Finance Minister Sri Mulyani Indrawati has said the government will work to reduce the logistics costs to as low as 17 percent of GDP. It then begs the question; what have been keeping the costs of logistics stubbornly higher than our peers?

First, it would be prudent to recognize our archipelagic geography as a source of additional costs. The domestic movement of goods typically involves several modes of transportation, with loading and unloading from between modes.

For example, sending containerized cargo from the Cikarang industrial estate in West Java to  

Balikpapan in East Kalimantan will involve several main cost components: land transportation cost from Cikarang to the port of Tanjung Priok (17 percent of total costs), terminal handling charge (THC) at the port of origin (14 percent), ocean freight (17 percent), THC in the port of destination (10 percent), and in-land transportation in the final destination (18 percent). 

There are also double charges for lift-on/lift-off (Lolo) expenses in both ports of departure and destination. Additionally, as part of the implementation of International Maritime Organization (IMO) regulation on low sulfur consumption to reduce Sulphur Oxide emission, it is being translated into an additional low sulfur surcharge amounting to about 12 percent of total cost. On top of that, logistics forwarders will still have to charge additional costs for warehousing, document processing and insurance. 

In short, the distance between Cikarang and Balikpapan is equivalent to that of Lisbon and Luxembourg. While the first might consume a whopping 10 days for point-to-point delivery, the latter might take two to three days as the cities are well connected by freeways, making logistics costs much cheaper on a per-kilometer basis.

Popular

Ahok questions Agus' flood mitigation stance in first debate

K-pop group BTS to make comeback in February

Agus cash assistance plan slammed by Ahok, Anies