Logistics and Port Reform: The Challenges Of Implementing Reform in Indonesia

LOGISTICS AND PORT REFORM: THE
CHALLENGES OF IMPLEMENTING REFORM IN
INDONESIA

Henry Sandee
World Bank Indonesia Office
June, 12 2014

THE IMPORTANCE OF LOGISTICS AND PORTS

Global supply chains require cost-effective and reliable delivery
schedules. Ports are often a key bottleneck to ensure timely
delivery
Domestically inter-island trade will expand if the costs allow
transport of products from Eastern Indonesia to processing
facilities in Java
Indonesia presents itself increasingly as a maritime economy.
Ports and shipping are high on the agenda

IT IS CHEAPER TO SHIP ORANGES FROM CHINA TO JAKARTA THAN FROM
PONTIANAK


Jeruk Pontianak, Indonesia

Jeruk Mandarin, China

DOMESTIC SHIPPING COSTS IN INDONESIA ARE HIGH

Tanjung Priok – Guangzhou, China
Shipping Costs US$400

NUMBER OF DAYS NEEDED TO SHIP GOODS FROM JAKARTA AND SURABAYA TO
BANJARMASIN

PORTS, DOMESTIC SHIPPING AND HIGH LOGISTICS COSTS

Recent policies in Indonesia to promote domestic trade are a
combination of
 ‘Protective measures” that increase the price of imports
 Implementation of port and logistics master plans that aim
at reducing supply chain costs and improving ports

 This presentation will look the challenges of implementing
the port and logistics master plans

TACKLING INDONESIA’SHIGH LOGISTICS COSTS.
A LONG-TERM STRATEGY HAS BEEN DESIGNED
 Logistics blueprint issued as a Presidential Decree (2012)
 Port Master Plan issued as a Ministerial Decree
 Quick wins and long-term strategy
 Two cases that highlight the implementation challenges:
Cattle transport from Eastern Indonesia and Indonesia’s
main port Tanjung Priok

PORT AND LOGISTICS MASTER PLANS

 Port master plan – identification of 25 key international gate ways. This
should help to create scale economies and reduce the back haul problem
 Logistics blueprint – improve inter-island shipping as a key to lower the
costs of domestic trade
 Both plans prepared by the private and public sector
 Their implementation involves stake holder coordination


TRANSPORTING CATTLE FROM SUMBAWA: TO JAKARTA

THE CHALLENGE OF IMPLEMENTATION.
CATTLE TRADE BETWEEN SUMBAWAAND JAKARTA

COSTS OF TRANSPORTING CATTLE FROM SUMBAWATO JAKARTA
(PER COW)
1,600,000

Cost in Jakarta (slaughter house)
1,400,000
178,000

Transportation Cost (Sumbawa to Jkt)

Cost per Cow (IDR)

1,200,000


1,000,000
650,000
800,000

600,000

400,000
608,000
200,000

-

Cost Component

Cost in Sumbawa (from Farmer to Port
in Sumbawa)

LOGISTICS BLUEPRINT CALLS FOR SELF SUFFICIENCY IN CATTLE
PRODUCTION AND A DECLINE OF IMPORTS
 Total costs of transporting cattle from Sumbawa to Jakarta

are higher than the costs of importing cattle
 Costs from farmer to the port in Sumbawa are more than 40
percent of total costs
 Costs in Sumbawa are high due to high costs incurred in
ports
Waiting time, clearance processes, availability of ships, fees
and taxes

CHALLENGES
 Poor local infrastructure in Sumbawa drives up the costs.
Who pays for the upgrading of local roads?
 The port in Sumbawa is state-owned and determines which
ships may dock. Terminal handling charges are higher than
in Jakarta and Surabaya.
 Regulations also limit which companies may ship cattle
between Sumbawa and Java. Licenses are issued by regional
governments
 Challenges of inter-department and central-local
government coordination


THE ‘MOTHER OF ALL CHALLENGES’ – IMPROVING THE PERFORMANCE
OF TANJUNG PRIOK PORT IN JAKARTA

DWELL TIME TRENDS IN THE PORT OF JAKARTA
Dwell time is defined as the elapsed time that cargo spends within the port limits, from the
moment it is unloaded from the vessel and is on the ground until it leaves the port premises

• Increase overall trade costs, impacting productive activities, especially for export
and re-export-oriented industries
• Import dwell time is an important issue in an archipelago like Indonesia
10.5

Dwell time at Tanjung Priok has almost doubled in the last two years

Days

10.1

9.5
8.8

8.3

8.5

7.8

7.6
7.5
6.5
5.5

7.1

6.8
6.7
6.0
5.2

5.4


5.4
5.0

6.6
6.1 5.8 5.8

5.8
5.4

6.0

6.3

6.7

6.4 6.3
6.2

6.1


6.3

6.4 6.4
6.1

5.5

4.7
4.5
1.11 2.11 3.11 4.11 5.11 6.11 7.11 8.11 9.11 10.1111.1112.11 1.12 2.12 3.12 4.12 5.12 6.12 7.12 8.12 9.12 10.1211.1212.12 1.13 2.13 3.13 4.13 5.13 6.13 7.13 8.13

THE NUMBER OF IMPORTED AND EXPORTED CONTAINERS IN JAKARTA
IS GROWING RAPIDLY
Tanjung Priok Throughput (TEU)
7,000,000

6,600,000

6,000,000


5,649,119

5,000,000

4,612,512
3,984,278

4,000,000

3,689,783

3,804,905

3,000,000

2,000,000

1,000,000

2007


2008

2009

2010

2011

2012

Days

MORE THAN 50% OF THE LENGTH OF DWELL TIME IS IN THE
PRECLEARANCE COMPONENT (PORT OF JAKARTA)

7

6

1.88
1.16
1.19

1.08
5
1.24
0.96

4

1.36

1.12

1.13
1.12

3

2

3.71

3.25

3.49

3.46

2.52
1

0
October 2010

July 2011
Downstream

August 2011
Customs Clearance

January 2012
Upstream

February 2012

PRECLEARANCE IS NOT ONLY AN ISSUE IN THE PORT OF JAKARTA. WE
HAVE DATA ON FOUR PORTS
8.0
7.0
6.0
5.0
4.0
3.0

7.2
6.2
5.2

5.9

2.0
1.0
0.0
Tanjung Belawan Tanjung Tanjung
Priok
Emas
Perak

Tanjung Priok
Belawan
Tanjung Emas
Tanjung Perak
Total

Containers
19,306
778
1,314
5,203
26,601

%
73
3
5
20
100

This suggests that the
length of preclearance is
not associated with size of
port

THE CHALLENGES
 No 24/7 services and no integrated inspections. Still topic of interdepartment discussion
 Higher penalties remain low compared with hiring professional
warehouse capacity. Shipping lines offer ‘free demurrage” for up to 21
days
 New Ministry of Agriculture and Trade regulations have resulted in more
physical (so called red lane) inspections
 Dry port’s use is constrained because it is not a natural extension
Tanjung Priok

TO CONCLUDE….

 Logistics matter to compete on international markets and domestically
 Indonesia has made progress in improving its logistics performance
especially in the private sector
 Coordination remains a key issue
 Implementation turns out to be a real challenge
 Improving ports and logistics involves multi stake holders