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DP World seeks growth in Indonesia an economy hampered by high logistics cost

Photo: DP World Glen Hilton, CEO & Managing Director, Asia Pacific for DP World
Glen Hilton, CEO & Managing Director, Asia Pacific for DP World
DP World sees Indonesia as an important growth market in Southeast Asia with a burgeoning economy, however, it faces challenges such as the high cost of logistics.

Dubai-headquartered DP World is building its presence in the Indonesian market through a 2021 alliance with the Indonesian Investment Authority (INA) which is starting to bear fruit.

Glen Hilton, CEO & Managing Director, Asia Pacific for DP World, explains, “The partnership will improve the operation of ports, reduce logistics costs, and advance national competitiveness. It will also improve infrastructure quality and connectivity as well as stimulate national economic development.”

Indonesia boasts some impressive statistics and is the world’s fourth most populous nation with 277 million people, national economic growth of 5.31% in 2022, and among the top 20 countries in the world in terms of container traffic.

“With burgeoning domestic consumption and production, we are confident in the country’s potential for continued growth, particularly for supply chain businesses to serve both domestic and international markets,” Hilton tells Seatrade Maritime News.

Through the alliance with INA, DP World is exploring a wide range of opportunities in Indonesia hinterland investments, inland terminals, cargo parks, feeder network systems, landside transport, and industrial zones. It’s projected that the partnership will, over the longer-term, reach an economic value of up to $7.5 billion.

As part of the partnership on the terminal side of the business DP World announced in June it would be investing in the Belawan, the largest port in Sumatra. DP World will be taking over management and operations of Belawan New Container Terminal (BNCT) expanding capacity from 600,000 teu at present to 1.4 million teu.

Belawan New Container Terminal - Partnership Signing (June 2023).jpg

“Investing in Belawan provides DP World an opportunity to expand its footprint in the Indonesian market and grow its network of ports and terminals in the region. Through our partnership with INA and Indonesian government-owned port operator Pelindo, we intend to further strengthen the port’s position as a major hub for trade and logistics in Indonesia and Southeast Asia,” Hilton says.

The port links directly to the Malacca Straits, one of the world’s busiest sealanes.

The alliance with INA includes a collaboration Indonesian Ports Corporations (Pelindo) though which DP World is seeking to leverage its partnership with Caisse de dépôt et placement du Québec (CDPQ).

In 2021 the partnership signed a long-term agreement worth US$1.2 billion with Indonesia’s Maspion Group, to construct an international container port and industrial logistics park in Gresik, East Java. A joint venture, DP World Maspion East Java, was formed to become the sole operator of 3 million teu container port. It will also include an integrated industrial and logistics park adjacent to the port with an initial area of 110 hectares.

While DP World is upbeat on the opportunities Indonesia offers Hilton also sees challenges in terms of the country’s logistics networks linking some 17,000 islands. Domestic cargo transportation is done by trucking or barging making supply chains complex and prone to inefficiencies.

One of the impacts of this is a high cost of logistics with expenditure some 23.5% of GDP according to PWC Indonesia. This compares to a logistics cost of 15% and 13% of GDP in neighbouring Thailand and Malaysia, respectively.

“To boost competitiveness of Indonesia’s ports, greater investment is needed to increase operational performance, improve road connectivity and enable smoother intermodal transportation. In particular, the government should step in as a catalyst to drive stronger public-private collaboration, by offering incentives to encourage private investor interest and provide better visibility for port operators who are looking to invest in long-term growth,” Hilton says.