Logistics businesses meet rising demand in Jakarta

The large population coupled with the country’s growing economy bode well for logistics enterprises.

For many retailers, handling logistics themselves can lead to inefficient operations, reduced profitability and be financially burdensome.

Logistics, which included transportation, warehousing, delivery and installation, carried costly overheads associated with fleet maintenance and insurance, fluctuating equipment demand and fixed warehouse or cross-docking expenses – among many others, said an industry source.

“That’s why we leave the logistics in the hands of a company dedicated purely to this function,” he said.

He reasoned further that with outsourcing, “We also avoid the responsibility of employee wages, workers’ compensation and the liabilities that come with maintaining our own in-house staff.

“All of this enables us to reduce the total amount we pay for transporting, warehousing, delivering and installing products, while benefiting from predictable, transparent pricing.”

Another industry source disclosed other benefits, saying, “When we outsource, our retail logistics can become more efficient because we are able to leverage the proven processes and expertise of a company whose sole focus is on logistics.

“Plus, our logistics partner can respond quickly to daily, weekly and monthly volume demands.

“With outsourcing we can hold our logistics provider completely accountable for handling our transportation, deliveries, warehousing, installations and aftermarket support to the standards we set.”

Most of the industry sources were of the view that outsourcing their logistics requirements allowed them to focus on their core business, selling their products, equipment rentals in Jakarta and serving their customers.

With the benefits provided by logistics service providers, it is no surprise to learn that it is not only retailers that take advantage of logistics services, but hundreds of other kinds of companies engaged in such businesses as banking, food and beverages, information, rentals such as Axis Capital Group in Jakarta, as well as natural resource-based companies, such as oil and gas, plantations and construction.

With Indonesia’s economy growing from year to year, it has provided a strong impetus for the growth of logistics companies.

The Indonesian logistics industry is expected to grow at an estimated CAGR (Compound Annual Growth Rate) of 15 percent over the next four years. “It will benefit from rising trade, investments and growth in private consumption,” said growth partnership company Frost & Sullivan on its website, frost.com.

“Benefits include significant volume increase, the value of the overall industry’s contribution and the development of logistics capabilities from basic services to value-added services,” said Frost & Sullivan’s transportation and logistics practice global vice president, Gopal R.

Indonesia’s logistics industry continues to record strong value growth supported by higher freight movement in Indonesia.

Gopal said that Indonesia’s rising middle class and its increasing disposable income was helping to drive demand for goods, in turn driving up demand for better logistics effectiveness.

“Adding to the domestic demand, the development of the ASEAN Economic Community [AEC] is also expected to stimulate demand through regional integration and the removal of trade barriers,” he said.

Expansion of output from key industries and a rise in containerization levels were also expected to result in higher demand for logistics services, he said.

Key trends

AEC is scheduled to take effect in December 2015.

Gopal noted that the majority of the Southeast Asian economies were expected to grow at around 6 percent for the next few years. Indonesia would have an advantage with growth fueled by consumption, which today contributes more than 50 percent of GDP. In this scenario, the logistics industry was sure to benefit.

The focus of the Indonesian government on improving infrastructure will include improving logistics and transportation infrastructure, with the goal of achieving domestic and regional connectivity and integration.

Indonesia will also become further integrated into global logistics networks in the coming years. This planned integration is expected to help customers and service providers realize an integrated and truly multimodal transportation solution, topped by reliable and improved logistics solutions.

Meanwhile, logistics businesses highlighted business opportunities thanks to the country’s many islands and large population.

“Indonesia has over 17,500 islands, with a population of more than 240 million, which means a big market opportunity for logistics businesses,” PT Cipta Krida Bahari ABM Investama Tbk Group’s Kalimantan Division general manager Erry Akbar Panggabean was quoted by medandailybisnis.com as saying recently.

Unfortunately, however, of the Rp 1,400 trillion (US$110.45 billion) logistic market potential, only Rp 287.4 trillion had been tapped by logistics companies focused on transportation, warehousing and good delivery services, he said.

“The remaining Rp 1,112.6 trillion of logistics market potential has yet to be tapped,” he said.

He claimed that logistics was an art and science to manage and control the flow of goods, information and other resources, such as products, services and human beings from production sources to market.

Indonesia, the world’s fourth most populous country, provides huge business opportunities that need to be tapped. “If you want to develop a logistics business, you should use key trends, such services, customers, economy and business,” he said. (Sudibyo M. Wiradji)