Should "Roro Shipping" rev up to Clamp Down on high logistics costs?

Indonesia’s chronical high logistics costs are thoroughly discussed through seminars, workshops but are nevertheless never adequately reseolved. Of course, such platforms are not totally useless: they still produce something of value: a pile of papers with strong data on the country's logistics affairs, gathered from respectable overseas and domestic research institutions. Discussion over the issue has been ongoing for more than two decades, starting during the President Susilo Bambang Yudhoyono (SBY) administration. The 6^th Indonesian president even tried to clamp down the problem, with a more concrete measure, by ordering Deputy Finance Minister Mahendra Siregar to take an office space and go to work at the Port of Tanjung Priok of Jakarta to monitor the apparently uncontrollable logistics cost, 24/7. Not only that: SBY then established a task force and appointed Coordinating Minister for Economic Affairs Sofyan Djalil to lead it. Up to the final term of the President, logistic cost remained “stable” or in other words resisted being reduced.

 

Within his tenure President Joko “Jokowi” Widodo has also confronted a similar situation, especially high dwelling time issues at biggest national ports like Tanjung Priok, Belawan or Surabaya, Makassar. He discovered the phenomenon personally when he was still an active businessman doing furniture export via the Port of Tanjung Priok. To reconfirm his findings, he visited the port, circa 2016, and there it was. Dwelling time at the facility was more than 3 days. He ordered all government agencies to make it two days and consequently shortening the indicator became a national priority. Now, according to the Ministry of Transportation, Directorate General of Customs and Excise, Port Authority among others, dwelling time is two day or even less. However, that does not signify that the problem is solved. In fact, the claimed lower dwelling time does not correspond with lower logistics costs.

 

According to the World Bank, Indonesia’s logistics costs amount to more than 23 percent of the gross domestic product (GDP), higher than the region’s emerging economies, such as Thailand and Vietnam. Of the percentage, 14 percent is transport costs, 6 percent is inventory cost and 3 percent is administrative cost. In the context of dwelling time, it is unclear to which category that is included. Yet, the way the country treats the issue really boosts the national logistics costs. The reason is like this: in order to decrease dwelling times, as instructed by Jokowi, the ministries in charge of port cargo just remove containers from the stacking yard to other facilities outside after two days, with or without customs clearance. By doing so, the cargo owner will pay all costs, i.e. truck, forklift, or other loading-unloading equipment, used for the removal of the container. The fare is quite expensive, amounting approximately between Rp 500,000 to Rp 1,500,000 per 20 foot box and higher for 40 foot ones.

 

After 2016 nothing changing in Indonesia’s high logistics cost condition, although scores of measures and policies have been introduced to improve it. Its root cause is misunderstanding. The abovementioned dwelling time narrative is all about such a misunderstanding. This, in the next turn creates a spiral effect, namely mistreatment, in the form of developing more ports. Now, we have more container terminals than the volume of cargo. In Jakarta, for instance, there are four container terminals with a combined throughput reaching 5,500,000 twenty foot equivalent unit (TEU). It includes JICT (2.5 million TEU), TPK Koja (1 million TEU), NPCT-1 (1.5 million TEU) and Mustika Alam Lestari (400,000 TEU). The government is also constructing a container terminal in the Port of Patimban, Subang, West Java. As soon as it is completed, there will be an additional 3.5 million TEU of capacity. Last, but not least, the newly-inaugurated Makassar New Port in South Sulawesi, with 2.5 million TEU capability, is going to worsen the national existing container terminal oversupply.

 

There is still a chance nonetheless to improve the dire state of Indonesia’s high logistics. The possibility popped out in a recent national seminar organized by Gerakan Indonesia Raya or GERINDRA, President-elect Prabowo Subianto’s political party. The idea is quite simple; not like those proposed and executed by the Government or state-owned port company. And, the best part of the idea, it is already proven in many countries, including the Philippines. The former country is worth mentioning because it shares common characteristics with Indonesia: being an archipelagic state. According to one of the speakers, Richard Joost Lino, former President Director of Indonesia Port Corporation (PELINDO) II, the neighboring country was also facing high logistic costs: more than 20 percent of GDP, around 2000 to 2020. But today it is at 13 percent. He disclosed that the improvement was due to the introduction of ro-ro shipping.

 

Referring to available data, shipping routes in Indonesia are mostly under two days. For example, from Tanjung Priok to Pontianak is within 1.1 days while from Tanjung Priok to Makassar is 2.0 days. This kind of circumstance is called short sea shipping in industry parlance, and ro-ro ship or interchangeably dubbed ferry is plainly appropriate for the track. By comparison, container vessels traverse at the same pace but require more time for loading and unloading at the port of origin and the one destination. On the other hand, trucks/cargo vehicles, the main customers of ro-ro ships, can easily debark and directly leave the port area because they do not need any cranes. What is needed for ro-ro operations is land space for a parking area.

 

Simply put, ro-ro shipping is a game changer, one only demanding a political will to implement it. The commitment is an important starting point due to a lot of regulations, business models, and procedures that must be amended for that. Indonesia’s logistics business too heavily depends on container shipping and container terminal, and introducing a new course will be catastrophic for it. Luckily, the opportunity for that massive deregulation is widely open since the country will be going to welcome a new President in October. He may opt to rev up ro-ro shipping in his “hundred days” program. Hopefully.

 

Published in Independent Observer, Friday, June 7, 2024