The Continuous Growth of eCommerce Logistics in Indonesia
Time to read: 6 minutes Indonesia is one of the fastest-growing eCommerce markets in Southeast Asia. It’s projected to grow from a market value of US$ 26 billion in 2020 to US$ 50 billion in 2024. Online shopping has become so widespread that many Indonesian customers use eCommerce since it’s easier. Consumers get to avoid traffic jams going to the store, and online marketplaces offer a wider selection of products than brick-and-mortar stores.
But despite its massive growth, Indonesia’s digital economy is still considered a small eCommerce market among its ASEAN peers. But it has untapped potential. Due to its almost 20,000 islands, Indonesia requires innovative approaches integrating land and maritime transportation infrastructures for successful eCommerce distribution. Businesses that provide their services to consumers directly through eCommerce have much to gain from investing in the nation.
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The nation has a solid mobile phone culture, which is integral to eCommerce growth and offers unique mobile offers. Big eCommerce companies such as Shopee, Tokopedia, Lazada, and Bukalapak provide diverse products and services to cater to all customer needs.
Modern technology has simplified logistics and completely changed the way people shop online. Thanks to payment methods and mobile connectivity advancements, a wider audience can now access eCommerce. The Indonesian government has also backed the eCommerce sector. Lawmakers are ensuring the industry has favorable policies and growth-promoting initiatives.
Entrepreneurs in this dynamic landscape must continually develop and optimize their enterprises to meet the market’s ever-changing demands. eCommerce logistics in Indonesia is poised to become a significant global player, with countless prospects for investment and collaboration for local and international players.
The State of eCommerce Logistics in Indonesia
Indonesia, a country of 273.5 million people, is home to one of Southeast Asia’s most promising e-commerce sectors. Growth is driven mainly by younger consumers, who now view online shopping as more practical and cost-effective. By allowing cashback payments, big and small cross-border eCommerce platforms in the country are becoming increasingly popular. With the largest digital economy in the region, comprising approximately 40% of the total market, Indonesia is home to start-up “unicorns.” Some of the most notable include Gojek (a ride-hailing service), Tokopedia and Bukalakpak ( eCommerce platforms), and OVO (a digital payment platform). All these companies and many more are at the forefront of the nation’s digitalization.
But while online markets grew, the COVID-19 pandemic exposed sobering realities that eCommerce logistics in Indonesia face. The cost of Indonesia’s logistics to the government is equivalent to 25% of its GDP. Its reputation for inefficiency has grown, particularly within its region. Its Logistics Performance Index ranks far lower than other Southeast Asian countries. The eCommerce business is fast-paced and dynamic, making accurate and dependable logistics even more essential to support it.
For instance, the nation’s underdeveloped infrastructure acts as a physical barrier that keeps cars out of some areas, particularly rural ones. Logistical administration is slowed down by its outdated central management system. Online merchants need a lot of paperwork to complete one straightforward task.
The good news is that the Indonesian government has taken great strides to improve its logistical foundations.
National Logistics Ecosystem
The National Logistics Ecosystem (NLE), Indonesia’s logistics platform, was introduced in 2020 as an integrated platform that links and unifies the nation’s end-to-end logistics process flow.
There are four fundamental pillars of the NLE. The first is a simplified logistics platform collaboration. Next is ease of payment through a single billing scheme. Third, a simplification of business processes for both public and private services. Finally, the ability to allow spatial planning by implementing policies that promote efficient goods movement.
The acceptance rate is still low, with less than 30 logistics companies participating. The main platform itself is still not connected to other service platforms. But lawmakers are constantly enhancing the NLE. This is reflected in the state budget for 2024, which will allocate Rp 422.7 trillion (around $27 billion) for infrastructure. Its goal is to expedite infrastructure development that drives economic growth, such as transportation, energy, food, and connectivity. Initiatives include supplying basic service infrastructure and strategic projects. It also promotes equitable and robust access to information and communication technologies (ICT) that facilitate digital transformation.
Special Economic Zones
In 2014, Indonesia’s government prioritized the establishment of special economic zones (SEZ) due to the success of its free trade zones. There are 19 SEZs as of 2022. Twelve of the 19 SEZs are in use, and the remaining seven are still under construction. Eleven (11) SEZs are used for manufacturing and processing, and eight are intended for tourism. Over the years, these SEZs have drawn over $8.5 billion in investments and employed over 70,000 people.
In the next ten years, Indonesia hopes to draw over US$50 billion in foreign investment through the SEZs.
The SEZs are intended to function as specialized primary industries and optimize the readily available local resources. By creating these SEZs, the government intends to divert economic growth from the island of Java. Currently, the largest Indonesian island accounts for 60% of Indonesia’s GDP and 60% of its population.
The Indonesian government has prepared numerous fiscal and non-fiscal incentives. Benefits for investors include simplified immigration procedures and lower corporate income taxes. It also includes exemptions from excise and import charges, among other measures.
Developmental Policy Loan Project
Reducing costs and increasing the reliability of Indonesia’s logistics chain are the development goals of the First Indonesia Logistics Reform Development Policy Loan (DPL) Project.
The program paper outlines a suggested DPL to assist the Government of the Republic of Indonesia in achieving its medium-term economic growth and poverty reduction objectives. This is to be achieved by enhancing the flow of products inside and outside the nation’s borders.
Opportunities with eCommerce Logistics in Indonesia
Trade with overseas consumers, particularly those in China, accounts for a sizeable amount of Indonesia’s eCommerce income. Cross-border eCommerce presents new opportunities for Indonesian business owners. Crossing international boundaries gives you access to a larger consumer base and the chance to broaden your product line. Additionally, it allows Indonesian companies to sell their unique goods and cultural products in foreign markets.
Thanks to public and private sector efforts to digitalize the country’s economy, logistics operations have grown significantly since 2020.
Q1 2022: State of E-Commerce in Indonesia – Parcel Monitor
Faster Local Delivery Times
Indonesia’s average domestic package transit time dropped from two days in Q1 2021 to 1.46 days in Q1 2022. That’s all thanks to numerous advancements in the nation’s logistics infrastructure. First and foremost, the nation’s road network has grown significantly during the past few years. Because of this, things are now moving around the nation faster and more effectively than ever. Given the ambitious plans the government has prepared to keep upgrading the country’s road infrastructure, this trend is expected to continue.
Healthy competition exists across state-owned and private enterprises in Indonesia’s logistics services sector. It is now even more critical for businesses to innovate and expand to provide a better customer experience and attract more customers.
For example, in March 2022, DHL inaugurated a 40,000-square-meter warehouse in Java. Businesses now use web apps to locate accessible delivery drivers and transport equipment. This is just one of the creative solutions numerous local logistics delivery companies have implemented.
Increased Collection Point Usage
Collection points are locations set aside for individuals to pick up items they have ordered from online retailers. In actuality, collection points help avoid unsuccessful delivery attempts. Ordered goods can be left at a collection center where the customers who purchased them can pick them up anytime they’d like.
According to Parcel Monitor data, collection point usage in Indonesia grew from 1.90% in 2021 to 2.15% in 2022. Further investigation revealed that clients picked up 43.75% of these packages within the first 24 hours of being delivered to the collecting locations. This shows the adaptability and effectiveness of these locations.
There are several reasons behind this development. Most notably, Indonesia has seen a consistent increase in the quantity of warehouses and collecting centers. The most growth can be observed in the largest city in the nation, Jakarta. Many local businesses have expanded their warehouse operations, creating gathering places where customers can pick up their purchases.
Logistics businesses with headquarters abroad can hire or lease some of these facilities. This also facilitates cross-border eCommerce in Indonesia. International online merchants can enjoy greater bandwidth without the need to establish local bases of operations.
Indonesia’s eCommerce business has expanded quickly, thanks to the country’s sizable population, rising middle class, and increased internet usage. Though eCommerce logistics in Indonesia has faced many challenges in the past, both the national government and local pioneers have stepped up. With sweeping reforms and a massive push for tech integration, more internal merchants can expand into the country.
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