Transit businesses cut big profits

  • 2001-08-23
  • Kairi Kurm
TALLINN - Sea transport is undoubtedly the most profitable business in Estonia. The operating profit levels of the strongest companies in this sector exceed 50 percent, which means they manage to earn 1 kroon ($0.05) per every 2 kroon sales in profit. The average profit margin in other industries in Estonia is just above 3 percent.

The Port of Tallinn, or Tallinna Sadam, one of the few large state-owned companies left in Estonia, earned a profit of 255 million kroons on a turnover of 464.2 million kroons in the first half of 2001.

Erik Sakkov, marketing director for Tallinna Sadam, said that the good geographic position of the city provides excellent opportunities for cutting huge profits from sea transport. "Tallinn has historically been a good port. The port was here already before the city of Tallinn was founded," he said.

According to Sakkov, rising volumes and good management are the secret behind the port's success. "It is the skill of Estonians to make business. Our prices are two times cheaper than those in Finland and the services are of the same quality, if not better," he said.

According to Sakkov, Tallinna Sadam has stayed at the same price level for the last seven years and will continue with the same prices in the coming seven years.

The ports of St. Petersburg, Ventspils and Klaipeda are the biggest competitors for Tallinna Sadam, if they are to be taken seriously at all. "We are strong at passenger and cargo transport. None of our competitors has these two services. Helsinki and Stockholm have a lot of passengers, but no cargo transport. St. Petersburg and Ventspils have cargo, but no passengers. Riga is far from the shipping routes and lacks both," said Sakkov.

Tallinna Sadam, which handles about 30 million tons of cargo a year, controls the third busiest passenger traffic volume in the world. Sakkov said that the Tallinn-Helsinki route, with its 6 million passengers, is surpassed only by the traffic on routes between England or France and Denmark or Sweden.

According to Sakkov, it was the correct decision to privatize the harbor's additional services, such as oil transit, in 1992. The only function left to the harbor is administering the port's docks and land area.

The port has been able to increase its cargo business mainly by boosting the volume of shipments of oil and oil products in transit from Russian refineries, to be loaded onto westbound vessels. The oil transit companies benefit from the harbor's good location as well.

Pakterminal, the leading oil transit firm, was probably the country's most profitable company last year with a 65 percent operating profit margin. It posted a net profit of 755 million kroons on a turnover of 1.17 billion kroons for 2000.

It has been leading the business publications' profitability lists for the past couple of years with an average 60 percent profit margin. In 1998 its 551 million kroon profit accounted for 17 percent of the total profit of Estonia's 100 largest companies.

Pakterminal is an Estonian-Dutch joint venture, owned by the Estonian private enterprise Trans Kullo and the Dutch concern Royal Vopak. It is situated in a strategic, easily accessible location, in the ice-free Port of Muuga on the southern edge of the Gulf of Finland.

"The secret of our success lies in the productivity of the working terminals of our partner Royal Vopak. A lot of cargo comes through the terminal, the processing is fast and the sales are big. We transport 8.5 million tons of oil products a year. Our nomenclature includes 10 different kinds of oil products," said Tommy Biene, spokesman for Pakterminal.

The second largest oil transit firm operating in Estonia is Eurodek. This company transported 6.2 million tons of oil in 2000 and predicts a 7.5 million ton volume for 2001. Its headquarters in Denmark refused to give any other data about the company.

The profit margin of the third major transit operator, EOS (Estonian Oil Service), has stayed at 36 percent for the last two years. It posted a profit of 305.9 million kroons on a turnover of 860.2 billion kroons for 2000. In 1999 it netted 222.4 million kroons with a turnover of 621.6 million kroons. The company became well-known in 1998 when it made a giant leap by increasing its profits by 118 million kroons.

Veikko Maripuu, an analyst from the investment bank Suprema, believes that the increase in profits in the transit sector will halt in the near future. He said that Russian companies are doing everything in their power to divert transit sales to Russian ports. "Several Russian companies are making a transition toward becoming Latvian and Lithuanian infrastructure companies," said Maripuu. "Nobody knows what the future will bring."