Achieving Economic Growth Through Improved Export Logistics in Indonesia

Improved Export Logistics in Indonesia

Export logistics refers to the activities undertaken to move goods from their point of origin to their final destination. This involves handling multiple steps such as transportation, warehousing, customs clearance, etc.

Logistics play an important role in determining a country’s export performance as well as its ability to achieve sustainable economic growth. As one of Asia’s emerging market economies, Indonesia’s access to foreign markets depends not only on the extent to which the country’s exporters are confronted with barriers to trade, such as tariffs and non-tariff barriers, but also on the cost and efficiency of the internal and international logistics chain, which can facilitate or impede the flow of exports. Currently, Indonesia spends more than 23.5 percent of its gross domestic product (GDP) on logistics-related costs (Ministry of Finance, 2021). This is over 10 percentage points higher than the global average of 13 percent and is indicative of inefficiencies in Indonesia’s export logistics that are hindering economic growth. It is also worth noting that Indonesia’s logistics costs are higher than those of its neighboring Association of Southeast Asian Nations (ASEAN) countries, meaning that Indonesia will need to strengthen the efficiency and effectiveness of its exports logistics in order to ensure it remains competitive within its region. As an example, shipping from Jakarta to Los Angeles costs USD $1,800 for a 40-foot container; in comparison, shipping costs to move the same size container to Los Angeles are $1,700 from Bangkok; $1,717 from Manila, and $1,612 from Singapore (DHL, 2019).

Indonesia’s export performance has been hindered in part by the fragmentation of the nation’s homegrown logistics industry, which has resulted in the inability of stakeholders to achieve economies of scale that would normally allow for a reduction in logistics costs. The fragmentation of Indonesia’s homegrown logistics sector has also prevented companies from providing key logistical services, such as door-to-door transportation or intermodal logistics services—that is using two or more modes of transportation to deliver goods—both of which are essential to achieving efficiency in a large archipelagic country.

In addition to the geographical and infrastructure-related barriers caused by fragmentation, Indonesian exporters also face regulatory and institutional barriers. Indeed, the current regulatory framework includes highly protectionist policies in transportation, such as restrictions on cabotage—the ability to transport goods to multiple locations in one country—and foreign equity limits. These protectionist policies can hamper foreigners’ ability to access the Indonesian market. This in turn limits the number of active suppliers, leading to higher prices and lower quality. They can also be burdensome for exporters as they are required to complete significant documentation, which often causes processing delays. Furthermore, export-related policies are inconsistent and lack transparency in implementation due to a number of factors, including low levels of coordination among government agencies in charge of different aspects of export logistics.

Given the importance of strengthening Indonesia’s export logistics performance, USAID’s Economic Growth Support Activity (EGSA), implemented by DevTech, has been supporting the Ministry of National Development Planning (Bappenas) by conducting a study to support the development of a national plan for improving the competitiveness of Indonesia’s export logistics. On April 27, 2022, USAID EGSA and Bappenas held a national workshop to present the key findings and recommendations of the study. The workshop also aimed to garner suggestions and inputs from participating stakeholders, including various ministries (Ministry of Finance, Coordinating Ministry for Economic Affairs, Coordinating Ministry for Maritime Affairs and Investment, Ministry of Trade, Ministry of Transportation), state-owned companies, and the private sector as well as non-government associations in logistics.

The online workshop was attended by 132 participants from the government and private sector. USAID/Indonesia Program Economist Alexis Polovina and Bappenas’ Deputy Minister for Economic Affairs Amalia Adininggar Widyasanti opened the workshop, while Juliana Damu from the Indonesian Chamber of Commerce moderated the discussion. Bappenas praised the support provided by the USAID EGSA team, stating that their assistance greatly supported the government’s efforts to use evidence-based recommendations for better planning and formulating the 2023 strategic work plan in export logistics. The results of EGSA’s exports logistics study will also be used as inputs in the preparation of the 2023 Indonesian Government Work Plan (Rencana Kerja Pemerintah/RKP).

Beyond providing recommendations that will significantly help to enhance the nation’s export logistics sector, USAID, through EGSA, has further positioned itself as the Government of Indonesia’s key partner in providing support for the central government’s efforts to strengthen and improve Indonesia’s export logistics competitiveness.

The Economic Growth Support Activity, implemented by DevTech Systems, Inc., aims to assist USAID to re-engage in economic growth programming in Indonesia. To learn more about EGSA and its year two results, read the EGSA Annual Report for Fiscal Year 2021.

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