The maritime market is a complex but incontrovertibly relevant industry in the Indonesian economy. This important role is reflected in the sector’s substantial contribution to the economy in terms of employment and GDP, which are intrinsically related to the country’s large population and its ongoing growth. 

Indonesia has over 17,000 islands, making it the largest archipelago in the world, and two of the most important maritime trade routes pass through its waters, while most of its domestic and international trade is also handled via sea routes. 


President Joko “Jokowi” Widodo has made a strong commitment into turning Indonesia into the “Global Maritime Axis,” given the country’s strategic position in the global sea trade. Moreover, his administration has pledged to boost the maritime sector by enhancing east-west connectivity, prioritizing maritime infrastructure, defending Indonesia’s national sovereignty and strengthening the country’s navy and by maximizing profits from all economic activities related to the sea, including shipbuilding and fishing. 


Indonesia’s high logistics costs, which account for over 24 percent of its GDP, have caused stagnation in its economy by increasing production costs to an unsustainable rate. According to the World Bank, if Indonesia manages to reduce its logistics costs to 16 percent of its GDP, that would save its economy over USD 70 billion a year. 


Maritime development has become even more crucial since Indonesia is a part of the ASEAN Economic Community, which will only be profitable if Indonesian products can remain competitive in the regional sphere. This can only be achieved if maritime infrastructure is improved and the merchant fleet is renewed. 


Plenty of opportunities will arise for foreign companies in the next few years, with major port upgrades opening up the way for Public-Private-Partnerships, as well as through the transfer of technology in shipbuilding and/or establishing shipyards in the country.  





Container Port Throughput of Selected ASEAN Countries


Country Container Port Throughput (Million TEU) Ranking (2014)
2008 2009 2010 2011 2012 2013 2014 ASEAN Worldwide
Singapore 30,89 26,59 29,18 30,73 32,5 33,52 343,83 1 3
Malaysia 16,09 15,92 18,27 20,14 20,87 21,17 22,72 2 5
Indonesia 7,4 7,26 8,48 8,97 9,64 11,27 11,9 3 12
Vietnam 4,39 4,94 5,58 6,93 7,55 9,14 9,53 4 17
Thailand 6,73 5,9 6,65 7,17 7,47 7,7 8,28 5 20
Philippines 4,47 4,31 4,95 5,29 5,69 5,86 5,87 6 26

Source: United Nation Conference on Trade and Development, 2015



Volume Growth in Selected ASEAN Countries


Country Volume Growth 2008-2014
(% of Million TEU)
Average Annual Growth 2008-2014 (%)
Singapore 12,75 2,32
Malaysia 41,21 6,05
Indonesia 60,81 8,44
Vietnam 117,08 13,99
Thailand 23,03 3,83
Philippines 31,32 4,81

Source: United Nations Conference on Trade and Development 2015


As seen above, the potential of ASEAN ports to continue with its growth is still enormous if some investment is made to improve their facilities.


As of 2017, IDR 380 billion have been allocated by the Government for the Sea Toll Program. This would allow Indonesia to enter into a competition with Singapore and Malaysia to be the dominant hub in Southeast Asia, reviving the country’s role in international trade and speeding up the shipment of goods and commodities.


With the implementation of “Cabotage” law in 2005, and its subsequent revisions, requiring vessels doing business in Indonesia to sail under the Indonesian flag, the number of Indonesian ships has increased by more than 300 per cent, while, in the same period, imported vessels have “only” increased by 90 per cent, due to the strengthening of local shipyards.


Bilateral trade regarding ships, boats and floating structures


Product code and label Indonesia's Imports from EU
89: Ships, boats, and floating structures 2012 2013 2014 2015 2016
Indonesia's imports from EU 105.915.000 93.120.000 63.154.000 180.443.000 169.652.000
% Indonesia's imports from EU 5,86 8,23 5,21 16,29 17,13
Indonesia's imports from Korea 26.369.050 41.319.606 119.323.895 52.383.547 25.498.146
% Indonesia's imports from Korea 1,46 3,65 9,84 4,73 2,57
Indonesia's imports from Japan 192.871.132 71.777.023 170,708,,402 135.493.718 183.757.737
% Indonesia's imports from Japan 10,67 6,35 14,08 12,23 18,55
Indonesia's imports from Singapore 508.858.492 312.748.113 327.044.159 359.195.391 278.793.445
% Indonesia's imports from Singapore 28,15 27,65 26,97 32,43 28,15
Indonesia's imports from China 376.221.585 414.330.494 319.759.073 182.488.232 196.875.495
% Indonesia's imports from China 20,81 36,63 26,37 16,48 19,88
Indonesia's imports from the World 1.807.631.000 1.212.744.000 1.107.534.000 990.342.000

Source: United Nations Statistical Commission 2017


Total Trade for ships, boats and floating structures


89: Ships, boats, and floating structures 2012 2013 2014 2015 2016
Indonesia's exports to the World 818.577.342 942.474.406 714.460.834 375.307.498 492.294.853
Indonesia's imports from the World 1.807.631.000 1.212.744.000 1.107.534.000 990.342.000
Total trade 2.626.208.342 2.073.504.406 1.927.204.834 1.482.841.498 1.482.636.853

Source: United Nations Statistical Commission, 2017


The European share of imports has steadily grown since 2012, accounting for over 17 percent of all ship imports from Indonesia, which amounted to almost USD 1 billion. However, as noted in the table below it, Indonesia’s imports have declined almost 50 per cent from their all-time high in 2012, mainly due to the improvements in their local shipyards and the implementation of the “Cabotage” rules. This opens the door for foreign shipbuilders to establish shipyards in Indonesia to make up the requirements, taking advantage of Indonesia’s strategic location and its relatively cheap labour.




There are a few issues that need to be sorted out for the industry to really take off, especially regarding the tax policy, with high import duty and corporate income taxes, especially outside the Free Trade Zones, mainly considering that most equipment needs to be imported.  


Interest loans at 12-14 percent without a competitive interest rate also make it difficult for local companies to find suitable long-term financing, which is still a non-solved challenge.


The remaining challenge is the regulatory environment of the sector. For example, Presidential Regulation No. 5/2005 on strengthening national shipping establishes that all naval activities in the country’s waters are subject to the jurisdiction of the State, entitling the relevant authorities to restrict the activities of foreign ships in its waters. It introduces the notion of “cabotage” for the first time, which implies that only ships under the Indonesian flag and manned by an Indonesian crew are allowed to perform shipping activities in national waters. Moreover, only national shipping companies are allowed to operate within Indonesian waters.


In the same mold, Article 29 of Law on Shipping No. 17/2008 states:

  1. In order to obtain a Sea Transportation Business License, an Indonesian corporation must have at least one Indonesian-flagged vessel of at least 175 GT.
  2.  An individual Indonesian citizen or business entity may cooperate with a foreign sea transportation business or foreign individual to form a Joint Venture only if the resulting Joint Venture owns at least one self-propelled vessel greater than 5,000 GT.

The shipping law leaves considerable scope for interpretation, as the term “ship” is defined only loosely. However, relevant authorities include all floating structures within the meaning of the term, including storage units, mobile ocean drilling units or the floating structures that provide technical and repair services at sea. All these floating structures are also subordinated to the “cabotage” principle, even if not engaged in domestic shipping activities.  


As a result of this law, all operators of these structures need to establish an “Indonesia Sea Transportation Company” located in Indonesia, and with a maximum of 49% ownership for foreign investors. However, exceptions needed to be made in strategic sectors, especially in the offshore oil and gas sector.


Foreign companies should be aware of the ongoing approval of protectionist policies that might discourage foreign suppliers and investors. However, this provides a good platform for those companies willing to establish a subsidiary in the country. At the same time, the huge local demand will benefit the local shipbuilding industry.




Overall, the current administration led by President Jokowi has established the maritime sector as a priority pillar in its economic policy, with major investments already committed and many more still to come, especially for infrastructure development and acquisition of ships.


Due to the strengthening of local shipyards along with the “Cabotage” regulation, and with the present inability of the local supplier industry to provide the more advanced supplies needed for shipbuilding, Companies can tap into the market by exporting their components, since the local industry is highly dependent on foreign imports.


With Jokowi’s “Global Maritime Axis”, the Indonesian Navy is looking to establish itself as a regional power, so national defence projects are being prioritised. The Indonesian government is engaged in the pursuit of technology transfer measures, opening the doors for European shipyards to sell their ships and their expertise. As an example of this, the development of the Martadinata Class frigates of the Indonesian Navy was a joint project between Schelde Naval Shipbuilding from the Netherlands and the state-owned company PT PAL.


According to the Indonesian Shipbuilding Assocation (IPERINDO), the standard of infrastructure in the country is hindering development in the eastern parts of the country, increasing the logistics costs for all projects outside the main islands of Java and Sumatra. Shipping companies face a challenging task unless infrastructure is further developed. On the other hand, port upgrades and the construction of new sea ports open the door for successful Private-Public-Partnerships between foreign and Indonesian companies in both port construction and port management.  


Finally, there are some challenges ahead that must be overcome. Corruption is widespread, which, along with the complex processes involved in entering the market, is one of the main burdens for the economy. European companies should note that the most successful way to enter the country is to team up with local companies or distributors.



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