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.