Have you ever experienced a lost package when you shop online? Or did your package ever take too much time to arrive at your doorstep when you needed it most?
Though serving as the backbone of Indonesia’s economy, the logistics industry still has several flaws. Particularly, inefficiencies in the logistics sector in the country with over 17,000 islands are due to unconnected national supply chain information. This creates a dynamic yet challenging distribution flow.
The industry experienced overwhelming growth in the past two years, notably due to the COVID-19 pandemic boost in e-commerce activities. However, the high logistics expenses remain. Data shows that Indonesia’s logistics costs reach 23% of the gross domestic product (GDP) – higher than its neighboring countries like Thailand (15% of the GDP) and Malaysia (13% of the GDP).
The complexity of information and data handling and a strict bureaucratic framework resulted in inefficiencies, which posed an additional challenge in lowering the logistics costs in Indonesia. Three main categories causing these complications are listed below.
Supply chain connectivity inefficiencies
1. Low data transparency
Indonesian logistics providers struggle with poor customer data transparency, leading to issues like limited information reaching customers and creating distrust.
“The transparency of goods delivery is still unclear, so it is not real-time. We see that there are many vehicles in Indonesia. We must be able to provide real-time data (delivery),” explained Raymond Sutjiono, Co-Founder of McEasy, one of East Ventures-backed prominent logistics players in Indonesia.
Insufficient transparency between stakeholders tampers supply chain efficiency, worsened by a lack of accessible transport schedules and ineffective government policies. This leads to potential good loss and eventually leaves customers frustrated with vague courier updates and limited compensation avenues. Customer service teams, despite their efforts, can only offer limited help as they sometimes can only provide partial compensation after a lengthy reporting process.
To address these challenges, logistic companies can adopt advanced cutting-edge technologies like McEasy’s Transportation Management System (TMS), a Software-as-a-System (SaaS) solution designed to enhance transparency and efficiency in transportation management.
2. Lack of stakeholder collaboration
The East Ventures – Digital Competitiveness Index (EV-DCI) 2023 highlighted suboptimal collaborations between stakeholders, such as central government, businesses, and financial institutions, leading to several concerns.
Backhauling, or returning cargo from the destination (point B) to its origin (point A), faces challenges due to high initial costs, causing issues for about 70-80% of industry trucks.
Inconsistent stakeholder engagement hinders a cohesive supply chain, amplified by Indonesia’s diverse terrain and cultural differences. Despite these challenges, fostering collaborations among government agencies, logistics businesses, and associations is crucial to improve logistics, as emphasized by Cris Kuntadi, Chairman of the Board of Trustees IPCN (Ikatan Pengusaha Cargo Nusantara).
McEasy, for example, has collaborated with Indonesia’s Ministry of Communications and Informatics in actively holding socialization sessions on digital technology implementation in numerous regions across the country.
Goods stockpiling in warehouses, due to port congestion, regulatory hurdles, and errors in inventory planning. These delays prompt businesses to maintain larger inventories to manage demand prediction and supply chain flow uncertainties.
3. Reporting inefficiencies
Many Indonesian logistics providers still rely heavily on manual processes or paper-based systems, leading to delays, errors, and higher costs. Additionally, tech adoption gaps in the supply chain exacerbate reporting inefficiencies.
Technological inefficiencies also affect customs inspections in Indonesia, especially with high-volume shipments. It takes seven long days on average, compared to other Asian Pacific countries with an average of only 2.6 days of process at customs.
However, government regulations about customs clearance play a huge part. Efforts have been taken to simplify procedures, increase automation, and reduce bureaucracy. Nonetheless, further enhancements, particularly in digitization, talent management, and infrastructure betterment, are needed to boost efficiency.
The silver lining
The Indonesian government is tackling connectivity problems by implementing the National Logistics Ecosystem (NLE), a digitalized platform to enhance collaboration among stakeholders. This initiative, led by the Indonesian Ministry of Finance, seeks to streamline logistics operations, attract private investment for efficiency, and maximize infrastructure development by providing internet access points to the Digital Broadcasting System (DBS).
This ecosystem aims to foster collaboration within four pillars: the government, spatial management, the private sector, and payment, reducing the need for ministries to navigate separate regulations and processes.
“The purpose of NLE development is to make the business process in Indonesia more competitive, both in terms of time, simplification, speed, and ultimately in terms of cost,” said Agus Rofiudin, Head of Lembaga National Single Window (LNSW).
East Ventures-backed Waresix became the first startup to be integrated with the NLE. This logistics service aggregator startup with a platform and technology without heavy assets offers integrated logistics services and solutions to customers more efficiently. It connects shippers and businesses with available transporters, trucks, and warehouse spaces across Indonesia in one platform, providing better transparency and improving income for asset owners.
East Ventures plays its part as venture capital (VC) by investing in tech-enabled logistics players in Indonesia, such as McEasy and Waresix; SME/commerce enablers, such as SIRCLO, Praktis, and Biteship; to cold chain startups, such as Fresh Factory and Superkul.
The Indonesian logistics industry has a high potential to attract investors. With the betterment of government regulations, digital collaborations are expected to brew as more entrepreneurs bring their solutions to the table. Ultimately, with a more efficient supply chain connectivity and distribution flow, lowering logistics costs can be ticked off the to-do list.
Find out more about Indonesia’s logistics opportunities, development, and related regulations by downloading the EV-DCI 2023 report.