How does Thai’s Kra Canal affect Indonesia’s logistics industry?

News about Thailand’s Kra Canal reemerges following several information that the canal’s development will be resumed.

The main concern here is the scheme wherein logistics vessels will no longer go through Malacca Strait between Singapore, Malaysia, and Indonesia.

Indonesia was predicted to suffer once the Canal development is completed. Vessels moving between East China Sea and Indian Ocean that used to go through Malacca Strait will take a shortcut through the Kra Canal, which connects the Andaman Sea and the Gulf of Thailand through its southern part.

Canal Development Plan

The canal development news received public attention again following, among others, a statement made by Pakdee Tanapura, the International Director of the Board of Directors of the International Executive Committee for the Study of the Kra Canal Project in Bangkok.

Pakdee, as cited by Financial Times via The Independent Singapore, stated that the plan, which was first formulated in 1677, is now being supported by a Chinese company.

“We are pretty much supported by a group of Chinese private companies (including Chinese telecommunication tycoon Wang Jing) pushing hard to develop the canal,” Pakdee said as cited by Financial Times. As a note, Wang Jing is the CEO of Beijing-based telecommunication company Xinwei.

Pakdee also said that the development committee is working with Thailand’s military government to realize the plan.

Furthermore, according to The Independent Singapore, Thailand’s royal succession, in which the new King Vajiralongkorn Rama X has replaced his father the late King Bhumibol, will also increase the chance of the canal development.

The canal’s impacts on Indonesia

The general advantage of the development of Kra Canal is it will cut down operational costs of logistics vessels. The canal, according to an article published in a Shipping and Trade Journal, will enable ships to save up to 1,200 kilometers of voyage distance or two to five days of voyage time. The estimated bunker savings for a 100,000 dwt oil tanker is $350,000 per trip.

However, such worry should be addressed by considering the export-import map in Indonesia. While the port in Batam has been used a transit port, due to its proximity with Singapore, the Transport Ministry stated that Indonesia’s export-import activities are mainly focused in Kuala Tanjung International Hub Seaport (North Sumatra) and Tanjung Priok Seaport (DKI Jakarta) for the western parts, and at Bitung Seaport (North Sulawesi) for the eastern parts.

According to Statistics Indonesia, Indonesia’s largest non-oil and gas export destinations as of February 2017 were China ($1.36 billion), the United States ($1.36 billion), and India ($1.02 billion). Meanwhile, the largest import during January-February 2017 came from China ($4.87 billion), Japan ($2.15 billion), and Thailand ($1.38 billion).

According to the facts above, all of Indonesia’s export and import routes are most likely will not need to cross the Kra Canal, which is estimated to be located at Bandon Bay area, near Surat Thani and Phang Nga provinces, or between Nakhon Si Thammarat and Trang provinces.

However, it is interesting to keep an eye out for the development of the canal, which is expected to have a length of 50 to 100 kilometers, especially due to the significance of logistics for the world economy.