Indonesia Transportation Profile 2012

Java has most of the country's railway trackage and many of its roads. The national airline is Garuda Indonesia Airways. There is much interisland shipping, and river transport is important on Sumatra and Kalimantan. Jakarta is the chief ocean port and the main center for air travel.

Freight Transport Report Q4 2010

In August we commented that investments in the expansion of Indonesia's freight railways are going to intensify in the coming years, as coal exporters primarily seek to capture demand for coal from China and India, but also supply new coal-fired power plants in Indonesia. In spite of the difficult business environment, the strong economics underpinning Indonesia's coal export sector are overriding investment climate concerns, thus prompting ever increasing investments in rail infrastructure.

A plethora of new multibillion dollar investments have been pledged to expand Indonesia's rail freight infrastructure, as major coal consumers invest in increasing export capacity in the coal rich regions of South Sumatra and Central Kalimatan. In the latter half of August 2010, India's Adani Group and Reliance Power, and Japan's Itochu pledged investments worth a combined value of US$8.8bn to develop coal mines, ports, and primarily freight railways connecting the mines to the ports. Of note is Itochu's winning of the long-awaited Central Kalimantan railway concession, the concession's estimated cost escalated from US$1.5bn to US$2.2bn in May 2010 when further improvements were deemed necessary for port infrastructure related to the railway.

Going into the fourth quarter of 2010, Indonesia's political and economic environment remained relatively supportive for the freight transport sector. To take the negatives first, it has to be said that the business environment in the country continues to be very poor, with corruption, bureaucracy and inadequate infrastructure remaining long-standing problems. Against this, however there is quite a lot to be optimistic about. The administration of President Susilo Bambang Yudhoyono, due to remain in office until 2014, has brought a degree of economic reform and political stability; prospects for democratic continuity are good. Most importantly, the country faces a period of strong economic growth (estimates 5.2% GDP expansion in 2010, accelerating on the longer term towards 7% pa). Good prospects for commodity exports and import demand require development of Indonesia's shipping, ports, road, rail and air services.

The gradual recovery of the aviation sector is continuing, marked by strong pan-Asian demand, improvements in safety standards, a move towards an integrated air traffic control system, and a recovery by Garuda Indonesia. After a 1.8% fall in cargo tonnes in 2009, we see volume growth of 6.0% this year, and an annual average rate of expansion of 6.4% in 2010-2014, just a little ahead of GDP. As mentioned, the long-term future of rail freight in Indonesia is looking increasingly encouraging, particularly as new coal mines are opened and rail links are created to move the coal to nearby ports. However, at present there is a small and poorly managed, mainly state-owned, rail network, and we see it suffering from underinvestment. Accordingly, we see freight volume falling marginally this year and next, as passenger demand limits freight availability. Between now and 2014, rail cargo volume growth will reach a disappointing annual average of 2.6%.

This year we estimate total tonnage at Tanjung Priok port to increase by 5.8% to reach 37.39mn tonnes, after the sharp recession of 2009, when volume slumped by 15.9%. Container throughput is usually somewhat more volatile than general tonnage. In 2009 container volume at Tanjung Priok fell by over one-fifth, to 22.9%, and this year it will experience a partial recovery, growing 7.1% to 3.290mn 20-foot equivalent units (TEUs). We believe expanding domestic consumption will be an important driver for containerised imports. Capacity limitations will be a limiting factor, however.

In 2009, Indonesia's trade volumes slumped by 12.1% in real terms, reflecting the impact of the global recession. This year we have seen the country experiencing a fairly vigorous trade recovery, with the total rising by an estimated 9.1% in real terms. In the next five years we see trade growing in real terms by an average of 8.9% every year, well ahead of GDP. This in part reflects where Indonesia is located: part of emerging Asia that will be one of the world's most vigorous economic sub-regions over the next few years. Although Indonesia's exports will perform well (we predict 8.4% annual growth) imports will lead the way with a higher 9.6% rate of annual expansion, indicative of the size and strength of the country's emerging domestic market. In nominal terms we see exports up by 28.2% this year to US$167.6bn, with imports surging by almost a third, to 29.9%, to US$150.1bn.