With the internet economy touted to grow at a robust pace in Indonesia, the burgeoning logistics sector is expected to take a giant leap in the years to come.
Currently, the logistics sector is staring at a slew of challenges on account of Indonesia’s inadequate infrastructure facilities coupled with a big income gap in its population.
However, it is these set of challenges that throw up open significant opportunities for companies and investors alike.
Last-mile delivery, for example, is currently a crowded segment in the archipelago, but opportunities are still tremendous, said Sebastian Togelang, founding partner at early-stage venture capital firm Kejora Ventures that has an investment in last-mile delivery service SiCepat.
Togelang was speaking at DealStreetAsia’s Indonesia PE-VC Summit 2020 in Jakarta on January 15.
The internet economy in Indonesia has recorded a growth rate of over 40 per cent year-on-year, according to a report by Google, Singapore’s state investment firm Temasek, and Bain & Co.
A closer look at separate numbers shows that e-commerce penetration in Indonesia currently stands at around 3-4 per cent, while in bigger countries such as China, it is around 24 per cent.
“So, it’s still a factor by at least five, maybe eight times from right now, so… there’s still a lot of opportunities,” he said.
As a country with 17,000 islands, Indonesia indeed faces major complexities in the logistics sector. And, in that regard, a perfect infrastructure is ‘absolutely imperative’ to connect the west side to the east side, said panellists addressing a packed audience during the Summit last week.
“Now, the only option for us is to perform express deliveries on-air fleet,” said Eric Saputra, country head at Ninja Xpress Indonesia. However, with the development of highways, mainly on Java island, better options have emerged for last-mile logistics delivery.
At 24 per cent of Indonesia’s GDP, the country’s logistics costs are the highest in Southeast Asia. In neighbouring countries such as Thailand and Malaysia, the logistics cost-to-GDP ratio is 15 per cent and 13 per cent, respectively.
And, China clocks around 14 per cent of logistics cost to GDP ratio, behind 7 per cent that of the US.
“China is very similar to Indonesia, a lot of growth (is) driven by e-commerce,” said Marc Dragon, managing partner at Reefknot Investments.
Increased e-commerce demand in any nation requires strong infrastructure. Despite higher e-commerce growth when compared to Indonesia, China has not yet been able to solve its mid-mile and first-mile connectivity problem. “So, let’s put the lens back to Indonesia at 20 plus per cent. Can it potentially go down? Absolutely,” Dragon added.
However, high logistics cost in Indonesia may not be equal to the high earnings received by the trucking companies and its drivers, said Tiger Fang, co-founder and CEO at Kargo Technologies.
In the trucking segment, for example, “there is a massive leakage in value…usually, there are multiple layers of brokers in the middle,” he added. Truck drivers usually earn very low wages for long-distance driving and stay away from their families. In this regard, artificial intelligence (AI) and deep tech technology can play a significant role in becoming game-changers.
Today, Indonesia’s sophisticated shippers still work manually with books, Fang said reflecting on its clients. Meanwhile, technology adoption in China is way different from that of Indonesia as companies and drivers can conduct digital operations through their smartphones.
“So, when we think about the comparison, there’s a massive opportunity in doing a platform of scale in a place like Indonesia versus China,” Fang said.
Among the last mile delivery companies that have raised funding in Indonesia are Paxel, which has reportedly raised $10 million, and Sicepat, which has garnered Series A of $50 million in April last year. Meanwhile, one of the earliest players JNT is said to have secured a $100-million backing from undisclosed investors.