Documentation, Logistics, and Trade Facilitation – Best Practices

1. Documentation, Logistics, and Trade Facilitation – Best Practices Togar M. Simatupang ASEAN Trade Processing 2013 Conference/Workshop www.aseantradeprocessing.com June 27, 2013 Thursday Ritz Carlton, Pacific Place Jakarta, Indonesia

2. Outlines • The Indonesia supply chain position • The impact of tax, customs and transfer pricing issues on supply chains and profitability • A holistic view of the supply chain • The common mistakes companies make when it comes to supply chain optimization • The role of the logistics industry in enhancing trade & boosting ASEAN competitiveness

3. The Indonesia supply chain position compared to other member states in ASEAN

4. Indonesia at a glance Source: http://www.efic.gov.au/country/countryprofiles/Pages/indonesia.aspx

5. Key risks to exporters and investors Source: http://www.efic.gov.au/country/countryprofiles/Pages/indonesia.aspx

6. Indonesia Services Snapshot - Transport Source: http://www.gbgindonesia.com/en/services/article/2011/indonesia_s_shipping_sector.php

7. Source: http://om.shippingazette.com/OM/OM1/OM1-Story3-2.asp

8. Domestic Trade Flows for Indonesia Container Traffic Source: http://thestoryofwardana.wordpress.com/tag/pt-pelabuhan-indonesia/

9. Non-commodity exports have a lower share of GDP in Indonesia than in Malaysia or Thailand Source: Lino, R.J. (2012), "Indonesia Maritime Infrastructure", World Export Development Forum 2012.

10. Indonesia Ports and Shipping Industry Source: World Bank Doing Business Report 2010-2011

11. Process time for exportation Source: the World Bank (2011)

12. Costs to move containers from factories to seaports Source: The World Bank’s Doing Business 2010 http://www.france.atkearney.com/transportation/featured-article/-/asset_publisher/2Wly0uJiyGNV/content/vietnams-growth-strategy-roads-rails-rivers/10192

13. Domestic logistic cost is high and could be an impediment for growth Source: Lino, R.J. (2012), "Indonesia Maritime Infrastructure", World Export Development Forum 2012.

14. Logistics Performance Index (LPI) Source: Lino, R.J. (2012), "Indonesia Maritime Infrastructure", World Export Development Forum 2012.

15. Logistics cost as a percentage of GDP Source: Source: EIU, ARC Advisory, China Federation of Logistics and Purchasing, Indonesia Infrastructure Initiative

16. The Indonesia position Strengths Weaknesses Lack of infrastructure High import duty Changes of government policies (e.g., overlapping, complex regulation) Weak synergy between logistics service providers, starting from Freight Forwarder Indonesia to Freight Forwarder from country origin and destination of commodities Long time of custom clearance • Easy access to suppliers, production location, distribution flexibility. • Large customers. • The practice of door-to-door delivery. • Geographical advantage.

17. The impact of tax, customs and transfer pricing issues on supply chains and profitability

18. Customs, taxes, and transfer price • Custom and tax issues applied for commodities have standardized by Directorate General for Customs and Excises. • Minimization customs is difficult for it is dependent on types and prices of commodities. • Logistics service providers have small room to increase margin and profitability. International companies operate in Indonesia take advantage of their natural closed relation with country of origin and destination of commodities. This is especially relevant for multinational companies as priority or production importers. • High economy cost such as high interest rate in Indonesia 12% compared to other ASEAN countries around 6%, importers/exporters are required to pay for warehousing, importers set selling price with no comparison, and long supply chain from factory to dealers that can increase final selling price. • Transfer price becomes difficult when price fluctuates. • Customs for inbound loagistics or imported goods is worse compared to export activities.

19. A holistic view of the supply chain to enable a company to map out and identify country of origin, country of destination and avoid taxes and custom duties

20. Strategy • The map should include the whole chain of importers and exporters and logistics service providers appropriate for trade facilitation in country of origin and destination. Supply chain depends on distribution mapping based on products used or produced from the source to the point of consumption. • The key is to take into account custom tariff, export/import costs, custom audit, and minimization of fines. • Exporters with high volume commodities such as CPO, coal, and other minerals could set profit and pay taxes with long term contract. • Cooperation with countries that provide special tariff to Indonesia such as China, Japan, ASEN Countries in which the products are given tax incentives.

21. Delivery Terms

22. The common mistakes companies make when it comes to supply chain optimization

23. Common Mistakes • Lack of horizontal and vertical coordination that leads to delay, waste, error, and negligence in a supply chain that affect loyalty and collaboration with importer and exporter. • Lack of risk assessments. • No mapping exercise is done to assess current and potential problems. Companies often correct the symptoms of the problem. • Lack of common understanding about rules and regulation with the external parties. • There is lack of improvement assessment that balance between benefits and costs of improvement. • Another mistake is the resistance to change about new culture and competence in new situation.

24. The role of the logistics industry in enhancing trade & boosting ASEAN competitiveness

25. The role of the logistics industry • Custom Processing Services (http://www.dhl.co.id/id/express/pengiriman/dukungan_penanganan_bea_cukai.html). • Buyers consolidation process flow. • Suppliers Logistics Services. • Indonesia Post Corporation (Pelindo II) establishes a number of subsidiaries and cooperation with overseas partners to streamline port business and consolidate transportation of cargo with containers in a supply chain. • Indonesia Logistics Community Services (ILCS) (http://en.ilcs.co.id).

26. Thank You Acknowledgements The author would like to thank Rudy Sangian, Gani, SugiPranoto, and R. Budi Setiawan for their contribution to the content of this presentation. The author also thank Lisa Kirkpatrick, Conference Director of ASEAN Trade Processing, for the support during the preparation of this presentation.