The Role of Archipelagic Countries in ASEAN Logistics Connectivity

Togar M. Simatupang

School of Business and Management

Bandung Institute of Technology

Presented at the international conference on ASEAN Logistics Connectivity: Challenge and Opportunity on 30-31 July 2013 held by the Transportation Institute of Chulalongkorn University at the Patumwan

Princess Hotel, Bangkok, Thailand

Overview

• Introduction

• ASEAN Integration of Logistics Services

• Archipelagic ASEAN

• Research Approach

• Findings

• Discussion

• Conclusions

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Introduction

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Introduction

• ASEAN trade value reached nearly US$ 1,500 billion. The market size is growing continuously at the rate of 5-6% per year.

• The deeper ASEAN logistics integration is developed, the greater trade activities among ASEAN countries grow.

• Trade and logistics facilitation play an important role in reducing cost and improving business competitiveness.

• The ASEAN logistics connectivity might be a hurdle that inhibits the members to realize the potentials of ASEAN economic community.

• This paper aims at disclosing the challenges in logistically connecting archipelagic countries with other members and proposing action plans to overcome these challenges.

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ASEAN Integration of Logistics Services

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Logistics Integration Roadmap

• Objective: Integrate ASEAN into one seamless market for goods, services and investment and encourage the establishment of more production networks through:– Liberalization and facilitation measures in the area of

logistics services

– Creation of an integrated ASEAN logistics environment

• Scope: – To cover freight logistics and transport and trade related

activities

• Status: – For signing at the 39th AEM on 24 August 2007 in Manila

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Key Focus for Integration

1. Encouraging Progressive Liberalization in Logistics and Transport Services

2. Enhancing Trade and Transport Logistics Facilitation

3. Expanding Capability of ASEAN logistics service providers

4. Building ASEAN Logistics Human Capacities

5. Enhancing Multimodal Transport Infrastructure and Investment

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Liberalization of Logistics Services in ASEAN in 2013

Transport Services International Maritime Transport

International Rail Freight Transport

International Road Freight Transport

International Air Freight Transport

Courier services

Non Transport Services Maritime Cargo handling services

Storage & warehousing services

Freight transport agency services

Freight inspection services

Packaging services

Customs clearance

2008

Subject to laws / regulations

49%

Foreign ownership

2013

70%Foreign

ownership

2011

51%Foreign

ownership

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ASEAN Connectivity

• It is estimated that a one percent increase in infrastructure spending in Asia can increase private consumption by one to two per cent of gross domestic product (GDP).

• According to the Asean Logistics Study 2008, the logistics cost of intra-Asean container movements is estimated to be US$2.25 billion a year, with about 55 per cent representing out-of-pocket costs (transport, terminal and access costs) and 45 per cent time costs.

• Implementing a comprehensive logistics infrastructure could reduce average logistics cost by 4 per cent and logistics time by 9 per cent. This is substantial amounting to roughly US$140 million in logistics cost reductions in a year.

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Archipelagic Southeast Asia (aSEA)

• Archipelagic Southeast Asia (aSEA) covers five Association of Southeast Asian Nations (ASEAN) member countries—Brunei Darussalam, Indonesia, Malaysia, the Philippines, and Singapore—together with Papua New Guinea (PNG) and Timor-Leste.

• The aSEA region includes the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA) and the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT).

• The key to understanding the region lies in an appreciation of its archipelagic nature. aSEA includes more than 24,000 islands spread across 5,200 km from east to west and 3,400 km from north to south. It has a population of over 350 million, 225 million of whom live in Indonesia with a further 87 million living in the Philippines (Green, 2008).

Source: http://www.adb.org/publications/maritime-connectivity-archipelagic-southeast-asia-overview

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Archipelagic Areas

• Launched in 1993 and 1994, respectively, the IMT-GT (the Indonesia-Malaysia-Thailand Growth Triangle) and BIMP-EAGA (the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area) cooperation programs cover primarily archipelagic areas at the subnational level.

• The IMT-GT includes 32 provinces and states—14 provinces in southern Thailand, 8 northern states of Peninsular Malaysia, and 10 provinces covering the entire island of Sumatra in Indonesia.

• BIMP-EAGA includes the sultanate of Brunei Darussalam; the provinces of Kalimantan, Sulawesi, Maluku, and West Papua in Indonesia; the states of Sabah and Sarawak and the federal territory of Labuan in Malaysia; and provinces in Mindanao region and Palawan in the Philippines.

• Both programs were established to help promote socioeconomic development in less developed and disadvantaged areas by increasing trade, tourism, and investment—backed by an underlying strategy of mobilizing the private sector as engine of growth.

• The IMT-GT supports development of five economic corridors through sector strategies in transport and energy; trade and investment; agriculture; halal products and services; tourism; and human resource development.

• BIMP-EAGA pursues a four-pronged strategy enhancing connectivity, establishing BIMP-EAGA as food basket for ASEAN (and the rest of Asia), promoting BIMP-EAGA as a premier regional tourism destination, and ensuring sustainable management of the environment.

Source: http://aric.adb.org/rci_digest/rci_digest.html12

Archipelagic ASEAN

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ASEAN Archipelagic Logistics

“More than 80 per cent of freight is transported through the sea in archipelagic ASEAN. With better connectivity, costs and distance can shrink remarkably within ASEAN and beyond”.Pushpanathan (2011)

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15Source: http://asiafoundation.org/in-asia/2010/09/22/philippines-spearheads-asean-effort-to-establish-regional-ro-ro-sea-transport-network/

ASEAN-Japan-India Logistics

Network

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Source: http://www.mofa.go.jp/policy/oda/white/2011/html/honbun/b1/s3_2.html

Scheme of National Logistics System

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Scheme of Pendulum Nusantara

Source: Lino, R.J. (2012), "Indonesia Maritime Infrastructure", World Export Development Forum 2012. 18

Research Approach

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Conceptual Model

Logistics Policy Analysis (Force Field Analysis)

Desired State

Current State

Driving Forces

Restraining Forces

Regulatory Responses

National and International

Logistics PoliciesPolicy Making

Attributes of Maturity

Definition CharacteristicsLiberalization

Logistics IntegrationLogistics Performance

Intervention

NegotiationInformingProgression

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Understand the current situation and future plan about the role of archipelagic countries in ASEAN logistics

connectivity by the questionnaire

Viewpoint of ASEAN logistics

connectivity

Viewpoint of driving and

retraining forces

1. Role of Indonesia as an archipelagic country

towards desired change of ASEAN logistics

connectivity:

Create an archipelagic ASEAN network

within ASEAN that can offer cost effective,

reliable and, safer logistics connectivity

that fosters a mutual free flows of goods

and trades.

Members will develop and be engaged in

archipelagic ASEAN network.

2. Current situation of driving forces for ASEAN

logistics connectivity:

Liberalization and facilitation measures in the

area of logistics services

Creation of an integrated ASEAN logistics

environment : infrastructure, institutional

framework, trade flows, logistics services

3. Current situation of restraining forces for ASEAN

logistics connectivity:

Liberalization and facilitation measures in the

area of logistics services

Creation of an integrated ASEAN logistics

environment

4. Common possibility of removal actions in the future

Plan of logistics services liberalization

Plan of ASEAN logistics integration development

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ASEAN Logistics System

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Respondents

• Government agencies (4 respondents)– Directorate General of Customs and Excise– Ministry of Trade– Ministry of Transportation– Ministry of Public Works

• Third party logistics (3 respondents)– Multinational logistics service provider– National logistics service provider– Indonesia Port Corporation

• Importer and exporter (2 respondents)• Logistics experts (3 respondents)

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AnalysisObjectives: Liberalization and facilitation

measures in the area of logistics

services

Creation of an integrated ASEAN logistics environment

Driving Forces:

Restraining Forces:

Removal or Reinforcement actions:

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Findings

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Desired Change

• Create an archipelagic ASEAN network within ASEAN that can offer cost effective, reliable and, safer logistics connectivity that fosters a mutual free flows of goods and trades.

• Members will develop and be engaged in archipelagic ASEAN network.

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Supportive Factors

Strong and growing domestic demand and more opportunities to establish new markets

Opportunity to invest in business and infrastructure

Abundance of fertile land and natural

resources

Master plans to guide development and

growth

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Restricting Factors

Weak institutions, bureaucratic

inefficiencies, and lack of key government

leadership

Conflicting interest between regional and central government

Lack of sound infrastructure to support growth

Unstable logistics of strategic commodities

Endemic corruption

Under developed logistics capacity: low-best practice and low-

skilled workforce

High cost of capital and various currencies among countries

Lack of understanding of ASEAN connectivity

in narrowing development gaps

Lack of institutions with strong capital structure

to finance planned projects

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Removal Actions

Inclusive business participation

Enhancing logistics capacity

Develop common logistics

infrastructure

Harmonization of regulation

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Conclusions

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Conclusions

• Logistics connectivity provides both opportunities and challenges to ASEAN members.

• Although Indonesia has strategic position for ASEAN, but lack of coordination across business actors and between government agencies.

• The biggest obstacle is how leadership and governance can be developed to improve both soft and hard infrastructures.

• A key finding show the concept of archipelagic logistics chain needs to linking logistics to economic and social development that contribute to a sustainable economic growth.

• The recommendation is expected to narrow development gaps and encourage policy coordination in realizing ASEAN logistics connectivity including actions to develop common logistics infrastructure, inclusive business participation, increasing logistics capacity, and harmonization of regulation.

• Further investment by ASEAN members is needed especially in infrastructure to realize the potential benefits of logistics connectivity to regional and global markets.

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Thank You

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