Uncertainty grips cargo haulers as suspicions over deliberate spread of gloom mount

  • 2011-10-19
  • By Linas Jegelevicius

LEVELIng off: Edmundas Daukantas is taking a wait-and-see attitude as the Christmas season approaches. Some shrinkage in volumes shows the recession is not over, says Algimantas Kondrusevicius.

KLAIPEDA - The 2011 forecast for Lithuanian logistics companies was upbeat, and cargo haulers rode the wave until the second half set in. It was when uncertainly due to a looming double dip recession crept in, shadowing the record-high cargo transportation volumes till then.

“I still cannot say that the situation is very bad. I would rather say there is much uncertainty in the market. I see neither recovery, nor alarming recession. Probably that would be the right way to say it. However, the trends in the market raise some uneasiness. As a rule, in the late fall, haulers see an increase in cargo volumes and, therefore, transportation costs rise. However, the sector sees none of this in this fall. And that is alarming. Particularly considering the possible fall of the Spanish and Italian markets, where we traditionally have many export ties. If these two countries incur an economic turmoil, that will spur their freight export services, thus undermining the interests of Lithuanian haulers,” Algimantas Kondrusevicius, president of Lithuania’s Cargo Haulers Association, Linava, said to The Baltic Times.

The gloomy estimation comes in light of excellent cargo transportation results in the first half-year, seeing a record-high growth compared with the same period in 2010. The export-bound logistics turnover amounted to 6.0 billion litas (1.7 billion euros) in 2011’s first half, a 23 percent increase from 2010’s first-half.

“All were exhilarated about the spiking export volumes. Export has grown in all directions, indicating the accelerating recovery. All expected the rapid growth to continue. However, in the middle of summer the growth came to a sudden halt, with certain shrinkage in some directions. It seems the applause over the supposed end of the recession was too early and too soon. It appears that the recession is much deeper than most had expected. I do not want to be a bad harbinger, but I do not see things turning around soon. The finish of the year will not be on a high note,” Kondrusevicius predicted.
He still hopes that the coming Christmas trade, which peaks by the end of December, will set off the economic turbulences some cargo haulers are having.

Shipping and cargo logistics play a vital role in Lithuanian exports, making up 69 percent of all export growth in 2011’s first half-year, or 781 million litas. Traditionally, Russia remains the largest market for Lithuanian cargo haulers, slicing off 25 percent of the overall freight shipping volume.
Breaking down the Russia-bound goods’ shipping structure, foods, domestic appliances and other wide consumption products prevail, followed by technical goods, auto parts and construction materials.
Belarus-bound exports in the first half of the year grew 27.2 percent, or by 158.2 million litas, as forwarding and logistics services made up nearly 10 percent of the increase.

In terms of growth in the first half of the year, Russian cargo is followed by Germany. Germany makes up 12.5 percent of all Lithuanian transportation services exports. Kazakhstan and Switzerland were among the countries to which freight shipping also grew significantly in 2011’s first-half. In general, the carriage sector has incurred a 40 percent shrinkage through 2008-2009, then went up by 10-15 percent last year before soaring in the beginning of 2011.

The Linava president notes that, despite the downturn, some Lithuanian haulage companies, expecting better times to come, sooner or later, have even increased their truck fleets. “However, before, I would see even small companies buy new trucks, without scrutinizing the market. The crisis has helped to sort out true market leaders and serious players from many business wannabes, who either went bankrupt or had to withdraw from the market themselves,” the president emphasized.
Antanas Gricius, owner of one of the biggest Lithuanian cargo transportation companies, says that “uncertainty chills the market.”

“So far, the situation is similar to the former crisis – freight shipping prices do not go up, there is a shortage of cargo, and it remains unclear what tomorrow will bring,” says Gricius. He added: “Our high season, as always, would start in September and rise increasingly till the middle of December. However, I see nothing like this this fall. The cargo flow and the prices are very similar to those we had in summer, the cargo off-season. I remember, last year, the cargo transportation price at this time of year went up by 1,000 euros. We have nothing similar this year.”

The cargo transportation company owner notes that the competition has been increasing in the market, despite the adverse economic situation. “It also slashes prices,” Gricius says.
However, heads of some EU-bound shipment haulage companies say they do not see a gloomy picture in the market so far. “I could not come up with any indication showing an exacerbating situation in our business. Sure, there are many concerns regarding the possible developments in Spain and Italy, however, we have not yet experienced any slowdown to those country-bound cargo volumes. We are looking forward to Christmas trade, when the cargo volumes and haulage prices soar. I hope this year will be no exception,” Donatas Girzauskas, head of Transmera, a cargo haulage, forwarding and logistics company, said to The Baltic Times.

Arvydas Stoncius, from the logistics company Vlantana, calls the business “very sensitive.”
“We are a bit worried about the possibility of a double dip recession. In addition, consumption nowadays in Russia, which is one of our main business partners, tends to change so often – Russians eat one kind of food one day and switch to quite another kind another day. Sometimes you cannot even predict what you will put in Russia-bound trucks next weeek,” Stoncius said to the daily Lietuvos zinios.

Aidas Plascinskas, commerce director of transport and logistics company Finejas, concurs with the Transmera head, stressing “the haulage work is in full swing.”
“All our trucks are on roads and the cargo flows are renewed. Therefore, I would estimate the current situation as rather stable. However, when it comes to the 2012 outlook, we do not expect any larger growth, or any considerable fall in the volumes,” Plascinskas maintained.

Another hauler, Tautginas Sankauskas, owner of Vilteda, says that though the economy has been on an obvious recovery path, the increasingly worrisome plight in international stock markets, Greece, Spain and Italy puts the recovery in question. “Obviously, the trends in the world ill affect Lithuanian carriers. I think the situation in cargo volumes and prices before Christmas will send clearer signs as to what the near future holds,” Sankauskas stressed to The Baltic Times.

Edmundas Daukantas, executive director of cargo haulage and forwarding company Schenker, one of the largest in the country, points out that the uneasiness in the Western European financial markets coincided with Lithuanian haulers’ holiday period - summer. “At the end of summer, a production volume decrease is always planned. It is the time when workers usually get some time for rest while plants and factories get started for a new production season. Therefore, carriers usually transport many production facilities and equipment at this time. However, this year, I have not seen any particular robustness there. I do not mean, however, that things are already bad,” says the Schenker CEO. He is also looking forward to seeing how the business will develop before the haulers’ peak high-season, Christmas.

The Schenker CEO, however, strongly suspects that some peer companies intentionally spread pessimism, seeking to undermine those companies that do well. “I am not a novice in the business, therefore, some excessively gloomy evaluations of the market, as if generalizing all market player activities, make me think that some carriers, giving up to the huge competition, have chosen the means of complaining and threatening what might be if… I see that especially coming from cargo carriers, as we, forwarding companies, including Schenker, edge them up, especially in recent years. We are just quicker in reacting to the information about new haulage itineraries and more active in meeting the new possibilities,” Daukantas stressed to The Baltic Times.

Schenker’s turnover grew by 40 percent last year, as its profits doubled. For the company, which is considered to be one of the largest logistics companies in the Baltics, this year has also been very successful.
“We have been seeing a 20-30 percent increase in our turnover this year, and I see no reason why it would slow down by the end of it. Even with the adverse market evaluations swirling around. I really call this year to be the best year ever for our company,” the entrepreneur stressed.

He says that even the 2008 crisis has gnawed little at the output of the company that renders complex logistics services – international and domestic cargo transportation by roads, railway, air transport and sea containers. The company also provides custom brokerage services, as well as cargo storage services in customs and regular warehouses.
The logistics company is one of a few in the country to have been granted an EU license of authorized economy operator, an EU acknowledgment  for meeting such strict criteria as customs compliance, appropriate record-keeping, financial solvency and, where relevant, security and safety standards.

Daukantas admits that the collapse of the Spanish and Italian markets would pose “some risks” for Schenker, which belong to the European transport group DB Schenker. However, he says, they (risks) will not overshadow the company’s daily activities and forecasts. “I think everyone has been speaking of Spain and Italy for the last half year or more, which is enough to rethink Spain- and Italy-bound exports and seek new markets. It is exactly what our company has done. It was not very difficult, as the logistics market is global, and very few Lithuanian cargo carriers rely exclusively on the risk-prone Spanish and Italian markets. The market tends to set off itself - with the difficulties in the Apennine peninsula, other markets emerge. What is going on now in the market is a part of the process,” the Schenker CEO asserted.

With the logistics volumes increasing and the need for warehouses for transient cargo growing, their construction was on the rise. But with the pessimism in the market setting in, the buildings have stopped going up.
“With the double dip recession looming, warehouse building-oriented companies decided to put off their expansion, focusing on repaying current loans. Obviously, there is fear that transient cargo-oriented warehouses may not generate enough revenue today to justify the investments,” Arvydas Martinkus, a real estate expert, said.