Doubling up cargo handling services for both road and air, or intermodality, promises the best perspective for the future, say logistics experts.
RIGA - Whatever else can be said of the Baltic states' entry into the EU, for the logistics sector accession has brought the biggest shake-up since the Russian crash of '98.
With EU expansion, 13 European land borders have effectively ceased to exist, and road freight turnaround has become faster than ever before. As an expression of the EU's founding principle 's free movement of goods 's it is a triumph. Yet for some companies involved, it has the potential for tragedy.
Speed is of essence. On average, road-freight turnaround from the Baltics to Western Europe is now 30 percent faster. In a stroke, road haulers have gained a huge advantage over every other form of transportation. "Our main rival isn't the other shipping companies," says Martin Dale of Kursiu Linija, a Lithuanian-owned short-sea carrier. "It's the truckers."
Even airfreight services are feeling the heat. "Things got really tough just after EU entry," admits Haralds Treimanis, airBaltic's freight manager. "Road transportation is so fast and cheap."
Doug Balchin, Riga Inter-national Airport cargo handler for British Airways, Finnair and Austrian Airlines, concurs: "Truckers are the main threat to both sea and airfreight, especially in the Baltics. The boom in imports means a lot of foreign trucks come here full and will carry anything rather than go home empty."
Still, the greatest victim has been the trucking companies themselves. Open borders have increased turnaround time by 30 percent. By that simple fact, almost one-third of international truckers working in the Baltics in April 2004 became redundant in May. At the same time, a large number of domestic operators took advantage of EU liberalization to turn international.
In Poland alone, according to Valdis Trezins, president of the Latvian Association of Internation-al Road Carriers, the number of international trucks has risen from 27,000 to 50,000 since May 1. And while regional freight volumes have also grown, they simply have not kept pace with the changes.
Estonian road-freight volumes rose by 2.5 percent year-on-year in the third quarter of 2004. Latvia saw much stronger growth, up 25 percent, but this followed a quarter when growth was a minuscule 0.77 percent; the full-year figure is expected to reach 15 percent. Calling the current situation "over-capacity" is an understatement.
According to Trezins, "there are now 30,000 trucks too many in Eastern Europe. Everyone has to cut their prices just to stay competitive. Add to that the new road tolls in Germany, increases in fuel excise and vehicle taxes, oil price rises and wage inflation, and it makes a rather difficult situation for our business."
Freight transport in the new EU is not just faster, it is infinitely more competitive, with truck companies threatening to undercut not just one another but all other logistics services. It is a demanding market in which only the fittest will survive. Increasingly, versatility is seen as the key to success.
"Our concept is more than just shipping," explains Einars Lidaks, Kursiu Linija's director in Latvia. "It's no longer about just carrying freight from port to port. We provide a full door-to-door, just-in-time service to our customers."
Martin Dale goes a step further: "KL not only performs transportation services, we actively promote the Baltic states as tourist destinations and places for investment."
Meanwhile, Dutch-Icelandic shipper Van Dieren runs a fleet of 44 trucks to serve the Baltic market and has begun carrying freight by train from Germany to Sweden.
The airlines are also diversifying. Already some airfreight is trucked from regional airports to main hubs for intercontinental service. As Doug Balchin admits, "One way to increase our market share is actually to increase the amount of freight we send by road."
Treimanis agrees, adding that, "Intermodality between air and surface transport has the best perspective for the future." Inter-modality 's the transport of an item by different, coordinated means 's is the Holy Grail of the logistics industry.
As Aivars Taurins of Schenker Logistics explains, "We're the first logistics company to offer fully cross-docking road transport throughout the Baltics. Usually, road haulers base themselves in Riga and send their trucks out on daily milk runs, finishing back in Riga. We operate freight terminals in all the major cities for daily local deliveries. This allows us to be intermodal whenever rail and air freight are cost-effective." Trezins adds: "Scandinavian haulage companies are already working with ferry and shipping companies. We should do the same."
For those who can offer inter-modal service, the future is bright. Freight volumes in the Baltics are increasing. Foreign interest is booming. Kursiu Linija saw a 50 percent increase in volumes last year. After a difficult May, airBaltic cargo saw volumes double by December. Schenker saw 20 percent growth, while logistics specialist Kuehne & Nagel's increase was "spectacular."
Says Matti Suonvieri of Kuehne & Nagel, "This is the way the Baltics must go. There are simply too many operators here: in the Baltics you have up to 5,000 transport companies. In Sweden, with the same population, you have 1,500."
But for smaller operators, the outlook is bleak. With costs rising, competition sharpening and clients demanding ever more savvy services, their only chance is to consolidate. As Trezins says, "This year and next year will be very difficult for the small carriers. They will have to consolidate and cooperate if they want to survive. For those who do, the future is very positive."
For those who do not, it could be the end of the road.