Transport and Logistics: Plenty more to come

The vacancy rate for logistics and industrial spaces in Bucharest is close to zero, with low deliveries of new projects and high demand in the first quarter. According to data from JLL Romania, only 27,000 sqm of industrial spaces were delivered, while net demand was nearly seven times higher, reaching 180,000 sqm. Petre Barac talked to major players to chart the market's course this year.

2017-06-20 16:33:39 - From the Print Edition

Existing stock of industrial and logistic spaces in Romania reached 2.5 million sqm at the end of the last year, of which 1.2 million sqm are in Bucharest, resulting in a density of 128 sqm per 1,000 inhabitants, lower than in the other countries in the CEE. Approximately 75 per cent of the Bucharest stock is clustered along the A1 highway corridor in the west.

"The vacancy rate at the end of 2016 was estimated at less than five per cent in Bucharest and less than ten per cent in the rest of the country," said Costin Banica, Head of Industrial Agency, JLL Romania. "At this moment, it is very difficult for existing projects to find room for new demand. That is why we see an increase in the amount of spaces delivered speculatively without a secure leasing contract. These spaces are contracted by tenants as soon they are placed on the market."
From the demand point of view, JLL representatives see an advance of almost 40 per cent compared to the first quarter of last year, the entire surface being net demand, including new contracts and contracts built to suit.

Demand structure shows that 70,000 square meters, or 40 per cent of the total, are leased spaces by logistics companies, while retailers have signed deals for 53,000 square meters, or 30 per cent of the total. More than two-thirds of the first-quarter demand targeted Bucharest, over 97,000 sqm. Timisoara, Ploiesti, Cluj and Roman are other cities that have attracted companies for industrial and logistics.
Another record level of 400,000 sqm has been announced to be delivered by the end of 2017, as developers are encouraged by the low vacancy and record demand to further expand their existing parks or to start new projects.

CTP wants to reach 1.25 million sqm in 2018

"This year, we will probably build around 200,000 sqm in Bucharest and we still have another 60,000 – 70,000 sqm in the country," Marian Orzu, head of Leasing and Business Development Department at CTP Romania, told The-Diplomat Bucharest "We also have spaces to rent in Arad and Deva, spaces that we have bought. In Bucharest, we have advanced talks for renting a unit of 10,000 sqm. We hope to rent it before this building is completed. Most of the demands come from the retail area. Demand is higher than in past years, the stock has doubled, and the space available in Bucharest is not that much."

The beginning of the year is the same as in 2016, according to Orzu, who said that there are many relocations due to change in the legislation on fire protection. "We build new spaces and guarantee ISU authorization, otherwise we cannot operate and it is our responsibility because technical standards got higher."

CTP's Orzu stated that Brasov is an area they are targeting. "We want to reach 900,000 sqm by the end of this year and next year to reach 1.25 million sqm. Demand will grow steadily by at least the end of next year. We are interested in Northeast Romania, meaning Iasi, Roman. It is a relatively fast connection with Bucharest. From there you can also cover the Bucovina area. We are in advanced discussions for expansions at Turda, Sibiu. Of the total portfolio, 60 per cent represent new contracts and 40 per cent are extensions."

At kilometre 23 on highway A1, CTP is building 85,000 sqm that are fully rented. The cost of constructions is usually around 350-365 Euro per square meter.
CTP, a full-service international developer operational in Romania since 2005, specializes in delivery and management of high-tech personalized business parks. They started three years ago to expand rapidly on the market by acquiring different business parks, mainly logistics ones, reaching a total lettable area of over 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.

DSV: Labour force crisis is bigger than it appears in the media

"It's good for us that we market demand, but we are struggling with the labour force costs and the unavailability of human resources," Cristian Negrutiu, the logistics director of DSV Solutions, told The Diplomat-Bucharest. "This demand comes especially from the lack of workforce and the increase in costs. Until now, only large international companies were outsourcing their services, but small businesses, such as family businesses are outsourcing as well.

In his opinion, the labour force crisis is bigger than it appears in the media. "The explanation is very simple. There are a few million Romanians who work abroad and they are exactly the segment of the workforce we are looking for, usually low-skilled, but they are gone. We try to attract people with higher salaries and we are somehow bound by the aggressive minimum wage dynamics. The lack of workforce is going on for about two-three years now and has become increasingly acute. We don't have people, but we also have higher costs."

DSV's Negrutiu said they are trying to transfer the increasing costs as much as they can to their customers, but the negotiations are very difficult. "Some of them were sympathetic, and others very
dissatisfied. There have been cases of small clients that we lost because the tariff increase was significant and unbearable for them."
Negrutiu also said they have many new project
s and they have to bring new people. "The cost of bringing workers to work has increased by 50 per cent over the past two years. It would really help us if the City Hall would expand public transportation. We have tried to get this solution, but without any success."

DSV Solutions has around 420 employees, with their number increased due to new projects. "We keep our focus on productivity," according to Negrutiu. "I′m not saying we need more employees, we should have more stability. At this point, we are making a new warehouse at kilometre 23 on the A1 highway, with 37,000 sqm where we will bring new tenants and relocate some of our existing ones. We will reach a total of around 90,000 sqm, it's a big effort."

Negrutiu underlined that the group's policy was to stop investing. "We reduced our direct investment, that′s the business model in Europe, it′s all about being more flexible, to have a light asset strategy." He said DSV achieved the sales and profit targets with some difficulties. "2016 was higher than 2015 by ten per cent. Turnover was about 50 million Euro in 2016. In 2017, we want to reach an increase of five to ten per cent and our challenge is to get a profit of around one million Euro."

DSV Romania will invest this year around one million Euro in infrastructure. Negrutiu confessed 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 said. "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 added.

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, 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.

KLG thinks of 2018 with caution

The market will continue to grow slightly, according to Dragos Geletu, Managing Director KLG Europe Logistics Romania. "If we look at our industry, there is a lack of storage capacity and an extraordinary demand," Geletu told The Diplomat. "There are still speculative contracts signed and I must admit that I do not want to be part of the group of those who suffered from the crisis. I think of 2018 with caution. We have a smooth growth and we want to keep it that way. We can do it exponentially, but it is not our goal. I am concerned considering the political, economic, and even social contexts. I have come to give over 15-20 per cent of the salary fund directly to the bank, for my employees who have taken credits and must give the money back. It seems to me enormous, and credits are still being taken."

According to the quoted source, KLG does not want immediate profit. "We are a stable company and we have the desire for stability," said Geletu. "For us, the crisis period meant the most dynamic growth in the industry. It seems to me that we had a perfect approach in a delicate global situation. I always look at the global situation. It seems to me that we are in a sensible Europe, a bureaucratic Europe, and there is certainly something to be done. Wrong political decisions affect us not only on short-term but also long-term. We have many investment projects on hold for this reason."
According to Geletu, 2018 will be a tough year for the logistics industry. "Our turnover increased by over ten per cent last year. This year, we already have more than ten per cent profit. We have about 450 employees and wage costs have increased by 25 per cent only in the last quarter, which is very much."

P3 is looking to expand their current park

Real estate logistics developer P3 is currently building two warehouses, one of 14,000 sqm and a second of 41,000 sqm, and they plan to start a third one of 10,000 sqm in the summer, Blake Horsley, Country Head P3 Romania, told The Diplomat.

"2016 was a year of huge growth for our tenants, which was reflected in many large expansion requirements as the market came rapidly out of a period of post-crisis inactivity," said Horsley. "The first half of 2017 will continue this trend. I don't see as many large requirements for the second half of 2017 at this stage as tenants have already expanded and the industry growth is expected to be strong but not at 2016 levels. Requirements for space will however still continue at a steady pace."

In his opinion, e-commerce and increased focus on last-mile delivery are the main market stimulators these days, as well as the growth of second and third logistics hubs for companies outside of Bucharest as they look to optimise their delivery times throughout Romania.
"Bucharest is still very strong, with a lot of activity in Timisoara and Cluj also," Horsley added. "As a country, we are still a long way behind the market stock of other CEE countries, such as Czech Republic and Poland. In addition to the usual points regarding better highway infrastructure, authorities can also consider improvements in the speed of urban planning, analysis of property tax levels at a county level to encourage more development in their counties, and finding ways to help warehouse workers commute to and potentially also live closer to the warehouses."

P3's Horsley stated that logistics warehouses are very attractive to smaller towns that neighbour the big cities, as warehouses create new jobs and new jobs create taxes, which can be used to improve the community.
"What is interesting is towns with lower property tax than others will generally attract more logistics development than towns with higher property tax, and therefore these towns will in turn create more jobs, and more tax revenue for these towns which can then be spent on infrastructure projects like schools and roads," he said. "Available workforce is becoming the largest concern for tenants, now equal to quality road infrastructure. This will heavily impact expansion in the coming years and as such, any cities with innovative solutions will be well placed to secure new logistics developments. Towns could look at putting on more buses to bring workers from nearby towns, or creating small hostels in warehouse areas for workers to stay in."

P3 is looking to grow and they are focused on expanding their current park, while looking for further expansion in Bucharest and selected locations elsewhere.

Gebruder Weiss to increase their employees′ expertise and IT investments

The transport and logistics market has been marked in recent years by increasingly demanding customers in terms of service quality, IT infrastructure and contractual responsibility, Viorel Leca, Managing Director of Gebruder Weiss Romania, told The Diplomat-Bucharest. "In recent years, we have also noted the growing complexity of the projects that customers are bidding for - not just the classical transport services or logistics. All these, combined with the increase in the number of competitors make Romania a highly competitive market and this trend will certainly continue in 2017."

In his opinion, Romania is an extremely attractive market for a diverse range of industries such as automotive, retail, and FMCG. All the segments are expanding through new production facilities or sales units, which implies the development of new logistics and transport networks.
"Obviously, the western area, Transylvania and Bucharest remain the hot spots of development," said Leca. "In the last years, we have noticed concrete intentions in the area of Moldavia through the appearance of new storage areas or of some automotive factories. Some of the critical factors that determine the attractiveness of a region remain infrastructure and workforce."

In 2016, the Romanian market profile retained its competitive character, with a strong competition among logistic and transport providers. "If we take into account the effervescence that has already marked this year's debut, we certainly will have a ‘crowded' 2017 which confirms the good reputation that Gebruder Weiss is enjoying on the profile market," added Viorel Leca. "One of the greatest challenges of 2016 was the diversification of the projects or auctions we got involved in, but we took all these as opportunities for learning and further development. We are convinced that building on this experience, we will continue to attract new customers but also to improve our expertise."

For Gebruder Weiss Romania, the priority development directions remain to increase their employees′ expertise and IT investments to help them cope with increasingly complex customer demands. "We also consider investing in increasing existing storage facilities, and with that we will also increase the fleet of equipment according to the new requirements," Leca added. "As a first step, at the beginning of this year, we relocated the Cluj Branch to an ultramodern location designed to meet the expectations of our customers in the area, both in terms of transport and logistics."
Another long-term and important objective for the local management team is the human resource, as the company has several projects to develop and reward the employees from all hierarchical scales.

Hodlmayr Romania plans to buy 35 new special vehicle trucks within the next two years

Over the last six years, car sales have been on the rise and there is also a big interest in ‘second hand' cars - especially coming from Western Europe, Tamer Sen, managing director of Hodlmayr Romania, told The Diplomat-Bucharest. "Ultimately, the sector of ‘second hand' cars turn out to be bigger than the one for new cars - at least three times as big. Therefore, we are talking about a market in which about 400,000 cars are being delivered/ transported. Additionally, the positive results of the first quarter of 2017 are already creating a positive outlook for this year."

The fact is that margins in the transport sector are very low or even non-existent, Sen added. "Therefore, it's important to focus on high value-added services, which create room for better margins. Hodlmayr Romania is offering its customers a wide range of services. Next to the ‘classical transport solutions' there are various other services like car customization or upgrading and quality control procedures."

According to Hodlmayr's managing director, Romania is demonstrating more growth than other CEE countries. "However, such comparisons need to be made based on parameters like for example GDP per capita and consumption per capita etc. instead of relying on simple comparisons - ignoring the economic developments and other facts."
Hodlmayr Romania is looking back at a successful 2016 business year, Sen said, with the turnover up to 36 million Euro - which represents a ten per cent growth in comparison to the previous year. "Additionally, the positive results of the first quarter of 2017 are creating a positive outlook for this year already," he added.

Talking about the challenges of the Romanian market, Sen mentioned the infrastructural challenges in Romania like the "difficult road conditions or the patchy rail network".
"Completing the motorways throughout Romania would not only reduce transport costs but also create major time-gains, a factor of vast importance in the logistics sector," he said.
Hodlmayr Romania has a storage capacity of about 3,400 vehicles. The location in Bascov operates about 100 special-vehicle trucks and four block-train systems. Within the next two years the company plans to buy 35 new special vehicle trucks.

Moreover, their aim is to expand their "multi-modal-transport-concept" and establish a holistic logistic concept throughout Romania, the Benelux region, Austria and Turkey.
Last year's turnover of Hodlmayr Romania was about 36 million Euro and currently the company has more than 200 employees.

IB Cargo registered a turnover of 22 million Euro in 2016

The logistics market is closely linked to all other manufacturing sectors and if they grow, the need for transport and logistical services also grows, as Catalin Putineanu, shareholder of IB Cargo, told The Diplomat-Bucharest. "The evolution of consumption has increased the need for logistics and industrial spaces and implicitly transport services for deliveries both on imports and exports. The development of the freight forwarding sector is supported by all manufacturing industries and by increased consumption. The growth of imports and exports also entails the need for transport and logistics services. The automotive industry, FMCG, manufacturing industry, and online commerce are important users of freight forwarding services. Retailers are looking to develop their sales channels, which will lead to an increase in new warehouses and distribution spaces. FMCG products have a short storage period, and stocks are changing often."

Nine of the ten largest logistics companies in the world are present in Romania with businesses worth tens of millions of Euro, and most of them came in 2007 when Romania and Bulgaria joined the EU, Putineanu said.

"Everyone expected the first six months of 2017 to be quiet and predictable on the maritime and air freight market, but it wasn't the case and the moves since the beginning of the year had an impact an all players with import and export activities," he added. "The critical condition of the container shipping market for the Asia-Europe segment was initially attributed to the reduction in the number of ships with around 50 per cent going to Asia before and immediately after the new Chinese year on January 28. The decrease in Chinese exports and the fact that most Chinese exporting factories were closed between two and four weeks for the new year, led to the decision of the lines to allocate a much smaller number than the market demand. That′s because in recent years shipping lines have lost billions of dollars and have reached the point where they can no longer afford it."

According to Catalin Putineanu, until a few months ago, ships had a usage rate of less than 70 per cent on the Europe-Asia route, with lines repositioning the empty containers in Asia on those ships. But last month they have reached 100 per cent usage rate and the lines were temporary refusing any exports booking from European ports. In order to honour the contracts, many shippers in Europe have turned to air transport, thus increasing rates on this segment as well. In addition, in April the operational start of the new alliance liners was marked and the long-term strategies are not yet clear, but almost all shipping lines were losing money in 2016 and some of them want to strictly manage transport capacity and increase rates to profit."

Last year, IB Cargo registered a turnover of 22 million Euro, 16 per cent up from 2015. "We had over 2,000 clients, organizations from Romania and around the world, we carried out over 33,000 road transports, for example and for the current year, we estimate an increase of approximately ten per cent on all our business lines," IB Cargo's shareholder stated.

"We offer increasingly more ‘one stop shop' freight forwarding solutions: road, air and sea, time-critical both air and road, customs assistance, consolidation of acquisitions from multiple suppliers, all these operations helping organizations to optimize businesses, to follow the latest legal regulations, to recover from critical situations, and to better use their own capabilities."

According to Putineanu, IB Cargo has partners through which they can offer multiple logistics solutions. "On the road side, we have a database of more than 3000 carriers that we access depending on the type of transport. On domestic roads, 130 trucks are subcontracted and run exclusively for us. On the sea and air side, we choose the right partners in each port and airport to be able to meet any of our customers′ needs."

This year, IB Cargo wants to focus on team development through personalized training on the needs of everyone, on technology - integration of business intelligence solutions that allow data analysis to a very detailed level and future planned development decisions, application development allowing easier tracking of orders and communication of suppliers with headquarters.
The company has 77 employees in its Bucharest and Constanta offices and for 2017 they estimate an increase of ten per cent.

Toyota Material Handling Romania had a turnover of 18.5 million Euro in 2016

Forklift equipment market has been growing steadily over the past years, and there are no reasons to believe that this growth will slow down in the upcoming period, Daniel Preda, managing director of Toyota Material Handling Romania, told The Diplomat-Bucharest.
In his opinion, one of the main market stimulators is consumption, which indirectly generates retail growth, and as well the growth of the industry sector. "It is obvious that Bucharest with the surrounding area, the western area and then the central one represents the ‘logistic poles', but now Moldova starts to appear on the radar, even though infrastructure is not a stimulating factor," said Preda.
According to him, the authorities should encourage market growth with a more transparent and more stable economic environment. "Infrastructure investments are absolutely required. In addition, it would help to stimulate the growth of specialists, in line with market requirements (professional schools as an example)."
Daniel Preda stated that the company registered growth on all plans and 2016 was a record year for them. "Market growth has greatly contributed to this performance, but there have been other factors that have helped," he added. "2017 started very well; as it looks so far, we will have another record year.
Last year, Toyota Material Handling Romania had a turnover of around 18.5 million Euro, up 26 per cent from 2015 and net profit was around 3.4 per cent of the turnover. The budget for this year is estimated at 25.3 million Euro, an increase of 37 per cent compared to 2016, with profit to reach 2.4 per cent of the turnover. The company has over 100 employees and around ten to 15 more employees are to be added in the next period if the growth trend will be maintained.