Road freight sector sees light at the end of the tunnel

  • 2010-04-22
  • By Linas Jegelevicius

KLAIPEDA - European freight transport makes up 10 percent of total EU GDP. In Lithuania, which is the link between the West and the East, it totals approximately 7 percent. In recent years, freight volumes in the entire EU were constantly increasing as the result of the Schengen free-border policy and steadily growing economy. Nevertheless, Lithuanian freight transport, as a part of the European freight industry, has fallen sharply after the third quarter of 2008, which marked the beginning of the global recession. The declining trend extended into 2009, and is still marginally down in 2010. However, some industry experts observe some indications of recovery.

Lithuania’s railroad freight volume dropped from 54.9 million tons in total in 2008, to 42.6 million tons in 2009. The slump was particularly significant in the international railroad freight transport, which was down by nearly 10 million tons - 39.5 million tons in 2008 versus 29.7 million tons in 2009. However, the decrease in the domestic railroad freight transport was rather inconsiderable – 15.3 million tons in 2008, down to 12.9 million tons in 2009. Lithuania’s road haulage industry has been crisis hit as well, decreasing volume in cargo transport from 3.2 million tons in 2008 to 2.5 million tons in 2009.

 Differently from the Russian crisis related freight transport downturn in 1998, the recent global crisis has severely affected all countries. In the over ten years since the Russian crisis, Lithuania’s road haulage industry has changed dramatically, decreasing cargo transport volume with Russia, and largely increasing it with the European Union.
According to the data of Lithuania’s Department of Statistics, the current crisis has particularly affected Lithuania’s road freight sector within the EU countries, as it slumped 0.76 million tons, comparing 2008 to 2009. A staggering fall was recorded in Lithuania’s freight transport volume with Germany, which dropped from 723,000 tons in 2008 to 476,000 tons in 2009. The statistics encompass only freight loaded in Germany into trucks of Lithuanian registration.

A considerable shrinkage of freight volume was seen with other countries as well. For example, it shrank from 444,000 tons of freight loaded in Poland in 2008, to 285,000 tons in 2009. Lithuania’s registration haulage trucks picked up 212,000 tons of freight in France in 2008, however, the flow dropped to 149,000 tons in 2009. The volume went down 110,000 tons in Italy during the period. Out of 27 EU countries, only in two countries, Belgium and Spain, did Lithuania-bound freight volume grow, by 11,000 and 33,000 tons, respectively.

However, as the data of the Department of Statistics show, Lithuania’s road haulage volumes with the countries of the former Soviet Union have been little affected. Thus, freight in Russia in 2009 consisted of 111,000 tons, a slight 12,000 ton decrease compared to 2008. When it comes to Belarus, there was recorded a 1,600 ton increase in 2009. A double hike in road freight transport was recorded with Kazakhstan, spiking up from 2,100 tons, to 4,600 tons.
The statistics, however, hide the complicated situation in the industry, as it struggles to withstand the aftermath of the crisis. Valdas Gilys, general secretary of Linava, the National Road Carriers’ Association, asserts, “Cargo carriers’ situation remains quite complicated, though there are some positive indications.”

“Though we observe some freight transport increase in Russia, Belarus and Kazakhstan, many haulage companies have gone bankrupt lately due to the crisis. Others, despite the massive 14 percent unemployment rate in the country, cannot hire truck drivers possessing appropriate qualification, thus exacerbating the problem. The sheer majority of the haulage companies rely on leased trucks, meaning on bank loans. With current assets exhausted, and with low or non-existent profitability, the companies are not able to make loan payments to banks; therefore, they are recapturing the leased trucks. Though we observe a certain cargo flow increase to both the EU countries and so-called third countries, the situation will remain complicated for quite a while,” Gilys maintained.

According to Algimantas Kondrusevicius, president of Linava, only those haulage companies that have an optimized truck fleet, little commitments to banks and constant clients stand the best chance to outlast troubles in the sector. “Though the downturn is to blame for everything, it helps to sift out the inexperienced players of the market. Frankly, there were a good deal of them. As a rule, they would take out a lease on haulage trucks and seek massive profits, without being prepared for this kind of business,” Kondrusevicius stated in an interview to Valstietis.

Linava unites over 1,300 Lithuanian haulage companies that operate approximately 25,000 goods in transit.
Until recently, “Vilniaus dobilas” was one of the major players in Lithuania’s haulage industry. Its fleet consists of over 80 brand new trucks of such well-known brands as Volvo, Scania, Iveco, Mercedes-Benz, Man, Renault. Nearly all of them bear EURO-3 and EURO-5 certification, which means that the trucks correspond to the EU’s strict environmental standards. The venture is made of three separate firms, including “Portmann&Dobilas,” which is a Lithuanian, French and German company. However, the company’s expansion has been put on hold recently, as it tries to maintain what has already been achieved.

“I do not give much importance on whether our company is the biggest or not in the market. Nowadays, it is not about size and volume. It is all about the company’s efficiency, and it can be reached only with an optimized truck fleet and reorganization. However, we are in a situation where our well-being depends not as much on our decisions and ourselves as on outside circumstances. If somebody had told me that the crisis could be so overwhelming and deteriorating, I would have never believed it. We have retained all the fleet, but we do not have freight to carry. Like 90 percent of all haulage companies, we rely on the leased trucks. However, our financial abilities meeting the obligations to the banks are to be exhausted, as our current assets are running out,” Remigijus Zitkevicius, president of “Vilniaus dobilas”  acknowledged to The Baltic Times, admitting the company has lost the leader’s position in the industry.

The company operates largely on routes from the West to Russia. Considering the lower gas prices in Russia, something many haulers count on, it may seem that this could compensate the company’s losses, at least partly; however, this is not the case, as there are quite fewer bulk clients in Russia.

Zitkevicius says that “Russia’s crisis in the ‘90s was nothing in comparison with the current one, as it did not affect the rest of Europe; even our French partners are aghast at its scale, as the Peugeot car factory has been closed.”
Nevertheless, the company is trying to adapt itself to the crisis related consequences. Lately it has struck some profitable freight haulage deals in Kazakhstan and has gotten rid of several loss generating routes. “A few years ago, our company, being one of the leaders in the sector, could juggle routes, orders, picking up the most profitable ones. However, now we carry anything, just let an order be,” Zitkevicius spoke up.

The company, in seeking a way out, has introduced to its truck drivers “temporary unemployment,” already widely practiced in Germany and Belgium, where haulers lay off drivers for a short period, at a reduced salary.
The company’s profitability nowadays depends not only on the actual number of business orders, on adaptability to the varied circumstances in the industry, but also on such rather insignificant factors as dollar and euro fluctuations in the market. “When people had money before the crisis, no one cared for usually insignificant currency fluctuations. Now all has changed. If the Polish zloty is down, we bring bricks and cement from Poland to Lithuania. If it is up, vice versa, we carry goods to Poland. Once again, these are little orders that a company of our size would not have assumed before,” president of “Vilniaus Dobilas” maintained.

Zemeda, a small transport enterprise located in Skuodas, a little town by the Lithuanian and Latvian border, has defied all market rules, managing to hold on to its share of the market despite cloudy forecasts. Its sole owner, Agota Vindasiene, engineer by profession, was compelled to assume the undertaking after her husband’s death. Heads of much bigger haulage companies wonder how she and her team of 10 truckers are managing to get through the crisis.

“A number of companies, especially smaller ones, have gone bust. Combined with consolidation in the industry, the buying power of large companies started swallowing smaller competitors. The key to our success was maintaining our current clients in Russia and Scandinavia. Although they are affected by the crisis, however, they keep settling bills on time. Only those companies that have current assets during the crisis can handle it pretty well. We were quite lucky to have settled bank loans before the crisis,” said Vindasiene. In order to survive the downturn, she had to cut her employees’ salaries and lay off some drivers as well.

However, some industry insiders caution that laying off drivers and cutting fleet strength could have severe repercussions for the industry in the future. When the economy picks up, there may not be the capacity available to meet demand. Zemeda carries furniture and timber to Sweden, and from there it brings roof covers, machinery, polythene and wallpaper to Russia.

The entrepreneur asserts, “A hauler’s work is very specific, as it largely depends on various institutions.” For example, truck insurance per vehicle may range from 5,000 to 8,000 litas (2,300 euros). According to her, dealing with Russia, a major cargo destination, is very problematic, as it hinders the carrier by imposing permit quotas. In a different sense, Russia could be called the least predictable country, as its legislature and rulings regarding foreign haulers tend to change frequently.

The entrepreneur still recalls her headache last August, when due to Russia’s new regulations, the company’s trucks got stuck on the Latvian and Russian border for nearly a week. Zemeda experienced huge losses then; however, Russia’s market is too lucrative to withdraw from it.
Nevertheless, despite the burdens, the biggest problem is a lack of qualified truckers. “Though ‘E’ category truck drivers are prepared, there are never enough of them, as only drivers with prior driving experience and those who are at least 21 are eligible. Therefore, we are considering employing truckers from Ukraine or Belarus. The shortage of drivers makes the employed very fussy about the trucks, as they demand them to be new,” Vindasiene admitted.

Other owners of haulage companies complain that due to insolvency of their business partners, they are constantly amassing unpaid bills. In the fierce competition, some insolvent companies announce being bankrupt, thus, expecting their debts to be written off. Therefore, the practice of prepayment has become the practice in the sector. Another exacerbating issue is dumping fees, which is common in the market now, and which distorts it.

Facing the difficulties, some haulers, in order to stay afloat, enter into swindles, announcing their bankruptcy and restarting the business. In this way, they acquire the leasing companies’ forfeited trucks at low rates. The practice needs to be prosecuted. Kondrusevicius, president of Linava sees the only way as the situation in which there is stricter control of new haulage companies, particularly those seeking access to the international market.

While the situation in the industry remains complicated, with some companies starting to see an upturn in business, feeble indications of recovery are expected to grow into a more solid increasing trend.