Moving into overdrive

Moving into overdrive

Indonesian port authorities have thrown themselves into the job of tackling congestion. Dave MacIntyre reports

There is no doubt that port congestion in Indonesia is a serious issue, confounding shipping lines and shippers alike. The good news is that the Indonesia authorities are doing something about it, in a hurry.

The Indonesian archipelago has around 18,000 islands, with most manufacturing located on the central island of Java, making shipping and ports the lifeblood of Indonesia’s commerce. However Indonesian ports have suffered from chronic underinvestment for many years and extreme capacity constraints, which are significantly hindering economic development.

The Indonesia Port Corporations or PT Pelabuhan Indonesia (Pelindo) are state corporations responsible for the governance, regulation, maintenance and operation of the many ports in the country. Company numbers correspond to regional coverage, numbered one through four.

Pelindo III for example is responsible for ports in Central Java, East Java, Bali, South Kalimantan, Central Kalimantan, West Nusa Tenggara and East Nusa Tenggara.

Challenge set

Something of the difficulties facing the country’s port infrastructure was identified by an OECD Review of Regulatory Reform last year, which recommended clear policies and procedures be developed to clarify the responsibilities of various levels of government for future development of the port sector, and to ensure the appropriate integration of local plans with the National Port Master Plan.

Furthermore, it recommended an “active strategy of encouraging the development of a competitive environment in Indonesia’s ports be adopted, including allowing private terminals to handle third-party cargoes, competitive allocation of port services licences, restricting bidding for new opportunities from dominant operators and encouraging competition”.

Until competition in port services is clearly effective, the OECD suggested the Ministry of State-owned Enterprises set clear performance standards for key port services delivered by enterprises under its control, and monitor the prices charges for the provision of these services.

Why has port capacity come under pressure in Indonesia? Rajiv Biswas, Asia-Pacific chief economist for IHS Global Insight, says congestion reflects a number of factors, including demand drivers, notably Indonesia’s sustained rapid growth in GDP and trade flows since 2004.

“There have been supply side factors as well, with a lack of investment in new port infrastructure, port management systems and related ports technology. Although the Indonesian government has been making significant efforts to address these infrastructure constraints recently, it will take some years for their port infrastructure development initiatives to ease the capacity bottlenecks.”

Planning need

Indonesia made substantial progress in setting the framework for the management of its ports under the 2008 Shipping Law but Mr Biswas agrees that the detailed implementation and clarification of the role of different levels of government in port planning and operations needs to be further clarified, to allow accelerated development.

He also backs more competition and private investment.

“Although the Indonesian government has already been involving international shipping lines and global port operators in some of its largest ports, considerable further private sector participation will accelerate the development of Indonesian ports. Such reforms will help to encourage greater efficiency and improved port management, as well as greater private financing for port infrastructure development. An estimated $20bn needs to be spent on Indonesian port infrastructure by 2020.”

That statement reflects Indonesia’s rapid emerging market economy. Indonesian GDP is forecast to double by 2020, rising from $900bn in 2012 to $1.9tr by 2020. Reflecting this rapid growth, Indonesian container freight volumes are also projected to at least double between 2012 and 2020.

The construction of new container port terminals is a key priority, in order to handle future freight requirements. Indonesia’s container trade is concentrated in five key ports – Tanjung Priok (Jakarta), Tanjung Perak (Surabaya), Belawan, Tanjung Emas and Panjung – which account for over 90% of the Indonesian container trade.

“These five ports are a key strategic priority for government initiatives for port development. However the Indonesian government will also have a much larger task of upgrading its wide network of other ports, which are crucial for intra-island trade,” says Mr Biswas.

Money talks

Already, action is being taken. Indonesia’s four state-owned port operators have signed a joint venture agreement to revitalise domestic cargo handling. Pelindo I, II, III and IV each have a 25% stake in the new Terminal Petikemas.

Along with assisting a reduction in price disparity between the eastern and western parts of Indonesia, the venture will dovetail with the government’s Nusantara Pendulum programme, which will create a single sea corridor for goods movement within Indonesia.

Under the programme, a mothership of around 3,000 teu, owned and operated by the government, will move regularly between the major seaports and thus reduce logistics costs. The main focus ports are Belawan, Tanjung Priok, Tanjung Perak and Makassar.

Investment is also being made in more container yards and container-handling equipment to speed up ship processing.

Deputy Transportation Minister, Bambang Susantono, said that with the pendulum system in place, the cost of logistics deliveries in the country will be slashed. As an example, the cost of shipping a container from Jakarta to Sorong, which was $2,000 per teu, will drop to $375 per teu.

Growth spurt

Port authorities have embarked on significant expansion projects. A new container terminal is being built at Tanjung Priok, with the first phase expansion due to be completed in 2017, adding 4.5m teu handling capacity to the port, with significant further capacity expansion later, to reach a planned 13m teu.

A new container terminal is also being built at Tanjung Perak which is due to commence operations in 2014.

Pelindo III announced that it will spend Rp6.1tr ($634m) on port development this year in order to expand its regional ports and ease container congestion. The money will be used to fund the expansion of container terminals at Tanjung Emas port in Semarang, Trisakti port in South Kalimantan and the new Teluk Lamong terminal project underway near the East Java hub of Tanjung Perak port.

Pelindo will spend one third of the money on new container cranes and RTGs to help ease congestion.

Meanwhile, with Indonesia due to have general elections in 2014, Mr Biswas says it will be crucial that the next government give a high priority to Indonesian infrastructure development — “and ensuring a sound long-term strategy for ensuring Indonesia’s port infrastructure expansion matches the nation’s rapidly-growing internal and international trade flows”.

Source: http://www.portstrategy.com/