Estonia to see an unprecedented cargo boom

  • 2005-01-26
  • Interview by Aleksei Gunter
Interview with Illimar Paul, chairman of the Estonian Logistics Association

What is the logistics service-market in Estonia like today, and what are the modern trends?

The main driving forces are investments 's local and foreign 's and the relocation of distribution centers from Scandinavia to Estonia that followed EU accession. Transit should be seen as the most essential factor influencing the market's volume. Estonia has not yet managed to use its whole [transit] potential. The sector is up to see years of rapid growth.

What has EU membership so far brought to this sector, and what will it bring in the future?

Speaking of the most negative aspects, the EU has brought labor force shortages to about 20 percent of Estonia's road transportation companies. This is mostly due to the faster transportation processes caused by the extinction of internal EU borders. Trucks do not waste time anymore standing in border lines and taking care of custom formalities. The same amount of work can be done by fewer trucks.

As a result of heightened competition, transportation costs for end-clients have decreased, but that is a short-term phenomenon that will change after the situation stabilizes this or that way. Either new markets will be found 's for example, a serious endeavor is being taken to transfer trucks to Russia's registry 's or truck fleets will be cut.

Excessive transportation resources will apparently disappear from the Estonian market within one year.

In addition, the EU has brought Estonia a Russia-introduced border blockade of goods subject to phytosanitary inspection. From Aug. 13, 2004, it is illegal to export either locally produced or transit-type goods of vegetable origin from Estonia to Russia. By its nature this sanction is much more severe compared to the previously existing double custom tolls. To resolve the situation, Russia is demanding the introduction of single phytosanitary certificates for the whole EU territory by April 1, 2005. Otherwise the blockade will extend to include all vegetable goods of EU origin or transit goods [of this kind] going to Russia

One pleasant EU-caused phenomenon is definitely the simplification of European trade and the time saved. Businesses have got an opportunity to start doing more frequent deliveries and thus reduce the reserves.

Also, Russian transit operators' interest in the Estonian corridor has increased after joining the EU. That will definitely have a positive effect on market-volume growth.

What are the advantages that Estonian logistics companies have in comparison with neighboring countries?

Estonia definitely has its advantages, just like all its neighbors. At the same time those advantages change with time. Correct timing, fast reaction and flexibility enabled from those advantages are extremely important. Taking into account [our] location and global economic trends, both our neighbors and us also have abundant opportunities. The question should instead be whether Estonia can actually use all of its advantages.

As an important geographical advantage compared with Latvia and Lithuania, I would point out the unique transit development opportunity based on the Port of Sillamae and the Gulf of Finland. The Port of Sillamae will be the EU's closest deep port to the Russian border. Sillamae is only 25 kilometers away from the EU-Russian border while all Latvian and Lithuanian ports are several hundred kilometers away.

Estonia's poor cooperation with its neighbors and lack of cooperation at a state level with its most important client, Russia, are mostly caused by its non-existent domestic cooperation. The public and the private sector seem to live in different times and different countries.

I am sure that the liquidation of the Ministry of Transport and Communication [merged with the Ministry of Economy in 2002 's ed.] was not a beneficial decision for Estonia in the long term. This mistake should be corrected as soon as possible, because the present government essentially has no unit to promptly deal with transportation, logistics and transit policy. After all, we are talking about a very serious field that provides approximately 15 percent of Estonia's GDP. The World Bank also shares this critical point of view.