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Friday 17.11.2017 | Name days: Uga, Hugo, Uģis

Latvia losing its competitiveness in logistics

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In the recent months Latvia has been losing its competitiveness in transit logistics due to the risen costs in Latvia’s transit corridor, indicates Aivars Taurins (Aivars Tauriņš), Logistics Association of Latvia Chairman of the Board, in BNN.LV interview.

Aivars Taurins, Logistics Association of Latvia Chairman of the Board

There are more problems with the rapidly rising expenses of different transit logistics cost items – transportation, wages etc. This situation is largely caused by the fact that during crisis, a significant share of market participants, either ceased to operate, or reduced its transport and work capacity. Currently, as the market is rising again, there is lack of resources to satisfy the demand, which is why prices are increasing. Taurins stresses that at present Finland in terms of costs of cargo deliveries to the west of Russia is even cheaper than Latvia. In order Latvia would not lose its market position, the situation has to change fast.

What are the current tendencies in logistics industry? There were talks of market consolidation during the economic crisis. Has it happened?

Consolidation and mergers have taken place, but it is still difficult to understand the scale of this process. We can only make conclusions based on indications. There have been a number of merger examples – even Sanitex. This is an interesting formation, which serves as an example of market consolidation. Mergers have also occurred in forwarder and road haulage markets. Many transport carriers that had taken commitment that they were not able to fulfill left the market. There is similar situation in the market of forwarders – the enterprises that had worked only on the cash flow, with no real coverage of fixed assets are either gone from the market or merged with competitors.

But there is also the invisible part of the market – there are enterprises that practically no longer operate, yet they still submit annul reports and struggle with the taxes and the state. It will only be seen after a couple of years with how many actual market players we are left.

What logistics market tendencies do you anticipate? Obviously, much will depend on the global market tendencies?

I believe that mostly this will depend on local developments. We can still say that the market of Latvia is not balanced. Balancing of the market is done with the help of foreign loan injections. Latvia could be compared to a drug addict who feels good only after getting the current dose. «I am alright today, because I have taken my dose.» But is it really possible to say that the situation is better judging by the feelings of an addict? To my mind, we will only be able to evaluate clearly whether it is good or not after surviving severe crisis without this dosage. Only then we can estimate the economy of Latvia and the logistics market directly.

How does the logistics market «feel» today?

The international lenders are not the only ones. We are also given European Union (EU) funds, which is additional money for which we sell and acquire the funds. This is an interesting term «acquire». What does it essentially mean? It simply means to spend more.

This pseudo-activity creates activity in business. Logistics is directly connected with economic growth. Logistics market growth formula is: Gross Domestic Product (GDP) multiplied by two. If GDP falls, logistics market subsides two times faster than it. If GDP increases, logistics market grows two times more rapidly. The logistics market was greatly affected by the drop in GDP.

Currently, after the economic crisis, many market segments have a certain lack of capacity. The old capacity enterprises cannot recover, because there is no funding available. This has led to sharp increase in prices for services, but the current demand is more than sufficient. Companies have a lot of work. However, the situation can change easily and we have to be careful not to fall into traps ourselves.

What to some extent allowed surviving the crisis was the transit. But at present Latvia is starting to lose its competitiveness very fast in the growing market of transit logistics due to the increasing prices of services.

Which positions experience the biggest price increase?

Car haulage, for example. If the normal freight level for a certain amount of container supply to Moscow in the end of the previous year was 1200 euros, now it is 1800 euros. Whereas pre-crisis rates were 1600 or 1700 euros. During the crisis our competitors in Finland helped us by starting to strike. This created additional market interest in our logistics corridors and opportunities. At that point we had to take the market and never let it go. When Finnish understood that there would be trouble, they quickly reduced prices, while our prices went up. From the point of view of costs Finnish transit to the western part of Russia is cheaper than via Latvia.

If the current situation is used for short-term financial gain, it may happen that logistics industry suffers an irreparable harm.


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