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Global trade shifts in Asia: Logistics challenges in Indonesia

by Claire Umney, General Manager, AEB (International) Ltd

Global trade is never at a standstill, and to stay competitive in today’s challenging markets with ever increasing consumer demands, all regions and industry sectors need to be on their toes at all times. I had an interesting discussion recently with Frans Kok, the General Manager of our Asia Pacific team, based in Singapore. Frans explained that the direction of trade in Asia is shifting dramatically as the balance of economic power is shifting from West to East.

This also applies to the logistics and transport sectors with the ones willing to take a risk finding plenty of opportunities there. What do shippers and manufacturers have to do to take advantage of these opportunities? And how will Indonesia proceed on its way to being a global powerhouse? Let me share with you a bit of what I’ve learned:

The past few years have seen rapid growth in Southeast Asian economies and consumer markets. The transport of large quantities of goods around the region is leading to an ever-growing requirement for supply chain solutions.

Traditionally, China has dominated the manufacturing landscape, but rising costs led investors to now look towards the South East, where emerging economies seem full of promise. Manufacturers, particularly those producing automotive and electronic parts, have begun to shift their operations to Indonesia and Thailand, mainly because labour is cheaper there. As companies are looking to base their operations in countries where economic conditions enable them to remain price-competitive, this trend is likely to continue.

At the same time, Southeast Asian countries have very different laws and regulations, which exporters may find difficult to understand and navigate. Customs procedures can slow down cross-border shipping, e.g. when deliveries are being held due to insufficient or incorrect information. Corruption and inconsistent customs duties can also lead to irregular costs, impacting on logistics companies’ ability to set accurate pricing frameworks.

Indonesia – do opportunities outweigh its challenges?

Indonesia is quickly turning into the new darling of Southeast Asia’s growing economies. According to a 2012 report by the McKinsey Global Institute, this dynamic archipelago - currently the 16th-largest economy in the world - has the potential to be the seventh-biggest market by 2030.

Yet despite its market potential, various factors including the country’s weak transport infrastructure and the lacking internal economic integration and development has prevented it from making inroads into regional production chains.

Insufficient visibility and control in transport and logistics is a real danger and could put off some investors. To counter these issues, the Indonesian government and the private sector established the National Logistics Blueprint, a cohesive strategy to ensure thatIndonesia’s logistics sector grows to be regionally and globally competitive (see PDF), and a number of infrastructure projects are also underway.

Technology – how it leads the way to sustainable growth

In addition to investments in infrastructure, technology has great potential when it comes to improving the performance of Indonesia’s logistics sector, and the country’s future as a manufacturing hub. GPS tracking and radio-frequency identification (RFID), which are widely used in Western and other Asian markets, have not yet caught on.

However, simplified technologies that benefit from the wide penetration of mobile phones could be game-changing. Online portals that simplify freight swapping and shipment matchmaking may also represent a golden opportunity.

If industry and government cooperate in order to improve infrastructure and technology adoption across Indonesia, the country can certainly realise its ambitious growth potential. We look forward to following the developments in this region, and to supporting the industry’s changing and growing need for technology to achieve long-term and sustainable success.

For us in the European Union, these developments are of high interest of course, with procurement teams always looking for the best deal. Hopefully latest initiatives by local government and industry collaborations will soon bear fruits so that the development will keep its momentum.

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