Key Market Trends

Rail Freight Transport - To Witness High Growth

Currently, rail transport infrastructure is present only on the islands of Sumatra and Java. Rail transport by goods volume only makes around 1% of the total volume of goods transported in and out of Indonesia. However, this volume is larger than the volume handled via air freight within the country. One of the reasons attributed to this is that rail transport is mostly used for wholesale high volume bulk commodities, such as coal, while air transport is used for less space occupying high-value goods. There is an immediate need for the deployment of mass urban rail networks to shift the transport of goods and passengers away from overburdened roads. This shift will require double tracks on major trunk rail lines, the revival of dormant tracks (some 2,500 km unused, mainly on Java), and the extension of other rail lines, in addition to new station developments with improved accessibility and multimodal integration.

Indonesia’s railways are operated under the state-owned enterprise (SOE) PT Kereta Api Indonesia (PT KAI), which held the monopoly over the sector until 2007. Law No. 23/2007 signaled a shift in attitude toward the nation’s railways to include them in national development by equipping the sector with more competitive strategies in terms of service and pricing. The railroad network in Java and Sumatra has a strategic role in serving the coal transportation distribution. The railway line that directly connects the mining plant location to port access and the availability of adequate locomotives and carriages make it an attractive choice for mining companies and expeditions to establish coal transportation cooperation with trains. In terms of time, the transportation of coal by train is far more certain in time, fast to the destination, free of traffic, safe and efficient in costs, and environment-friendly as mass transportation. The country is planning to reduce the logistics costs by improving railway infrastructure with the development of new tracks in Java, Sumatra, (BRT) in 29 cities, Sulawesi, and Kalimantan – which comprises 2159 km of inter-urban railways and 1099 km of urban railways.

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The Rising Manufacturing Sector of the Country Presents an Opportunity for the Logistics Sector

Indonesia, whose economy accounts for two-third of the ASEAN economy, is growing at a rate of around 5%. The development of its stagnant manufacturing sector may ignite a structurally high economic growth for a sustained period of time. A flourishing manufacturing industry exporting the domestically manufactured products will accelerate economic growth and generate plenty of employment opportunities. According to industry sources, the key strategies to boost the development of Indonesia's manufacturing industry include diversifying the range of products that are manufactured in the country and increasing the focus on the further development of the existing manufacturing industries in Indonesia (such as the electronics, chemicals, automotive, and food industries). However, the sector would have to deal with certain challenges, such as a shortage of qualified workers and improvement in the investment climate needed to attract investment.

The rise in commodity prices, government-led infrastructure projects, and growth in consumer confidence can boost the manufacturing sector.  The country also encourages investment in the manufacturing sector by allowing a wider range of imports/exports, by reducing dwelling times, as well as by revising and improving tax allowances and tax holidays that are offered to investors (who meet specific criteria). According to the United Nations Conference on Trade and Development (UNCTAD), Indonesia is one of the most lucrative nations for investment. In the UNCTAD's June 2017 survey, Indonesia was ranked 4th in terms of the most prospective investment destinations (after the United States, China, and India). The country has also drawn up a road map for upgrading five manufacturing sectors, to make it one of the world’s 10 biggest economies. The plan, titled “Making Indonesia 4.0”, released by the ministry of industry in April 2018 includes development plans for the food and beverage, textile and garment, automotive, chemical, and electronics industries.

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