Need for Logistics with Growth of E-Commerce in Indonesia

With the growth of e-commerce in Indonesia, there is a vast demand for outsourced logistics.

As a rapidly developing country whose citizens have embraced its up-and-coming e-commerce industry, Indonesia already has a desperate need for more logistics service providers, a need that is growing exponentially each year. The Indonesian e-commerce market experienced a 32% increase in 2021 compared to the worldwide growth rate of 15% and is the largest digital economy in Southeast Asia.  The country’s young generation of tech-savvy consumers will cause this industry to only continue to grow, and one of the largest threats to the sustained growth of the e-commerce sector is Indonesia’s lack of reliable logistics infrastructure.

Indonesia is currently the 9th largest market for e-commerce in the world, with the industry bringing in revenue of US $55.9 billion in 2021. The country is the internet economy value leader in the ASEAN-6 (which also includes Singapore, Malaysia, Thailand, the Philippines, and Vietnam) and experienced one of the highest rates of e-commerce adoption in the world in 2020. In 2020 alone, the rate of internet penetration grew by 15%. By the end of 2022 e-commerce penetration is expected to be 59.2%, and it is projected to reach 81.2% by 2027. With Indonesia’s growing level of internet accessibility, its young population, and rising monthly incomes, this number will continue to rise.

Much of this growth can be attributed to Indonesia’s young and tech-savvy population. Indonesia was ranked fifth in the world for most daily time spent on the internet with the average person spending four hours online, double the average of the United States. The country is also home to the largest number of Instagram users in the world and the largest number of billion-dollar tech startups in Southeast Asia. In a population of over 270 million people, there were more than 202.6 million internet users as of January 2021, and over 90% of internet users aged 16-64 years have purchased products and services online. E-commerce accounted for 20% of total retail sales in 2020, up from 4% in 2019. However, although most of the population has fully embraced the growth of technology and e-commerce, much of the economy is still far behind, particularly the MSMEs and the generation of the majority of the country’s GDP.

Indonesia’s economy is very heavily reliant on its MSMEs, or micro, small, and medium-sized enterprises. According to Indonesia’s Ministry of Cooperatives and SMEs, the country is home to over 64 million SMEs, which contribute to 61% of the national GDP and 15.6% of non-oil exports. Over 98% of these businesses are micro-enterprises, the majority of which are small mom-and-pop kiosks that sell fast-moving consumer goods like packaged food. These kiosks account for 72% of the country’s yearly $47 billion of consumer goods sales. Many of these businesses enthusiastically adopted an e-commerce platform during the COVID-19 pandemic and there have been significant efforts by both the public and private sector to modernize and digitalize the country’s economy. Government regulations concerning the Ease, Protection, and Empowerment of Cooperatives and MSMEs were issued in 2021 to provide wider opportunities for MSMEs to grow and develop, create a more conducive business environment, and encourage improvements to the structure of Indonesian MSMEs. These recent and upcoming developments are aimed at the advancement and digitalization of the country, but a gap in technology is still very visible

It has been estimated that the number of parcels processed in Indonesia in 2022 will reach 1.6 billion, a massive amount of growth when compared to the 200 million processed in 2017. However, there is a serious disparity between Indonesia’s enthusiasm for e-commerce and the necessary infrastructure to support it. Indonesia’s logistics infrastructure significantly lags other countries in the region: According to the World Bank, the country ranks 63rd out of 160 countries. The World Bank also ranked Indonesia 55th in logistics quality and competence, 51st in the ability to track and trace parcels, and 62nd in delivery timetables. This seriously impedes many MSMEs’ ability to reach overseas consumers and their domestic success, further showing the country’s need for reliable logistics infrastructure to continue facilitating e-commerce growth. Indonesia is likely to ship more parcels in the next 5 years than in the entire history of the country, and it is only through the development of logistics service providers within the country such as MBE that this will be possible.

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