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.