SEE – Europe's emerg­ing lo­gis­tics hotspot

Top 100 See - - See Top Industries - By Tsve­tan Ivanov, busi­ness con­sul­tant, SeeNews Miroslava Rakovska, Univer­sity of Na­tional and World Econ­omy - Depart­ment of Lo­gis­tics, Bul­gar­ian Lo­gis­tics As­so­ci­a­tion

The lo­gis­tics sec­tor in South­east Europe (SEE) is rel­a­tively un­der­de­vel­oped as com­pared to the rest of Europe. How­ever, the re­gion's lo­ca­tion de­ter­mines its strate­gic role in trade within the con­ti­nent, as well as be­tween Europe, the Mid­dle East and Asia. In ad­di­tion, it is un­matched in Europe in terms of labour costs and real estate rents, and ben­e­fits from favourable govern­ment poli­cies.

The re­gion is also among the best-rated as far as goods dis­tri­bu­tion is con­cerned, though its ben­e­fits re­main of lo­cal or sub­re­gional nature. Strate­gi­cally lo­cated hubs in SEE, such as Is­tan­bul, are in­creas­ingly in­te­grated in the global sup­ply chain and will gain fur­ther im­por­tance as trade links with the Far East and the Mid­dle East strengthen.

On­go­ing in­fra­struc­ture devel­op­ment and in­creas­ing consumer de­mand in SEE have led to a shift in dis­tri­bu­tion pat­terns in Europe and the devel­op­ment of new freight traf­fic routes. This in turn is im­pact­ing the Euro­pean lo­gis­tics mar­kets and has brought about new dis­tri­bu­tion hubs, some of which are com­pet­ing with es­tab­lished cen­tres in Western Europe as al­ter­na­tive lo­ca­tions for pan-Euro­pean dis­tri­bu­tion ac­tiv­i­ties.

The risk fac­tors for lo­gis­tics in SEE, ac­cord­ing to a 2015 re­search con­ducted by the Ger­man Lo­gis­tics Union BVL, are above all re­lated to de­mo­graphic and work­force trends, whose im­pact on the sec­tor is es­ti­mated as strong. The state of the in­fra­struc­ture and the devel­op­ment of spe­cialised soft­ware are seen as hav­ing a mod­er­ate im­pact, while geopo­lit­i­cal events are con­sid­ered by lo­gis­tic providers to have a lim­ited im­pact, but con­sumers of lo­gis­tic ser­vices, i.e. in­dus­trial and trade en­ter­prises, es­ti­mate their im­pact as mod­er­ate to strong.

Lo­ca­tion fac­tors

The fac­tors that de­ter­mine the strength of a lo­gis­tic hub gen­er­ally fall into one of the fol­low­ing groups:

In­fra­struc­ture and Ac­ces­si­bil­ity

Mar­ket Ac­cess

Op­er­a­tional Base Costs

Labour Mar­ket Ca­pac­ity

Lo­gis­tics Com­pe­tence

Busi­ness Environment

The best com­bi­na­tion of these is the ul­ti­mate cri­te­rion that de­ter­mines the lo­ca­tion of a strong lo­gis­tics hub. As far as in­ter­con­ti­nen­tal trade is con­cerned, lo­ca­tions in SEE fall into four groups:

Ex­ist­ing dis­tri­bu­tion hubs – Is­tan­bul, Athens

Emerg­ing dis­tri­bu­tion hubs – Izmir Po­ten­tial dis­tri­bu­tion hubs – Bucharest, Bel­grade

Other aux­il­iary dis­tri­bu­tion cen­tres – Sofia, Thes­sa­loniki, Skopje, Nis, Con­stanta, Za­greb, Sara­jevo

Ac­cord­ing to a sur­vey con­ducted by Prol­o­gis, a com­pany op­er­at­ing in in­dus­trial lo­gis­tics, which aimed to de­ter­mine the most at­trac­tive lo­ca­tions for lo­gis­tic cen­tres in Europe in 2013 and in 2018, nine of the top ten lo­ca­tions were in Western Europe and one was in SEE – the re­gion of Western Ro­ma­nia was ranked eighth in 2013 and fifth for 2018, and seen as play­ing a vi­tal role in pan-Euro­pean lo­gis­tic flows. Its com­par­a­tive strengths were con­sid­ered to be the state of the real estate and the labour mar­kets and favourable govern­ment reg­u­la­tions, while its main weak point was the ab­sence of first-class lo­gis­tics fa­cil­i­ties. The sur­vey was con­ducted among com­pa­nies op­er­at­ing in dif­fer­ent sec­tors of the econ­omy across Europe.

One clearly vis­i­ble dif­fer­ence be­tween the rank­ings for 2013 and 2018 is the ex­pected im­prove­ment of SEE lo­ca­tions, in­clud­ing Western Ro­ma­nia, Bucharest and Is­tan­bul which re­port the high­est growth among all Euro­pean lo­ca­tions in the five-year pe­riod.

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Lo­ca­tions in SEE place among the top Euro­pean lo­gis­tics hubs in a sur­vey con­ducted by con­sul­tancy com­pany Col­liers In­ter­na­tional, as well. The sur­vey ranks 40 Euro­pean cities ac­cord­ing to their suit­abil­ity as lo­gis­tics hubs.

The cri­te­ria used for eval­u­a­tion of the lo­gis­tics hubs by Col­liers are di­vided into five ma­jor groups, each con­sist­ing of two to four in­di­ca­tors:

In­fra­struc­ture & Ac­ces­si­bil­ity - Qual­ity of in­fra­struc­ture; Air freight ca­pac­ity of air­ports within 1-hour; Con­tainer ca­pac­ity of sea­ports within 1-hour; Rail ac­ces­si­bil­ity Mar­ket Ac­cess - Cur­rent GDP; Population; GDP in 2017

Op­er­a­tional Costs - Rental cost; Land cost; Labour cost

Labour Mar­ket Ca­pac­ity – Work­force; Un­em­ploy­ment

Lo­gis­tics Com­pe­tence - Labour mar­ket spe­cial­i­sa­tion; Lo­gis­tics com­pe­tence

Seven SEE cities in Bulgaria, Ro­ma­nia, Ser­bia, Slove­nia, Croa­tia, Greece and Turkey are in­cluded in the pool. In each of the five groups dif­fer­ent SEE lo­ca­tions are placed among the top Euro­pean lo­gis­tics hubs – Sofia, Bucharest and Bel­grade are among the top ten in terms of op­er­a­tional costs, the Turk­ish cities excel in the labour force and lo­gis­tics com­pe­tence group, and the busy ports of Is­tan­bul and Ri­jeka/Koper are eval­u­ated highly in terms of in­fra­struc­ture and ac­ces­si­bil­ity. Only in terms of mar­ket ac­cess the re­gion's main hubs lag far be­hind in the Euro­pean rank­ing due to their lo­ca­tion far from the large consumer cen­tres in Western Europe.

Coun­try com­par­i­son based on the Lo­gis­tics Per­for­mance In­dex

An ex­tremely valu­able source for in­ter­na­tional com­par­isons in the field of lo­gis­tics is the Lo­gis­tics Per­for­mance In­dex (LPI), pub­lished by the World Bank once ev­ery two years. It has six com­po­nents - ef­fi­ciency of cus­toms and bor­der man­age­ment clear­ance, qual­ity of trade and trans­port in­fra­struc­ture, ease of ar­rang­ing com­pet­i­tively priced ship­ments, com­pe­tence and qual­ity of lo­gis­tics ser­vices, abil­ity to track and trace con­sign­ments and de­liv­ery time­li­ness and re­li­a­bil­ity.

Most SEE coun­tries have shown volatile per­for­mance since the cre­ation of the in­dex in 2007. Turkey and Slove­nia main­tain their top po­si­tions in the re­gion and are among the lead­ing 40 coun­tries in the world. Greece, Bulgaria and Croa­tia are also in­vari­ably in the first half of the rank­ing, al­though each of them had its ups and downs over the years. Bulgaria and Croa­tia climbed sharply in 2012 but fell again in 2014. The only three coun­tries in SEE to show a sus­tain­able trend of im­prov­ing lo­gis­tic per­for­mance are Ro­ma­nia, Ser­bia and Mon­tene­gro. Al­ba­nia also im­proved sig­nif­i­cantly in the 2007-2012 pe­riod be­fore be­ing omit­ted from the in­dex in the 2014 edi­tion. The other three coun­tries in the re­gion rank among the less im­pres­sive per­form­ers world­wide. Bos­nia and Herze­gov­ina and Moldova are gen­er­ally ranked be­tween po­si­tions 80 and 100, ex­cept for 2012, when Bos­nia reached the 55th place, while Moldova slipped to the bot­tom of the ta­ble. Mace­do­nia is the only coun­try in the re­gion whose stand­ings in the rank­ing de­te­ri­o­rate ev­ery year.

In a break­down by in­di­ca­tors, SEE sees sharpest im­prove­ment in terms of time­li­ness and ease of ar­rang­ing ship­ments. The ac­ces­sion of three Balkan coun­tries to the EU af­ter 2007 and their tighter in­te­gra­tion with the other coun­tries in the re­gion has led to wider ac­cess to Euro­pean mar­kets for the whole re­gion. To sur­vive in these mar­kets, SEE com­pa­nies had to ad­just to the re­quire­ments of their Euro­pean part­ners for timely and re­li­able ship­ments. The ease of ar­rang­ing ship­ments has also im­proved through­out the re­gion.

On the other hand, the weak points of the SEE coun­tries lie in the qual­ity of in­fra­struc­ture and ef­fi­ciency of cus­toms clear­ance pro­ce­dures. In these two ar­eas the per­for­mance of the SEE coun­tries is most volatile, trig­ger­ing sharp changes in the over­all in­dex. The de­te­ri­o­ra­tion of in­fra­struc­ture and cus­toms clear­ance pro­ce­dures, along with com­pe­tence and qual­ity of lo­gis­tics ser­vices, track­ing and trac­ing of con­sign­ments, led to a de­cline in the rank­ing for Turkey, Slove­nia, Bulgaria, Croa­tia, Mace­do­nia and Bos­nia and Herze­gov­ina in 2014. The key LPI in­di­ca­tors af­fect­ing lo­gis­tics in de­vel­oped coun­tries are com­pe­tence, qual­ity of lo­gis­tic ser­vices and in­vest­ment in state-ofthe-art tech­nolo­gies. By con­trast, lo­gis­tics in lower in­come coun­tries, in­clud­ing most SEE states, are greatly im­pacted by in­fra­struc­ture and cus­toms clear­ance pro­ce­dures – is­sues re­solved long ago in Western Europe.

It should be noted that the coun­tries with stead­i­est growth in the re­gion - Turkey, Ser­bia and Mon­tene­gro - are all non-EU mem­bers, which in­di­cates favourable prospects for the fu­ture devel­op­ment of lo­gis­tics in the SEE re­gion and ac­cel­er­a­tion of in­ter­na­tional trade with other re­gions.

Devel­op­ment po­ten­tial in some SEE coun­tries Bulgaria

Much of the ex­ist­ing stock in Bulgaria is old and out­dated. Devel­op­ment is slow and large com­pa­nies pre­fer to build ware­houses them­selves. New in­dus­trial zones are form­ing through­out the coun­try. Bulgaria's ma­jor ad­van­tage over the other coun­tries in the re­gion is its lo­ca­tion on the cross­roads of ma­jor routes in SEE.

Greece

Lo­gis­tics prop­erty is al­most en­tirely lo­cated in and around Athens, re­flect­ing the strong dom­i­nance of the re­gion. Out­side of Athens, Thes­sa­loniki in north­ern Greece has the po­ten­tial to de­velop into a ma­jor dis­tri­bu­tion hub for the Balkans. But this will re­quire an in­crease in mod­ern stock. Trans­port in­fra­struc­ture is bet­ter in Greece com­pared to its neigh­bours, but po­lit­i­cal in­sta­bil­ity is rapidly driv­ing in­ter­na­tional lo­gis­tics com­pa­nies that have es­tab­lished their SEE lo­gis­tics hubs in Greece away.

Ro­ma­nia

A strong point of Ro­ma­nian lo­gis­tics is that al­most all ma­jor Euro­pean lo­gis­tics providers have sub­sidiaries or branches.

Bucharest dom­i­nates the coun­try's in­dus­trial and lo­gis­tics sec­tors and is pop­u­lar due to its strate­gic lo­ca­tion close to the port of Con­stanta, to the ma­jor cen­tral Euro­pean lo­gis­tics cen­tre Budapest in Hungary, and at the junc­tion of two Pan-Euro­pean cor­ri­dors. Other se­condary lo­ca­tions are be­com­ing pop­u­lar, such as Timisoara, Cluj, Arad and Sibiu in western and north­west­ern Ro­ma­nia, Brasov in the cen­tral part of the coun­try and Con­stanta on the Black Sea coast.

An im­por­tant fac­tor for the devel­op­ment of the lo­gis­tics sec­tor in Ro­ma­nia is the con­cen­tra­tion of the au­to­mo­tive industry in the west and north­west of the coun­try. This al­lo­ca­tion is due to the prox­im­ity to other pro­duc­tion cen­tres in Hungary and Cen­tral Europe, as well as rel­a­tively low labour costs and rents com­pared to Bucharest.

Turkey

De­mand in lo­gis­tics pri­mar­ily comes from the ex­pand­ing man­u­fac­tur­ing and re­tail ware­hous­ing sec­tors. Whilst low-qual­ity ware­hous­ing space is in abun­dance, there is a se­vere short­age of mod­ern space.

Some of the key in­dus­trial lo­ca­tions in­clude Is­tan­bul, the cap­i­tal city Ankara, Izmir and Mersin. Ar­eas sur­round­ing ma­jor con­tainer ports and air­ports are also key lo­gis­tics lo­ca­tions with in­creas­ing im­por­tance.

Fore­cast

In the short run, lo­gis­tics in SEE will suf­fer from the Ukrainian cri­sis and the un­cer­tainty in eco­nomic re­la­tions be­tween Euro­pean coun­tries and Russia, as well as the sta­bil­ity is­sues in Greece, which is one of the main des­ti­na­tions of cargo flows pass­ing through the SEE coun­tries. The cri­sis in Ukraine and Russia hit hard SEE ex­ports which af­fected neg­a­tively SEE lo­gis­tics. On the other hand, cri­sis events in neigh­bour­ing coun­tries could ben­e­fit lo­gis­tics in SEE, as is the case with Bul­gar­ian sea ports which took over some of the traf­fic from Greek ports.

In­te­gra­tion of the Balkan Penin­sula into mod­ern Euro­pean sup­ply chains rep­re­sents one of the most im­por­tant ob­jec­tives of the coun­tries which are sit­u­ated in this area.

The ex­pan­sion of cargo flows be­tween Western Europe and Asia cre­ates new chal­lenges for the SEE re­gion. The Balkans in par­tic­u­lar are con­sid­ered the weak­est link in the dis­tri­bu­tion net­work be­tween Cen­tral Europe and the Mid­dle East. As a con­se­quence of per­ma­nently in­creas­ing cargo flows, there is a trend for build­ing lo­gis­tic cen­tres, pre­dom­i­nantly by in­ter­na­tional lo­gis­tic com­pa­nies, to re­duce trans­porta­tion time and cost and to im­prove cus­tomer ser­vice.

The Balkan coun­tries may also ben­e­fit from plans an­nounced by Chi­nese in­vestors to sup­port fi­nan­cially the con­struc­tion and re­ha­bil­i­ta­tion of the trans­port in­fra­struc­ture in the re­gion.

As seen from the LPI Global Rank­ings for 2014, the state of lo­gis­tics in SEE is grad­u­ally im­prov­ing. How­ever, the slower devel­op­ment of lo­gis­tics in the rest of the re­gion and signs of fur­ther de­te­ri­o­ra­tion in some coun­tries can prove an ob­sta­cle to cargo flows pass­ing through SEE.

The gen­er­ally bet­ter lo­gis­tics per­for­mance of SEE's neigh­bour­ing re­gions and trade part­ners means that the re­gion's devel­op­ment in lo­gis­tics could be eas­ier and smoother, tak­ing ex­am­ple and copy­ing good prac­tices from them.

An­other key to lo­gis­tics devel­op­ment in SEE is the ap­pli­ca­tion of pub­lic poli­cies. Tar­geted re­forms and proper in­vest­ment in one or more ar­eas in less de­vel­oped coun­tries can sig­nif­i­cantly im­prove their lo­gis­tics per­for­mance. Such poli­cies in SEE need to in­clude eas­ing cus­toms clear­ance pro­ce­dures and im­prov­ing in­fra­struc­ture, but the fo­cus should be shifted on the devel­op­ment of qual­ity lo­gis­tic ser­vices by in­tro­duc­ing new tech­nolo­gies and im­prov­ing train­ing, all of which would re­flect on de­liv­ery time­li­ness and re­li­a­bil­ity and the pos­i­tive devel­op­ment of lo­gis­tics.

As global eco­nomic dy­nam­ics change, emerg­ing mar­kets and changes in trad­ing pat­terns are hav­ing a di­rect im­pact on the ma­jor trade hubs in Europe. Fac­tors in­flu­enc­ing man­u­fac­tur­ing and lo­gis­tics (in­clud­ing ex­ter­nal and in­ter­nal macroe­co­nomic con­di­tions, in­fra­struc­ture in­vest­ments and shifts in sup­ply chains) de­ter­mine Europe's emerg­ing lo­gis­tics hubs.

Col­liers points out the birth of a new lo­gis­tic area of Euro­pean im­por­tance in SEE. His­tor­i­cally the so called Blue Banana, a con­tin­u­ous area stretch­ing be­tween Manch­ester in north­ern Eng­land and Mi­lan in north­ern Italy and com­pris­ing the most densely pop­u­lated ter­ri­to­ries in Europe, has been the dom­i­nat­ing hub in Euro­pean dis­tri­bu­tion, pro­duc­tion and lo­gis­tics op­er­a­tions. This dom­i­nance is sup­ported by the in­ten­sive global trade via North Sea ports, high GDP and population den­sity. The process of new in­fra­struc­ture con­struc­tion, evolv­ing tech­nol­ogy, rapid pen­e­tra­tion of E-com­merce, im­prove­ments in sup­ply chain ef­fi­ciency and de­mand growth from Cen­tral and Eastern Europe is al­ter­ing the fo­cus of Euro­pean goods dis­tri­bu­tion. Si­mul­ta­ne­ously, a man­u­fac­tur­ing belt run­ning from Poland to Turkey via Hungary, Ser­bia, Ro­ma­nia and Bulgaria emerges and ne­ces­si­tates the evolv­ing of a net­work of ma­jor, mod­ern hubs able to fa­cil­i­tate Euro­pean wide cus­tomers in this part of Europe.

The most im­por­tant sec­tors driv­ing lo­gis­tics ser­vices de­mand are whole­sale, re­tail and trade, fol­lowed by man­u­fac­tur­ing. There is po­ten­tial for new mar­ket play­ers and re­tail and e-com­merce op­er­a­tors to en­ter this mar­ket sphere. As a re­sult, we ex­pect in­creased de­mand for both large re­gional dis­tri­bu­tion hubs and the rapid growth of smaller lo­ca­tions.

New in­fra­struc­ture con­struc­tion, evolv­ing tech­nol­ogy, rapid pen­e­tra­tion of E-com­merce, im­prove­ments in sup­ply chain ef­fi­ciency and de­mand growth in Cen­tral and Eastern Europe are al­ter­ing the fo­cus of Euro­pean goods dis­tri­bu­tion.

Given the in­creas­ing need to be closer to con­sumers and cus­tomers, this trend is likely to be ac­cel­er­ated in fu­ture. The cur­rent lack of such ex­ist­ing fa­cil­i­ties il­lus­trates that we are only in the very early phases of adapt­ing to this struc­tural change and growth of the e-com­merce sec­tor in the SEE re­gion. The emer­gence of next day de­liv­ery in par­tic­u­lar could change the en­tire dis­tri­bu­tion pat­tern in the re­gion.

Cri­sis events in neigh­bour­ing coun­tries could ben­e­fit lo­gis­tics in SEE.

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