Indonesia's logistics performance index : the driver behind a reform agenda

Technical Note March 2011 Private Sector Development Indonesia's Logistics Performance Index: 60107 The Driver behind a Reform Agenda What is the Logistics Figure 1. LPI 2010 score and ranking Figure 2. LPI's 2007 and 2010 score Performance Index (LPI)? for Indonesia and ASEAN+6 coun- indicators for Indonesia tries The World Bank's LPI measures LPI Overall Score -0.28 different indicators of logistics Singapore (2) 4.09 performance across 155 Japan (7) 3.97 E ciency of Australia (18) 3.84 Clearance Process -0.30 countries. The score relies on a New Zealand (21) 3.65 survey of logistics professionals South Korea (23) 3.64 Quality of -0.29 Infrastructure working in multinational freight- China (27) 3.49 Malaysia (29) forwarders and major express- Thailand (35) 3.44 3.29 Ease of arranging shipments -0.23 carrier companies. The index is Philippines (44) 3.14 Quality of logistics calculated from six indicators: India (47) 3.12 services -0.43 -0.43 Vietnam (53) (1) Efficiency of the clearance Indonesia (75) 2.96 Track and Trace 2.76 process, in relation to the speed, Lao PDR (118) 2.46 Consignments --0.53 simplicity and predictability of Cambodia (129) 2.37 Timeliness of shipments within schedule or +0.18 formalities by border control Myanmar (133) 2.33 expected delivery time agencies; (2) Quality of trade 0 1 2 3 4 5 0 1 2 3 4 and transport infrastructure; (3) 2007 2009 Ease of arranging competitively Source: LPI 2007 dan LPI, Bank Dunia Source: LPI 2007 dan LPI, Bank Dunia priced shipments, which indicates the availability of affordable international transport The main role of the LPI is to countries (Figure 1). Less than one connections in a country; (4) provide a broad indication of the third (26%) of this fall is due to the Competence and quality of largest gaps compared with other relative better performance of logistics services (e.g. transport countries, to create awareness other countries: overall logistics operators, customs brokers); of the logistics situation, to performance has improved (5) Ability to track and trace stimulate public-private dialogue around the world, with relative consignments when shipping and to trigger momentum for scores being higher in 2010 to a specific country; and (6) reform. The LPI can also be used than in 2007. The main reason Timeliness which indicates the to flag potential policy areas for for the decline is Indonesia's frequency with which shipments intervention and monitor the poorer performance in 5 of the reach the consignee within the progress of reform, although 6 indicators (Figure 2). Other scheduled or expected delivery more country specific metrics are countries with lower income time, thus measuring the needed for a detailed analysis. per capita levels show a better reliability and predictability of LPI score, such as Vietnam and the supply chain. After a World lndonesia's LPI results for 2007 Philippines, reflecting stronger Bank analysis of the supply chain and 2010 efforts to introduce reforms and experiences in many countries, improve logistics performance in these six indicators have proven Indonesia shows a significant and those countries. to best describe the logistics disturbing drop on its overall LPI conditions of a country. ranking from 43rd place in 2007 to 75th place in 2010 and remains in the bottom third of the ASEAN+6 Private Sector Development Technical Note The reasons behind the bad destination within the scheduled the overall system lacks news or expected delivery. This slight coordination between the improvement shows how freight different authorities and While most of the indicators forwarders have adapted to the private sector providers. The experienced worse scores, deterioration in the logistics limited performance data the tracking and tracing of condition of the country, thus available on the LPI 2010 consignments indicator suffered improving their ability to more confirm the delays: physical the largest drop in the set. This accurately estimate the time of inspections are performed on indicator reflects the availability arrival at destination. 11% of shipments where the of a technology-intensive tracking average of the best performers and tracing service expected Indonesia's slippage in the in the region is between 2% throughout the clearance process ranking is not indicative of new and 5%, and the average and delivery service. These problems. In addition to the number of government services often require a significant lack of coordination between agencies involved in an private sector investment and government agencies and private interaction is 3.67, where the this is highly dependent on the sector agents, the reasons behind best in the region only deals coordination of government the bad news can be mostly with two agencies. agencies and logistics service explained by the following: providers throughout the supply 2. Low infrastructure quality chain. Indonesia's low score in 1. Inefficiencies in the clearance (Figure 4). There is a these indicators is a reflection process (Figure 3): Despite significant gap, in comparison of the lack of trust-building Indonesia's efforts on with countries in the region, partnerships, low quality service reducing red tape in ports in all transport-related providers and government by establishing a National infrastructure, i.e. sea, agencies still struggling to Single Window and 24/7 airports, road and rail links. improve their levels of efficiency. services, the system is not yet The difference between fully implemented, causing a Indonesia's score and the Despite the lack of coordination duplication of some activities region's is substantially between private service and higher charges. Hard narrower in the warehousing providers and government copies of documents are still and information and agencies, there has still been a used in the process, while communication technologies small improvement (0.18) in the information on the status of (ICT) sectors, which is indicator related to the timeliness cargos is neither transparent consistent with the large level of shipments in reaching their nor publicly available, and of private sector investment Figure 3. Indonesia's time to import and clearance time is Figure 4. The lowest quality of infrastructure in Indonesia 1 to 2 days longer than the average for East Asia & Pacific is heavily experienced in road, rail, airport and seaport region and lower middle income countries facilities compared to the ASEAN+6 average 7 6.12 Indonesia Ports 6 East Asia & Paci c 5.35 5.12 4.93 Lower middle income 5 Airports 4 3.36 3.28 Road 3 2.14 1.84 2 1.55 Rail 1 Warehousing/ Transloading 0 With physical inspection Without physical inspection Time to import Telecom & IT 0.0 1.0 2.0 3.0 4.0 ASEAN+6 Indonesia Source: LPI 2007 dan LPI, Bank Dunia Source: LPI 2007 dan LPI, Bank Dunia  Private Sector Development Technical Note and participation in these investors in this area, implementation of the National two sectors. Given Indonesia's thereby reducing costs for Single Window, these have not reliance on inter-island entrepreneurs. yet been translated into positive maritime connections, the outcomes for respondents. level of fees and charges for Through the analysis of the LPI Therefore, while the wind of maritime ports is particularly index it is important to bear in mind change is starting to blow in the worrying: these are perceived that the LPI combines quantitative right direction, its strength has yet as being about 50% higher and qualitative assessments with to be felt: implementation gaps than those found in the rest dual international and domestic such as the lack of coordination of the region. perspectives on logistics and the poor prioritization of performance. The first part of urgent actions are preventing the 3. Low quality and competence the survey relies on qualitative wind of change from becoming of service providers. Logistics indicators based on private sector stronger. service providers have experts' performance ratings suffered the most from the of their own trading partners, The good news burdensome process of goods while the second part contains Indonesia has already started clearance and deficiencies both qualitative and quantitative to recognize and rearrange in infrastructure. Although assessments of the domestic its policies to address the higher levels of private logistics environment, processes implementation gaps: the sector investment have and supply chains, provided by participation of private sector gone into the warehousing international professionals based representatives in discussions and telecommunications in the country evaluated. to propose for a new course of sector further reducing costs action has been active in drafting for trading businesses, the Since the LPI is a survey based on the logistics blueprint, and the sectors related to logistics the opinions and experience of recurrent consultation about the service provision (e.g. trucking the most knowledgeable logistics incipient single window has led to and shipping industries, players in the supply chains, better prioritization of the actions customs brokers and freight the index reflects the general that need the most attention. As forwarders) are the direct discomfort of users. Experience in the past, the GoI has prepared a casualties of the under- shows that private sector opinions myriad of master plans for a serious investment in infrastructure matter: their views directly affect upgrade of infrastructure, as well in ports, roads and railways. In the choice of shipping routes and as a logistics and multi-modal addition, the time-consuming gateways, as well as influence blueprint. But unlike the past, the and demanding paperwork many firms' decisions about importance of coordinated action procedures to move cargo production location, choice of among ministries and agencies across the archipelago causes suppliers, and selection of target has been recognized. The urgency the level of fees and charges markets. This also confirms that of the situation, partly prompted for these services to be among qualitative measures of constraints by the LPI results, has led to a new the highest in the region, can capture meaningful variations comprehensive reform agenda hampering the ability of across countries, reflecting an that aims to improve Indonesia's Indonesian businesses to take assessment of actual conditions domestic and international advantage of globalization on the ground and their connectivity. The initiative plans and limiting the growth of importance to firms. to synchronize the different small and medium enterprises. plans and to improve the stage A deeper understanding While some efforts to reduce major of inter-ministerial consensus to of the challenges facing obstacles have been launched, implement activities. High-level these industries, including such as the approval of the GoI and private sector monitoring competition policy, tariff Shipping Law in 2008, the Postal efforts to follow up on the barriers and a review of the Law in 2009, the introduction implementation of these actions, regulatory framework, is of 24/7 seaport operations, the as with the LPI, will help to keep needed to attract greater promotion of dry ports to reduce the wind of change blowing in involvement from private congestion and the ongoing Indonesia. Private Sector Development Technical Note For further information, contact: FPSD Unit Please visit our website: Natalia Cubillos-Salcedo World Bank Office Jakarta http://www.worldbank.org/id/fpd ncubillos@worldbank.org Jakarta Stock Exchange Building Tower 2, 12th floor Technical Notes can be downloaded from the website. Ph. 62 21 52993000 Jl. Sudirman Kav 52-53 Fax 62 21 52993111 Jakarta 12190, Indonesia