Dangerous Expansion

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  • TEMPO.CO, Jakarta - A number of state-owned companies have moved into the app-based logistics business. This is at odds with the Business Competition Law.

    THE move by some transportation state-owned enterprises (SOEs) to start a digital-based logistics business could one day come back to haunt them. Although this expansion can be seen as a corporate strategy to provide additional income during the Covid-19 pandemic, controlling all aspects of a business sector is at odds with Law No. 5/1999 on the banning of monopolistic practices and unhealthy business competition. This practice could also kill off other companies.

    Three SOEs, Garuda Indonesia, shipping company Pelni, and railroad company KAI, have recently started offering application-based courier services as well as express and parcel delivery. This is a market segment formerly covered by JNE, J&T, Jet Express and Tiki. This endeavor to fill the holds of airplanes and ships and railroad carriages began in March.

    These three state-owned companies have been hit hard by the pandemic. As a result of large-scale social restrictions, the number of scheduled Garuda flights in the first semester of this year was only half of that in the same period last year. This fall led to Garuda, which was already experiencing difficulties before the pandemic, booking a loss of Rp10.4 trillion in the first half of this year.

    Pelni and KAI face exactly the same problems. As a result of the pandemic, KAI lost Rp1.35 trillion due to the dramatic fall in passengers. The number of passengers in Java outside greater Jakarta in the first half of 2020 was only 18.97 million, down 54 percent in the same period last year.

    In the midst of these business difficulties, transportation SOEs are looking for initiatives to increase their revenues so they can stay in business. But this does not mean they should move into sectors far from their core business. This policy also goes against the promise of SOEs Minister Erick Tohir, who constantly urges state-owned companies to focus on their core businesses.

    Moreover, these three SOEs are already in the logistics service business. Through its subsidiary Aerojasa Cargo, Garuda provides cargo services for express and logistics companies. The same is true for KAI, which carries large numbers of goods under contract. Meanwhile, Pelni ships also carry cargo and containers. But this is not enough to reduce losses.

    The opportunity to enter the retail cargo business arose with the growth of the e-commerce market. The courier and parcel market in Indonesia three years from now is projected to be worth US$5.5 billion, or around Rp79.9 trillion. The online career and business services have also grown during the pandemic. It is the "first mile", meaning collecting goods, and the "last mile", meaning delivering goods to recipients, sectors that the transportation SOEs are targeting.

    This is clearly a breach of the ban on vertical integration practices. Although they improve efficiency and profits, they clearly restrict healthy business competition and reduce the benefits to consumers. Furthermore, it is not yet certain that transportation SOEs will be able to make a profit because they do not have a complete understanding of retail cargo services - which have quite different characteristics to the transportation business.

    This logistics business vertical integration could also further strengthen the role of SOEs in a number of sectors. This type of state capitalism became stronger after Joko Widodo became president in 2014. This was apparent from many infrastructure and energy projects. In order to prevent this causing problem in the future, the government must be more cautious in positioning SOEs as the only driving force able to respond to economic challenges.

    The new move of these state-owned companies could also bring about the end of the private companies that have long provided courier and parcel services. Eventually, many people would lose their jobs.

    Read the Complete Story in Tempo English Magazine