Client : Rantai Expo

Client : Rantai Expo Publication : August 2 Approval : July 29

Notes multimodal transport refers to modes of public transport

Taking advantage of a bigger market

By Sudibyo M. Wiradji

Countries grouped in the Association of Southeast Asian Nations (ASEAN) are expected to see tougher competition in the transportation and logistics industries, now that the ASEAN Free Trade Area (AFTA) is in place.

As experts have put it, transportation and logistics are "the keys to the very lifeblood of international trade and industry".

The challenge facing ASEAN is for each ASEAN country to improve the quality of its infrastructure, technology, transportation and logistics services, so they meet global standards.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam.

With tariff reductions of between zero and 5 percent on all ASEAN-based manufacturing products being announced in early 2002, AFTA will bring major changes in trade and business in the region.

According to a source, trade between the ASEAN countries as a result of AFTA reached about US$95.2 billion in 2000, compared to $44.2 billion in 1993, representing an average annual increase of 11.6 percent. "This means that transportation and logistics- related businesses will see good prospects," an expert said.

Chris Kanter, the head of the transportation division at the Indonesian Chamber of Commerce and Industry (Kadin), said that with the larger market within ASEAN, transportation and logistics services would become more lucrative than ever.

Citing an example in the context of Indonesia, he said that 10 large-scale companies in the transportation and logistics businesses had a turnover of about $25 million per annum.

"This lucrative business can also provide job opportunities," he added.

Chris said that when it comes to transportation and logistics services in the global market, Indonesia had more potential as a provider of logistics services rather than a provider of means of transportation.

"At this moment, it might be too costly to provide a plane or container ship for transporting goods," he said.

Currently, the Indonesian Forwarder Association (IFA) has about 2,700 members, but only 20 of them are already prepared to compete in the global market, according to Chris, who is also the chairman of the IFA.

While highlighting the incredible opportunities AFTA presents ASEAN countries, experts have expressed concern about the remaining constraints that are hampering efforts to boost the competitiveness of the region's transportation and logistics companies.

Under the ASEAN free trade scheme, any company from ASEAN engaged in providing transportation and logistics services will face no significant barriers in operating in any country within the region.

"This is also a positive side for Indonesia because Indonesian companies engaged in the business can expand their networking," Chris said.

In the context of Indonesia, however, there is a growing fear that the absence of clear-cut regulations on multimodal transportation will lead to the entry of multinational transportation companies with no added value for Indonesia.

The regulations on multimodal transportation, should deal with, for example, what conditions foreign companies (engaged in the transportation and logistics business) should have to abide by when operating in Indonesia, Chris said.

"The unclear regulatory regime surrounding multimodal will make Indonesia legally weak when confronted with transportation and logistics disputes," he said.

Other ASEAN countries, like Singapore, Malaysia, Thailand and the Philippines, have moved forward with their multimodal regulations.

"Singapore, with an advanced transportation and logistics industry, has a strict ruling on multimodal transport," he noted.

Chris suggested that draft of ASEAN Framework Agreement on Multimodal Transport, now under discussion at the State Secretariat, be issued prior to its ratification at the ASEAN Meeting of Ministers of Transportation in September.

"When the multimodal regulation is issued after the ratification, there will be no chance for the country to revise it because Indonesia will no longer be allowed to issue a regulation that is against the ratified agreement," he said.

The Indonesian Transportation Society (MTI) Head, Heru Dewanto, emphasized that strengthening the business sector would be less meaningful if the country did not have a clear vision and a strong policy for its transportation infrastructure.

With major changes AFTA will bring in Indonesian trade and business, the provincial and national transport infrastructure and systems, should be compatible with regional and global networks.

"This compatibility requires speed and punctuality that can only be fulfilled by an efficient and modern transportation and logistics industry, supported by appropriate technology and professional management," said Heru.

When linked to AFTA, Indonesian transportation is a paradox. "On one hand, transportation and information technology are making the world shrink and borderless. On the other hand, Indonesian transportation is making Indonesia expand in terms of time," Heru said.

Executives of international express delivery companies that operate in Indonesia have a different view regarding the possible implications of AFTA on the transportation and logistics sectors.

"The implementation of AFTA will make little difference. All it will do is the cut in the amount of duty paid on imports from AFTA countries and, hopefully, simplify the clearance procedures," DHL technical adviser Alan Cassels said.

"With our sister company, DPWN, Danzas AEI, we are able to cover the complete portfolio of distribution services from envelopes to sea containers," he said.

AFTA will not have any dramatic effects until member countries join together and "truly start to act as one huge domestic market, with no customs functions slowing down trade between each member. If that happens then the changes would be big. But two of Indonesia's largest export and import destinations/origins are the U.S. and Japan -- both outside AFTA," he stressed.

Meanwhile, FedEx's managing director for Singapore and Indonesia, Clifton Chua, said: "AFTA will urge or force domestic business players to be more competitive in the larger, regional market place. This expansion into new markets by exporters and small and medium enterprises parallels the logistics network that FedEx has developed to get customers' products to the rest of the world ahead of their competition," he said.

To anticipate a possible increase in demand for shipment and logistics services when AFTA is fully enforced, FedEx just announced the expansion of its Subic Bay facility.

"The new 140,000-square-foot facility has effectively doubled the size of the sorting capability at the hub, and will also include the addition of enhanced automation for even faster document sorting," he said.

"FedEx believes that Asia continues to be a magnet for export activity and a manufacturing center, and when you consider that at least half of the world's trade flow will come from Asia over the next 10 years, I believe there are exciting opportunities for FedEx in Indonesia and ASEAN, particularly in entering AFTA," Chua said.

As foreign executives have put it, to boost Indonesia's competitiveness in the transportation and logistics industries, some improvements have to be made. These include upgrading the country's road infrastructure, developing a fully integrated electronic customs link for all types of imports, regardless of weight or value, ending restrictive monopolies or duopolies, and ensuring greater honesty and integrity in business in general.