JAKARTA Delivering a box of goods to a home in Tobelo, a city in Indonesia's North Maluku Province, is no easy task. From Jakarta, the package is flown in a commercial plane about 2,500km northeast to Ternate, a city on a nearby island. A boat then carries it east to a city called Sofifi. Finally, the package is loaded onto a truck and driven north for about five hours to Tobelo, passing through mountainous terrain. The journey can take up to five days.
Indonesia is an archipelago of more than 13,000 islands spanning 5,000km from east to west. This vast geography, not to mention inadequate roads, railroads and ports, poses a major challenge for the delivery of goods. A 2013 report by the World Bank and others said Indonesia's logistics costs are equivalent to 27% of the nation's gross domestic product, higher than in other countries in the region, such as Singapore (8%), Malaysia (13%) and Thailand (20%). Even in Indonesia's capital, Jakarta, delivering items can be a challenge due to unpredictable traffic jams and floods during the rainy reason.
The challenges have not deterred logistics companies from vying for a piece of the market. Fueling their appetite for expansion is the rise of online shopping. Web-based companies and traditional retailers have flocked to the e-commerce business in recent years, drawn by rapid growth in the number of Internet users. The government aims to boost e-commerce transactions to $130 billion in 2020 from $12 billion in 2014.
Tiki Jalur Nugraha Ekakurir, a major logistics company known as JNE, is transforming itself to cater to e-commerce companies. It is in early talks with several local airlines to develop its own fleet of aircraft, with an aim of boosting deliveries to regional cities. JNE group CEO Abdul Rahim Tahir said he is eyeing small aircraft that can carry 2 to 3 tons of cargo between regional airports.
JNE has built a strong presence on the ground, establishing a network of more than 5,000 offices where customers drop off their packages. Most are run by franchisees, such as owners of traditional mom and pop stores in residential areas. But for air deliveries, Tahir explains that "there are limitations to commercial carriers," because most of them operate narrow-body aircraft with little capacity for cargo. "We are always fighting for space," he said.
JNE is also planning to invest in a 20,000-sq.-meter warehouse near Soekarno-Hatta International Airport, which serves Jakarta. The warehouse will be equipped with an automated sorting system that can process 10,000 packages an hour. JNE hopes the efforts will help boost its daily shipments from the current 400,000 packages to 1 million.
E-COMMERCE PARTNERSHIPS Pos Indonesia, the state-owned post office, has been building partnerships with e-commerce companies to create tailored delivery operations. With online fashion retailer Zalora, it has enabled shoppers to return products through nearly 3,000 Pos Indonesia offices in more than 100 cities. The arrangement makes it easier for customers to return items and helps Pos Indonesia gain more business from Zalora.
Internet companies are also keen on tapping into the courier market. Go-Jek, which lets customers use a smartphone app to hail motorcycle drivers, has a courier service that carries goods for as little as 15,000 rupiah ($1.14). The service is mostly used by individuals, but Tokopedia, the operator of an online shopping site, started to allow some merchants to select Go-Jek as their delivery service in 2015.
Some e-commerce companies are building up their own delivery operations. Lazada, backed by Germany's Rocket Internet, has a sister company that manages 600 motorcycles and vans parked near its distribution points. Drivers are notified automatically when a product leaves the warehouse, enabling same-day deliveries in some areas. Lazada has become one of the most popular e-commerce services in Indonesia.
Jakarta-based HappyFresh, which runs an online grocery shopping service, offers one-hour deliveries. To achieve this, the company analyzes GPS data to display products at supermarkets located near its customers. It also trains its own shoppers and drivers through a program called HappyFresh Academy. HappyFresh CEO Markus Bihler says the company has a "90-plus percent" success rate for one-hour deliveries.
There are even companies that specialize in e-commerce logistics. Thailand's aCommerce provides a one-stop shop for deliveries, online marketing and warehouse management. It has worked with Indonesian conglomerate Lippo Group, which launched its online shopping service, MatahariMall, in 2015, as well as Mitra Adiperkasa, a franchise operator of nearly 1,900 stores selling foreign brands such as Starbucks and Zara.
Improvements in logistics are helping e-commerce companies enter the market more easily, industry observers say. "Jakarta is still very hard compared to other places in the region, but there is a huge gap between what we had a couple of years ago and now," said Jeremy Fichet, CEO of Orami, a new online shopping platform for women.
Still, the days of lavish spending by e-commerce companies, fueled by international investors with deep pockets, may be coming to an end. Japan's online retailer Rakuten recently announced plans to close its portal in Indonesia. As more companies focus on profitability, competition among logistics service providers may intensify.
"E-commerce companies are trying to reduce their expenses, and the enablers, like application-based companies, have now become developed," said Mahendra Rianto, vice chairman of Indonesia's Logistics Association. He warns that traditional couriers will be left behind if they don't adapt to meet the needs of e-commerce companies. "If it takes more than five days to deliver the product, customers will throw you away," he said. "Players that can solve this will win."