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Indonesia—new shipping laws exacerbate poor logistics framework

New shipping laws—requiring exporters of coal and palm oil and importers of rice and Indonesian government procured goods to use Indonesian shipping and insurance companies—were expected to come into effect this month. But Indonesia’s domestic shipping and insurance industries do not have sufficient capacity to deal with the extra demand arising from the new regulations. As such, recent reports suggest the rules will now be implemented in 2020. Regardless of their timing, the new shipping laws will only add to Indonesia’s logistics costs—which already are amongst the highest in Asia. And the regulatory uncertainty highlights another difficulty exporters and investors currently face in Indonesia.

Any deterioration in Indonesia’s already poor logistics network or limitation of access to enabling services such as insurance will pose risks to Australian exporters that service local supply chains or handle perishable goods. However, Australian thermal coal exporters may see a temporary ramp up in seaborne prices as Indonesian thermal coal export volumes (the largest supplier in the seaborne market) would suffer.