On the crossroads

In a time of global economic recession few sectors enjoy stability and even fewer
experience growth. Transportation and logistics is one of those few. In Latvia this sector
has enormous potential, in terms of both geography and legislation, but this potential has
not yet been realised due to the fragmentation of the sector and internal competition (for
example, competition between Latvian ports).

Today Latvia offers competitive services in transportation and logistics according to

experts in the sector, but we are aiming for closer cooperation in order to offer efficient
solutions to complex problems internationally. Such solutions would include all stages of
the supply chain and handle issues such as port terminals, railways, customs clearance,
etc.

Liberalisation of the railway industry is still in progress and at the present time there are
at least two different players in the Latvian freight market besides Latvijas Dzelzcels
(Latvian Railway). The number of private carriers will continue to grow in the future as it
has done in other countries (in both Europe and the CIS) where this liberalisation has
already taken place. Naturally, there are still some areas for improvement (e.g. tariff
application).

In the first five months of 2009 Latvijas Dzelzcels Cargo experienced a 0.4% increase in
the amount of cargo transported compared with the same period last year, transporting a
total of 23.38 million tonnes. This growth is due to an increase in import cargo, a rise of
5.6% during this period. According to Mr Guntis Macs, chairman of the board of Latvijas
Dzelzcels Cargo, these figures show that the transport infrastructure in Latvia and the
variety and quality of the company’s services meet the demands of the market. In the
near future the situation in the transportation sector will be affected by factors such as
price increases, energy resources and the global economic recovery, says Mr Macs.

The sector of air cargo transportation has also made some advances. There are plans not
only to develop the potential to import and export cargo, but also to deal with issues
concerning transit cargo. Riga can compete very well in the Asian market with regard to
transit cargo transportation but we are looking to relax customs formalities to make the
process even faster and simpler.

Container transhipment is the main area for future development in transportation and
logistics in Latvia. Experts anticipate a considerable increase in the volume of container
transshipment via the Latvian corridor in next few years – by as much as 25 times
according to some calculations. Therefore, we aim to make significant improvements in
the infrastructure of Latvian terminals (ports and land). The expansion and modernisation
of the Latvian transport corridor and the optimisation of the transport industry in general
(particularly the railway) are some of the main areas for development.
Central Euro-Asia Gateway (CEAG) (www.ceag.lv) is one of the success stories in the
transportation and logistics sector in Latvia. The CEAG terminal is strategically located
at the crossroads of major railway lines (including the Trans-Siberian and Kazakhstan-
China routes) with rail connections to the six nearest Baltic Sea ports. In addition, there
are a variety of services provided in the terminal such as customs clearance, assistance in
overcoming trade barriers for importers and exporters, logistics services, assembling, and
so on. These two factors make CEAG an excellent means of promoting trade between
Europe and Asia.

The CEAG terminal is a multimodal logistics centre, handling rail and road transport,
storage of goods, customs clearance, sorting, assembling, marking, packing and other
value added activities. It occupies a territory of 68 hectares (formerly a military air-base)
near Jekabpils.

Source: CEAG

What sets CEAG apart from the other terminal based projects in Latvian ports is the type
of goods that it handles. CEAG deals with high value products (electronics, spare parts
and other equipment) and goods (e.g. heavy goods) that are not welcomed by shipping
companies.

The layout of the CEAG terminal has been meticulously designed to use the existing
internal road, building and runway infrastructure in the most efficient and effective way.
This planning, combined with its strategic position at the crossroads of main railway lines
and roads, is a significant factor in CEAG’s success.
In addition to routing container traffic via its multimodal terminal, CEAG offers excellent
facilities for international trade between Europe, Russia, the CIS, Central Asia, the Far
East and the USA.

From the provision of simple services (e.g. transshipment, container and trailer loading,
customs clearance) to the renting of custom-made office, warehouse and industrial
premises – CEAG is willing to cooperate in any way possible and will find the best
solution for every client.

As well as the special service packages described above, CEAG provides a number of
supporting services, which might be necessary for starting a successful business with
CEAG. The most popular and most requested of these services are listed below:

• VISA support (including invitation, VISA application procedure, etc.);

• Assistance with accommodation (hotel reservations, flat rental, etc.);
• Legal assistance with work permits;
• A full package of services for establishing (or buying) a company in Latvia;
• Registration of the company as a tax payer and VAT payer in the Latvian State
Revenue Service;
• Assistance with bookkeeping (full service possible).

Another successful company in the transportation and logistics sector in Latvia is Riga
Central Terminal LLC (RCT) (http://www.rigact.lv). It is the largest multifunctional
stevedoring company in the port of Riga and has been providing a full range of port
services to its clients since 1996. RCT is a part of the Riga Commercial Port LLC (RCP)
holding.

Source: Riga Central Terminal

In 2008 RCT handled 7.9 million tonnes of cargo – the highest amount in the history of
company. In the same year RCT berths accepted 45 cruise ships and over 60 similar visits
are booked in 2009. Every month 2000 TEU are prepared for transit by ship or railroad.
15 ships are unloaded every week and 450 railcars are processed daily.

RCT has at its disposal an area of 82 hectares in which to carry out stevedoring
operations. This includes:
 • 13 berths
• An area with bonded warehouse status
• Specialised warehouses
• Open storage areas
• Railway access roads

RCT provides the following types of cargo handling:

• General cargo
• Dry-bulk cargo
• Containers, containerised cargo
• Cars, wheeled machinery
• Oversized and non-standard cargo
• Ro-Ro cargo

List of services:

• Railway consignment services

• Stevedoring services
• Customs services
• Warehouse services

Transit cargo is processed for import and export (Europe, Russia, Middle Eastern, North
and South America)

A large-scale investment project is underway in the port of Riga to construct a

multifunctional terminal on the Krievu Sala island. The project is planned to be
completed by 2015.

• Area: 67 hectares
• Terminal status: free zone
• 7 berths with a total length of 1760 m and a maximum draught of 14.5 m

Cargo capacity:

• Dry-bulk cargo (12m tonnes)

• Ro-Ro, general cargo (0.5m tonnes)
• Liquid-bulk cargo (0.2m tonnes)
 Source: Riga Central Terminal

Sources: LETA, Kapitals, CEAG, Riga Central Terminal

Latvian logistics industry faces challenges
Aug 19, 2009
By Olga James

BUILDING BLOCKS: Latvia needs to invest more to develop its capabilities as a fast
and efficient transit hub.

RIGA - Historically the Baltic States, and Latvia in particular, have acted as proactive
players in the evolving world of international transportation and logistics, and for good
reason. In the pre-crisis years, the U.S./European markets were estimated to be worth
almost 1.5 trillion dollars, or about 5 percent of the global GDP. Due to its geographic
location and well-developed transport infrastructure Latvia is very well poised to acquire
a significant share of this highly lucrative business.

Logistics has always been an integral part in the composition of Latvian economics
(according to Reuters, transit, transport and storage contribute as much as 10 percent of
the country’s GDP). The industry has become even more important for Latvia’s
macroeconomic makeup nowadays, as the Baltic republic is grappling with the negative
effects of the international financial crisis, and the GDP decrease has reached double
digits. While the business environment remains extremely challenging around the world,
Latvia strives to maintain and further expand the portfolio of international business
clients across all major industries and regions.

Several factors are necessary to succeed in the logistics business at the international level,
notably the efficiency of the transportation infrastructure, the regulatory and institutional
frameworks and the level of distribution systems. Latvia is striving to create
comprehensive services addressing all aspects of the logistics process including
transportation, storage, packaging, administration, management and the legislative base
in order to attract global companies that offer high profit margins and gain access to long-
term projects providing sustained recurring revenues. Even though the progress had been
somewhat stalled in recent months, the government has been working on modernizing
the road infrastructure, to raise it to EU norms, and updating the legislative base to
facilitate the development of the logistics sector.

Logistics companies in Latvia, which is favorably positioned in relation to the core pan-
European transit routes, primarily specialize in the transportation of coal, oil and oil
products, metal, timber, cotton as well as chemical and perishable goods.
According to statistics by the Transit Division under the Latvian Ministry of Transport, in
the period from 1999 to 2008 cargo turnover at Latvian ports rose from 45 million tons,
to 63.6 million tons, with the ports of Riga and Ventspils leading the way. Railway cargo
turnover of the state-owned company Latvijas Dzelzcels (the largest transport company
in the Baltic states) jumped from 28.8 million tons in 1999 to 56 million tons in 2008.
Riga International Airport reported 4.4 million tons of transported cargo in 1999 and this
figure almost doubled by 2008, while the number of flights in the reporting period rose
from 19,387 to 57,230. Private companies specializing in providing logistics’ services
have also done well in recent years and a wide range of service providers are looking
confidently into the future.

This year saw a dramatic drop in the sector’s growth due to the effect of the global
economic downturn. Since the beginning of this year the market players have been facing
some of the most difficult market conditions in their history. However, analysts report
that overall, the logistics industry is in considerably better shape than other sectors of the
Latvian economy.

Just like most of the business operators in the Baltic States, logistics companies are
currently facing a diminishing customer purchasing capacity, which is reflected in
dwindling profit margins. When the credit crunch squeezed interbank liquidity, credit
tightened and logistics’ companies saw their customer base shrink dramatically. There are
clients that have declared bankruptcy and were forced to liquidate; there are those
businesses that are facing short-term financial constraints and therefore their cash
resources are very limited. Even large corporations that are sitting on pools of liquidity
are hesitant to spend money since they don’t know what the next turn of financial crisis is
going to bring.

However, a big advantage of the logistics companies in this particular market

environment is that they are able to offer clients customized solutions to operational
problems and offer tangible benefits that continue to be a source of competitive
advantage for the struggling companies, even in difficult times. The benefits of using
logistics services, such as reduction of capital expenditures, enhanced customer service
capabilities and improved functional efficiencies are generally obvious to every business
owner. As a rule, logistics managers do not have to invest a lot of time in convincing a
client to develop a business relationship, on some level. Therefore, the more proactive the
logistics service provider is in updating the service offering, and reaching out to potential
customers, the more clients he will attract and the more revenue he is going to generate in
the long run.

There are two core ways that a successful logistics company can go in order to stay afloat
in the current market environment. The most obvious way is reducing prices without
compromising quality, which is primarily achieved by carefully planned cost reductions.
The second method is in extending the coverage of the territorial network, offering clients
access to a wider variety of markets. Companies that are able to find business partners in
Lithuania, Estonia or Russia will arguably have a competitive advantage over the
operators that are only covering Latvia.

Even though Latvia, without exaggeration, is a bridge between the East and the West, this
favorable factor has not been fully utilized yet. Admittedly, at the present time the level
of recognition of Latvia in the international business arena is still rather low. Even though
the country has achieved wide recognition in the cultural sense - as the home of the
Latvian Song and Dance Festival and, as of recently, the home of the Blondes Festival,
on the business level recognition and awareness remains low. The countries that are
Latvia’s competitors in the sphere, such as Finland, Germany or Poland, have been much
more active in attracting foreign investors and business partners. Even though these are
difficult times for promotional activities, undoubtedly the Latvian logistics industry
cannot thrive without extensive support at the state level.

The same principle that is relevant at the government level is true for the company level.
Establishing business relationships sometimes is a rather costly enterprise that involves
financial resources as well as time. Making investments in this situation means balancing
on the survival line, and might seem risky, but new markets offer new business
opportunities that cannot be ignored. It is virtually impossible to put a business on the
international map without participating in industry conferences or exhibitions, fostering
business relationships with international counterparts and making cautious investments in
promotional activities.

Extensive development of Latvia’s infrastructure facilities and logistics systems is crucial

for establishing the Baltic country as a major pan-European transit point. Its favorable
geographic location, an undoubtedly great advantage that Latvia has been able to
capitalize on in the past, does not by itself guarantee the steady and sustainable client
flows in today’s world of cutthroat competition between logistics centers. It is necessary
to create the environment that is supportive of global logistics activities, thus inducing
businesses to use Latvia as the intra-regional value-added transshipment base.
Implementing efficient market mechanisms covering all aspects of logistics: distribution,
warehousing, materials handling and packaging, will ensure a high degree of facilities for
the goods transshi