Indonesian ports:

Current trends and

future requirements
Truong Bui, Project Manager

Jakarta, June 11&12, 2014

Todays agenda Page

A. Key industry trends 3

B. Indonesia port sector 14

C. Main challenges for port and maritime industry 19

D. Vision for the port sector 26

E. Strategies for the future 29

This document shall be treated as confidential. It has been compiled for the exclusive, internal use by our client and is not complete without the underlying detail analyses and the oral presentation. It may
not be passed on and/or may not be made available to third parties without prior written consent from Roland Berger Strategy Consultants. RBSC does not assume any responsibility for the completeness
and accuracy of the statements made in this document.

© Roland Berger Strategy Consultants 20140611_Indonesian Ports_vf.pptx 2

A. Key industry trends

20140611_Indonesian Ports_vf.pptx 3
Five key industry trends will underpin the short, medium and longer
term port and and shipping landscape

1 Sustained cargo traffic growth

2 Asia benefiting from maritime trade boom

3 Potential changes in shipping patterns

4 Larger container vessels

5 Regulation and cost efficiency drives technological trends

Source: Roland Berger 20140611_Indonesian Ports_vf.pptx 4
 1 Sustained cargo traffic growth

Global shipment demand has expanded by ~50% during the past

decade, bolstered by strong growth in containerized cargo
Global shipment demand, historical [2002-12, MT]

+53.2% 10Y-CAGR

8,644 +4.4%
8,285
8,016
7,578 7,655
7,171 7,305
6,711 3,410 +2.9%
6,333 3,166 3,268
5,936 3,056 3,082
5,642 3,027
2,975
2,851
2,754
2,552 2,666

3,465 3,615 +4.6%

3,170 3,154 3,389
2,972 3,001
2,556 2,739
2,295 2,372

1,121 1,223 1,352 1,419 1,277 1,461 1,552 1,620 +7.4%

795 898 1,023

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Liquid bulk Dry bulk Containerized cargo1)
1) Incl. general cargo

Source: UNCTAD, Roland Berger analysis 20140611_Indonesian Ports_vf.pptx 5

 2 Asia benefiting from maritime trade boom

Today Asia accounts for the largest proportion of global maritime

trade, recording steady growth in its market share

Total maritime trade by region [m Tons] Share of world maritime trade [2012 - %]

+11% Others
Africa
6%
7,773 9%
Oceania Asia
7,006 11% 39%
Export
3,377 13%
3,236 Europe
+13% -5% 23%
3,512 3,168 America
3,098 2,997
1,105 1,148
4,396 1,576 2,088 Africa Others
3,770 Oceania
2,063 1,849 1% 2%
1,522 1,424 Europe 4%
20%
Imports
2006 2012 2006 2012 2006 2012 57% Asia
16%
Asia America Europe America

Exports Imports

Source: Review of Maritime Transport 2013; UNCTAD; Roland Berger 20140611_Indonesian Ports_vf.pptx 6
 2 Asia benefiting from maritime trade boom

Asia not only contributes the most to the total maritime trade, but
has also shown a steady growth in its market share
Global maritime activity, 2006 - 2012
Maritime trade - North America Maritime trade - Europe Maritime trade – Asia1)
Million tones Million tones Million tones
% % %
8,000 50 8,000 50 8,000 50

7,000 45 7,000 45 7,000 45

40 40 40
6,000 6,000 6,000
35 35 35
5,000 30 5,000 30 5,000 30
4,000 25 4,000 25 4,000 25

3,000 20 3,000 20 3,000 20

15 15 15
2,000 2,000 2,000
10 10 10
1,000 5 1,000 5 1,000 5
0 0 0 0 0 0
06 07 08 09 10 11 12 06 07 08 09 10 11 12 06 07 08 09 10 11 12
Import Export % of world import % of world export
1) Developing nations in Asia

Source: Review of Maritime Transport 2013, UNCTAD 20140611_Indonesian Ports_vf.pptx 7

 3 Potential changes in shipping patterns

While Singapore remains an important hub for east-west cargo flows,

alternative trade routes may potentially arise in the longer future
Cargo flows – East Asia
Breaking the ice
Melting Arctic ice could open
Tsugaru commercially viable trade routes for
European cargo heading towards North
Promising economic rise Tianjin Tokyo East Asia
Busan Yokohama
The opening up of Myanmar's economy Singapore – The pre-
Korea
could eventually open shorter East-West
routes bypassing the Straits of Melaka – Ningbo
Shanghai
eminent trade hub
from Dawei to Bangkok, Ho Chi Minh Shenzhen
Kaohsiung > Situated along main East-
Hong Kong
West trade route – 30% of
Hormuz
South world trade passes through
China
Mumbai Dawei
Bangkok Sea
the Straits of Melaka
Economic powerhouse Ho Chi Minh City > Natural mid-point between 2
key growth markets – India
in the making Colombo Melaka Kota Kinabalu
& China
Indonesia's rise as an economic Port
Bintulu
powerhouse could draw more
Belawan Klang
> Strong inter and intra-
cargo through Jakarta on East-
PTP Singapore regional trade flows in
Palembang
West route ASEAN
Sunda Tg Priok Ujung Pandang
> Crossroads for Middle East
Surabaya

Major ports Main shipping lanes

– America west coast
Lombok Torres

Sources: UNCTAD, Roland Berger 20140611_Indonesian Ports_vf.pptx 8

 4 Larger container vessels

There is a clear and persistent trend towards larger container liner

sizes
Evolution of average container liner sizes [TEU] Maersk Triple E
18,000 TEU
Largest carrier in 2013,
Average ship other carriers following suit
Emma Maersk
size [TEU] 15,500 TEU
4,000 Regina Maersk Largest carrier in the mid 2000s,
other carriers followed suit
7,400 TEU
3,500
Largest carrier in the mid 1990s,
other carriers followed suit
3,000

2,500

2,000

1,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F

> Average size of container vessels has steadily grown over time
> When a market leader introduces a significantly larger vessel into the market, other players eventually follow suit

Source: Alphaliner; Drewry Maritime Advisors; Roland Berger 20140611_Indonesian Ports_vf.pptx 9

 4 Larger container vessels

Fleet profile of the future will feature a greater proportion of ULCVs,

- Implications on port planning, design and operations
Current fleet profile breakdown1) [TEU, %]
20.5
Majority of current container 17.9 17.6
vessels range between 4,000- 12.7
> Key implications:
10,000 TEU 10.5
– Port planning & operations
4.0 5.0 5.9 6.0
- Deeper drafts, longer berths,
wider channels etc.
< 1,000 1,000- 1,500- 2,000- 3,000- 4,000- 5,100- 7,500- > 10,000 - Higher gate pressure – needs
1,499 1,999 2,999 3,999 5,099 7,499 9,999 increased productivity, larger
capacity equipment, greater inter-
modal capacity
Orderbook fleet profile breakdown1) [TEU, %]
Majority of new build
– Vessel cascading
48.0
orders are for container - Vessel upsizing on corresponding
vessels > 10,000 TEU
25.3
spoke routes
9.7
– Rationalization of shipping routes
2.1 2.5 5.9 5.6
0.2 0.9 - Re-drawing of hub and spoke
alignments; some hubs dropped
< 1,000 1,000- 1,500- 2,000- 3,000- 4,000- 5,100- 7,500- > 10,000
1,499 1,999 2,999 3,999 5,099 7,499 9,999
Note: ULCV – Ultra large container vessels > 10,000 TEU
1) Breakdown by total capacities in TEU. Based on data as on 1 March 2013.
Source: Alphaliner; Roland Berger 20140611_Indonesian Ports_vf.pptx 10
 4 Larger container vessels

The trend towards ultra-large container vessels drives the forming of

alliances among liner operators to achieve greater scale
Trends in alliances
Asia-North Europe capacity shares [%]

> Pursuit of scale has led towards even

Others P3
larger vessel sizes
CKYH 16.0% > In order to fill the ships, reduce
Maersk operational risks – liners have entered
24.0% into operating, non-commercial alliances
with each other
CKYH > Since 2011, the trend towards alliancing
18.0% CMA CGM has intensified – there remains now only 3
10.0% major alliances controlling > 80% of market
MSC share
G6 11.0% > Others are under pressure to "join the
21.0% pack"
G6

Increased leverage of liner alliances

over port operators

Source: Drewry Maritime Advisors; Roland Berger 20140611_Indonesian Ports_vf.pptx 11

 4 Larger container vessels

As such, consolidation in the container shipping segment via

alliances or mergers is likely to accelerate…

It is likely that P3 would start its operations by end of …and would pave the way for expansion or creation of
2014… other alliances.

The world's three largest container liners - Maersk Line, CMA Evergreen Line will join with members of the CKYH alliance --
CGM and MSC to establish the P3 Network, which is due to COSCO, “K” Line, Yang Ming and Hanjin -- in operating container
start operations in mid-2014 services to the United States East Coast.

Evergreen, along with COSCO and Hanjin, has filed a vessel-

It is estimated that Maersk Line put market control of such an
sharing agreement with the Federal Maritime Commission saying
alliance at about 42% on the Asia to Europe route, 24% on the
they will cooperate on services between the Asia and the U.S.
transpacific routes, and 40-42% on the transatlantic route.
Atlantic Coast

If approved, P3 will control up to 40% of total cargo moved in

Germany's Hapag-Lloyd has just merged with Chilean peer
containers from Asia to Europe, and across the Pacific and
Compania Sud Americana de Vapores SA, creating the world
Atlantic ocean. The P3 Network will operate a capacity of 2.6m
fourth-largest container line and controling 4% of the Far east-
TEU (Twenty-foot Equivalent Units), with an initial combined fleet
Europe trade route
of 255 vessels on 29 loops

Source: Expert interviews, Roland Berger 20140611_Indonesian Ports_vf.pptx 12

 5 Regulation and cost efficiency drives technological trends

Changes in regulation and the continuous pursuit of cost efficiency

will drive future technological innovation
Technological trends

Regulation Cost efficiency

> Historically, technology
adoption in the
maritime sector most
strongly influenced by
regulatory changes –
often as a consequence
of accidents/incidents
> Increased
implementation of
environmental
regulation will drive
research and innovation
in new emissions
control technologies
and advanced fuel
technologies
> The continuous pursuit
Advanced fuel Automation of greater cost
technologies efficiency and savings
Solar sails ship, low Increased automation of will drive innovation
carbon fuels e.g., LNG port land and marine
ships, slow steaming, operations > The maturity stage of
electric ships individual technologies
affects costs and its
subsequent adoption
> Increased drive for cost
efficiency will drive
research in advanced
fuel technologies due
Environmental Information
technologies technology to high fuel costs as
Selective catalytic Ship voyage real time well as increased
reduction converters to tracking, voyage
adoption of automation
reduce NOx, low energy optimization by using latest
ship design e.g., improved ocean and weather data, e- and ICT
hull design reduces drag Navigation

Source: Roland Berger 20140611_Indonesian Ports_vf.pptx 13

B. Indonesia port sector

20140611_Indonesian Ports_vf.pptx 14
Growth in Indonesia

Indonesia is going through a period of unprecedented growth and

economic development
Brief economic snapshot of Indonesia
Sustained strong economic growth in Analysts predict Indonesia to be among A young, growing population with rising
recent years and for foreseeable future top 10 largest economies by 2050 … affluence will sustain growth
GDP Growth Rate, 2008 – 2012 [%] World GDP Ranking, 2012 [USD bn] Population Ranges '09-'12, [% total population]
20 1 United States 16, 245 30% 30% 30% 29%
2 China 8, 227
15 3 Japan 8, 227 65% 65% 65% 66%
4 Germany 3, 428
5% 5% 5% 5%
5 France 2, 613
10
10 India 1, 859 2009 2010 2011 2012
16 Indonesia 878 Ages 0-14 Ages 15-64 Ages 65+
5

World GDP Ranking, 2050 [USD bn] Population size per income segment1) [pax]
0
1 China 52, 620
2 United States 34, 580 71% 62% 59% 58%
-5
3 India 24, 980
2008 2009 2010 2011 2012 2013e 2014f 2015f 39% 40%
4 Brazil 9, 710 28% 36%
China Singapore
1% 2% 2% 2%
5 Russia 8, 010
India Indonesia 2009 2010 2011 2012
9 Indonesia 6, 040
Malaysia
11 France 5, 360 Low income Middle income High income
1) Based on population of age 15+

Source: World Bank, IMF, Goldman Sachs, Roland Berger 20140611_Indonesian Ports_vf.pptx 15
Major hurdles

However, existing infrastructure and operational hurdles may affect

the country's port and logistics development progress
Global Competitiveness Index Rankings1)
The quality of infrastructure is insufficient to support the country's target … and operational difficulties may
to become a major logistics and maritime hub … dampen interest of new investors

Quality of Overall Infrastructure Quality of Roads Number of Procedures to Start Business

1 Switzerland 1 United Arab Emirates 1 Canada
2 Hong Kong SAR 2 France 1 New Zealand
5 Singapore 7 Singapore 10 Malaysia
25 Malaysia 23 Malaysia 10 Singapore
61 Thailand 42 Thailand 20 Thailand
82 Indonesia 78 Indonesia 104 Indonesia

Quality of Port Infrastructure Quality of Railroad Infrastructure Burden of Customs Procedures

1 Netherlands 1 Japan 1 Singapore
2 Singapore 2 Switzerland 2 Finland
3 Hong Kong SAR 10 Singapore 3 Hong Kong SAR
24 Malaysia 18 Malaysia 23 Malaysia
56 Thailand 44 Indonesia 74 Indonesia
89 Indonesia 72 Thailand 80 Thailand
1) Ranked out of 148 countries

Source: World Economic Forum – Global Competitiveness Index 2013- 2014, Roland Berger 20140611_Indonesian Ports_vf.pptx 16
Traffic growth in Indonesia

The total tonnage handled by these ports has experienced annual

growth of 4.2% to reach 565 m MT in 2013 from 405 m MT in 2005

Port throughput evolution [m MT] CAGR 05-13 [%]

+4.2% +36.9%

774

1.5%
189

565
540
489
518 99 0.2%
465 138
453 132
425 127
405 400 119
117 108 72
113 66 69
123 117
69 61
59 291 6.3%
71
71 63 203 213
195 195
175 184
136 148
130

116 130 136 142

194 7.2%
81 84 93 104 100

2005 2006 2007 2008 2009 2010 2011 2012 2013 2020

General Cargo Liquid Bulk Dry Bulk Container

Source: IPC I, II, III, IV 20140611_Indonesian Ports_vf.pptx 17

Traffic growth in Indonesia

Driven by favorable economic drivers, trade activity has been on a

rapid rise
Historical trade data by region, 2009 – 2013 [mil MT]

CAGR: +17.9%

31
25 27 28
16

2009 2013 CAGR: +36.2%

CAGR: +20.9%
CAGR: +7.1%
22 CAGR: +45.5%
489 CAGR: +55.5%
79 80 86 342 399 417 12
15
66 68 9
229 6 10 10 10 10
41
31 35
14 2
2009 2013 7 2009 2013
2009 2013
CAGR: +9.1% 2009 2013
2009 2013

128 131 132 CAGR: -2.3%

93 111
2 2
2 2
1

2009 2013

2009 2013 500km

Export Import

Source: Statistics Indonesia, Roland Berger 20140611_Indonesian Ports_vf.pptx 18

C. Main challenges for
port and maritime
industry

20140611_Indonesian Ports_vf.pptx 19
Industry and regulatory developments

With the new shipping laws in place, port investment opportunities

for private players have been realised...
Evolution of port sector regulations
> National and Local Port Master
Government Categorisation of general and special Plan,
Eight National Port Regulation No. 1: ports: > Port/ terminal development &
Companies (NPC) Port Management > PELINDO - ~70 commercial ports operational approvals
for port Boards (PMB) to > UPTs/ Regional Administrations – small > Permits and tariffs
management and manage public ports > Foreign-trading ports promotion
administration ports > Owners – special ports > Port information systems

1960 1969 1992 2009

1964 1983 2008

Port Authorities to
handle operational
matters and NPCs
to handle
commercial
PMBs were restructured into Shipping and Port Act No. 17: PELINDO
> Public Port Corporations (PELINDO) I–IV removed as regulator only to act as
for commercial ports operator setting tariffs freely, subject to
> Directorate General of Sea Transportation local port authorities’ approval
for non-commercial ports
Port sector privatization

Source: Roland Berger 20140611_Indonesian Ports_vf.pptx 20

Review of port development in Indonesia

... allowing an increase in influx of capital investment to further

development and expansion of the port industry
Summary of upcoming port developments & investments in Sumatra

Belawan
> IDR 3 trn investment
> Dock and equipment addition being
1 done urgently
Kuala Tanjung 2 > Additional CY space, to be fully
> IDR 6.5 trn investment ready by 2015
> Capacity of 1.5 m TEUs/ year 3
> With a 2.5 m ton/ year CPO
terminal
> Ready by 2015
4 Pekanbaru
> Investment in dock area, CY
Dumai space, container port terminal,
> Investment of IDR 6 trn 5 road access and also access within
> Yard storage, container, dry bulk, liquid and the harbor
passenger terminal including warehouse space
> Primarily serving commodities E.g. CPO Sumatra

Teluk Bayur
> Procurement of equipments
and expansion of dock
> Projected cost of IDR 675 bn
> Capacity of 4k TEUs

Source: Roland Berger 20140611_Indonesian Ports_vf.pptx 21

Review of port development in Indonesia

... allowing an increase in influx of capital investment to further

development and expansion of the port industry
Summary of upcoming port developments & investments in Java

Madura
Tanjung priok > Privately developed industrial city
> Development of new (Lamicitra Nusantara Tbk)
Priok Port in North > 10k ha land as an integrated seaport
Kalibaru adding an > USD 600 m/ project x 10 projects
additional capacity of 9
m TEUs by 2023

1 2

4
Java 3

Cilamaya
> Proposed investment of USD 1.03 bn
> Capacity of 10 m TEUs
> Operators still to be chosen
> Scheduled completion in 2019
Gresik
> Increase the general cargo, liquid bulk, channel and
basin over two stages
> Scheduled final completion is 2014
> IPC III to jointly build an industrial estate and deep
water port with AKR of Gresik

Source: IPC II. Roland Berger 20140611_Indonesian Ports_vf.pptx 22

Review of port development in Indonesia

... allowing an increase in influx of capital investment to further

development and expansion of the port industry
Summary of upcoming port developments & investments in Kalimantan
Pontianak
> The proposed port would be
able to process up to 3 million
TEU pa as well as 15 million
tonnes of bulk cargo and over
20 million tonnes of liquids

Kalimantan

Banjarmasin
> New channel built by private company
increasing throughput greatly
2 > Revenue earned by users on /MT basis

Source: IPC II. Roland Berger 20140611_Indonesian Ports_vf.pptx 23

Review of port development in Indonesia

... allowing an increase in influx of capital investment to further

development and expansion of the port industry
Summary of upcoming port developments & investments Eastern regions
Bitung Ambon
> National strategic port under country > Land reclamation
Masterplan (MP3EI) > New dock
> Incl. 500 ha industrial zone > Quay extension
> Road works to port is IDR 2 trn > Increased container volume
> Would increase regions GDP to IDR 1 ~320k TEUs by 2025/ month
50 trn by 2025 > Currently 36k TEUs per
month
2 > Expansion delayed due to
financial problems (gov't
Sulawesi budget)
3
Papua
4

Makassar Sorong
> IDR 7 trn investment > IPC II would work on the
> Starting in 2014 with Pelindo IV plan to build a new
> Looking for private/ state run Sorong to be one of the
companies to construct the port or hub in Eastern region of
foreign entity Indonesia.

Source: Roland Berger 20140611_Indonesian Ports_vf.pptx 24

Industry and regulatory developments

Despite new legislation and increased capital, there are general

concerns regarding the development progress of the port sector
Repercussions of changes in legislation
Concerns
Lack of coordination between different institutes within
the port sector

Widespread expansion of development

across the archipelago through:
> Competition in the development and
operation of ports thus breaking state
monopoly
> Improvement in inter-island transports
connectivity
Slow yielding projects – Port projects take significant
amount of investment and time to realize returns
New Port Authorities staff have poor expertise in port
sectors.
The overlap and ambiguity over the role of new Port
Authorities and Operators (especially the Pelindos)

> Reduction of transport costs Multiple implementation of the law

Lack of clear master plan for the country’s port sector

Source: Roland Berger 20140611_Indonesian Ports_vf.pptx 25

D. Vision for the port
sector

20140611_Indonesian Ports_vf.pptx 26
The port vision should focus on the transport chain which has three
main segments
Supplier
Transport to port
Connectivity to port
> Road quality and capacity
> Train frequency, punctulity and
number of destinations
> Pipe size
> River width and draft
Port of orgin
Transport to destination port
Forwarder/3PL
Connectivity between port
> Location to nearby sealane
> aligned paperwork between ports
> Aligned operations between ports
> Relationship with shipping lines
Port of destination
Customer
Transport to customer
Connectivity from port
> Road quality and capacity
> Train frequency, punctulity and
number of destinations
> Pipe size
> River width and draft
20140611_Indonesian Ports_vf.pptx 27
Port vision for Indonesia ports should contains solid plans to
increase port performance and connectivity and network expansion
Port strategy elements
1 Port performance
> Improve port facilities
> Improve the skills of port labours
> Improve master planning
1 2 Increase connectivity
> Road quality and capacity
Performance > Train frequency, punctuality and number of
destinations
> Attract the industry
> Increase river width and draft
> Increase connectivity with associated ports
Port Vision
3 Expanding the network
> Follow the industry
3 2 > Create the shipping corridor /shipping network
Network Connectivity > Create own network
> Develop strategic parnerships with other port in
containers, energy, petrochemicals and dry bulk

20140611_Indonesian Ports_vf.pptx 28
E. Strategies for the
future

20140611_Indonesian Ports_vf.pptx 29
Strategies for the port and maritime industry

Key goals have been identified in order to further the nation's efforts
in developing its port industry
Key industry goals

1 Overcoming institutional challenges

The process to establish and expand existing ports are still heavily bureaucratic

2 Revising Java-centric economic initiatives and policies

The nation is primarily focused in further developing the economy in Java

3 Reducing reluctance to expand eastwards

There is an existing lack of enthusiasm to tap into the growing potential of the port industry in the East

4 Improving under investment in ports, particularly in the East

Investments are almost solely fixed on the Sumatera-Java-Kalimantan belt which excludes finances pouring into the East

5 Developing logistics infrastructure in remote areas

Considering the isolated locations of some regions, there may be difficulty in establishing operations there

6 Modernising commercial and internal traffic fleets

Dated fleets are hampering the growth of the shipping and logistics industry in Indonesia

Source: Roland Berger 20140611_Indonesian Ports_vf.pptx 30

Strategies for the port and maritime industry

Three core strategies should serve as a guide to the development

initiatives of the Indonesian port sector
Core development strategies

1 Increase attractiveness to invest in the Indonesian port sector

> Process to establish and expand existing ports are still heavily bureaucratic
> Investment climate in recent years has not been encouraging

2 Shift and expand development focus from Java

> Existing initiatives and policies are heavily centred around development of the port industry in Java
> There is a lack of enthusiasm to tap into the growing potential within the East
> Investments are almost solely fixed on the Sumatera-Java-Kalimantan belt, excluding participants further east
> Disinterest in developing the logistics in the east

3 Revitalise existing ports and fleets

> Indonesian port infrastructure is ranked in the bottom half of global port rankings1)
> Dated fleets are hampering the growth of the shipping and logistics industry in Indonesia

Source: Roland Berger 20140611_Indonesian Ports_vf.pptx 31

 Truong Bui
Project Manager

Roland Berger Strategy Consultants Pte. Ltd.

50 Collyer Quay, #10-02 OUE Bayfront
Singapore 049321
Tel +65 6597 4567
Mobile +65 8321 2170
Fax +65 6597 4531
truong.bui@rolandberger.com
<http://www.rolandberger.com>