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Services | Indonesia's Courier and Delivery Service Sector: E-commerce a Major Growth Driver

Indonesia’s courier and delivery service sector has been consistently registering double-digit growth for the last several years, in line with the rapid development of the country’s e-commerce industry. E-commerce has become a key driver of growth for the sector and now contributes up to 25% to total revenues for the industry.

Indonesia's Courier and Delivery Service Sector: E-commerce a Major Growth Driver
Online and app-based courier companies will expand to all regions of Indonesia; particularly through franchise agency networks. When this happens, technology and innovation will be the crucial determinants of future growth and survival.

Competition is getting stiffer with online and app-based delivery startups offering similar services. To stay ahead of the curve, conventional players need to overhaul their business structures, including investing in new technology to keep pace with emerging market trends and demands.

Outstanding growth

Indonesia’s courier and delivery service sector posted impressive revenue growth of 30% - 40% in 2016 underpinned by the rapid growth of the e-commerce sector. This is well above the logistics industry growth average of 14%-15% (See Indonesia’s Logistics Sector; Making Connections).

The Association of Indonesian Express Delivery Companies (Asperindo) reported that the market value of Asperindo has now reached 50 trillion IDR with more than 35,000 service points. Asperindo predicts that e-commerce will contribute 25% to Indonesia’s national logistics industry growth, which is expected to expand by 15.2% annually until 2019 (See E-commerce Incoming; An Industry on the Rise). Much of the increase is expected to occur in Java and specifically the Greater Jakarta areas.

The Indonesian Logistics Association (ALI) also issued a similar forecast. The association predicts that the courier service business will grow by 20%-25% in 2017 and e-commerce will contribute 15% to its growth. There are two regions outside of Java that recorded the highest growth, namely Manado (North Sulawesi) and Makassar (South Sulawesi), thanks to the emergence of new SMEs. A similar increase also occurred in Central and East Java.

PT Tiki Jalur Nugraha Eka Kurir (JNE), one of Indonesia’s leading courier companies, also reported an increase in sales, whereby e-commerce now accounts for 60% - 70% of its deliveries. In 2016, the company delivered 192 million packages or around 16 million packages a month. Some 30%-40% of them are inner-city and inter-city deliveries within the Greater Jakarta area and 60% are from Java to outside of Java.

During the first eight months of 2017, the company’s average delivery volume grew by 30% and it is expected to deliver 250 million packages until the end of the year. The highest growth occurred in June approaching the Eid holiday. Going forward, e-commerce is expected to contribute 70% to its revenue. Other courier companies such as 21 Express, ESL Express, J&T, TiKi, and many others also experienced a similar growth thanks to the rapid growth of e-commerce throughout Indonesia.

Increased competition

Despite increased revenues and sales, the competition among Indonesia’s courier and delivery service sector is getting stiffer. Two giant online transportation companies, GoJek and Grab, for instance, now offer express delivery services through GoSend and GrabExpress.

Their cheaper rates and extensive resources of hundreds of thousands of drivers and millions of customers will surely pose a considerable threat to existing players. This has been demonstrated by the partnership between Bukalapak and Tokopedia with GoJek for fast and same day delivery services.

Moreover, international and domestic app-based delivery startups are also emerging and offering cheaper rates and pick-up services with insurance coverage as well as real-time data and tracking. These new players include Ninja Express, Etobee, Deliveree, PopBox, JET express and many others (See Mobile Apps in Indonesia Clicking into Gear).

Ninja Express is headquartered in Singapore, while Deliveree is originally from Thailand. The former recently secured $30 million USD in capital from the Abraaj Group to expand its business in Southeast Asia, including Indonesia. Meanwhile, the latter received funding of $2 million USD to expand its business in Thailand, the Philippines, and Indonesia.

Besides startups, competition is also coming from established businesses outside the logistics sector such as NEX Logistics which is owned by Ms Noni Purnomo, Blue Bird Group’s President Director, Atri X’press which is owned by Sigmantara Group (owner of Alfamart, Alfamidi, Alfa Express, and Atri Distribution), Lion Parcel from Lion Air and Pahala Express from Pahala Kencana among others.

In addition, several state-owned enterprises such as Pelindo, Kereta Api Indonesia and Garuda Indonesia now also offer their own delivery services. And to make competition even more tight, some e-commerce players have also established their own delivery services, such as Lazada with Lazada Express.

Asperindo claims that the presence of new, high-tech delivery service companies has reduced the market share of conventional players, especially in the premium courier segment which offers inner-city and inter-city fast delivery services. Currently the coverage of these new competitors is still limited to major urban areas such as the Greater Jakarta area, Bandung, Yogyakarta, Semarang, Surabaya, Sidoarjo, Gresik, Malang, and Medan.

Nevertheless, the association has requested that the Indonesian government regulate online and app-based courier companies, especially regarding their permits, courier certification, and safety assurance. Currently, Asperindo members obtain their permits from the Ministry of Communication and Informatics, while that of ALFI (Association of Indonesian Logistics and Forwarding Companies) from the Ministry of Transportation.

The Indonesian government responded to this by launching the 14th Economic Policy Package on 4th November 2016, which aimed at improving regulations around the e-commerce and logistics sectors. The policy package sets out an e-commerce roadmap comprised of eight pillars, i.e. funding, taxation, comsumer protection, education and HR, logistics, communication infrastructure, cyber security, and the formation of an implementing agency (See Indonesia’s 14th Economic Policy Package to Kick-Start E-Commerce Industry).

A further policy designating PT Pos Indonesia as the e-commerce platform for the national logistics sector was also launched. The state postal company has since launched the MyPos app and partnered with e-commerce players in establishing a payment system.

Additionally, the Indonesian government also prepared the Regulation of the Minister of Communication and Informatics on Service Standards for Commercial Postal Services to implement the provisions of Article 10 Paragraph 3 of the Government Regulation No. 15 of 2013 on the Implementation of Law No. 38 of 2009 on Postal Services. The types of commercial postal services governed by the regulation are package, logistics, and postal agencies. According to the plan, the regulation will consist of 10 chapters including service levels and standards, reporting, and others.

Furthermore, the government will also seek to address various issues hampering the logistics sector such as the lack of infrastructure, traffic congestion, and high transportation costs by building supporting infrastructure, sea tolls, national logistics system (Sislognas), and bonded logistics centres (PLB).

Moreover, with the aid of the World Bank which has provided a development policy loan of $400 million USD to improve connectivity, government sponsored infrastructure as well as educational, fiscal, and monetary reforms in the logistics sector are due to be undertaken. The policy is expected to reduce dwelling time, improve vocational training, and streamline the procedures for the permitting process which will aim to eventually bring down Indonesia’s high logistics costs.

To beat the competition, Asperindo and its members are seeking to overhaul their businesses by investing heavily in new technology. The association has created Asperindo Logistics Integrated Solution to improve the connectivity of the logistics sector for e-commerce. The system enables SMEs to market their products throughout Asperindo’s network.

In 2016, JNE, RPX One Stop Logistics, and ESL Express launched their own applications to make it easier for customers to use their services. In 2017, JNE plans to spend 500 billion IDR to enhance its services. Some 329 billion IDR will be used to develop its outlets, 100 billion IDR for building new warehouses in Central Java, Balikpapan and Makasar, and around one-tenth or 50 billion IDR will be used to develop its server and app, MyJNE. The company currently has 5,500 service points and is expected to add 15%-20% new outlets.

Looking ahead

Indonesia’s courier and delivery service sector is expected to continue to grow to keep pace with the rapid development of the country’s e-commerce industry. Ernst & Young predicts that e-commerce in Indonesia will grow by 40% per year underpinned by the country’s huge number of internet and smartphone users which reached 93.4 million and 71 million, respectively (See Indonesia and the Internet; Online & On the Move).

According to the Indonesia E-commerce Association (Idea) and the Ministry of Communication and Informatics, domestic e-commerce transactions reached 25 billion USD or 295 trillion IDR in 2016 and this figure is expected to soar to 130 billion USD by 2020. Many predict that e-commerce will occupy 20% market share in the retail sector over the next four years (See Indonesia’s Retail Sector; E-Commerce, the Next Growth Driver).

Currently, there are 75,000 online traders with more than 8.7 million buyers, up from 7.4 million in 2015. Within the next few years, the number of e-commerce players in Indonesia is expected to increase to 5 million and these will require courier companies to deliver their goods to their customers. This will offer huge opportunities to Indonesian domestic courier and delivery service companies which currently only hold a third of the total market share.

The increase of e-commerce services has triggered the demand for faster and more reliable delivery of goods. Our philosophy has always been to follow the customers’ preferences and e-commerce is currently the latest trend.

Nevertheless, conventional courier companies need to watch out for online and app-based delivery startups (See Disruptive Innovation Challenging Business as Usual in Indonesia). As customers become more tech savvy, they demand improved services in terms of faster delivery with real-time data and reliable track and tracing features which can be easily accessed via smartphones.

That is why conventional courier companies are under significant pressure to keep pace with the advancement of technology. Otherwise, they will lose further market share to more sophisticated online and app-based delivery startups. Although the latter’s services are currently limited to major urban areas, they will expand their businesses to all regions of Indonesia; particularly through franchise agency networks. When this happens, technology and innovation will be the crucial determinants of future growth and survival.

Global Business Guide Indonesia - 2017

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Indonesia Services Snapshot - Transportation

Contribution to GDP: 4.19% (Q3 2015)
Existing Road Network: Paved 287,926 km, Total 508,000 km (2013)
Existing Toll Road Network: 840 km March 2016)
Active Railway Network: 4,814km (2016)
Number of Airports: 237; 35 with runway length >2,000 metres (2015)
Active Commercial Sea Ports: 121 (2016)
Main Government Bodies: Ministry of Transportation, BAPPENAS, Ministry of Public Works and Housing, Indonesia Toll Road Authority (BPJT).