Road infrastructure: Strategy to minimise logistics cost
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 - Infrastruktur jalan: Trik amankan biaya logistik
19 May 2023
By: Afiffah rahmah Nurdifa & Akbar Evandio
President Joko Widodo decides to take over road repairs in some regions to maintain production routes and prevent increase in national logistics costs.
Logistics costs in Indonesia is one of the most expensive in the world. The data from the International Symposium on Sustainable Transportation Forum Conference in 2019 recorded that logistics costs in Indonesia reached 22%-27% of the gross domestic product (GDP). That condition is worse than logistics costs in Japan that reach 11% of the GDP and in the United States of America that reach 9% of the GDP.
Compared to neighbouring countries such as Thailand, logistics costs in Indonesia are still worse as logistics costs there only reach 14% of the GDP. The same goes for logistics costs in Vietnam that only reach 18% of the GDP.
Recently, the World Bank also lowered the rating of Indonesia’s Logistics Performance Index (LPI) to the 61st position in 2023 from the 46th position in 2018.
Indonesia’s LPI rating is below neighbouring countries such as Malaysia that is at the 26th position, Thailand at 34th, and Vietnam at 43rd.
One of the reasons why logistics costs in Indonesia are expensive is the inadequate road infrastructure. Meanwhile, the distribution of goods in Indonesia is still dominated by land transportation.
President Joko Widodo affirmed that damaged road infrastructure repairs needed to be boosted so that production and logistics roads are not disturbed.
According to the President, inadequate roads have the potential to increase logistics costs, which can trigger inflation.
The road condition in Lampung that is severely damaged is one of the examples.
“Do not let logistics and production roads be severely damaged. That will disturb and increase logistics costs as well as inflation. That is why we repair infrastructures,” Jokowi said when he visited SMK PPN 1 Kualuh Selatan in North Labuhanbatu Regency in North Sumatra on Wednesday (17/5).
Moreover, the President mentioned that damaged road infrastructure repairs in North Sumatra Province needed to be handled by the government immediately. The repairs will not only be for roads in Gunting Saga, but also for roads in Asahan.
The President is planning the road repairs to commence in July after the identification process is completed. He mentioned that 260 kilometres of national roads in North Sumatra Province were damaged.
Besides the aforementioned roads, Jokowi also mentioned that repairs would be conducted to other roads in North Sumatra Province.
“However, not only North Sumatra, but we will also check other provinces one by one,” he added.
Jokowi mentioned that the government has prepared a budget of Rp800 billion to repair all roads in North Sumatra Province. However, the President said that the provincial government and regency/local governments were still responsible to repair roads that are their responsibility.
“Some are still the responsibility of provincial and regency/local governments. Regency/local governments cannot sleep while we take over the roads, that is not the purpose. We want to help, accelerate, and repair due to complaints from the people,” Jokowi affirmed.
For provincial roads, from the total length of 3,005 kilometres, 340 kilometres need to be repaired. For regency roads, out of 33,000 kilometres of roads, around 13,000 kilometres are damaged.
“Many regency roads are damaged. From 33,000 kilometres in North Sumatra, around 13,000 kilometres are damaged. One of them is what we saw in North Labuhanbatu,” he said.
The President through the Public Works and Housing (PUPR) Ministry affirmed that they would accelerate road infrastructure development in Indonesia.
PUPR Minister Basuki Hadimuljono mentioned that the effort was carried out due to the number of damages on roads in Indonesia.
Hence, the government issued Presidential Instruction Number 3/2023 on Acceleration in the Improvement of the Connectivity of Regional Roads. The government will prepare a budget of Rp32.7 trillion to repair damaged roads in several regions.
Focusing on toll roads
Meanwhile, an urban observer from Universitas Trisakti Jakarta, Nirwono Yoga, reckoned that Jokowi was more focused on expanding toll road construction rather than national and regional roads.
The data from Statistics Indonesia (BPS) recorded that the length of roads during Jokowi’s term of office from 2014 to 2020 extended by 30,613 km or by 5.91% from 517,713 km in 2014 to 548.366 km in 2020.
National roads extended by 592 km from 46,432 km to 47,024 km. Provincial roads extended by 1,317 km from 53,528 km to 54,845 km in 2020. Meanwhile, city/regency roads extended by 28,794 km from 417,793 km to 446,497 km.
On the other hand, toll road construction in Jokowi’s era has reached 1,762 km since when he was first inaugurated as the president in 2014. Moreover, in 2024, there are 750 km of toll roads that are set to be completed.
Nirwono sees that Jokowi chooses to accelerate toll road construction as financing for toll roads is borne by the third party through the public-private partnership (PPP) scheme.
“So, it will not burden the APBN (state budget). The government does not bear the loss risk. So, it is more efficient and effective. Most toll roads are constructed without much finance from the APBN,” Nirwono said to Bisnis.
Moreover, Trans-Java and Trans-Sumatra toll road projects are highlights of toll road construction in Jokowi’s era.
With massive toll road construction on the two islands, it can be seen that Jokowi wants the people to adopt toll road access and utilise them optimally.
With that condition, profit and return can be obtained immediately with ease of connectivity and faster road access. Moreover, the logistics distribution of goods is easier to surpress costs.
Jokowi’s decision to boost toll road construction makes it seem like national and regional roads are not a priority. National road construction is so low, and only regions that have not been reached by toll roads are prioritised.
“With the remaining 1 year of the term of office, Jokowi’s administration will complete the construction toll roads on Trans-Java and Trans-Sumatra,” he said.
