By RJ Lino, former president director of PT Pelindo II.
For decades, Indonesia has relied on fuel subsidies under the assumption that lowering fuel prices would reduce logistics costs. Yet this assumption rests on a fundamental misunderstanding. Diesel priced at approximately Rp 6,800 (US$0.40) per liter—far below its economic value of around Rp 13,000 (US$0.77) —creates a distortion of nearly 48 percent. This distortion does not produce efficiency; it produces an illusion of efficiency. Trucking appears competitive not because it is structurally optimal, but because it is artificially subsidized.
Logistics cost is often reduced to transport cost, but this is analytically incomplete. In reality, total logistics cost consists of transport cost, inventory cost, handling cost, and uncertainty cost. The World Bank’s Logistics Performance Index (LPI) confirms that logistics performance is determined by reliability, infrastructure, and system integration— not fuel prices. Indonesia’s LPI score of around 3.0 reflects systemic inefficiencies that cannot be solved by cheap fuel, but by correcting the system itself.
Fuel subsidies distort relative price signals across transport modes. With trucking costs suppressed by nearly half, road transport becomes over-utilized, while maritime and inland waterways remain underdeveloped. Today, 80–85 percent of Indonesia’s domestic cargo moves by truck—even across distances where it is structurally inefficient. OECD and IMF analyses consistently show that fossil fuel subsidies lead to misallocation of resources, congestion, pollution, and long-term inefficiency.
This becomes even clearer when Indonesia is viewed in comparison with other systems. Consider the corridor between Jakarta and Surabaya, a distance of roughly 700 kilometers. Approximately 95 percent of freight along this corridor is transported by truck. Only around 4 percent moves by sea, and about 1 percent by rail. Now consider a comparable distance in Japan, between Tokyo and Miyagi. There, the distribution is almost reversed in its logic. Around 55 percent of freight moves by RoRo vessels and ferry systems, approximately 40 percent by truck, and about 5 percent by rail.
Two corridors with comparable distance produce entirely different logistics systems. Japan allows freight to flow through the most efficient modes. Indonesia forces freight into trucks. The difference lies in one factor: price distortion created by subsidized fuel.
Japan operates without structural fuel subsidies. Energy prices reflect economic reality. As a result, freight naturally distributes across maritime, rail, and trucking based on efficiency. Coastal shipping becomes the backbone even within a single island. The system is balanced, predictable, and reliable.
In Indonesia, subsidized fuel fundamentally alters this balance. Trucking becomes artificially cheap, overwhelming all other modes. The Jakarta–Surabaya corridor is not designed by logistics efficiency—it is shaped by energy policy. The result is congestion, uncertainty, and systemic inefficiency.
Europe faced similar challenges and responded with the Motorways of the Sea in the Baltic and Mediterranean regions. Freight was shifted from roads to maritime corridors integrated with port systems. These sea routes are treated as extensions of highways, reducing congestion, emissions, and uncertainty. Europe did not subsidize trucking—it redesigned its logistics system.
The Philippines, through fuel price deregulation and the Strong Republic Nautical Highway, built a maritime-based logistics system using RoRo networks. Trucks move across islands via sea corridors rather than long land routes. As a result, trucking accounts for only 50–60 percent of cargo movement, far lower than Indonesia’s 85–95 percent, despite similar geography.
Malaysia demonstrates a gradual transition model. Through subsidy rationalization and strong port integration, it has achieved a more balanced logistics system. Its higher LPI performance reflects alignment between policy, pricing, and system design.
The strongest resistance to subsidy removal is the fear of inflation. However, this fear is often overstated when examined against the structure of prices themselves. Logistics costs account for only a small share of final goods: around 4 to 5 percent in rice, 2 to 3 percent in fast-moving consumer goods, and less than 1 percent in basic commodities.
Even under a scenario where trucking costs increase by as much as 30 percent, the effect on final prices remains limited. Rice prices would rise by approximately 1.2 to 1.5 percent, FMCG products by around 0.6 to 0.9 percent, and basic goods by only 0.2 to 0.5 percent. At the national level, this would translate into a temporary inflationary impact of roughly 0.8 to 1.5 percentage points over a period of six to twelve months. Studies by the International Monetary Fund have consistently shown that such effects are short-term and manageable.
The reason for this limited impact lies in the structure of the system itself. Logistics represents only a small portion of the final price of goods, meaning that even significant increases in transport costs translate into relatively modest changes at the retail level. At the same time, businesses do not pass on costs in a linear manner. Some of the increase is absorbed through operational adjustments, as firms adapt by optimizing logistics and behavior.
Logistics costs may initially rise by around 2 to 5 percent, but this is not where the story ends. Over the medium term, costs can fall by 10 to 15 percent, and over the longer term by as much as 20 to 30 percent. As congestion declines, utilization improves, and reliability increases, the system begins to generate efficiencies that were previously suppressed.
The Cikarang Bekasi Laut (CBL) inland waterway provides a clear example of potential structural efficiency. Today, container transport between Cikarang and Tanjung Priok consumes approximately 25 to 30 liters of diesel per TEU by truck. In contrast, barging would require only 4 to 5 liters per TEU—an efficiency gain of 80 to 85 percent.
With annual flows of 2 to 3 million TEU, total diesel consumption reaches 50 to 90 million liters per year with trucking. Shifting just 40 percent of this flow to CBL would reduce fuel consumption by approximately 20 million liters per year. At a subsidy gap of around Rp 6,000 (US$ 9.35) per liter, this reduction translates into roughly Rp 120 billion (about US$7.07 million) in annual savings for a single corridor. When scaled nationally, the potential savings reach between Rp 300 and 600 billion (about US$17.7 million to $35.3 million) per year, transforming subsidy from a recurring burden into a structural efficiency gain.
At the same time, truck-dominated systems impose other heavy external costs. They generate high CO emissions, contribute to severe urban air pollution, and accelerate road deterioration. OECD and IMF studies show that fuel subsidies would only amplify these impacts. Maritime and inland waterways offer lower emissions per ton-kilometer, making subsidy removal both an economic and environmental necessity.
The most important insight is that logistics cost is driven by uncertainty, not fuel price. Truck-based systems create variability, delay, and high inventory buffers. These hidden costs exceed any benefit from subsidized fuel. Reliable maritime systems reduce variability and stabilize supply chains.
Countries that do not subsidize fuel allow their logistics systems to align with efficiency and geography, while those that do impose structural distortion. Indonesia today clearly reflects this imbalance. Evidence from Japan, Europe, the Philippines, and Malaysia leads to a single conclusion: efficient logistics systems are not built on cheap fuel, but on the correct structure.
Removing fuel subsidies does not hurt logistics. It corrects it. We may forget our nature, but our nature never forgets us. And for Indonesia, that nature is maritime.
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