Latvian ports’ competitiveness challenged

RIGA - The competitiveness of Latvia’s entire transport sector, not just of its ports, needs to be boosted, says Latvia’s Transport Minister Anrijs Matiss. Speaking at the American Chamber of Commerce/Stockholm School of Economics in Riga debate titled ‘Transport sector of Latvia: Competitive or complacent?’ the minister said that efforts should focus on making the industry sustainable for the long term, with co-modal capacities to ensure high quality internal and external mobility.

The conference, held in June, brought together “the best experts” in the industry, as part of the American Chamber’s study on the port sector, said board president Ivars Slokenbergs. The other experts on the panel were: U.S. Ambassador to Latvia Mark Pekala, Associate Director of KPMG Baltics Julija Masane-Ose, and board member of Riga Free Port Girts Greiskalns.

Baltic States ports stretch from Klaipeda to Tallinn. But these ports don’t compete just among themselves for cargo from the east. Growing competition comes from Russian port Primorsk, near St. Petersburg, as well as Polish ports.
And as Matiss said, transport doesn’t involve just the ports. He emphasized that this means adopting and implementing the trans-European transport network - TEN-T - a single, multimodal network that integrates land, sea and air transport routes throughout the Union.This would thus put the Rail Baltica project, shipping transport corridors and Riga’s international airport under the multi-modal standards.

A transport development plan for 2014-2020, which is already approved by the Cabinet, said Matiss, will budget 1.6 billion lats (2.2 billion euros) for transport infrastructure projects and is designed to increase the competitiveness of the sector.
Transport and logistics play a key role in Latvia’s economy, directly accounting for about 13 percent of GDP. But further growth in the economy will depend on improvements in the railway system, said Matiss. Network electrification should be the goal, along with a single planning and management system.

Masane-Ose agreed that ports are among Latvia’s most important industries. “Some road, and 80 percent of rail, cargo goes through the ports,” she says. And, all east Baltic Sea ports are competing for cargo from the CIS countries.
Of the five factors influencing the competitiveness of ports (geographic location, politics, governance, technical specifications, service), it is with politics and port governance that present Latvia with the most problems, she says.
“Rules of the game in Tallinn are clear. In Latvia, the atmosphere is not transparent. Riga has a short-term focus, where priorities and transparency of decision-making are a problem,” she states. “There is the need to involve independent business on the board, and not [be run by] politics.”

But Masane-Ose gave a stark warning: “In Riga the tariffs are too rigid. Tallinn will always out-compete.”
Ambassador Pekala spoke from a “customer’s perspective,” saying that the main issues in improving services revolve around “security and reliability, safety and predictability, transparency and price” in determining the competitiveness of Latvia’s ports.

The ambassador largely discussed the Northern Distribution Network (NDN), the route running through Latvia carrying equipment and supplies into Afghanistan to support coalition forces. He said that this corridor could be an “important topic for American investors, with opportunitites in transport and logistics. It can be a catalyst for deeper relations between both countries.”

What he also highlighted was Riga port’s potential in servicing central Asia. When coalition forces complete their withdrawal from Afghanistan next year, Pekala says that NDN should transition to a “commercial future. This will make Riga a key node in the new silk road.”

But challenges remaining for this to happen include the need for “harmonization of customs and border crossing processes along the route,” adds Pekala. This needs to be tied too with “lower tarriffs and fees along the way.”
It was perhaps Greiskalns who spoke most candidly on what works, and what doesn’t, in the transport sector. At Riga’s port, he said “Transparency and fair competition” are lacking, adding that “corruption needs to be eliminated. More work is needed.” In improving the operating environment, Greiskalns urged the government to “punish corruption,” not just stand by and watch. He calls for more development of Baltic ports, and a “re-powering of Latvian ports.” This, says Greiskalns, will need more assistance from the authorities, who need to do more to help the terminals.

Where is the profit going from port operations? Greiskalns asks whether they are going back into port reinvestment, as tax revenue to the city, or simply into pockets. Delivering a warning that Latvian ports are losing competitiveness, he suggests to reconsider how performance is measured and that new metrics are needed. Some of these could include cargo per hectare, profit per ton cargo, and environmental considerations, as opposed to simply gross tonnage, as the way forward.

The Transport Ministry has to get the discussion going, with mulitiple stakeholders, on hard infrastructure issues, as well as fixing soft infrastructure problems – excessive red tape, border crossings obstacles, regulatory excess and conflicts in national legislation.As with much of the transport sector, including rail, road, air and sea, despite being driven by the private sector, there is a large role for government, and this is where “politicians have to present targets,” Greiskalns adds.

Latvia’s transport sector has work to do to improve competitiveness in the region. As Masane-Ose suggested, what’s important are “total transportation charges, the total cost in the logistics chain.” It will be up to marketing departments to find ways to differentiate Latvia’s services, said Greiskalns.
The discussion was informative, but panel guests could have included individuals working in the industry, not just the periphery, such as the director of logistics company Schenker… even a truck driver, someone who could talk about border problems, roads, daily issues and industry trends.