The owner of Blue Bird, Indonesia’s biggest taxi operator, plans to boost revenue from logistics at least fivefold by delivering more sandwiches and electronics to a burgeoning middle class.
The Djokosoetono family, whose Iron Bird unit transports dry and chilled goods to 7-Eleven convenience stores in Jakarta, plans to increase the share of logistics in group sales to more than 50 percent “ideally,” from about 10 percent now, said Noni Purnomo, a director at PT Pusaka Citra Djokosoetono, the parent company of Iron Bird and Blue Bird. Purnomo didn’t specify a timeframe for the target.
The goal highlights opportunities to profit from poor public infrastructure in Southeast Asia’s largest economy, where high logistics costs add to inflation and create delays. Blue Bird sees more companies wanting to avoid the hassles of dealing with distribution, and is relying on its reputation for reliability that has spawned a host of copycat taxi operators.
“Our passenger land transportation has been growing in line with the consumer market so we want logistics to also track that” growth, Purnomo, whose grandmother Mutiara Siti Fatimah Djokosoetono founded the taxi company in 1972, said in an interview on Sept. 11. “We have a solid system of managing a fleet that’s been developed for 40 years.”
Blue Bird, which plans an initial public offering, has about 28,900 vehicles, more than three times its closest rival PT Express Transindo Utama, which has a market value of 3.6 trillion rupiah ($318 million), according to data compiled by Bloomberg. Express Transindo shares have surged 91 percent this year, outperforming the Jakarta Composite index’s 3.4 percent gain.
Blue Bird seeks to raise at least $600 million from the IPO, which may start in the fourth quarter, three people with knowledge of the matter said in July. There’s no decision to postpone the share sale, Purnomo said, declining to disclose details of its size. The family will retain a majority stake while proceeds will be used to expand taxi operations, she said.
Pusaka Citra is combining the logistics operations with its warehouse, trucking and freight-forwarding units to offer a more complete service, Purnomo said.
“Logistics is a low-margin business that depends on volume, so if you have more trucks then you can grow,” Adrianus Bias Prasuryo, an analyst at PT Samuel Sekuritas Indonesia in Jakarta, said by phone. The family “has expertise in managing a fleet and that’s the main point for entering logistics.”
Even so, rising fuel prices could pose a risk as Iron Bird may not be able to pass on higher costs to customers, Prasuryo said. Blue Bird may face weaker demand in an economic downturn as fewer people would be able to afford a cab ride, he said.
The government raised subsidized fuel prices in June to curb a budget deficit amid rising crude prices. West Texas Intermediate crude rose 16 percent this year. Indonesia’s economy grew 5.81 percent from a year earlier in the last quarter, expanding less than 6 percent for the first time since 2010. Bank Indonesia lowered on Sept. 12 its 2013 GDP growth forecast to a 5.5 percent to 5.9 percent pace.
Blue Bird’s success has spawned knock offs by local taxi operators who copy the company’s blue color cabs, Purnomo said. Blue Bird operates in 18 cities across Indonesia, serving 8.5 million passengers a month, according to a company presentation.
Boosting the group’s logistics services to deliver consumer goods may help the family tap deeper into a middle and affluent class that is estimated to double to 141 million people by 2020, according to a March report by Boston Consulting Group. Household spending in the world’s fourth-most populous nation accounted for about 55 percent of the economy in the second quarter, data from the nation’s statistics office show.
The costs of logistics across the archipelago account for about 24 percent of gross domestic product, higher than in neighboring countries, World Bank trade specialist Henry Sandee wrote in a report this month. The waiting time at Jakarta’s Tanjung Priok port, which handles more than two-thirds of Indonesia’s international trade, increased to 6.4 days in November 2012, from 4.8 days in October 2010, the report said.
“In Indonesia what we need right now for growth is infrastructure and logistics services,” Purnomo said. “We hope our logistics services will later be as big as, or even bigger than our passenger” business.