Freight companies battle price hikes, competition as sector grows
Business is booming in the freight-forwarding sector with some companies reporting 50% growth over last year. But with such increases come growing pains.
Stiffening competition and fuel price hikes are squeezing margins and customers faced with greater freedom of choice are demanding an additional array of services, which range from packing goods and customs clearance to door-to-door deliveries.
"They really expect individualized service," said Marek Grzegorzewski, general director of Universal Express, which has been operating here since 1995 and ranked No. 12 in the WBJ sector survey. (See The List, page 16).
Although demand for freight-forwarding services is up this year, many forecast a tighter market next year as the economy cools, industry members said. But Grzegorzewski is not worried. "The business is knocking on the door," he said.
The key to rising above the competition is developing a brand associated with good service, executives said. Moreover, there's more than enough business to go around, they said.
"Freight forwarding is something that must exist at all times," said Piotr Selmaj, director of freight-forwarding company Cargoforte, which ships via air and over ground. Cargoforte's 1999 revenue is expected to increase by 50% from zl. 10 million ($2.85 million) from 1998.
At the same time, many freight forwarders, particularly Polish ones, face a number of challenges, sources said. "The market is stronger, and it's getting stronger all the time," Selmaj said.
Increased competition, downward pressure on the zloty and more than a dozen hikes in fuel prices this year has meant thinner profit margins, executives said.
"Our customers understand the problem" of the fuel price hikes, Selmaj said about those increases trickling down to the customer's bill.
While many clients may accept the situation, though, others have started negotiating prices or have turned to competitors, he said. "Of course I think the main reason the (clients) choose the companies is based on money," Selmaj said.
But price is not everything, Grzegorzewski said.
"I would not say that it is a really spectacular element," he said. "I have a wider spectrum of services so I can consume a wider spectrum of costs."
But for smaller firms, increased competition especially from deep-pocketed foreign and multinational firms could spell trouble, some executives said.
Not necessarily, said Tadeusz Chmielewski, general manager of Roehling Spedycja Miedzynarodowa. "If they have good management, then they have no problem," he said.
Speed of delivery can mitigate the price war, executives said. But with very slow development in the nation's transportation network, finding ways to get from point A to point B quickly is a major challenge, they said.
Much shipping into and out of Poland is done via air at Warsaw's Okecie Airport and sea through the port of Gdynia. That's the point of entry, and from then on, moving overland is the big challenge. Rail is an important means of solving the problem as it doesn't face traffic, weather and speed limitations typical of roadways. Thus, Polish State Railways (PKP) could be a major player, or at least a better player. But the railroad has done little to develop its freight service and is steeped in red ink. The good news is that PKP is planned for restructuring, parceling up and privatization.
"I don't know their attitude, but it seems as though they are not at all interested in this business," Grzegorzewski said about PKP's freight sector. Universal Express has yet to see an interesting offer from the state railway, he added.
Moreover, the freight sector continues to conduct business during limited office hours, for example, 8 a.m. to 3 p.m., and that's not conducive to business, Chmielewski said.
Also on the ground, the lack of a comprehensive highway system impedes freight forwarders, executives said. Construction of various 5-year-old projects, such as the A4 toll road that is set to connect Warsaw to the German border and the A1 that will stretch from Gdansk in the north to the Czech border in the south, have not started due to financial and political constraints.
"Without the motorways we can just forget about developing," Grzegorzewski said about his sector and Poland's economy as a whole.
Lack of infrastructure development aside, executives noted there have been some improvements especially with the customs office, a long-standing bottleneck and area of frustration for forwarding and courier services and businesses in general.
"They have more practice, I think," Selmaj said.
That's not to say the problem is solved, though. Customs agents can still be poorly up to date about regulation changes and managers lack initiative to take make-or-break decisions for transporters.
"They are still too bureaucratic," Grzegorzewski added.
Chmielewski, also noting improvements in customs service, highlighted the limited number of clearing stations for electronic goods as a major obstacle to the transport of basic goods used daily by consumers and businesses.
There are only a few locations nationwide, Chmielewski said. "It doesn't make sense," he added.
Who you know remains a key to unlocking problems that surface with customs clearance, executives also said.
"You might be treated a little bit better," Grzegorzewski said. However, relationships can deteriorate quickly if there is any sort of discrepancy between the paperwork and the goods at hand.
Much of the problem lies within the Central Customs Office and its lack of transparency, Selmaj said. "I think that the management in the state companies are not the right people in the right place," he said.
Despite lingering problems at the customs office and lack of infrastructure development, Selmaj remains optimistic about the future for transporting goods here.
"Of course in a long-term perspective, I think it's good," he said.
