BMI View: Across Indonesia's different freight modes, we are expecting cargo volume growth in a range of 0.5%-8% during 2015. Aviation and rail will lead the way, with road freight growing more slowly. Despite a slow start in Q115, both GDP and foreign trade expansion will support the freight sector. In the medium to longer term we continue to think that the key to sustainable growth is investment in port infrastructure, including road and rail links in the hinterland areas. The new government wants to push forward on this front. Capacity problems remain an issue, but new investment projects in ports, airports, road and rail are being launched.
Despite a slower first quarter and some negative factors, such as adverse terms of trade and high interest rates, we remain optimistic over Indonesia's economic prospects in 2015. Q115 GDP growth slowed to 4.7%, down from 5.0% in Q414. This was due to a contraction in the export sector, weakness in domestic consumer demand, and delays in the government's ambitious infrastructure investment programmes. Taking these factors together, we are now forecasting Indonesian GDP growth of 5.3% this year, up from 5.0% in 2014.
Exports in February 2015 were down 16.0% in year-on-year terms, influenced by lower mining exports (down 20.8% y-o-y). The government's ban on the export of unprocessed mineral ores (designed to boost value-added smelting and refining activities at home) has been a factor. Imports have also faced downward pressure because of the weak rupiah. Despite these concerns and a poor start to the year, BMI believes Indonesia's trade performance will improve over 2015. We are forecasting that for the year a whole exports will accelerate to rise by 3.1% (up from 0.8% in 2015) while the pace of import growth will rise more marginally, to 2.3% (from 2.2% in 2014). As a result, total trade will grow by 2.7%.
Indonesia's trade patterns over the next five years look like being significantly beneficial to road freight. This is because, by product categories, trade in manufactured goods (both imports and exports) is continuing to grow in importance as the country's middle class expands. On the import side this means a more diversified flow of products ultimately requiring a greater proportion of door-to-door delivery via the road network. As an archipelago of islands sharing no land borders with significant trading partners, Indonesia will remain reliant on shipping as a key part of its logistics chain, but trade with key regional partners such as Japan, China, Singapore and Malaysia will also include a significant road freight component.
The contribution of trade to rail freight demand will depend primarily on prospects for bulk commodity exports such as coal and minerals, and for trade in iron and steel (where imports are more significant). The outlook here is for moderate growth with ores and metals exports set to grow in value terms by an average of 3.3% per annum over the next five years, while the projection for iron and steel imports is for annual growth of 2.6% over the same period. The ban on raw mineral ore exports will also place a limit on demand for bulk freight. However, because rail is responsible for only a relative small proportion of total freight currently carried in Indonesia (about 3% in 2015) small changes in trade patterns (such as the opening of a new export-focused coal mine and associated rail delivery route) will have a big impact on year-on-year growth in percentage terms.
Trade patterns over the next five years will support demand for Indonesian airfreight. The main driver here is trade in a sub-set of manufactured goods - essentially those goods with high value/low bulk characteristics requiring rapid delivery. BMI forecasts that export of manufactured goods as a category will grow by an annual average of 3.6% (imports) and 2.2% (exports) by value over the next five years. Within this broad category trade in certain types of light manufactures such as electronic goods, mobile handsets, semi-conductors and pharmaceuticals will be a key driver. So too will Indonesia's integration into the value chains of industries located in the Asean region (for example Chinese manufacturing and Japanese automobile production). With air freight currently responsible for less than 1% of total freight carried in Indonesia, relatively small increases in trade-related demand will have a strong positive effect on year-on-year growth rates.
Key BMI Forecasts
Airfreight volumes are forecast to expand by 5.0% to 512,550 tonnes in 2015, with average annual growth of 5.8% during our forecast period to 2019.
Rail freight volumes are estimated to rise by 7.5% in 2015 to 35.972mn tonnes, with average growth also at 7.5% during our forecast period.
Road haulage volumes to rise by 0.5% to 1.255bn tonnes in 2015, after 0.9% growth in 2014. Over the medium term growth will average 0.8% per annum.
Indonesian foreign trade (exports + imports) expected to grow by 2.7% in real terms in 2015, up from 1.5% in 2014.