Large Ships for Export in Tanjung Priok Port - Photo by President Office

JAKARTA (TheInsiderStories)–Indonesia jumped 17 positions in the World Bank’s Logistics Performance Index (LPI) to 46th out of 168 countries in 2018 from 63rd in 2016 but it remains poor compared to its regional peers in Southeast Asia.

Indonesia’s ranking worse than its competitors in Southeast Asia namely Singapore (7th), Thailand (32nd), Vietnam (39th), and Malaysia (41st).

Connecting to Compete, which contains the LPI, is a bi-annual report that scores 168 countries on how efficiently supply chains connect firms to domestic and international opportunities. It released by the World Bank based on the six aspects namely customs, infrastructure, international shipments, logistics competence, tracking & tracing, and timeliness.

Indonesia has a poor score in the customs and infrastructure with a score of 2.67 and 2.89, respectively. Meanwhile, the country recorded above 3 scores in the international shipments, tracking and tracing, logistics competence, and timeliness.

Although its LPI ranking jumped, Indonesia’s logistics cost remains high compared to its regional peers in Southeast Asia. Logistics cost including transport, warehousing, and inventory in Indonesia accounted for 24 per cent of the country’s gross domestic product (GDP). The country’s logistic cost-to-GDP ratio is far higher than those of neighbouring countries, including Thailand and Malaysia where the ratio reached 15 per cent and 13 per cent, respectively.

The high logistics cost hampered Indonesia’s industrial competitiveness as it is the backbone for both the domestic economy and international trade. The Country Director of the World Bank Indonesia and Timor Leste Rodrigo A. Chavez earlier said port operation inefficiency, uncompetitive logistics market, and long trade procedure have hampered Indonesia’s industrial competitiveness. Ports are considered to be an obstacle in the national logistics chain due to limited infrastructure, regulation constraint, and low productivity.

Logistics Gap

Director of the Macroeconomics, Trade & Investment (MTI) Global Practice at the World Bank Group Caroline Freund in a press release on Tuesday (24/07) said there is a big gap between developed and developing countries in LPI score. Developed countries remain the top performers in the LPI, which high-income countries score 48 percent higher than low-income countries.

Germany has the highest score in the LIP 2018, followed by Sweden, Belgium, Austria, and Japan. High-income countries that are dominant players in the supply chain have ranked highest in logistics performance. Countries that rank lowest tend to be those that are low-income, isolated, fragile or facing conflict or unrest.

“Among the lower-middle-income group countries, large economies such as India and Indonesia and emerging economies such as Vietnam and Cote d’Ivoire stand out as top performers,” she said.

She added the logistics service are the backbone of the international trade as good logistics reduce trade cost but supply chain are only as strong as their weakest link. For developing countries, getting logistics right means improving their infrastructure, customs, skills and regulations.

Meanwhile, Economist at the World Bank Group’s Macroeconomics, Trade & Investment Global Practice Christina Wiederer stated the good level of logistics are now more important than in the past as the international trade is becoming more dispersed through global value chains. “Small disruptions to a supply chain can spread rapidly to other countries and regions,” she said.