Indonesian logistics cost to go through the roof, putting pressure on economy

Spiraling out of control.

The Indonesian government is expected to increase the price of subsidized fuel in early September, creating great concern among all citizens.  Subsidized fuel is used by almost all industries, including maritime, and thus there is worry that together with the current inflation, the price increase will cause logistics costs to soar. From previously priced at IDR 5,000 (US$0.34), it is expected to increase to IDR 7,000 (US$0.47) per liter.

Long queues at petrol station.

Adam Nugraha, owner of a cargo business in Sidoarjo-Indonesia, admitted he is worried.  With the current inflation and now news that the government is going to increase the price of subsidized fuel, he said prices of basic commodities and necessities are going to rise and there will be demands for salary increase from his workers.  If it comes to that, Adam said he will have to increase the cost of his cargo services, otherwise he will not survive

A warehouse at Sidoarjo.

Rusdi, a refined sugar importer, is convinced logistics cost has already hiked in anticipation of the price increase.  “The evidence is clear, the fee of the truck I rent to transport my goods has gone up. It’s almost 10 percent. When the price increase of subsidized fuel is officially announced, I expect there will be another round of cost hike,” he said irritably.

Imported goods are stored in this warehouse at Sidoarjo.

Kharisma Putra, a small-scale importer who brings in K-Pop merchandise, is also worried.  To him, the price increase can mean life and death for his business.  Each time, he imports 100 kg for one shipment.

“K-Pop merchandise importers face a lot of competition and the profit margin is very small.  Because of inflation, my profit has reduced drastically and sometimes, I can only break even.  Now, with the expected price increase of subsidized fuel, I will make a loss.  Also, in this business, if I increase my price just a bit, I risk losing many customers,” he said.

Adam, Rusdi and Putra all hoped the government can provide some form of help to them and other people in the same predicament.  “This is a very difficult situation for the community.  We ask President Joko Widodo and his ministers to be very careful before making a decision. Don’t let inflation and subsidized fuel price increase drive logistics cost up further,” Adam said.

Container trucks and cargo lorries waiting to go into port.

Siswanto Rudi, director of the National Maritime Institute (NAMARIN), believed the price increase is inevitable, due to global soaring oil prices but there will not be an immediate impact on Indonesia.  He said the current high-cost situation is caused by actions of speculators, unethical businesses, and others who are trying to make as much money as possible during troubled times.

“In the logistics sector, the purchase of fuel is governed by a contract signed between buyers and sellers.  The contract, usually signed at the beginning of the year, included a fixed price which is below the market rate because it is considered a wholesale purchase.  So, it is not possible to say because of the increase of subsidized fuel price, everything else will increase immediately,” Siswanto said.

“However, if there is another round of cost increase after the subsidized fuel price increase, then the government must immediately take a stand, be firm and crack down on all bad actors.  The ministers of finance, trade and transportation must have a policy to stabilize logistics cost.”

Container trucks at the port.

Indonesian President Joko Widodo on various occasions in the last few days has issued statements regarding plans to increase subsidized fuel prices in early September. The Cabinet also revealed the cost of existing fuel subsidies is impacting the State Revenue and Expenditure Budget (APBN).

Top photo credit: iStock/ gorodenkoff

All other photos credit: Ibnu Wibowo

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