Indonesia Freight Transport Report Q3 2008

'Indonesia's poor infrastructure is impeding the domestic trucking industry and limiting the ability of small business owners to access profitable markets', concluded a joint report by the Asia Foundation and Universitas Indonesia, the state-owned university, published in April. The report said the country's competitiveness and economic growth were being held back by high transport costs, poor infrastructure, and corruption. Trucking companies and had to pay a wide array of illegal fees to government officials, police, and local thugs, according to the report, which was based on an industry survey. It assessed the costs of transport by truck across nine major routes between key cities in Sulawesi, Java, West Nusa Tenggara, and North Sumatra. The results showed it costs more to operate trucks in Indonesia than in other Asian countries including Vietnam, Thailand, Malaysia, and China. Indeed, in our just-published Indonesia Freight Transport Report, we predict that road freight traffic will grow by an annual average of 6.3% in 2008-12, an improvement on the 5.8% rate registered in the preceding five year period, but still well short of the potential, and slower than other freight modes.

There are a number factors behind this forecast. The Indonesian economy and commodity trade will grow strongly, as will Indonesian commodity exports, including mining output. We are projecting annual GDP growth of 5.7% in 2008-12. We are now projecting an overall annual average growth rate of 6.7% for the freight transport sector as a whole during 2008-2012. Total freight growth and road haulage growth will both be higher than GDP expansion - 6.7% and 6.3% versus 5.7%- but the reality is that for an economy of Indonesia's size and potential this is still be somewhat below the country's and the industry's real potential. A key problem facing the trucking industry is the lack of investment in new roads. Freight carried on other transport modes is set to grow faster than on road: by an average of 6.9% for rail, 7% for shipping, 7.1% for pipeline throughput, and 7.4% for air freight.

Indonesia's freight industry has a poor-to-average BMI freight rating with a composite score of 56.9 out of a potential total of 100. Comparatively speaking, its stronger points include the country's long-term economic risk, freight growth, and the transport intensity index - a measure of immediately past and future foreign trade growth. Compared against its peers, however, Indonesia's scores for long-term political risk, infrastructure growth and the regulatory and competitive environments are all disappointing, and indicative that a lot more needs to be done before the industry begins to perform closer to its potential.

For the 2008-2012 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole. It will achieve average annual growth of 6.1%, versus 5.7% for overall GDP. The total value of transport and communications GDP will rise to US$48.6bn in nominal terms by 2012, representing 6.5% of Indonesia's GDP.