A few years have passed since Amazon opened its first logistics centers in Poland, which cost a whopping PLN 3 billion. The e-commerce giant’s decision was not a one-off deal but it seems to have put Poland permanently on Europe’s logistics map
By Karolina Papros
Poland seems to have it all: a geographical location at the crossroads of Western and Eastern Europe, Scandinavia and the Balkans, continued lower labor costs, the constantly improving quality of transport infrastructure and ever increasing warehouse stock. The country’s potential is impossible to resist, and it wasn’t that big of a surprise when Amazon decided to tap deeper into the logistics potential of Poland, announcing the opening of their fourth and fifth logistics centers in the second half of 2017. The two new centers are being built in Kołbaskowo near Szczecin and in Sosnowiec, Silesia, creating hundreds of new jobs and simultaneously, strengthening the position of Poland as a force to be reckoned with in the European logistics and transportation industry.
In fact, Poland holds 33rd position in the latest World Bank International LPI (Logistics Performance Index) Global Ranking. Pretty good if you take into account that the ranking covers 160 countries. The index is calculated based on a few categories such as tracking and tracing, customs and infrastructure. The leader is Germany, Austria is runner-up and the United Kingdom holds third place. The index was designed to aid countries in identifying weaknesses and strengths in the trade logistics sector. Since the World Bank published its first International LPI Global Ranking in 2007, Poland’s main strength has been the timeliness of deliveries. However, its Achilles’ heel turned out to be the quality and availability of infrastructure. The 2016 International LPI Global Ranking confirms that not much has changed.
Road, rail or air?
Despite having improved significantly over the past decade, infrastructure continues to be the most significant problem for Poland despite continuous financial investment and support from the European Union. The Ministry of Economic Development reports that Poland is currently the main beneficiary of EU Cohesion Funds and in the years 2014-2020 will receive €82.5 billion to support development in various areas. A significant part of these financial resources will be allocated, among other things, to road and rail infrastructure development.
Following the report on the achievements of the Polish logistics sector in 2014/2015 published by the Institute of Logistics and Warehousing in Poznań, the importance of road transport is increasing due to the expansion of road networks and their improving quality. Michał Mazur, PwC’s head of Central and Eastern Europe logistics and transport team said: “In 2014 some 80 percent of the ton-kilometer volume was transported by road and this share will grow to 82 percent in 2020. Therefore, increasing road capacity remains a crucial challenge.” However, railway infrastructure seems to be going through a difficult time if we look at it from the perspective of the logistics and transportation industry – mostly because of never-ending maintenance work, low speed trains and poor quality service. Nevertheless, PKP PLK, Poland’s railway infrastructure operator, plans to carry on the modernization of the existing railway network and increase the maximum speed for passenger trains to 160 km/h and for freight trains to 120 km/h on main routes. Moreover, the report mentions that marine transport in Poland has been doing reasonably well. For example, the container terminal in Gdańsk will increase its capacity from 1.5 million to 4.5 million TEU (twenty-foot containers) in the years 2014-2020. However, aviation infrastructure still needs investment if it is to reach its full potential.
The wage dilemma
Poland’s growing importance on the logistics map of Europe seems to pose a threat to the long-established European logistics centers. Many companies from Western Europe prefer to take advantage of much lower wages in Central and Eastern Europe and subcontract across borders. Therefore, a lot of controversy was caused by Germany introducing the national statutory minimum wage for international truck drivers to protect the transport market against competitors – mainly from Central and Eastern Europe. Normally, even though drivers operate across Europe, their minimum wage depends on the country in which they are employed. The latest KPMG report on minimum wages in Europe states that there are 22 countries with national minimum wages, but the amounts differ dramatically: Bulgaria, with €214 per month, has the lowest, while Luxembourg’s €1,923 per month is the highest minimum wage in Europe.
Germany introduced a minimum wage of €8.50 per hour applicable to any employee operating on its territory regardless of the country in which they are hired. Polish international drivers receive higher wages than the national minimum wage anyway, but despite that, their average earnings still fall below the minimum wage of their western neighbor. In order to adhere to German law, employers would have to double the wages of those drivers who cross the German border. A similar case concerns France, which followed Germany’s footsteps and enforced a law according to which foreign drivers must be paid the French minimum wage (€9.67 per hour) and a representative must be appointed in France. The European Commission has responded to complaints from affected countries by saying that both France and Germany are posing obstacles in cross-border road transport and the freedom to provide services. However, its final decision has not been made yet.
The reason why logistics and transportation sector news has become such a hot topic is because the industry is largely driven by the fastest growing area in logistics – e-commerce, and Poland is one of the fastest developing e-commerce markets in Europe, growing steadily at a double-digit pace. This development highlights the importance of logistics companies (mostly couriers), boosts the demand for warehouse space, as well as the need for automatic package delivery points. In fact, last year was a huge success for the warehouse market. CBRE reported that in 2016 the supply for new warehouse space amounted to a record-breaking 1.12 million sqm, whereas the total warehouse space in Poland has already reached 11 million sqm. For the time being, Warsaw remains the most attractive and expensive location with the rent rates of €4.00-5.50 per sqm per month.
The geopolitical scene adds yet another layer of uncertainty for logistics firms. Brexit seems to be particularly problematic for Polish logistics companies that operate in the UK and for customers based in both countries. The consequences of the UK leaving the European Union are looming over companies: higher operating costs, the introduction of trade tariffs, lower operating efficiency, as well as reduced attractiveness of Polish e-shops for customers living in the UK. The UK may soon become similar to the United States or China where shipping to and from the EU is already a complex process.
All in all, the logistics and transportation industry in Poland seems to be booming despite the clouds on the horizon. Once the EU funding program finishes, the decision on German and French minimum wages is made and the consequences of Brexit become visible, the time will come to re-examine the costs and benefits.