INDONESIA (ISL News) - The escalating conflict in the Middle East and potential disruptions in the Strait of Hormuz have the potential to increase national distribution costs and depress domestic prices. This route carries approximately 20 percent of global oil consumption and 20-25 percent of global LNG trade, so any disruption could drive up international energy prices.
Setijadi, Founder and CEO of Supply Chain Indonesia (SCI), believes the impact on Indonesia will be through the transmission of global oil prices (Brent) to domestic diesel prices. Diesel is a major component of road transportation operating costs, which remains the backbone of the national logistics system.
In a moderate scenario, a global oil price increase of $25 per barrel could potentially push up the economic price of diesel fuel by around Rp750-2,000 per liter, depending on the exchange rate and price adjustment policies. In a more severe scenario, with an increase of up to $50 per barrel, pressure on distribution costs could increase significantly.
Assuming fuel accounts for approximately 35-40 percent of total truck operating costs, a 10 percent increase in diesel prices could drive up freight costs by around 3.5-4 percent. A 20 percent increase in diesel prices could potentially increase trucking costs by 7-8 percent. In a more severe scenario, a 30 percent increase in diesel prices could trigger a 10.5-12 percent surge in freight costs.
Average logistics costs in Indonesia are estimated at around 14 percent of product prices, with about half of this cost coming from road transportation. A 7-8 percent increase in trucking fares has the potential to increase the average price of goods by around 0.5 percent. In more extreme cases, a trucking cost increase of over 10 percent could push prices up by nearly 0.8 percent, particularly for bulky and thin-margin commodities such as food, building materials, and fast food products.
National Distribution Inflation Risk and Mitigation Measures
Setijadi emphasized that Indonesia's logistics structure, which still relies heavily on road transportation, makes it relatively sensitive to diesel prices. The greatest risk is inflationary pressure on distribution costs, particularly for food and basic necessities.
Industries based on raw material imports face a dual risk: rising import costs due to the surge in oil prices and rising domestic distribution costs. The construction and MSME sectors are also relatively vulnerable due to high transportation costs and limited margins.
SCI assesses that the government needs to maintain fuel price stability through adaptive fiscal policies and accelerate energy diversification. Strengthening multimodal connectivity, particularly optimizing sea and rail transportation, is crucial to reducing sensitivity to diesel price fluctuations.
From an industry perspective, efficient distribution routes, cargo consolidation, and the implementation of fuel cost adjustment mechanisms in logistics contracts are needed. Without structural reform of the logistics system, any external shocks risk directly translating into domestic price pressures and weakening purchasing power.
(ISL News Editorial Team/SCI Public Relations).
