Analysis: Indonesia-to-Africa 'resource nationalism' – reshaping the supply chain
Top dollar to be made
Maritime container supply chain costs are set to be drastically reduced in Indonesia, should Joko Widodow’s new government push through its Sea Toll programme which would see a wide-ranging transformation of the country’s port and shipping network.
With its enormous population – at just over 250m it is the fourth largest country in the world behind China, India and the US – Indonesia could potentially be an economic powerhouse.
Agility Logistics Asia-Pacific chief executive Chris Price told The Loadstar: “Based on the demographics, Indonesia clearly has the potential to join the big league of really important markets, and it is a market that constantly outperforms expectations. But infrastructure remains an issue, particularly in the outlying islands, although there are promising developments.”
Indonesia Port Company (IPC), the state-owned entity responsible for managing the country’s ports, and in many cases operating them, has drawn up an ambitious port development plan.
The spearhead is the development of new deepwater facilities in Jakarta, known locally as Tanjung Priok, although David Wignall, IPC senior vice-president, told delegates at the recent TOC Container Supply Chain Asia event in Singapore that the government’s focus remained on reducing logistics costs across a country spread over 50,000 islands, despite the fact that some 58% of its population is lives on Java.
“The focus is not so much on building ports but on reducing logistics costs – we are looking at developing more domestic hubs across the country but in order to do that effectively you have to look at what ships are being used and what are available.
“The reliability of shipping services is very important. It is about reducing time spent in port and increasing berth productivity – we are looking to improve the reliability of services and balancing that against the size of ships, and balancing that against ship utilisation,” he said.
IPC has drawn up a list of around 35 new ports that will have to be built if it is to spur economic development outside Java, particularly in the outlying islands of the east.
However, Jason Chiang, director at Drewry Maritime Advisors, which has been contracted by IPC to help develop its masterplan, said that over the past three or four years domestic container shipping volumes in Indonesia had outpaced the growth of international trade. This is despite the fact that the domestic trade remains subject to cabotage restrictions, bunker costs in Jakarta are double that of Singapore and an ageing vessel fleet pushes up costs.
The largest vessel operating in Indonesian domestic trades is 1,700 teu, and Mr Wignall said the target size of the future was the 4,000-6,000 teu range. Equally, average domestic vessel age is 25 years, and some 35% of the fleet is over 30 years old.
As a result of these challenges, one way to improve efficiency and lower costs is to improve port productivity, said Mr Chiang.
“Some ports are doing four moves per crane per hour. It needs to get up to 10; and we need to implement berthing windows as part of the network restructure,” he said.
He illustrated this point with the effect that implementing berthing windows had on a service between the country’s second international hub, Surabaya, and the domestic port of Banjarmasin, on Borneo.
After a two-year implementation period, vessels now book a 36-hour berthing window to complete all unloading and loading operations in each port. As a result of the elimination of berth queues, the round voyage time has been reduced from an average 10-12 days to between five and six days.
“The freight cost reduced from IDR7-8m (US$532-608) to IDR4.5m (US$342) per box on the route. As most of the cargo from Surabaya to Banjarmasin is consumer goods, it helped to reduce the price of the goods in Banjarmasin by 33%,” Mr Jiang said.
The scale of the Sea Toll programme is extremely ambitious, Mr Wignall admitted.
“The plan is to build 35 ports in four years, and the intention is to negotiate a contract with a single contractor to develop all 35 ports, and we will announce this contractor in September or October this year.
“In all probability we will split the ports into different categories: some will be sub-concessions with international terminal operators to manage on a 20-25 year basis; some will have operating contracts that will last for 190 years; and some will be operated by us,” he said.
If it manages to pull off this massive increase in infrastructure, it could also pave the way for a new wave of investment from logistics companies, with Agility’s Chris Price indicating that his company would be willing to make supporting investments where needed.
“Most of our customers are based in Java, where there is plenty of choice in terms of carriers, but outside the main centre we are particularly predisposed to making investments where there is no existing infrastructure, such as warehousing. So in Java we have the potential to be asset-light, whereas in the outlying islands we might well need to make investments,” he said.