The Story of the World Supply Chain and Overdrawn Costs for Indonesian Export-Import Logistics Services

The world's supply chains and logistics are starting to change. Meanwhile, Indonesia's import-export goods transportation services deficit is widening.

KOMPAS/PRIYOMBODO

A tugboat pulling a container-laden ship into Tanjung Priok Port, North Jakarta, Monday (15/1/2024).

The world's supply chains and logistics are increasingly challenging and worrying due to friendshoring and climate change. On the other hand, Indonesia's dependence on foreign export and import goods transportation services is quite large so that the service sector balance deficit is increasingly widening.

In the past seven years, from 2018 to 2024, the global supply chain and logistics have been under pressure due to a series of problems. It began with the trade war between the United States (US) and China, followed by the Covid-19 pandemic, then continued with the Russia-Ukraine war and conflicts in the Middle East.

Geoeconomic and geopolitical conflicts give rise to friendshoring and nearshoring. The two camps involved in the conflict are slowly moving trade and investment, both to countries that have similar political-economic views and to neighboring countries or nearby regions.

Geopolitical tensions are dividing global trade. The world's supply chain map and some of the logistics routes for global exports and imports will shift.

In addition, the impact of climate change on both sectors is becoming increasingly clear. The long dry season caused by the El Nino phenomenon has caused Lake Gatun, the source of water for the Panama Canal, to shrink. The number of ships passing through the shortcut of the American continent is limited.

"The Global Supply Chain Forum (GSCF) of the UN is evidence of our collective determination to directly address these challenges," said UN Deputy Secretary-General Amina J Mohammed while opening the 1st GSCF in Barbados on Tuesday (21/5/2024), local time.

Geopolitical tensions are dividing global trade. The world's supply chain map and some of the logistics routes for global exports and imports will shift.

DOKUMENTASI PBB

UN Deputy Secretary General Amina J Mohammed

The 1st GSCF was held by the United Nations Trade and Development Conference (UNCTAD) in Barbados on 21-24 May 2024. The forum brought together industry leaders, policy makers and experts from around the world to discuss and address challenges and opportunities in global supply chain management.

Amina requested that every country collaborate to address these various challenges. The effort starts with planning strategies and formulating mitigation policies to reduce the impact of global trade and investment fragmentation from spreading even further.

Barbados Prime Minister Mia Amor Mottley added that global supply chain and logistics disruptions are greatly disadvantageous to island nations such as Barbados. Therefore, she hopes that the forum will produce a collective policy that leads to multilateral trade and inclusive economy.

In the Global Trade Update released on March 21, 2024, UNCTAD showed that the Russia-Ukraine war has caused Russia's trade dependence on the European Union (EU) to decrease by 5.3 percent annually as of February 2024. This has also led to an increase of Russia's dependence on China by 7.1 percent.

Also read: ”Friend-shoring” and Prabowo-Gibran

SUMBER: UNCTAD

Estimated growth in world maritime trade volume in 2023 and 2024 released by UNCTAD.

On the contrary, Ukraine's trade dependence on the EU has increased by 5.8 percent. As a result of the war, EU trade with Russia has grown negatively by 0.6 percent annually.

The US-China trade war has also not subsided. US trade with China decreased by 1.2 percent annually. Similarly, China's trade with the US also decreased by 0.8 percent.

This has also prompted China to further strengthen cooperation with Brazil, Russia, India, China, and South Africa (BRICS). Meanwhile, the US has strengthened its cooperation through the US-Mexico-Canada Agreement (USMCA) on June 1st, 2020, as a replacement for the North American Free Trade Agreement (NAFTA).

RI's profit and loss

How about Indonesia? Disruption of world supply chains and logistics also affects Indonesia. In the Covid-19 era, Indonesian exporters and importers have difficulty obtaining containers, experience delays and even cancellations of deliveries, and suffer soaring logistics costs.

During the Russo-Ukrainian war and Middle East conflict, imports of fertilizers, fertilizer raw materials, and wheat were disrupted. The obstacles included, among other things, the inability of producer countries to export their commodities, and a diversion of shipping routes to safer lanes despite the longer distance.

(PHOTO BY DVIDS / AFP)

The photo released by the Visual Information Distribution Service of the US Department of Defense shows the USS Carter Hall sailing in the Suez Canal, Egypt, on August 6, 2023. The US Department of Defense has deployed an additional 3,000 military personnel and two warships in the Red Sea to prevent potential Iranian attacks on oil transport vessels in the waters surrounding the region.

This makes importers of related commodities shift import sources to other countries. They also experience delays in delivering goods and bear high logistics costs. The conflict in the Red Sea, for example, caused PT Pupuk Indonesia (Persero)'s import of fertilizer raw materials to be late. The state-owned company also bears higher shipping costs (Kompas, 21/3/2024).

Also read: Red Sea Conflict Hampers Imports of Indonesian Fertilizer Raw Materials

Amidst the many national logistics challenges, the situation is becoming increasingly burdensome for exporters and importers. Not to mention the pressure on the exchange rate of the rupiah against the US dollar, which will create additional costs for them.

The deficit value of Indonesia's export-import transportation services balance in 2021-2023 is estimated to be around 6.2-7.5 billion US dollars. This deficit is even widening compared to before Covid-19, or in 2019 which amounted to 5.96 billion US dollars.

Remember, up until now, Indonesia's dependence on logistics ships from other countries has been very significant. One example of this is reflected in the ongoing transactions in Indonesia’s Balance of Payments (BOP). Payment for the transportation services of export-import goods is one of the contributing factors to the biggest deficit in Indonesia's BOP.

Bank Indonesia has noted that the deficit value of the balance of trade in goods transportation for exports and imports in 2021-2023 is around 6.2-7.5 billion US dollars. The deficit has widened from 6.24 billion US dollars in 2021 to 7.45 billion US dollars. This deficit is also higher than the deficit in 2019 before Covid, which was 5.96 billion US dollars.

In the first quarter of 2024, the deficit of the balance of trade in export-import transportation services amounted to 1.93 billion US dollars. This is because the value of imported transportation services, which amounted to 9.98 billion US dollars, is greater than export services which amounted to 2.53 billion US dollars.

Also read: Trade Surplus and the "Shake" of the Rupiah

However, the Indonesian government is optimistic about seizing opportunities from the phenomenon of fragmented global trade and investment. Indonesia, which is in a neutral position, can enter various groups or blocs of countries and seize investment opportunities.

Head of the Trade Policy Agency Ministry of Trade Kasan Muhri said that this phenomenon affects changing patterns of global trade and investment, and can be both detrimental and beneficial to Indonesia. Indonesia certainly has to explore a number of opportunities, such as accelerating economic diversification and reducing dependence on commodity exports.

"Furthermore, Indonesia can also develop sectors with high added value, such as technology, manufacturing, services, and other strategic industry developments," he said in the opening of Gambir Trade Talk (GTT) #14 with the theme "The Impact of Technology Decoupling Policy and Friendshoring Phenomenon on Foreign Trade Performance," which was held in a hybrid format in Jakarta on May 15, 2024.

Also read: Major Flows Changing the Global Trade Map