Struggling to maintain growth

Struggling to maintain growth

Rudijanto, Contributor, Jakarta

Jeremias Masto, Sea-Freight Manager of Indonesia-based Ritra
Logistics (Ritra), tried to look optimistic when asked about the
current situation in the logistics business in Indonesia, but he
also showed anxiety when he talked about the declining number of
foreign buyers of Indonesian goods.

"The declining trend has happened since several years ago when
more of our overseas clients started to shift their imports from
Indonesia to China, Pakistan and even Bangladesh," Masto said.

While the figures from the Central Statistics Agency show that
Indonesian exports in the first semester of this year recorded an
increase of 27.5 percent compared to the same period in 2005,
exports of some commodities, particularly rattan and wooden
furniture products, is expected to drop due to tough competition
from China and Vietnam, as well as because of raw material
problems.

Last month, the Indonesia Furniture Industry & Handicraft
Association (ASMINDO) said that rattan furniture export from the
country's rattan furniture center Cirebon is expected to drop by
50 percent. Production in another major furniture center, Jepara,
has also dropped to 240-300 containers per month from 400-500
containers per month.

Traditionally offering services to foreign buyers of
Indonesian products, including furniture buyers, Ritra's business
was previously dependent on the amount of orders from foreign
buyers to Indonesian exporters. That is why when more overseas
buyers started to shift their attention on other countries, Ritra
was forced to reorient its business.

Established in 1974, Ritra, legally known as PT Ritra Cargo
Indonesia, has experienced the ups and downs of the Indonesian
economy. The company has developed vast domestic networks with
offices in major cities as well as international networks of
agents and offices, particularly in the Netherlands.

With over 300 employees nationwide, Ritra is a medium-sized
domestic players in the Indonesian logistics market. The company
has survived even amid increasingly tough competition from bigger
companies, including international giants such as DHL and TNT.

While Ritra is still struggling to survive the tough
competition from these giants, it has to face the bitter reality,
namely declining orders from its traditional and loyal overseas
clients. Merely hoping for more overseas orders is certainly not
a good strategy in changing times.

"We are no longer too export-oriented now. Since three years
ago, we have started to explore the potential of servicing import
activities and project-based services. There are many
opportunities in these two areas, for instance, the
rehabilitation and reconstruction projects in Aceh that certainly
need logistics support," says Masto.

Ritra has certainly been impacted by declining interest of
foreign buyers of Indonesian goods and by increasingly tough
competition from other players. But it's not only Ritra that has
to work hard to boost its shipments; even giant DHL has to exert
more effort to increase the number of shipments.

In a message to their employees, DHL's technical advisor Alan
Cassels said that even though the company had met its revenue
targets it was largely due to the fuel surcharge applied to
customers and foreign exchange factors.

While the fuel price increase has troubled many manufacturers
and posed a serious threat to the world's economy, DHL has
somehow benefited from the fuel hike by applying surcharge on
clients.

Instead of increasing its service fee to customers, DHL has
applied certain formulas in which the fee is added by certain
percentage of index. Thus, the total fee paid by customers will
be determined by the ups and downs of the index.

"For instance, if the fee for a shipment to client is US$10
and the index is 11 percent, then the customers have to pay
additional 11 percent times US$10. This is better than applying
increase in tariff because if the index goes down, the customers
will also pay less," says DHL's National Marketing Manager Edi
Prayitno.

But DHL certainly has to work hard to increase both outbound
as well as domestic shipments in order to maintain its revenue
growth. Providing total logistic needs to customers, DHL has been
aggressively showing innovations to reap more revenue.

Aware of the business potential in tourism industry in Bali,
DHL has worked hard to develop this market. In the company's
calculation, a conference attended by around 60-100 people will
bring US$8,000 to US$10,000 to the courier industry.

That is why the company has intensified contacts with Bali
hotel managements by conducting several approaches, including a
seminar themed "DHL Solutions for Hotel and Tourism Industry" in
March 2005.

Another international player, TNT, has also made a move to
boost its performance. The company recently launched its Domestic
Express service. Aimed at enabling customers to send and receive
domestic deliveries with a one day transit time, or next day
delivery, this new product service is expected to strengthen the
company's position in the Indonesian market.

Just like other players, TNT has applied a Fuel Surcharge
Index (FSI) to all of its customers due to the surge in fuel
prices. By applying FSI, the company said it tried to provide
clarity and show transparency in fuel price fluctuations.

"Thus, customers could make savings when the fuel price is
decreasing. TNT is trying to minimize the effect of fuel prices
by giving guidance and training to our fleet on the importance of
fuel efficiency," says TNT's new country manager Peter Langley.

Fuel surcharges can be a blessing in disguise for some
companies. As fuel prices keep on their violent upward surge,
economists agree that the threat of world's crisis is looming on
the horizon. However, as of now, logistic companies still express
optimism on the prospect of doing business in Indonesia.

"The economy is doing better and the business is still
growing. I am quite optimistic, although Indonesia has taken
longer to recover, but now the country is in a good situation. In
addition, it has very rich natural resources. Investors, for
instance from China, are still coming in," says Alan.

Peter of TNT also expressed similar optimism, saying that this
was not the first time the oil price has increased. In addition,
he considers Indonesia with its 230 million population still has
a lot of potential.

"Therefore, TNT is still very optimistic and looking to grow
market share in Indonesia by offering added value and innovative
services to Express and Logistics customers," says Peter.

Just like the giants, Ritra too looks quite optimistic in
running its business in the country even amid tough competition
and a challenging business environment. Masto stressed his
company has had to keep on innovating to face those challenges.

However, the uncontrolled movement of fuel prices certainly
threatens the Indonesian economy as the government has to pay
more subsidies for fuel. Any move to raise domestic fuel prices
to ease the pressure on the budget will not go without any risk
to social and political and instability.

The government is certainly in a dilemma. Without increasing
domestic fuel prices, economists say the amount of subsidy that
the government has to pay will reach Rp140 trillion in the 2005
budgetary year.

In addition, economists also warned that the continuous surge
in oil prices will put more pressure on the country's currency as
it has started to be strongly linked with the movement of the
international oil price.

In spite of the threats currently posed by violent movements
of oil prices, Indonesia is too important a country to be simply
ignored by major logistic companies. The country's demography,
its natural resources, and its large population have made the
country too attractive to be left alone.