experienced logistics personnel along with market expansion," Mr. Gopal said.
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SOURCE Frost & Sullivan