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)
1,200,000

Cost in Sumbawa (from Farmer to Port

Cost per Cow (IDR)

1,000,000
650,000 in Sumbawa)

800,000

600,000

400,000
608,000
200,000

-
Cost Component
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 Days Dwell time at Tanjung Priok has almost doubled in the last two years 10.1

9.5
8.8
8.5 8.3
7.8
7.6
7.5 6.8 7.1
6.7 6.6 6.4 6.3 6.7
6.0 6.3 6.3 6.4 6.4
6.5 6.1 5.8 5.8 6.2 6.1 6.1
6.0
5.8
5.4 5.4 5.5
5.5 5.2 5.4
5.0
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
 MORE THAN 50% OF THE LENGTH OF DWELL TIME IS IN THE
Days
PRECLEARANCE COMPONENT (PORT OF JAKARTA)
7

6 1.88
1.16
1.08 1.19
5
1.24
0.96 1.36
4 1.12
1.13

3 1.12

2
3.71 3.49 3.46
3.25
2.52
1

0
October 2010 July 2011 August 2011 January 2012 February 2012

Downstream Customs Clearance Upstream

 PRECLEARANCE IS NOT ONLY AN ISSUE IN THE PORT OF JAKARTA. WE
HAVE DATA ON FOUR PORTS

8.0
7.0
6.0 Containers %
Tanjung Priok 19,306 73
5.0
Belawan 778 3
4.0 Tanjung Emas 1,314 5
7.2
3.0 6.2 5.9 Tanjung Perak 5,203 20
5.2 Total 26,601 100
2.0
1.0 This suggests that the
0.0 length of preclearance is
Tanjung Belawan Tanjung Tanjung not associated with size of
Priok Emas Perak
port
 THE CHALLENGES

 No 24/7 services and no integrated inspections. Still topic of inter-

department 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