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Multimodal Transport Across Indonesia

16 Dec 11 , Muhammad Asrofi, Consultant, Transportation & Logistics Practices, Frost & Sullivan
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Recently, government issued Government Regulation No. 8 of 2011 on Multimodal Transport (Regulation), as a legal framework to govern the operation of multimodal transport in Indonesia. The intention is to prepare the Indonesian logistics sector for the liberalization of multimodal transport in the ASEAN single market.
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Logistics in Indonesia has been an evolving industry in the past decade. As a key member of the ASEAN trade link, its location is perfect for high volume logistics activities. In addition, as a large archipelagic country, Indonesia has certain characteristics in its transportation segment. Each island or region has its own characteristics, modes, the integration of which is still developing. Made up of a number of islands, transportation across Indonesia has significant scope for development on a domestic scale; more so for inter-modal transport. However, in its early stages of planning, each mode and its infrastructure was planned independently by the related state and regional authorities. Thus, inefficient inter-modal transfer and high inter-modal externalities are apparent across Indonesian islands. Though an archipelago of a number of islands spread across the country, inter-island transportation has not been perceived in the past, as having a strategic role in Indonesias economic development. Being the most developed islands, Java and Sumatra, in economic sense, have been the center of development with extensive investments in intra-island road transportation, mainly roads. Roads are dominant in transporting passengers and freight, largely because rail infrastructure is ill-equipped to handle similar volumes of freight as road transport. In addition, with door-to-door connectivity, road network is considered as having a more strategic role to play than other modes of transport. Fulfilling the transportation needs across islands for inter as well as intra movement is a challenging task. Both state and central governments still have plenty of work to do in order to develop the transportation system, mainly from the logistics perspective. Since roads function as a key traffic moving medium, the effects of lack of inter-modal facilities also affect the complete freight movement network. As a result, mobilization from node-to-node is in-efficient, transport costs are high and so are the inter-modal externalities, which subsequently influence the purchasing power of the people. Nevertheless, the need of inter-modal transportation in Indonesia can be viewed as having, at least, two perspectives i.e. to improve the competitiveness for trade in global market and to function as a medium for national integration. The increase of trade in the free trade era, indicated by the establishment of ASEAN Free Trade Agreement and ASEAN Economic Community, demands a more efficient national economic system. Transportation, as one of the major costs, needs to be kept at a minimum. The national logistics system in Indonesia thus, needs to be enhanced with a highly efficient inter-modal transport network, to facilitate large passenger and freight volumes. This, once achieved, would enable Indonesia to be considerably more competitive, in terms of volume as well as in international trade attractiveness, across international markets. Inter-modal transportation thus, has to be Indonesias answer to the global economys transportation demand. Inter-modal transportation will enable Indonesia, as a low cost production center, to interact with international markets at lower costs. However, this requires a near-perfect situation where each transport mode, has to cooperate-and-compete well and remain connected Structurally across local and international transport modes. Indonesia, at the moment is not

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completely equipped to take advantage of such an ideal situation. Certain infrastructure challenges need to be countered to move towards an efficient inter-modal transport system. Prevalent Transport Infrastructure Challenges The problem for Indonesia is the inability of the government to boost investments in terms of domestic as well as foreign investments. This has left the government to entrust transport infrastructure development projects to the private sector. Liberalization of transportation has had its impact on Indonesia with differences in characteristics of each transport mode, impacting the transportation segment in the following different ways Investment in expressways or toll roads, seemingly promising high returns, have created numerous proposals from the private sector, especially for some highly potential regions such as Trans Java, Trans Sumatra and urban toll roads in Jakarta, Surabaya, Bandung, and Medan. As of aviation, tariff liberalizations have caused the sprouting of more airlines, thereby creating a highly competitive market with positive impact for travelers. As a result, medium-to-long distance traveling has shifted to air transport. Liberalization has had a positive impact on service efficiency and infrastructure development acceleration. But, if not regulated properly, this may cause the fall of the national transport sector. For example, PT Kereta Api Indonesia, the sole national rail corporation, faced serious problems in the recent past that raised questions on the well being of its services. It is a common notion that railways are the backbone of the national logistics system and mass transportation in urban areas, which not just link populated cities, but also logistics centers to major transportation nodes such as seaports. In Indonesia, competition from road, coupled with bad internal management, inefficient utilization of rail sector budgets leading to low return on investments have resulted in the decrease of rail services and lower rail freight volumes over the long term. Unbalanced Transportation Market Roads dominate the freight transportation system, with more than 85% share. Railways come second at 7.3% in terms of freight transportation, although its share in passenger transport is much higher than road transport. Both freight and passenger shares for railways are declining following the decline of service quality, maintenance back-log and competition with road sector. The access to road transport is deteriorating due to the insufficient facilities in the business districts and the lack of availability of road networks in the rural areas. At the national level, the growth of road network has not kept pace with the growth of the number of motor vehicles, creating severe traffic problems. Meanwhile, at the regional level (province, district, rural), the low network density as well as the unreliable and poor access to existing network has hindered the poverty reduction and growth in the isolated remote areas. The road quality is also uneven across country in Indonesia, ranging from relatively high condition of the national and provincial roads to poorly maintained subnational roads. Like in the road transport, the condition in the railways sector has also deteriorated in recent years, with available access only in Java and limited areas in Sumatra. The railways facilities are in poor condition. Many of the rails, bridges, signal and telecommunication system have exceeded their technical age limits. Air mode has experienced a significant increase, especially in passenger movement as a result of liberalization of the air transportation sub sector and emergence of the low cost airlines industry. This has resulted in an increase in competitiveness of this mode, especially for short distance travels. Although this trend remains for passenger transport, emergence of the low cost airlines industry has had minimal impact on freight transportation. Freight transport by air is largely restricted to either exclusive freight aircrafts or premium airlines in Indonesia. Thus, the aviation sector has witnessed unbalanced growth, with higher growth in passenger movement (CAGR 13 % from 2005-2009) compared to freight movement (CAGR 8 % from 2005-2009). Sumatra, Kalimantan and Papua hold huge potential for river transportation. However, river modes are not very popular with a share of approximately 1% in overall freight transportation. In addition, Indonesia is located next to the busiest route in the Asia Pacific region, the Straits of Malacca. However, safety and security of ships has been an issue in the past few years with the number of ship hijacking figures on the rise. To be regarded as an international trade destination, sea mode plays an important role. But for an archipelago like Indonesia, this number is still low. Goods distribution, which is based on the island-wise concept, has resulted in roads being the main choice of transportation, especially in Western areas of Indonesia. The role of other modes such as railroads and rivers, for freight distribution within the island itself has not been very well developed. Dry ports as nodes of distribution for freight, only exist in some locations in Java and Sumatra. The same goes for river modes for freight shipment. Apart from infrastructure issues, security and labor issues across transport modes are the main issues that inter-modal sector faces. Freight terminals at rail stations and seaports lack international standard security compounded with primitive technology. In addition, lack of skilled labour and availability of the required number of manpower to establish secure freight storage and movement across transport modes are primary challenges that need be addressed. Road Ahead for Indonesia In an inter-modal transportation system, the market may be characterized based on the comparative advantages for each mode of transport. In such circumstances, what Indonesia needs is focused island-wise plans to develop a nation-wide inter-modal transport system. For the nation to have an efficient inter-island transport network, transport infrastructure within each

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island needs to be developed first. On the basis of strong development of each transport mode within each island, the inter-modal transport network can be developed, within each island. Since sea would be the ideal means of freight transportation from island to island, other modes such as railways, road and air have to be well connected as well as efficient enough to support and effectively utilize the existing sea mode. The strategy for the development and utilization of inter-modal transportation should be based on certain key aspects. Characteristics of commodities being transported, characteristics of diverse individual modes of transport and the distance covered. Railways are better equipped to handle transportation of dry bulk cargo with large capacity and the ability to cover long distances in a shorter span of time. Air transport is superior in speed for freight transport with high economic value. However air transport is largely restricted to handle only certain non-bulk perishable commodities such as fruits, vegetables, postal, electronic goods and seafood. Private goods transportation or courier services may be served appropriately by roadway. Inter-modal transport is influenced by space, time, structure, network patterns, the number of interconnections and linkages, and types or characteristics of the vehicles and terminals. Intermodal transportation development is generally based on some of these conceptions: nature and quantity of freight transported, available transportation modes, connectivity between origin and destination i.e. nation-wide interconnectivity and value of freight with respect to the trip frequency on key sectors. For a country such as Indonesia, each island has its own characteristics in developing transport services, other than roads. Ideally, mode-to-mode shares should be balanced so that high intermodal externalities i.e. cost resulting from traffic jams and inefficient road maintenance can be avoided. Based on certain best practices in other Asia Pacific countries such as Singapore, Malaysia and Korea, on development of inter-modal transport and its benefits, there are few conclusions which could be considered for Indonesia: Transport node development should consider its relationship with other modes to make it easier for freight transport to promptly reach its final destination. Freight terminal should function not only as a departure or arrival point, but also as the transit point in which interconnectivity to other modes needs to be pre-planned, well before actual construction of the transport network begins. In the development of an inter-modal transport system, it is important to identify and consider the superiority of at least one existing mode, and its efficiency requirements. This mode in turn has to serve as an important artery for freight movement and play a vital role in the development of other modes simultaneously. With these considerations in place and if put into efficient practice, Indonesia would, by all mean, achieve its long desired dream of a competent inter-modal transport network, to gain competitive advantage in freight transportation and play a critical part in the ASEAN Free Trade Link. The natural lay-out of its islands has set up the nation for inter-modal transport network. It is now up to the government, transport ministry and related transport authorities to take advantage of this gifted set up of islands. For more information, please contact: Sasikarn Watt. Corporate Communications - Thailand P: +662.637.7414 E: sasikarn.watt@frost.com
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