JNE riding on wave of Indonesia's e-commerce boom
The Jakarta Post
The Jakarta Post
Starting with eight employees ' including four founding members that took up jobs as couriers ' and around Rp 100 million of capital in 1990, PT Tiki Jalur Nugraha Ekakurir (JNE) is now one of the country's biggest logistics companies with 13,000 employees and an ability to spend Rp 750 billion (US$55 million) a year for expansion.
It sailed through many challenging business environments, including the 1998 financial crisis, and is now even stronger thanks to the flourishing e-commerce industry that has given the company 40 percent annual revenue growth in the last three to four years, oblivious to the recent domestic economic slowdown.
With multimillion dollar revenue per year, JNE now makes an average of 12 million deliveries every month with 7,000 independent counters nationwide that employ an average of three to four workers per outlet, with outlets located in urban malls to remote areas.
'Our revenue is really affected by the plethora of e-commerce. Around 70 to 80 percent of total revenue comes from the retail sector, which is dominated mostly by online shops,' said JNE president director Mohammad Feriadi, the son of the company's founder and shareholder.
E-commerce transaction values have seen a staggering growth of around 100 percent per year in the past few years, even though users only account for 1 percent of the total population of around 250 million at present. The e-commerce market is expected to soar to $25 billion by next year, from $4 billion in 2012.
The e-commerce trend began mushrooming in Indonesia during the heyday of the Kaskus online community in the late 2000s, with the forum allowing online buying and selling activities with shipment by courier services such as JNE and its sister company Titipan Kilat (Tiki) and offering bank transfer or cash on delivery as preferable payment methods.
Now with the e-commerce boom and online shops flourishing, from Kaskus to Instagram and blogs, courier services have become a lucrative sector to tap into, as evidenced by the emergence of mobile application-based courier services such as Go-Jek and local online marketplaces such as Lazada having their own courier services.
As JNE strives to maintain its top position in the courier and logistics market, it plans to spend Rp 1.5 trillion in capital expenditure for 2016 and 2017.
'The capital will be used for improving information technology [IT], building more warehouses, training manpower, strengthening vehicle fleets and developing other existing businesses,' Feriadi said during the company's visit to The Jakarta Post office on Tuesday. The warehouses will be built in Cimanggis, West Java; Cengkareng, West Jakarta; and Sunter, North Jakarta.
Despite aiming to be a 'visionary' firm, JNE maintains an old-fashioned way of doing business, relying on its own cash instead of bank loans to aid expansion. It still prefers transacting with its suppliers and partners in fresh money, given that most of its customers and point of sales outlets pay with hard cash as well.
'For now we're still self-financing ['¦] We have borrowed from banks only recently when we need funding to construct a new building,' Feriadi said, adding that JNE might be interested in listing its shares on the bourse to raise funds from the public.
'I don't want to state any definite time frame because it's subject to our preparations. We really depend on that. If we're ready, we might do it immediately. We want to make sure that if we're listed, we give public shareholders what they expect,' he added.
Of all the logistics businesses in the country, the firm is possibly a top-three player in the sector, with a 25 to 30 percent market share. Its competitors include PT Pos Indonesia, DHL Express, Republic Express Airlines (RPX) and sister company Tiki.
The Indonesian logistics industry is expected to grow at an estimated Compound Annual Growth Rate (CAGR) of 15 percent over the next four years due to rising domestic demand. Challenges remain in rising wages and infrastructure, according to research and consulting Frost & Sullivan.
To excel in the domestic market, logistics businesses 'must have a good and integrated tracking system and a vast network of outlets', said Arman Yahya, former chairman of the Indonesian Logistics and Forwarders Association (ALFI).
'Challenges for express companies remain the same, which are infrastructure, airports, ports, congested main roads. These have resulted in high costs.'
President Joko 'Jokowi' Widodo's administration has acknowledged that infrastructure bottlenecks have created a high-cost economy for Indonesia and have channeled huge amounts of state funds for infrastructure projects to lower the country's stubbornly high logistics costs and boost economic growth to up to 7 percent by 2019.
In tapping into the potentials of the logistics sector, JNE has also been in contact with Chinese e-commerce giant Alibaba about a possible partnership in the future, Feriadi revealed. JNE currently partners with DHL Express, United Parcel Services (UPS) and Australia Post.
'We have to partner with the specialist on each continent,' he explained.
JNE has disrupted the market by breakthrough products and services that include delivering local food delicacies across the archipelago, with a service called Pesona (Charm), short for 'pesanan oleh-oleh nusantara' (local food ordered as gifts).
Pesona adopts the Indonesian tradition of giving gifts of local food to friends and family after traveling to places. However, rather than carrying foods as baggage, customers can send them directly to their friends.
'Popular food like pempek [South Sumatran fish dumplings] can be ordered by as much as seven tons a day,' Feriadi said. 'With an online delivery system, and about 3,000 food items from hundreds of small and medium food enterprises nationwide, Pesona drives people into a frenzy of ordering food, especially during certain seasons.'
Jesika, short for 'jemput ASI seketika' (breast milk picked up in an instant) is another JNE delivery service targeting breast-feeding working mothers in Jakarta and Yogyakarta.
Now faced with additional competition from Go-Jek, also offering immediate courier services in big cities like Jakarta and Surabaya, the logistics company said that the new app posed a minor threat.
'Soon we'll too have an app, from which customers can order a pick-up of their delivery. The difference with Go-Jek is that our app will give alternatives for delivery times, such as within-the-hour, same-day service, overnight and so forth,' he explained.
JNE was founded by the late Soeprapto Suparno, who also started Tiki in 1970. Tiki started out with a focus on retail customers while JNE had a corporate focus. Now both companies serve both retail and corporate sectors but under separate management.
When Soeprapto passed away in June this year, JNE wrote in a press statement that his initial vision for the company was to 'extend friendship and deliver happiness', which included efforts to revive the economy back in the 1998 financial crisis, such as lifting laid-off workers out of poverty by working as JNE agents and by distributing free rice to employees. (rbk)
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