Good News On Logistics Reform

Vital component of upcoming 10th policy package: editorial

By The Jakarta Post
Monday, March 28, 2016

One of the best pieces of news regarding the upcoming 10th reform package, expected to be launched within the next few days, is that the main component of the new policy will address the logistics bottlenecks that have long been among the biggest disadvantages for Indonesian companies to compete internationally.

We don’t mean to say that the government has simply ignored the logistics bottlenecks. On the contrary, by making infrastructure development a top priority of its working programs, the Joko “Jokowi” Widodo government has tried to improve logistics efficiency because poor connectivity is one of the main reasons for the inefficiency and uncompetitiveness.

For example, price differences between provinces have been one of the most adverse impacts of poor connectivity, as unreliable supply chains prevent traders and local producers from responding rapidly to price changes. Poor logistics hampers the tradability of goods and services in remote areas and hinders Indonesia’s linkage with the global value chain.

But apart from poor infrastructure, of no less importance is the bureaucratic inefficiency and regulatory barriers, as demonstrated by the modern Tanjung Priok Port, Indonesia’s largest international seagate for freight. Tanjung Priok Port handling has remained inefficient and its container dwelling time remains the longest in the ASEAN region because of bureaucratic red tape in customs clearance and various other permits needed for the release of goods.

The latest report of the World Bank, for example, says it is cheaper to ship a container from Shanghai, China, to Jakarta than from Jakarta to Padang in West Sumatra, despite Shanghai and Jakarta being six times farther apart than Jakarta and Padang.

The report urges the government to pay attention to easing the requirements for setting up logistics companies to increase competition and for clearly defined roles for port authorities and port operators to encourage more investment.

We also think the next reform package should remove the fragmented regulatory environment, complex investment rules and restrictions on foreign direct investment in the logistics industry. Inefficient logistics has also prevented undeveloped regions from linking to more growth-generating opportunities.

Reform in logistics therefore requires much deregulation for logistics service providers, who must separate their businesses, such as trucking, freight forwarding and warehousing, into different legal entities.

Transportation companies also have to struggle with the requirement to obtain a dozen permits from the central government and regional administrations. Warehouses are overwhelmed by the requirement for warehouse owners, managers or tenants to submit reports to the local governments.

At least nine laws, local regulations and several ministerial rules regulate the logistics industry. No wonder many contradict each other as they are issued by different ministries and institutions with different objectives.

The upcoming reform package, therefore, should address this fragmented regulatory environment by expediting the licensing system to allow for the integration of all the logistics components.

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