Lack of standardization hampers logistics business: Experts

Despite the government’s massive infrastructure development intended to boost connectivity, Indonesia still has a long list of major challenges to be addressed in the logistics sector.

In fact, achieving logistics efficiency is not enough with only infrastructure development.

The deputy assistant for national logistics development of the Coordinating Economic Ministry, Erwin Raza, said a lack of standardization was a key factor that hampered the logistics sector, in addition to a lack of government efforts to improve connectivity from industrial areas to seaports, airports and other industrial zones.

Erwin said Indonesia lacked unification and standardization in logistics such as that related to permits, courier services and documentation.

“For example, there are many logistics permits that are under different ministries. Permits for warehouses are under the Trade Ministry, permits for bonded logistics centers are under customs and excise, while courier permits are under the Communications and Information Ministry. Can we just unify those permits with the same standards?” said Erwin during a panel discussion on postal business and Indonesian logistics in Jakarta on Monday.

Erwin said Indonesia also lacked standardization in its courier services such as in tariff references, operational standard procedures and packaging. Even for the simplest things such as those related to courier documents and the use of postcode, city code, goods code, Indonesia is yet to have the same standards.

“What is the city code for Bandung, is it BDO or BDG? How about the city code for Surabaya, is it SBY or SUB? This is simple nonuniformity yet potentially affects the effectiveness of logistics and we have to work really hard to make such standardization” he said.

Contacted separately by The Jakarta Post on Monday, Indonesia Logistics Association (ALI) chairman Zaldy Masita said there had been a lack of standardization for such a long time and it had affected the productivity of the logistics sector. It is also having a negative impact on the adoption of automation in the country’s logistics activities.

"Standardization is the root of the main problem in our logistics sector. Without standardization, we cannot implement automation or use new technology and it affects productivity since many tasks in our logistics must be done manually," he said.

Zaldy said the lack of standardization in the logistics sector applied to many basic things such as pallet standards, freighter or truck size standards, in addition to the lack of unification in postcodes and city codes.

"Even today, we are still struggling to battle the ODOL [overload and over dimension] problem due to the lack of standardization on it. Standardization is the main requirement for us to scale up our level to become a developed country with a more efficient logistics sector," he said.

According to data from the National Development Planning Ministry, Indonesia’s logistics costs are among the highest in Southeast Asia, reaching 24 percent of GDP. It is higher than neighboring countries such as Vietnam, whose logistics costs account for just 20 percent of GDP, Thailand with 15 percent and Malaysia with only 13 percent of its GDP.

A senior official at the National Development Planning Ministry, Jadhie Judodiniar Ardajat, said on Monday there were many factors that led to cost inefficiencies, including inefficiency in sea shipment.

Jadhie said that currently, many goods from other regions in Indonesia had to be sent to Tanjung Priok Port in Jakarta first before being shipped to export destinations, which was the reason for the high cost. For air cargo, Jadhie said Indonesia lacked cargo freighter facilities.

“So far there are only two cargo freighters provided by Garuda Indonesia, while other airlines still use passengers for cargo transportation. Thus Indonesia needs more special cargo planes,” he said.

Named as the country with the fastest-growing internet value in Southeast Asia by Google and Temasek, Indonesia’s internet economy is projected to reach US$130 billion by 2025 from the estimation of $40 billion in 2019, with e-commerce and ride-hailing as the two biggest contributors.

E-commerce alone has shown rapid growth in recent years, growing from a $1.7 billion transaction value in 2015 to a $21 billion transaction value in 2019. Indonesia’s e-commerce transaction value is projected to reach $82 billion by 2025.

The booming of e-commerce has contributed to the sharp growth in the logistics business. Indonesia’s logistics sector is estimated to grow by between 10 and 12 percent this year, while e-commerce is estimated to grow by 30 percent.