Warehousing and logistics: Tough challenges, good prospects

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The logistics business has a promising outlook, with Indonesia being a potential market thanks to the growing trend among companies to outsource the dispatch and sorting of their goods to logistics providers.

“Logistics services have grown the fastest. In Asia Pacific, our sales volume in the first half of 2006 rose by 178.6 percent from the same period last year. This is outstanding as other types of services have grown by only one digit. In terms of income, logistics services also serve as the biggest contributor to DHL (9.9 billion euro), followed by DHL Express (9.2 billion euro),” said Tim Wong, managing director of DHL Global Forwarding Indonesia.

The promising prospects of the logistics business in Indonesia has prompted several global logistics providers to invest in the local market.

DHL, for example, invested US$3 million to build a logistics facility measuring some 6,000 square meters in the Soewarna Business Park, Cengkareng, Jakarta, in October last year.

PT Schenker Petrolog Utama has also built an integrated logistics facility in the same compound at a cost of some $1.5 million. The compound houses offices, temporary storehouses and warehouses.

Headquartered in Germany, Schenker AG, the parent company of Schenker, is one of the world’s major players in the logistics and services business. With a global sales volume amounting to $8 billion, Schenker Group employs over 36,000 people in 1,000 locations in over 100 countries. In Indonesia alone, Schenker employs over 250 people in its branch offices.

The distribution and logistics service business started in the 1990s and blossomed several years later due to increasing demand. Small domestic producing firms and foreign manufacturing companies taken advantage of the distribution and logistics business for the dispatch of their products to their destinations in a rapid and safe way, with quality being maintained.

Most logistics companies started out by providing express dispatch services and then extended to logistics services. Interestingly, while previously logistics companies only handled the movement of goods in their physical condition, later they also handled warehousing. This was only natural because the market share of this business reaches billions of U.S. dollars in value, plus there is constant demand for logistics services.

Domestic and foreign logistics companies now vie with one another in offering their services, all with their pluses and minuses. These international companies include DHL, TNT, UPS and FedEx.

On average, they have provided comprehensive warehousing and logistics services in Indonesia since the 1970s. Meanwhile, domestic companies involved in this competition include PT Pos Indonesia and PT Titipan Kilat (TIKI).

TNT, which started its express business in Indonesia in 1979 under the name of PT Skypak International, opened in 1995 its Logistics Division under the name of PT TNT Logistik Indonesia. This company employs some 650 people and owns 17 warehousing facilities measuring a total of 110,000 square meters. It provides special information system services and has 1,200 trucks on duty every week.

As for DHL, this company concentrates on providing express and logistics solutions with a network covering over 220 countries and regions the world over. With its head office in Brussels, Belgium, DHL, which is fully owned by Deutsche Post World Net, began its business in Indonesia in 1973.

Today it also deals in the logistics service business in Indonesia by operating Express Logistics Centers. DHL has also expanded its reach by building Strategic Parts Centers in countries with strong potential for growth, including Indonesia.

At present, DHL Indonesia, which employs 683 people and registers 1.3 million dispatches per year, controls close to 50 percent of the express and logistics dispatch business in Indonesia.

Although it is not a market leader in Indonesia, UPS should not be underrated. Globally, this courier service company ranks 32nd in the world and enjoys a brand value of $9.92 billion. The business wings of this company reach over 450 markets the world over and the company is divided into two main business divisions: UPS Logistics and UPS Capital.

Through UPS Logistics, UPS, whose corporate color is brown, offers complete services as it handles all the needs of customers for fulfillment of orders, management of inventory and assistance in their supply chain. “Logistics is a way to feed our core network,” said the company’s CEI, Michael Eskew.

Meanwhile, local companies are also engaged in the logistics business with integrated solutions. Take PT Pos Indonesia (Posindo), for example. This company, which focuses on domestic logistics services, has introduced a variety of breakthroughs in the provision of postal services, particularly with respect to logistics services.

One of these breakthroughs is its Logistics Total Service. Under this service scheme, this state-owned postal company no longer only sends a consignment to a particular destination but also undertakes warehousing, assembling, packaging and tracking the movement of the consignment.

At present, Posindo provides total logistics services in a number of areas in Jabotabek and is developing the provision of these services in a number of other cities like Surabaya, Bandung and Medan. Its clients are domestic companies dealing in consumer goods, electronics, book publishing, office equipment, vehicle spare parts, computers and telecommunications products, pharmaceutical products and even agribusiness products.

Posindo benefits from about 4,000 buildings and facilities under its control all over Indonesia to expedite this total logistics service. Its service approaches are also customized. Consumers can also insure their products while in Posindo’s care.

Meanwhile, TIKI, a courier company established in 1970, also deals in logistics and distribution and serves as a cargo agent. This company, whose shares are owned by Posindo, has set up a transportation service agency to deal with logistics and cargo services: TIKI Indonesia (Tikindo).

Indeed, currently, domestic logistics service providers are still losing out to foreign companies, and to local firms affiliated with global companies mainly due to a lack of capital. The logistic service business requires huge capital and investment.

In addition, logistics services are inseparable from their supporting facilities, such as forwarding companies, which serve as architects in the regulation of dispatches through various transportation modes: overland, sea, air and rail.

In addition, what is of no less significance is that mastery of information technology, which continues to develop rapidly, is a must unless the players want to be left behind. A company, for example, spends between Rp 2 and Rp 3 billion a year on information technology. “Information mastery is the backbone and at the same time the key to the modern integrated logistics business,” said Rocky J. Pesik, the owner of PT Caraka Yasa, a logistics and distribution company. (Reyhan Fabiano)

The Jakarta Post
May 29, 2007