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Indonesia's wooing of foreign investors faces transport capacity obstacles

THE Indonesian government's announcement in February for a planned "big bang" opening of the Southeast Asian nation to foreign investment, especially, targeted at the transportation and logistics industry to stimulate economic growth has been slow to take off.

Although, the move has encouraged Yusen Logistics from Japan to launch a consolidation service for air cargo out of Java, followed by the start of import operations in March at Jakarta's Halim Perdanakusuma International Airport.

The Indonesian government is hoping to attract now more international logistics firms. To encourage an inflow of investment and operators, it loosened investment restrictions in 50 sectors, including the logistics field.

In the transportation sector, the foreign ownership limits for transport supporting services and warehouse distribution is to be raised from the current 49 and 33 per cent, respectively, to 67 per cent for both. For cold storage facilities, the limit of 33 per cent has been removed, reported New York's Air Cargo World.

But the potential growth faces serious constraints, according to managing director of Trans Pacific International Logistics, Verdi Madison, who claims foreign firms have failed to make inroads with Indonesian shippers, since they lack the domestic expertise and the flexibility of local forwarders, which the domestic customers expect.

Mr Madison also points to a lack of direct lift capacity to many markets. To North America, for example, the main routing is on Middle Eastern carriers across the Atlantic, which is significantly cheaper than moving on Asian airlines across the Pacific.

A lack of maindeck lift is another constraint. Even Surabya, Indonesia's second-largest city, has no international freighter service, so maindeck freight has to be funnelled through Jakarta.

The capital's Soekarno-Hatta International Airport is chronically congested, a situation that has worsened after the authorities scaled back the maximum number of aircraft movements last year.

And in spite of national carrier Garuda Indonesia expanding with the order last year of 30 Boeing 787-9 aircraft, Mr Madison said that the resulting belly space represents relatively limited cargo capacity.

Mr Madison goes on to assert that Indonesian cargo agents are more concerned about new regulations on freight forwarding issued last year, which have met with stiff opposition from the national forwarder organisation.

The big problem is a massive increase of the minimum required authorised capital for an existing firm engaged in freight forwarding, and it will also apply to new market entrants. The amount required has been dramatically increased from IDR200 million (US$15,250) to IDR25 billion (US$1.9 million), of which 25 per cent must be fully issued and paid-up.

The changes are currently in limbo, however, as the forwarder association has rejected the rules, arguing that many agents cannot afford the required capitalisation.