KP3EI: Indonesia’s High Logistics Costs Should Have Declined 3 to 4% by 2015

Based on a recent report, titled Annual Logistics Report, compiled by the Bandung Institute of Technology’s Research Center for Logistics and Supply Chains, the Indonesian Logistics Association (ALI), the STC Group, Panteia Research Institute, and the World Bank Indonesia Office, logistics costs in Indonesia are currently at approximately 27 percent of the country’s gross domestic product (GDP). This is considerably higher than advanced economies such as the USA (9.9 percent of GDP) and Japan (10.6 percent of GDP), but also much higher than Indonesia’s regional peers such as Malaysia (13 percent of GDP), Thailand (20 percent of GDP) and Vietnam (25 percent of GDP). The geographical nature of Indonesia - with its many islands and the uneven distribution of the population - put enormous challenges in developing infrastructure and tackling regional disparities.

Logistics Costs among Advanced and ASEAN Countries:

Country	Logistics Costs      (% of GDP)
USA	9.9
Japan	10.6
South Korea	16.3
Singapore	8.0
Malaysia	13
Thailand	20
Vietnam	25
Indonesia	27

^{Source: Annual Logistics Report}

Transportation costs contribute most (12.04 percent of GDP) to logistics costs in Indonesia, while the administration cost component (4.52 percent of GDP) has the lowest contribution. Inventory costs (9.47 percent of GDP) were in the middle position.

Riyadi proposes four strategic steps to reduce Indonesia's logistics costs. Firstly, the country’s infrastructure should be improved through the public-private partnership scheme between the (international) private sector and the Indonesian government. Secondly, by investing more heavily in the transportation sector, particularly sea (Indonesia’s being the world’s largest archipelago) and land transportation, logistics costs will fall. The last two steps involve improving the country’s logistics services as well as broadband Internet services.

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