Indonesia offers significant growth opportunities for logistics companies looking to expand in the region. That’s why businesses need to pay closer attention to the country’s logistics landscape to make informed decisions and leverage the growth potential.
The country is home to over 273 million people with 57% of the population concentrated in urban areas, covering 1,877,519 km² land area. With this large size and fragmented freight and logistics market, Indonesia also presents intense logistical challenges.
In this excerpt from our industry report, State of Logistics in Southeast Asia 2023, you will deep dive into the challenges and opportunities for logistics companies in Indonesia.
Outlook of the Logistics Industry in Indonesia
This issue is reflected in the country’s falling Logistics Performance Index (LPI), with timeliness and the ability to accurately track and trace shipments bringing down its index score in recent years. It is currently ranked 63rd globally.
Indonesia’s LPI ranking needs to catch up with the neighbouring countries because of Indonesia’s archipelagic geography (the link goes to a Bahasa page), resulting in Indonesia’s logistics costs accounting for 23.5% of its GDP and uneven infrastructure development, which complicates the delivery process.
(Source: Indonesia LPI Score by WorldBank, 2023)
AC Ventures’ report highlights that Indonesia’s logistics and supply chain industry encounters numerous hurdles, encompassing inadequate transportation infrastructure and connectivity. The report underscores that Indonesia’s geographical characteristics necessitate the implementation of multimodal transportation for efficient goods transportation, but the absence of integrated infrastructure exacerbates the expenses associated with deliveries. The report finds that this isolation contributes to elevated goods prices due to limited availability, resulting in Indonesia has the highest logistics costs per GDP in Southeast Asia, at 23.5%, which fosters a more fragmented logistics landscape within the nation.
The logistics industry in Indonesia continues to grow. There are opportunities for improvement through infrastructure development and innovation to enhance the sector’s efficiency and competitiveness. The government has undertaken initiatives to improve infrastructure, such as building new ports and airports, expanding rail networks, and improving road conditions.
The nation must consider economic assistance to accomplish this, given Indonesia’s economy has demonstrated significant progress in recent years. In 2021, Indonesia’s GDP reached 1,185,331 million US dollars, with a growth rate of 3.65%, showing a healthy economy.
According to the data provided by UNCTAD, the country witnessed positive advancements in its global trade. The total value of exports reached USD 229,850 million, with imports amounting to USD 196,041 million, resulting in a trade surplus of USD 33,808 million.
The statistics also reveal that this growth is supported by positive trends in Indonesia’s international trade, with China leading the country’s exports and other significant economies following closely behind, as pointed out in the report.
(Source: Indonesia Top 5 Partners by UNCTAD, 2021)
Given these critical partnerships, Indonesia has forged various FTAs (links in Bahasa) with multiple nations to decrease import costs, enhance customs clearance, and broaden access to products eligible for preferential treatment.
These positive advancements are closely tied to the country’s impressive surge in e-commerce, as highlighted in a report by GlobalData. According to the report, Indonesia’s e-commerce market is projected to maintain its robust growth, witnessing a 23.8% surge in 2022, amounting to IDR 420.8 trillion ($30 Billion). The report emphasises that the growth trajectory of e-commerce payments in Indonesia is expected to continue with a compound annual growth rate (CAGR) of 22.0% from 2021 to 2025, reaching IDR 753.8 trillion ($53.8 Billion) by 2025. This growth can be attributed to the increasing penetration of the internet and smartphones, a burgeoning middle-class population, and the proliferation of online merchants and payment tools, as outlined in the report.
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