Integrated Port Network: Good Concept, But How to Make It Work

State port operator PT Pelindo II/IPC has just initiated a concept of maritime trilogy (integrated port network) in which it unites ports, shipping lines, and industries into one line, to be integrated. As a concept this is expected to explore maritime potencies within the country (long-term strategy) and to help logistics activities more efficient (short – medium term strategies). But, how to make this concept works and is be applied, thus finally providing benefits?

There are evidences to say that Indonesia transportation and logistics activities are still inefficient, proved by high logistics cost and longer cycle-time in cargo delivery. Logistics cost reaches more than 23.7% of GDP (Gross Domestic Products) and around 40% of goods retail price, according Indonesia Logistics and Forwarders’ Association (ALFI/ILFA).

Compared to neighboring countries, including the ones in ASEAN countries, Indonesia’s logistics cost to GDP is the highest, higher than Vietnam (15%), Thailand (13,2%), Malaysia (13%), and Singapore (8,1%). Globally, though there was an increase in Logistics Performance Index (LPI) that released by the World Bank from 63rd (2017) to 46th (2018), but in ASEAN scope, it was down to fifth, from fourth, after those countries mentioned above.

It is true. The LPI is just a result of perceptions. But, it is also true the logistics cost is very high, while the delivery cycle time is longer.

Why is it so high? Why is it so longer? As Indonesia is an archipelagic country with thousands of islands, transporting logistics becomes arduous due to the myriad of routes and modes of transport being utilized. For instance, if cargoes need to send from Jakarta to Sulawesi, they must go through Tanjung Perak Port (Surabaya), and only then can it be shipped to Sulawesi. Therefore, with land and sea transportation utilized for such a shipment along with loading and unloading fees at the port, the overall cost of shipping goods to another city becomes expensive.

In addition to such longer routes, poor infrastructure remains a long acute problem. In the last decade, utilization of truck carrying cargo/containers between ports and industrial zone has significantly deteriorated due to poor land roads. Trucks utilization, according to Indonesia Truckers Association (Aptrindo), has been down from two/three trips to only one trip a day. It is true the government has shown a strong commitment to improve infrastructure proved by massive development of toll roads, but facts show no significant result for cargo distribution. Further, those infrastructures are for public transportation, no one is dedicated for cargo distribution.

In addition to those problems above, Indonesia logistics will face more challenges from the new business era. Within the business era of 4.0, moving business from manual to digital is a must. Digital-based business transactions have become the new choices for any activities, shopping, purchasing, trade, delivery, until payment transaction.

Digitization has and will become the choice of logistics and supply chain industry. Digitalization has changed the industry to become more resource efficient, faster, and more responsive to customer needs.

Another future challenge for logistics industry is relating to the ASEAN connectivity. ASEAN has a master plan for Asean Connectivity 2025 (MPAC 2025), which envisions the region as an integrated community. MPAC 2025 encompasses three dimensions — physical (physical infrastructure), institutional (regulatory framework) and people-to-people (education, tourism, exchange of knowhow etc.).

Sustainable infrastructure, digital innovation, seamless logistics, regulatory excellence and people mobility are the five strategic areas chosen for a “seamlessly and comprehensively connected and integrated ASEAN community.

Direct calls trigger strong shipping network

Maritime Trilogy a Solution

How to unlock those acute bottlenecks for our future logistics? How do we face the future challenges from the new era of 4.0 industry? And, how can we optimize the potencies from the borderless trade activities since we have signed some international trade framework including ASEAN connectivity?

The maritime trilogy (integrated port network) as initiated PT Pelabuhan Indonesia II (Persero)/IPC can be an answer. Conceptually, the maritime trilogy is very comprehensive since it talks about the three key aspects in the logistics business: ports (logistics infrastructure), shipping (logistics service), and hinterland (industrial/cargo centers).

The maritime trilogy can also act as a very appropriate strategy to overcome those problems and to face the future challenges as it unites and connects the activities and services among key players and stakeholders in logistics activities: shipping lines (logistics service provider), port operators (logistics infrastructure provider), and cargo owners (logistics service user).

The concept prerequisites first, port standardization and connectivity (a port integrates with other ports), meaning that all infrastructures, facilities, system, and services are at the same level. Connectivity among the ports can be optimized if the ports are in the same level. Second, this concept also calls an integration with shipping (a port integrates shipping line). This means that a port should be able to build a shipping strong network (shipping alliance). Third a port should be connected with industry or cargo centers (a port integrates with industry centers).

The maritime trilogy can also be taken as a strategy for a better logistics performance. This means that improvement should be done comprehensively and integrated among the three aspects. The ports should be developed to trigger industry growth and vice versa, industry should be able to produce high volume of cargoes for trade activities, while shipping must be supported by a strong network to easily distribute cargoes to anywhere. On the other hand, since the maritime trilogy also requires integration among the three aspects, having ports with a better connection with hinterland (industrial center) or building ports that can trigger a shipping network is also a part of this concept and approach.

But, How to Make It Work?

What to Do? As the initiator of the concept, IPC has actually started it with some programs in the port, including port modernization, port standardization, port digitalization, and port connectivity. Since 2016 IPC have standardized ports by emphasizing physical development and digitalization, so that services and operations are faster and easier.

Modernization and digitalization have supported IPC to have connectivity among its ports and some global ports while on the same time it has encouraged big vessels to open long-haul direct calls. Tanjung Priok opened long haul direct calls to USA and Europe, served by CMA CGM’s 10,000 TEUS mother vessels, the biggest ship ever calls to Indonesia’s ports. Panjang modernization and digitalization have also encouraged direct calls and attracted global leading shipping lines Maersk, MSC, and CMA CGM to open service to the port.

With direct services, exports or imports will no longer need to transship in Singapore or other neighbor ports, cutting ocean freight up to 40%.

In addition, the port modernization has also built trust from some world’s leading ports. Some ports, including Port of Ningbo, China, have tightened cooperation and connectivity with IPC.

Those factsheets are pre-evidence to say the program at the port as expected by the maritime trilogy concept is effective for connectivity and cost cut. But, the trilogy concept expects further, a more comprehensive. How this port programs can support a stronger shipping network and encourage a better industry growth, better port-industrial center connection, and even further a better shipping and industrial center connection?

No doubt IPC must do some more and more works, but other parties must support it, especially for the works in which IPC cannot control.

IPC has to do some works, including: first, continue doing port modernization and digitalization, both hard and soft infrastructure. Modernization is not only relates to port infrastructure improvement but also the use of modern facilities. Meanwhile, digitalization relates to application of digital services at any aspects. IPC has started some examples of this including the application of auto gate like in IPC TPK Panjang or application of its subsidiary PT EDII’s product of LOGOL at TPK Koja.

 Second complete some programs that are now under construction or the ones that have been planned. Kijing, for example, a new port designed in line with the trilogy since it can trigger the industry growth in West Kalimantan, should be accelerated. The project of CBL inland waterways should also be accelerated as it will support the connectivity between Priok and its main hinterland of industrial zones in West Java that are now contributing the highest volume to Tanjung Priok.

Third, IPC has to intensively do socialization and tighter partnership with both shipping and industries. This can be done through intensive and extensive introduction of its port facilities to both shipping lines and the industries. Some good examples have actually been done by IPC and its subsidiaries. The new terminal of NPCT1 for example has intensively and continuously introduced its modern facilities to more than a thousand Japanese companies in Indonesia, encouraging them to do more investment that create more cargo volume to feed shipping and port.  Panjang Port modernization has supported CMA CGM to deploy vessel with more rooms for reefer containers. This supports a leading fruit producer PT GGP (Great Giant Pineapple) to increase its fruit export quota since CMA CGM guarantees with its fast delivery.

IPC is expected to continue those strategies, steps, and works, thus encouraging industries, shipping lines, and other related business players to run the business under the vision of maritime trilogy.

However, IPC can’t run this vision alone. There are some external aspects that IPC cannot control, but can be afforded through intensive lobbies and extra coordination with shipping lines, industry players, and with the government, of course.

Access toll road connects port with industry centers

The realization of the concept calls for high support from the government in building access between ports and industrial zones. The good news is that the government has committed to build some toll roads connecting the industries center with the ports.

Currently, the Ministry of Public Works and Transmigration has said its commitment to build toll road access with the industrial centers. Connecting toll roads with strategic areas including seaports and industrial areas will be on government’s top priority programs for the next five years. This is expected to encourage and boost local and new economy growth, thus supporting the trade volume and value.

Meanwhile, the shipping lines are expected to build a strong network (alliance). For example, the local shipping lines have to build cooperation with some global shipping lines. Building cooperation with CMA CGM for its direct calls in Tanjung Priok, for example, will give mutual benefits to both. Local shipping lines can get cargo from CMA CGM’s mother vessel, while CMA CGM gets more to feed its mother vessel. Meanwhile, the port operator will also be benefited, getting more and more transshipment cargoes for Tanjung Priok hub port.

If those works can be run smoothly, the dream to reduce logistics costs as expected by IPC President Director Elvyn G Masassya can be realized. Elvyn says that the maritime trilogy will reduce logistics cost by 4.9 percent or down from 23.7% of GDP in 2018 to 18.7 of GDP by 2022. Hopefully!

But, what is clear is that the modernization and digitalization of port, the improvement of access between ports and industrial center will absolutely help fluent flow of goods, trigger industry growth and will finally increase volume of cargoes fed to port and shipping activities. So, why don’t any parties make this concept work?

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