Indonesia is known for its high logistics costs, leaving the price of goods uncompetitive compared to other countries. Logistics company PT Samudera Indonesia Tangguh’s managing director, , discussed the issue and shared the company’s ongoing endeavors to find a solution to the problem. Here are excerpts of the interview:
Question: Many have expressed concern over the high cost of logistics, which, in turn causes an increase in the price of goods. Producing a high-cost economy. How do you react to this?
Answer: I change concern into spirit, which means there’s a lot of work to do. If we just express concern or grumble, then we won’t solve the problem. We work in a logistics company and are aware that ports are our problem. Our ports are frequently congested, with ships queuing in long lines because Indonesia lacks adequate ports. A port is similar to the entrance to a toll road. With a severely congested port, incoming goods pile up in warehouses, affecting the delivery of goods. So congestion at ports is our problem and we have to fix it.
What efforts is the company making?
We’re continuing to invest in ports.
Which ports and where are they located?
We built a pier at Tanjung Priok Port in 2003 and started operations in 2005, with a concession period of 25 years. We built another pier in Samarinda with a concession period of 50 years. It was built in 2008 and started operations in 2010. The deliveries of goods by truck can take the Cimalaya road, which means the burden [of deliveries] will be shared.
Indonesia needs more ports and more than just Tanjung Priok Port. Sulawesi, Kalimantan and Papua all need adequate ports.
Legally speaking, is there any regulation that supports the development of seaports?
Transportation Minister Ignasius Jonan reminded us that the 2008 Shipping Law has shifted the role of Pelindo and other similar state-run port companies from being port authorities and port operators, to being port operators only.
This means more there’s more opportunities for the private sector to participate in developing ports in Indonesia. Everybody has a right to have access to Badan Usaha Pelabuhan (BUP) or port business entity. Those that meet the requirements for running a port business can build a port. The more ports we have, the better because we are really in dire need of ports to enhance the efficiency of our goods distribution. That’s why at APEC (in Beijing in November 2014), President [Joko] Jokowi [Widodo] highlighted the issue and invited investors to build ports in Indonesia.
What areas are covered in port investment and what are the objectives of corporate action?
Investment in ports includes logistics-supporting facilities such as a warehouse or distribution center, a depot and a power shop, etc. Our objective is to enable the smooth and fast distribution of goods, to speed up the distribution of goods to reach destinations faster so that sales can be made quicker.
That’s the challenge in Indonesia. Logistics costs are still high. I often hear the comment, ‘you must be OK because with high-cost logistics in Indonesia, you earn higher revenue.’ People shouldn’t think like that. This means our logistics work is conduced inefficiently, at high cost. The rising cost is contributed by, among other things, illegal levies, traffic jams or thugs. If we can lower the logistics costs, then there will be an increase in the volume of goods delivered.
When related to the issue of a high-cost economy, how big is the role of port investment in lowering the cost?
Investing in ports represents our continuous effort to lower logistics costs. This can slightly lower the cost, but is yet to be optimal because mafia-related problems can only be solved by those who are more powerful. We make continuous improvements by focusing on our business.
What about under the table costs?
These types of costs are a lingering disease in Indonesia. Many thugs operate in every port in the country. For example, before cranes were used to load and unload goods, the job was conducted by a group of workers under the management of a cooperative, but paid for by the port. Individuals who lead the cooperative cut the payment received from the port, reducing the money that the laborers were entitled to. Even though modern tools are used, such as cranes or forklift trucks, the thugs’ habit of asking for money remains.
Are there any other problems pertaining to the delivery of goods?
The looting of goods. Even though the goods are safeguarded on their way from a warehouse to Tanjung Priok Port, for instance, thieves can still operate, leading to reduction in the amount of goods delivered. This means security systems and procedures have to be improved. Extra security is needed, which means increased costs.
What’s the good side of the logistics business?
Even though there are a lot of problems, there are many jobs to do because we have a big market. To some extent, logistics and warehouses benefit from this.
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