Logistics cost: Indonesia's strategy to fight off high costs
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Bisnis Indonesia - Ongkos logistik: Siasat RI melawan biaya tinggi
20 July 2023
By: Lorenzo A. Mahardhika & Hendra Wibawa
The government is ready to receive input from the World Bank to increase Indonesia’s Logistics Performance Index (LPI) that is currently ranked at number 63 in the world.
Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan will seriously respond to the World Bank as they have lowered Indonesia’s logistics index from rank 46 to rank 63 this year.
At the National Strategy for Corruption Prevention (Stranas-PK) event on Tuesday (18/7), Luhut said that Indonesia going down by 17 ranks did not make sense as Indonesia has one of the 20 best ports in the world.
“I want to answer the various questions. Why are our [ports] improving, but our [logistics] rank is declining,” he said during the event.
The World Bank just issued the LPI that ranks Indonesia at number 63 out of the 139 countries surveyed. From a score of 1 through 5, the World Bank scored Indonesia’s LPI at 3.0. Indonesia’s LPI score decreased by 0.15 compared to the assessment in 2018 that reached 3.15 at rank 46.
Indonesia’s rank is not that great compared to other Southeast Asian countries. Indonesia is beat by Malaysia that is ranked at number 31 with a score of 3.6, the Philippines that is ranked at number 47 with a score of 3.3, and Singapore that is ranked at number 1 with a score of 4.3.
The LPI performance is calculated based on six indicators, namely customs, infrastructure, international delivery, logistics competence and quality, punctuality, as well as tracking and tracing.
From the six LPI indicators, only two of Indonesia’s assessment indicators increased, namely the customs indicator from 2.67 in 2018 to 2.8 and the infrastructure indicator to 2.9 from 2.89.
To discuss the report, Luhut promises to invite the World Bank soon.
He wants to ask about the aspect that is Indonesia’s weakness. “Later, I will invite [the World Bank]. We must know where we are lacking. [They] need to be transparent,” Luhut said.
He also promises that the government is open to the critiques and the suggestions from the World Bank to develop the national logistics performance in the future. However, Luhut stated that the assessment on Indonesia’s logistics performance was not fair if it was compared to other countries, such as Singapore. The number of Indonesia’s ports and their services level are different to Singapore’s.
“I think that it is not fair. If Indonesia has 116 ports with a varied level of quality, comparing them will be difficult,” he explained.
Furthermore, Luhut explained that Indonesia continued to develop its ports to boost its logistics performance. One of the efforts is by digitalising logistics and ports, which has been carried out for 3 years.
He mentioned that the digitalisation programme has lowered logistics costs in Indonesia.
“The digitalisation [programme] that has been implemented since 2020 has lowered logistics costs by 8% from 24% to 16%,” Luhut said.
Pelindo’s steps
During the occasion, PT Pelabuhan Indonesia (Persero) President Director Arif Suhartono affirmed that, as a port operator, PT Pelabuhan Indonesia (Pelindo) was responsible for making the port stay and cargo stay duration more efficient. These two aspects are the main points that will suppress logistics costs.
“Regarding logistics cost reduction, from Pelindo, the key is to shorten port stay and cargo stay,” Arif said.
He affirmed that reducing port stay and cargo stay was one of the main focuses of the company, which is the result of the merger of the four port state-owned enterprises (SOEs) in 2021. Arif said that one of the efforts to reduce the port stay and cargo stay duration was to implement several strategic programmes that focus on operation standardisation and port service digitalisation.
By shortening the port stay and cargo stay duration, the sailing time will increase so that the amount of cargo carried by ships will increase.
Arif reckoned that port operation needed to be standardised to increase port performance efficiency. Hence, processes at ports will be more optimum, efficient, and productive. He hopes that the effort will increase the reliability of port services for users.
Port services are digitalised so that operational decisions can be made more efficiently, quickly, and accurately, so activities at ports will be more efficient to increase productivity.
According to him, all of the steps have positively impacted Pelindo’s operation.
In terms of the container terminal business, Pelindo has successfully increased its box ship hour (BSH).
In detail, he mentioned that Belawan Port could serve 38 BSH from 20 BSH. The productivity of Makassar Port increased from 20 BSH to 34 BSH, Ambon Port’s increased from 12 BSH to 26 BSH, Sorong Port’s increased from 10 BSH to 25 BSH, and Nilam Port’s increased from 25 BSH to 35 BSH.
The increase in BSH is reducing the vessel port stay hours.
He explained that Belawan Port could supress its vessel port stay hours from 55 hours to 32 hours. The vessel port stay hours of Makassar Port has also been reduced from 38 hours to 22 hours, Ambon Port’s has been reduced from 37 hours to 24 hours, Sorong Port’s has been reduced from 72 hours to 24 hours, and Nilam Port’s has been reduced from 21 hours to 18 hours.
On the contrary, Coordinating Ministry for Economic Affairs Secretary Susiwijono Moegiarso sees that Indonesia’s LPI was lowered due to the decline in the assessment indicators that needed the participation of the private sector.
The indicators include logistics service competence and quality, tracking and tracing capability, ease of shipping to Indonesia, as well as punctuality.
By considering the condition, he reckoned that the logistics ecosystem needed to be organised through the implementation of the National Logistics Ecosystem (NLE).
According to him, the NLE is a collaboration that involves several parties that are related to the logistics flow, the banking system, the warehousing transportation system, and other entities.
In 2023, 46 ports have implemented the NLE. The NLE implementation is based on four main pillars, namely the improvement of government services in the logistics sector through the simplification of electronic-based business processes, the collaboration of logistics service systems among logistics players, the payment facilities of business players regarding logistics processes, and the organisation of port systems, spatial planning, and distribution routes.
“The implementation of the NLE is one of the government’s initiatives in the logistics sector that can cover the various LPI indicators. So, if the NLE can be implemented by 100% by making it mandatory and effective, hopefully we can improve the six LPI indicators,” Susiwijono said.
Besides that, he is also carrying out other efforts to improve Indonesia’s LPI performance. Some of the policies are to follow up the decision from the ministerial limited coordination meeting regarding the NLE, strengthen the Port Service Standardisation policies, boost the performance of courier and mailing companies, smooth out business processes and systems that are related to prohibitions and restrictions, and implement the Commodity Balance.
