Amidst a difficult economic environment, the Indonesian cargo market is making preparations to rebound when conditions improve.

“Our performance has not been too good because of the economic crisis in Europe, and China is also not doing so well,” says Riza Erivan, president director of Jakarta International Container Terminal. “So I’d say we’ve decreased about 4% in terms of cargo coming into and going out of Indonesia. We hope that next year will be better.”

Erivan partly attributes the decline to a strong US dollar, which has steadily been growing more expensive compared to the Indonesian rupiah.

“The exchange rate between the dollar and the rupiah is very high, so people don’t want to import products from outside since they’re all very expensive,” he says. “The manufacturers just import a very minimal amount of raw materials and wait until the currency strengthens to import a lot, so that’s one of the reasons why imports aren’t growing in Indonesia.”

Air freight also faced challenging operating conditions.

“Last year, we had quite a good result in the domestic market with 16% growth, but we faced tough competition in the international market,” says Sudarmadi, vice president of the cargo strategic business unit at Garuda Indonesia. “Garuda had to adjust its international routes due to a decreasing number of passengers in the market that also impacted the cargo market on international sectors.”

However, despite that, Garuda Cargo managed to grow its cargo volume to 100,920 tonnes for the first quarter of 2015, according to Sudarmadi. This was an increase of 6.7% compared to last year’s 94,608 tonnes.

Garuda recently announced at the Paris Air Show 2015 that it intends to order 30 Airbus A350s and 30 Boeing 787-9s. The current flagship of the fleet is the 777-300ER, of which the airline has seven in service and three on order. Garuda flies these aircraft to Amsterdam, Denpasar, Jeddah, London Gatwick, Singapore and Tokyo Narita.

“We have capacity issues on this aircraft with the runaway at Jakarta Soekarno-Hatta International Airport for long haul sectors, where only a very small tonnage is available for cargo,” says Sudarmadi. “By transiting in Singapore for the Jakarta-Amsterdam route starting in July 2015, we will have a bigger capacity to fill and we are optimistic about that. Since we only fill the bellies of passenger aircraft, the main issue is the different market demands between cargo and passenger. For instance, we have good cargo capacity but very low demand for Jakarta-Jeddah-Jakarta, but on the other hand, this route has high demand for passengers.”

Meanwhile, Indonesia’s container terminals are undergoing aggressive expansion projects.

Terminal Petikemas Surabaya, which is 49% owned by DP World and 51% owned by port authority Pelabuhan Indonesia III (known as Pelindo III), is located on the northern coast of East Java and is one of the main terminals serving eastern Indonesia.

“DP World and our partner Pelindo III have agreed on an investment plan that has already been put to work,” says Rashid Abdulla, senior vice president and managing director of the Asia-Pacific at DP World. “It includes three new post-Panamax quay cranes and twin lifts, expected to arrive in the third quarter of 2016. Other equipment to be replaced includes RTGs and ITVs. Chassis and civil infrastructure improvements include strengthening our international berth to accept DWT 50k vessels, and to take advantage of the recently opened West Access Surabaya Channel.”

Abdulla also says that the capacity at TPS is expected to increase to 2 million and that performance will improve. In April 2015, TPS became the first terminal in Indonesia to receive cargo directly by rail, reducing transit times and haulage costs for customers.

Apart from expanding its yard and increasing the height of its cranes, JICT has made enhancements elsewhere too.

“We’ve now invested US$45 million in automatic drain gates to make it easier for ships to enter and leave the port, and we’ve deepened our berths from 14 and 15 metres to 16 metres because the shipping lines are trying to bring in larger ships,” says Erivan. “Additionally, we should mention our payment systems. We advise our customers to use our e-billing, which means that they don’t have to physically go to the port to take care of documentation and payment. From September 1, 2015, cash will no longer be allowed at the port, so they will have to pay us through ATMs, EDCs, or use our e-billing system, which is fast and convenient.”

However, Erivan says that there is one major hurdle related to this new technology. “You have to educate people first,” he says. “Some people in Indonesia are not very savvy in terms of computers and the internet, so we will have to work on that.”

There are other challenges too, although, in spite of the global economic downturn, Erivan says that JICT has grown 4% in terms of TEUs handled. “Because of that, we need to anticipate the arrival of even bigger ships, which is why we’re making improvements. Also, there are going to be some new players in the port business, because our government is now trying to build more ports in our area, so we need to anticipate this competition,” he says. “It will affect us, of course, because the pie is not growing very quickly. We’re expecting a growth of just 6-7%, so we will continue to offer a good service. Shipping lines look at service first, then price.”

For TPS, Abdulla says that the main issues revolve around equipment age, but that the replacement programme will see average equipment as drop significantly, improving productivity and reliability.

“On the other hand, we are enhancing our TOS and our general focus on technology to improve efficiency. We are studying VBS and OCR automation gates among other solutions that will improve overall performance,” he says. “At the same time, our people at TPS Human Capital are our main priority and training programmes continue to be provided to make sure the customer experience is above expectations.”

The air freight industry poses its own set of difficulties. “We have to be very careful when putting the price on the market since competition is getting tougher while the economy is slowing down, and the US dollar as our main expense has become very strong compared to the rupiah,” says Sudarmadi. “For domestic sectors, we have to strengthen our services for customers since it gets very busy in the mornings while the capacity in the warehouse remains stable.”

Sudarmadi also says that, with domestic cargo expected to grow around 4.3% in the short term, better cooperation is needed between regulated agents, the airport authority and airport management to review the way traffic is handled. For the international market, Garuda will have to pay more attention to developing its network to accommodate growing demand on a wider range of destinations.

Garuda is counting on a number of things that should stimulate its cargo business.

“Government policies to stop illegal fishing will benefit air cargo exports, since Indonesia is one of the world’s biggest fish trade contributors,” says Sudarmadi. “Growth in IT communications and online shopping will also boost trade volumes between cities.”

JICT will be looking closely at the government’s maritime campaign to promote the ports and logistics businesses, says Erivan, but he will also be looking at something else.

“We still hope that China will recover, although manufacturing costs are increasing and a lot of industries are moving out of China to Vietnam, Bangladesh, and Myanmar,” he says. “But China is still a huge country, and so our imports and exports still depend on them.”

By Jeffrey Lee

Staff Writer | Hong Kong