Transport and Logistics: Still on the Move
While the local transport and logistics industry sees double-digit growths y-o-y, its players dream of Romania as an international hub. However, its future depends heavily on infrastructure without which it will lose business to other countries. Alexandra Cioboata talks to major players to chart the market's course this year
Romania′s transport and logistics industry is currently enjoying a smooth ride, as it is estimated to have been increasing by at least ten per cent in the last three years, mainly due to a more stable economic environment, a skilled labour force and a great positioning within Eastern Europe, having Constanta harbour as an asset. Last year, the country had a logistics stock of around two million sqm (1.8 million sqm according to Colliers and 2.1 million sqm according to JLL), but industry players confess that Romania has the potential to grow ten times in the following years and become an international hub.
In 2015, the industrial sector ended a rewarding year, according to the 2015 report by real estate services company Colliers International, as the market became more and more appealing to developers, investors, end users, and tenants. Supported by a consumption upsurge for the past five years, the logistics sector witnessed a year of strategic opportunity and has taken the lead. In terms of supply, Colliers notes that while the industrial market outside the capital city has witnessed new deliveries - either speculative developments or built-to-suit solutions - 2015′s logistics stock of Bucharest remained stagnant for the fourth year in a row. Nonetheless, it marked the start of new developments that are expected to be delivered in the first half of 2016 and which will supply more than 100,000 sqm.
And indeed, the beginning of 2016 started effervescently and the pace seems to keep going. According to JLL, a financial and professional services firm that specializes in commercial real estate services and investment management, close to 55,000 sqm of competitive industrial/logistic space was delivered in Q1 2016 in Romania, with approximately 40,000 sqm being inaugurated in Bucharest. The completions included the new Log Center Mogosoaia in the north of Bucharest and Log Center Ploiesti, both developed by Immofinanz and now owned by Logicor, after the transaction closed this quarter.
In addition, the very strong demand over the last two years and the very high occupancy rate, especially in Bucharest, encouraged developers to announce a large number of industrial projects, states the JLL report. Close to 260,000 sqm are expected to be delivered in Romania by the end of 2016, the largest being the two extensions of P3 Logistic Park (total 90,000 sqm), the 30,000 sqm extension of CTPark Bucharest West and the new CTPark Cluj of 25,000 sqm. JLL also notes that speculative development has been rare since the onset of the financial crisis, even though the few speculative projects launched have proven to be very successful. "However, the trend in the current market conditions is changing, as Romania witnesses an increasing number of developers adding some speculative development on top of space secured through large pre-leases," reads the report.
"Romania could lose business to Serbia"
There are several domains which have been acting like "stimulators" and continue to pull the transport and logistics industry in the right direction, namely e-commerce, retail, FMCG, automotive and construction, all seeing double-digit growth and needing third-party logistics providers. The most important logistics hub remains Bucharest and its surroundings, which account for almost half of the logistics stock and absorb between 40 to 60 per cent of FMCG deliveries. The central hub is followed by other several major cores such Timisoara, Cluj-Napoca and Constanta, while the south and northeast of Romania are still underdeveloped. However, for this year, the majority of players will witness increases, according to Dragos Geletu, managing director of KLG Europe Logistics Romania and the vice president of communication at ARILOG (Romanian Logistics Association).
"Romania is a very attractive country, especially due to the capabilities of the local workforce," Geletu tells The Diplomat - Bucharest. "We have great and open-minded people, we are strategically positioned within the CEE and we have the Constanta harbour as a gateway towards Asia. Unfortunately, the industry is not equally distributed across the country, as Bucharest attracts 60 per cent of the consumption volumes, and I wish we could do something about it. However, overall, the industry has grown by at least ten per cent in the last three years and the future looks promising."
However, one of the most important requirements for Romania to further evolve implies the focus on infrastructure, say experts, especially on the two Pan-European corridors which cross the country, namely IV and VII. As some investors put it, Romania could lose a lot of business and European money to other Member States if the country does not take full advantage of the current financing. "Romania′s main challenge is not represented by the bureaucracy, but by infrastructure," Cristian Negrutiu, the logistics director of DSV Solutions, tells The Diplomat - Bucharest. "The EU is financing the Pan-European corridors, which cross Romania, but also Serbia. When Serbia will enter the EU, the European money will go directly to Serbia. Until this happens, we have to finish the infrastructure, at least what the EU has financed."
Jeroen Fabry, business unit manager of Romania and Bulgaria at H.Essers, shares the same view as Negrutiu and adds that Romania is a transit country that could lose a lot of business to Serbia when the latter enters the EU. "When and if Serbia enters the European Union before Romania is prepared with its infrastructure, Romania will lose a lot of business," Fabry tells The Diplomat - Bucharest. "Today, Romania is the transit country. Tomorrow, if Serbia will be in the EU, it will become the transit market because its roads are ready. Imagine how much business is depending on transit. All the Turkish carriers who are just crossing Romania are eating, sleeping and consuming in the country. Romania has a lot of potential and I hope that its potential will be fully used and it will become an international hub," he adds.
Next, The Diplomat - Bucharest discusses with top local players, including the ones above, to underline the market perspectives, their business development this year and objectives for the coming period.
H.Essers to invest up to ten million Euro next year in Romania
Logistics service provider H.Essers Romania, which currently counts a fleet of over 400 trucks and a storage capacity of 83,000 sqm in six locations, plans to invest next year up to ten million Euro in the local market, in both its fleet and the expansion of its Bucharest Industrial Park by at least 10,000 sqm, according to Jeroen Fabry, business unit manager of Romania and Bulgaria. The construction of the new warehouse will start early next year and will last five to six months.
"We have at this moment 33,000 sqm in Bucharest and we want to grow to 100,000 sqm by 2020," Fabry tells The Diplomat - Bucharest. "The group has a very strong investment plan, as each year 55 million Euro are being pumped into its warehouses and fleet, and the money is divided almost equally. For Romania next year, we have budgeted around four-five million Euro for the fleet and about the same for a construction in Bucharest, where we want to build an extension to our chemical warehouse of 10,000 to 15,000 sqm. Our target is to become, strategically, the best and the biggest in niche markets, namely in pharmaceutical logistics, chemical logistics and security."
H.Essers owns another warehouse of 38,000 sqm in Oradea, the remaining locations representing rented cross-dock platforms used for distribution. The company has three transport business lines, namely road, rail and air, and the main focus for the next years will be the railway segment, says Fabry. To date, H.Essers has seven trains running per week from Curtici, Arad county, to Belgium (and back), but the company is also looking at expanding the network to Turkey and Greece. "We are focusing more and more on intermodal freight transport via rail," says the manager. "Why? Because you can grow faster, you don′t need to buy trucks and you can move huge volumes from one point to another. We are investing and innovating a lot to also get our pharmaceutical products on the train, but it is not that easy," he adds.
In the first three months of this year, the logistics company saw a 10-15 per cent growth compared to the first three months of last year. In addition, by the end of 2016 it plans to keep up the pace and reach 50 million Euro turnover, from 40 million last year. The biggest share of the revenues is represented by the transport business. H.Essers has over 750 employees, of which 200 are in Bucharest, 100 in Oradea and 450 are drivers. Next year, the company is planning to hire around 50 new employees. H.Essers is present in Romania since 2004 after taking over a Dutch-based company, which was present since 1992 in the East-Europe market.
CTP wants to reach one million sqm in Romania by the end of 2018
CTP, a full-service international developer operational in Romania since 2005, specialized in delivering and management of high-tech personalized business parks, started two years ago to expand rapidly on the market by acquiring different business parks, mainly logistics ones, reaching a total lettable area of 376,000 sqm. Present in Arad, Timisoara, Cluj, Turda, Deva, Sibiu, Pitesti and Bucharest, the company established an ambitious growth plan of one million sqm by the end of 2018, either through new acquisitions or through own constructions, according to Marian Orzu, head of Leasing and Business Development Department at CTP Romania.
"We want to grow both through acquisitions and organically," Orzu tells The Diplomat - Bucharest. "We are constantly looking for opportunities for new purchases, but we have also 85,000 sqm under construction and we plan to start several other developments. By the end of 2016, I estimate that we will count 600,000-650,000 sqm in Romania, based on what we have running. Furthermore, by the end of 2018 we expect to reach one million sqm, Romania being currently the second largest market of the group after the Czech Republic. Our target is to invest further and become a dominant player on the local market."
Bucharest holds around 70 per cent of the portfolio of the company in terms of lettable area in the three logistics parks acquired last year, namely the former Bucharest West (developed by Portland Trust), which was renamed CTPark Bucharest, and the former Mercury Logistics Park and the former Prologis Park Bucharest, that were renamed CTPark Bucharest West. Currently, the company has 15,000 sqm under construction within the first business park, an investment that will be completed this June and is already fully rented, while the second business park is seeing a 30,000 sqm construction that is set to be finished this autumn. 50 per cent are already pre-leased to transport and logistics company OTZ.
"Currently, Bucharest is facing a lack of available large spaces," says Orzu. "If a logistics operator requested 5,000-10,000 sqm, it would be pretty difficult to find. As a consequence, we started to build speculatively in CTPark Bucharest West. Furthermore, we have a plot of 22 hectares at CTPark Bucharest where we are hoping to start a new construction."
CTP is also building a warehouse for retail company Profi of 25,000 sqm in Cluj, where Orzu confesses that a speculative 10,000 sqm construction could be developed as well as the demand is high in the region. Furthermore, in Pitesti another 15,000 sqm are being erected for the automotive parts manufacturer Faurecia, while in Sibiu the company wants to start a new investment near the airport. "In the following months we will also see very nice transactions which we are working on," he says. "Production will also be a top priority for us in the coming years. If at group level 60 per cent of our portfolio is represented by production, in Romania 90 per cent represents warehouse and logistics. We want to increase the exposure on production in Romania also," concludes Orzu.
CTP is an international developer, present in seven CEE markets, which has concluded approximately 260,000 sqm in new lease deals in Q1 2016, taking total lettable area within the CTPark Network to 3.5 million sqm. CTP clients are local and global companies who open new or upgrade existing strategic investments in Central Europe. CTP is the owner of the CTPark Network, the biggest integrated system of premium business parks in Central Europe. By the end of 2018, CTP wants to grow to five million sqm. So far, the company has invested around 300 million Euro in Romania.
DSV plans to reach 50 million Euro turnover this year
With its three divisions, Road, Air & Sea and Solutions, global transport and logistics services supplier DSV posted in Romania a 44-million Euro turnover in 2015, representing a 13 per cent growth compared to the previous year. This year it plans to keep up the pace and grow by almost 14 per cent in terms of revenues, to reach 50 million Euro, and by seven per cent in terms of profit, according to Cristian Negrutiu, the logistics director of DSV Solutions.
"Romania is a very well positioned country within Eastern Europe and offers great advantages to transport and logistics players," Negrutiu tells The Diplomat - Bucharest. "In the last three years we have grown year-on-year by at least ten per cent and I think this year is no exception. We will reach our target by the end of 2016 as the year started positively and we recorded in Q1 a growth of ten per cent also. Moreover, we have increased our customer portfolio and 18 per cent of total Q1 sales were represented by new clients. This means that we have doubled our new customers this year compared to last year so far."
DSV Romania is present in six locations, namely in Bucharest, Brasov, Constanta, Otopeni, Timisoara and Cluj-Napoca and counts 325 employees. The biggest hub is Bucharest, where the company counts 55,000 sqm of storage capacity and, by the end of the year, will reach 63,000 sqm as DSV will rent another 8,000 sqm from CTP. According to Negrutiu, DSV faces a capacity crisis, as the company had to turn down clients or to postpone them because the company was out of storage space. "Currently, in Bucharest, if you want to rent 5,000 sqm you won′t be able to find it," he says. "One of the consequences of the financial crisis was that a lot of works have been ceased and only build-to-suit constructions have been developed. However, fortunately, a lot of investors are now starting to build warehouses, even speculatively, and I think that by autumn the situation will improve."
The second largest branch of the transport and logistics player is Timisoara, where it has 2,500 sqm, followed by Otopeni - 2,000 sqm (the only property owned, as the rest are rented) and Brasov - 1,000 sqm. In Cluj, DSV operates through a subcontractor, but by the end of the year it plans to open its own warehouse of 1,000 sqm. Thus, from almost 60,000 sqm of warehouse space that the company currently operates, the figure will reach roughly 70,000 sqm by the end of 2016.
"We want to develop Cluj and to create an important network between Brasov, Cluj and Timisoara," says Negrutiu. "Furthermore, we are also interested in the North-western part of Romania, especially Roman or Bacau. However, the warehouses across the country - except Bucharest - are pretty small, as we are avoiding cross-docking and we are usually emphasizing direct shipment. We use the hubs only when it is necessary, as we have sufficient volumes to deliver directly from Bucharest."
DSV Romania will invest this year around one million Euro in infrastructure and IT. In terms of other objectives, Negrutiu confesses that the company wants to improve the quality of its services, especially in terms of streamlining delivery time. "The market is getting more mature due to increased quality of demand and services," he says. "In our industry, quality means shorter deliveries. Increasingly more customers are requesting deliveries in 24 hours or at night. It′s a trend in logistics and probably in two or three years we will discuss about deliveries only at night. Moreover, customers want traceability investments, based on the courier model, to keep record of the route of their merchandise," he concludes.
DSV is present in Romania since 2007, after purchasing the Dutch-based logistics company Frans Maas, now counting up to 60 clients including Heineken, Bergenbier, Pirelli, Continental, Whirlpool and Candy. As a Group, after acquiring UTi Worldwide last October, DSV became one of the world′s strongest transport and logistics networks, counting 44,000 employees, 4.7 million sqm of storage space and 12 billion USD turnover in Europe, North America, South Africa and Asia.
GW to increase by six per cent in 2015 and to see room for growth this year also
Gebruder Weiss (GW) Romania, the local branch of the Austrian-based transport and logistics provider Gebruder Weiss, with a storage capacity of roughly 40,000 sqm, surpassed in 2015 the result of its previous year with a six per cent increase in its turnover figure, according to Florin Carmaciu, the sales and marketing manager of the company. Thus, it recorded a provisional net turnover of 47.1 million Euro compared to 44.4 million Euro recorded in 2014. Furthermore, taking into account the projects the company has been involved in the first four months of 2016, Carmaciu sees many opportunities and a lot of room for growth by the end of the year.
"Last year has been a good year for our company from a budgetary perspective, which has also led to growth in terms of employees or number of offices, reaching nine branches and working points and more than 500 employees," Carmaciu tells The Diplomat - Bucharest. "In some areas we have expanded the current hub, while in others we have opened new ones, such as the branch in Brasov. This year already looks as a very busy one, meaning that we are involved in different projects with our customers. In addition, we are taking into consideration investments in IT infrastructure and additional logistics space in order to improve our customers′ experience."
Asked about the industry, the sales and marketing manager notes that the general consumption is starting to recover after the years of crisis, being a good boost for the transport and logistics industry. Moreover, according to him, Romania is still an attractive country for manufacturers from different industries such as automotive or building materials, contributing a lot to the industry transport development. "Logistics investors are following the market trend these days, so the most attractive side seems to be the western part of Romania," adds Carmaciu. "However, there is also a significant development in Bucharest area and its vicinity, like Ploiesti."
Carmaciu goes on to add that infrastructure remains one of the main bottlenecks of the industry these days, stressing another challenge: the customers′ requirements are changing very fast, becoming more complex and putting more pressure on quality. "One of the main challenges [of the industry] is to perfectly understand the customer′s demands and design personalized solutions in order to meet these demands," he adds.
Gebruder Weiss is present in Romania since 1994 through a partnership with local company Cargolog and since 2005 after buying the whole share capital of the local company, whereupon the firm was re-branded as Gebruder Weiss SRL.
KLG to invest four million Euro in another 10,000 sqm this year, fully leased by Flanco
KLG Europe Logistics Romania, present since 2006 on the local market and operating a current storage capacity of 50,000 sqm across the country, started in April the construction of another 10,000 sqm in its central Bucharest logistics park. Shortly after they started the project they signed a contract with the electro-IT company Flanco. The investment is estimated at four million Euro. The new built-to-suit warehouse will be ready in September and may not be the only one developed by the company this year, according to Dragos Geletu, managing director of the company.
"KLG is one of the most dynamic companies within this industry," Geletu tells The Diplomat - Bucharest. "We have in Bucharest, our central hub, a plot of 18.5 hectares where we intend to develop more than 100,000 sqm of storage space in the following years. Currently, we own a logistics stock of 40,000 sqm and we are developing another 10,000 sqm that are already fully leased by Flanco. (...) Moreover, we could even start the development of another 10,000 sqm this autumn for two big retail companies, but for the time being I cannot offer more details," he adds.
Besides Bucharest, KLG is present also in Craiova, Timisoara, Cluj, Brasov, Bacau, Constanta, Buzau and has recently opened a cross-dock platform in Sibiu. In the coming months, the company plans to extend its Cluj hub through a partnership with a local developer, by renting 10,000 sqm by this autumn. With 350 employees and around 600 active clients, KLG posted last year a turnover of more than 26 million Euro and plans to grow by at least ten per cent in 2016. Furthermore, in Q1 the logistics company saw a 30 per cent increase compared to the same period last year mainly due to the growth of its client portfolio and the positive economic trend that encouraged consumption.
"We don′t want to grow as ′Prince Charming′, as we are not selling a product, but a customer relationship," says Geletu. "However, every year we have registered spectacular increases compared to the market level and this year we will grow accordingly. Consumption has grown, the market is pretty stable and we have recorded increases in terms of both new clients and volumes of existing ones. This year started much better than we expected and we grew by 30 per cent in Q1 compared to 2015′s Q1," he concludes. As a group, KLG is present in The Netherlands, UK and China, where the company has recently opened four warehouses.
P3: "2016 is shaping up to be a very positive year in logistics and transport industry"
Real estate logistics developer P3, which at the beginning of 2015 acquired the former Europolis Logistic Park from CA Immobilien Anlagen, is currently constructing two new buildings for Carrefour and has recently started a new 42,800 sqm building in its P3 Bucharest park, bringing its current sqm under construction to around 90,000 sqm in Bucharest. Thus, the logistics park will grow from 215,000 sqm to 305,000 sqm by the end of 2016. Blake Horsley, country head P3 Romania, tells The Diplomat - Bucharest that in recent years the Romanian logistics and transport industry has faced many challenges, including the limited but slowly improving infrastructure of Romania, lack of logistics experience of employees and local bureaucracy. However, the industry looks brighter this year due to the growth of important sectors such as e-commerce, retail fashion and food, automotive and construction which have a direct impact on the logistics sector.
"We are seeing many local and international players in the market focusing on implementing ′just in time′ concepts and therefore improving their stock management, time for distribution and costs," says Horsley. "A greater focus is being placed on the technology in this sector. 2016 is shaping up to be a very positive year in this industry with most major players witnessing y-o-y growth of 10 to 30 per cent such as e-commerce, retails, FMCG sector, HPC sectors, automotive, construction sector and as a direct result of this the logistics sector grows."
The country head also notes that to ensure a countrywide roll of "just in time" logistics management, there is a need for more established logistics hubs of institutional stands, in particular with cross-docking distribution centres and one or two central warehouses. Compared to many CEE countries such as Poland and Hungary, Romania is currently less developed in this respect, he says, but somehow - paradoxically - this represents also a great opportunity for investors.
Asked about what kind of measures should be taken by authorities to encourage the market growth, Horsley says that, by far, the most urgent requirement is for a faster completion of infrastructure plans. "The work that is being done to tackle anti-corruption in recent years has been very positive for Romania and must continue," he adds. "Permitting for real estate projects continues to take too long when compared with developed markets and a streamlining of this process will help attract further FDI and move Romania forward at greater speed," he concludes.
P3 Logistic Parks is a specialist owner, developer and manager of European logistics properties. Active throughout Europe, P3′s asset base comprises 146 warehouses, totalling more than three million sqm of space across nine countries and a land bank with zoning for 1.3 million sqm of potential development. The company saw rapid expansion early in 2015 with the acquisition of a 467,000 sqm portfolio in Poland and Romania. As of March this year, the group had a customer portfolio of over 300 companies and over 110 employees.
FM Logistic to expect 15 per cent growth this year
With a team of 450 people, the local subsidiary of French group FM Logistic operates on the local market a stock of 65,000 sqm and 80 trailers, being present in Romania since 2003. If last year the business of the company was fairly stable compared to previous years, to around 24 million Euro, this year it expects a 15 per cent rise, according to Catalin Olteanu, general manager of FM Logistic.
"FM has the same trend as the country economy," Olteanu tells The Diplomat - Bucharest. "Although the growth last year was of one per cent, the year ended with much better results than we forecast, and we hope this year will be the same. The good economic trend is helping us to grow. As long as our customers increase their demand, and as long as we target new customers, we have an optimistic forecast. For us, opportunities are coming mostly from FMCG and retail developments, while challenges come mostly from our competition increase."
Last autumn, the company finished a 10,000 sqm building in Petresti (Dambovita county), an investment of around five million Euro, while this year FM plans to invest between one and two million Euro in the acquisition of 10-20 more trailers, says the GM. In addition, for the coming years, the company wants to build another 20,000 sqm and to extend the business. "We are now looking to expand by taking over some other business or developing in new regions of Romania, but nothing very clear for the time being," he adds.
However, Olteanu notes that the most attractive Romanian areas for logistics investors nowadays are also the most effective - the neighbourhood of Bucharest - which absorb between 40 per cent to 60 per cent from FMCG deliveries, followed by the cities served by the highway, from where logistics players can easily access Western Europe for both inbound and outbound. FM Logistic operates three logistics platforms in Timis, Bucharest and Dambovita areas and two cross-docking hubs in Cluj and Bacau. At the present, FM Logistic offers to its clients customized logistics solutions for operations optimization within the supply chain, from warehousing and distribution (FTL and LTL, ambient and TC) to added-value services (co-packing).