Keep on trucking

What on earth is going on with the Polish logistics sector? Not long ago, the industry was booming and the forecasts were of a world that was a bed of roses

Now, Jerzy Dąbrowski, the CEO of Finea, has proclaimed on the Eurobuild website that the industry is facing a slew of bankruptcies and that massive investment is required. This could have a knock-on effect on the warehouse sector, since from the time of the pandemic logistics has accounted for a large section of the demand for industrial space and – as Segro argues elsewhere in these pages – nearshoring has yet to solidify into a trend to make up the shortfall. So how bad is the situation today in the transport and logistics industry?

Blame it on the Germans

In his foreword to the Road Transport 2023 report published by Transport and Logistics Poland, Maciej Wroński, the president of employers’ association Transport and Logistics Poland, writes somewhat bombastically that: “Road transport is the flagship of the Polish economy in the European Union. No other Polish industry has achieved such a spectacular success after our country’s accession to the EU. Moreover, no other industry is so sensitive to the European and global economic situation, to supply chain disruptions, to the geopolitical situation, to armed conflicts and to political decisions. And no other industry has such a decisive influence on the functioning of the whole economy and its individual branches.” Indeed, according to the logistics companies that we talked to, the main problem now faced by the sector is the economic situation in Germany. “Any kind of turbulence in the German market impacts the Polish logistics industry, particularly our transportation segment. Germany is the largest single export market for Poland. In 2021, Polish exports to Germany amounted to PLN 374.1 bln, constituting 28.67 pct of Poland’s total volume (source: Similarly, Germany leads in imports to Poland, which amounted to PLN 222.1 bln in 2021, or 21.9 pct of total imports (source: The transportation of these goods across the border primarily relies on road transport, with trucks being the predominant mode of delivery. Consequently, any decrease in demand or productivity in Germany inevitably reverberates through the Polish logistics industry,” explains Antoni Zbytniewski, the business development manager of Fresh Logistics Polska, part of Raben Group. In this he is echoed by Andrzej Kozłowski, a board member of Rŏhlig Suus Logistics, who states: “Our industry is highly interconnected and dependent on both the state of national economies and the geopolitical situation, so any turbulence is reflected in its development and performance. Germany’s economy provides a litmus test for the economies of the rest of Europe and any sign of an economic slowdown in this market sends out a warning to European companies, including Polish ones. Germany is the biggest trading partner of our country. Its share in both Polish exports and imports exceeds 20 pct. Currently, we are seeing a decline in trading volumes due to the weaker condition of the German economy.”

Now blame the Ukrainians

However, these are not the only woes faced by the industry. According to Antoni Zbytniewski, the market has now been flooded with cheap Ukrainian carriers. “Prior to the outbreak of war in 2022, the majority of inbound and outbound transports to Ukraine were facilitated by Ukrainian transport and logistics firms. Consequently, the Russian assault on Ukraine in February 2022 initially had minimal impact on the Polish logistics industry. However, the repercussions of the conflict resonated later when Ukrainian transport companies redirected their operations to Poland and the EU. Poland, being the largest transport services provider in the EU, witnessed a surge in activity from Ukrainian transporters, whose cost structures, particularly in terms of labour, were more favourable. This influx reduced the demand for Polish transport services and contributed to bankruptcies among some players and caused protests among Polish transport companies, including the blockade of the Polish-Ukrainian border,” he states. However, even this cloud has a silver lining. “The outbreak of the war in Ukraine dramatically altered the trade routes in Eastern Europe. The closure of Black Sea traffic for global trade (including several key ports) and the exclusion of airspace significantly reduced transport options in this direction. It has made Poland the gateway to the global market for Ukraine and its main trading partner. At Rŏhlig Suus we handle the transport of humanitarian aid and dual-use goods in this direction all the time, but recently we have seen an increase in commercial enquiries in this area, not only from Poland but also from Scandinavian and US companies as well. These facts show that Ukraine’s reconstruction is already gradually underway. Undoubtedly, Poland has been playing a crucial role in the supply chain both for Polish companies and other European ones,” says Andrzej Kozłowski.

Let the robots do the driving

And the problems don’t stop there. The truck driver shortage that almost paralysed the UK shortly after Brexit has since turned into a pan-European phenomenon, further driving up costs. “In the short and medium term, the biggest challenge will be the low demand and high costs. Over the longer term, the challenge for road transport will be the short supply of drivers. Not many people have the ambition of becoming drivers and over the coming years around 15 pct of drivers working in Europe will be entering retirement, which could significantly exacerbate the shortfall,” explains Radosław Pelc, an analyst for the transport and logistics sector at Santander Bank. According to TLP’s Road Transport in Poland 2023 report, this shortage has led to a spike in the price of such labour. “The share of salaries and wages in revenues is still very high compared to the return on sales, which has a median of 3.5 pct. This is not surprising, however, as truck drivers are one of the highest-paid professions in Poland,” it states. It is widely known that the road haulage industry will be one of the first to employ driverless vehicles, largely to avoid the labour costs, and indeed, “the introduction of autonomous vehicles will be a revolution for the industry, but it will not offset the driver shortage in the short term. It is estimated that fully autonomous solutions will only be available on the market after 2025. In the initial phase, the implementation of autonomous solutions will require some expenditure, but in the long run it will allow for greater cost advantages,” predicts the Transport of the Future report published by TLP and PWC.

Going fully electric

The diesel engine represents yet another headache. Despite ESG pressures, the sector is not yet ready to move away from it. “At the moment, there is no adequate response to the introduction of regulations governing vehicle emissions in a form that can be mass produced and that uses modern technology, while the alternative vehicles on offer are extremely expensive when compared to conventional ones. Rail accounts for a relatively low proportion of goods transportation in Poland, but the opportunities for switching to greener intermodal transport are limited by the poor rail and terminal infrastructure,” argues Radosław Pelc. Nonetheless, Andrzej Kozłowski of Rŏhlig Suus remains bullish about the difficulties: “Another major challenge for both our industry and the EU as a whole is the need to develop the economy in an increasingly sustainable way, especially when it comes to energy transformation. To be effective, this has to include changes in the transport sector. How should we approach this? Obviously, the best thing would be technological advances that allow us to transport goods in low-emission vehicles, but we can already take steps to build increasingly green supply chains. At Rŏhlig Suus Logistics, our comprehensiveness and tailor-made solutions allow us not only to build in resilience, but also to reduce our customers’ carbon footprints, for example, by opting for the appropriate means of freight on a given route or limiting the number of transshipments. We are also betting on the development of intermodal transport, where goods are often transported by rail over the longest stretch. We are seeing growing customer interest in this option. We are also carrying out our first projects in the field of road transport electrification. We are using electric vans for the last-mile delivery of heavy and bulky goods such as household appliances and furniture, and we are also testing electric vehicles for FTL [full truck load] domestic transport. Of course, these are more expensive solutions for the time being, so the operator, the customer and the carrier have to work together in a long-term and effective partnership,” he argues. Radosław Pelc goes so far as to insist that the ESG situation of the industry, despite its dependence on fossil fuels, is not so bad since it has largely been burnished by improvements in the warehousing sector. “Logistics companies are not in such a bad situation. Most of the warehouses in Poland have been built and equipped to achieve high energy standards. Polish warehousing space is indeed modern as over half of it has been constructed over the last five years,” he adds.

It ain’t as bad as it looks

Although the logistics sector appears to be going through a rough period, no one that we spoke to appears to believe that this is anything out of the ordinary. The number of bankruptcies in the industry seems to be just a natural culling as the economic cycle dips. “The rapid rise in the number of insolvencies within the transport and logistics sector over 2023 definitely shows that the situation for the sector is worsening. This simply results from a weaker European economy. Consumer spending has been limited by inflation and high interest rates, which has resulted in lower volumes for production and trade – and it is these very volumes that drive transport and logistics. Nonetheless, we have to remember that the vast majority of the bankruptcies in Poland have concerned road hauliers, most of which were one-man companies. This is a characteristic of the industry that was first seen long ago. Economic downturns are felt most by small hauliers. Many of them are subcontractors for large haulage and freight forwarding firms, which when the demand falls will immediately reduce the orders they make with smaller subcontractors. It is also worth noting that most often those who face problems serve sectors that are declining or failing – and the situation for various sectors can vary wildly. Last year, for example, the automotive industry saw a recovery, but furniture manufacturing suffered a massive decline,” explains Radosław Pelc of Santander Bank. Andrzej Kozłowski. of Rŏhlig Suus is equally nonchalant about the situation, pointing out that: “It is transport and logistics companies that are the first to feel any changes in consumer mood or manufacturing decreases. The long-noted decline in demand for consumer goods across many categories and the economic slowdown caused by rising inflation have been the key reasons for the turbulence in our industry.” The situation currently being faced by the industry might even be an opportunity for further development. “The picture from the insolvency data seems much worse than it is in reality. However, the situation in the transport industry is difficult, because with low volumes and rates as well as high costs, most companies have seen their profitability fall. It is worth pointing out that this cleansing of smaller and weaker companies from the market could be exploited by the bigger players. They might take parts of the market or benefit from the reduced price pressure from their customers as a result of the lower supply. The current crisis could strengthen the process of consolidation in this highly fragmented sector,” suggests Radosław Pelc. Overall, Andrzej Kozłowski remains upbeat: “The economic situation should be viewed with cautious optimism,” he says. “Whether it will improve depends largely on the geopolitical situation. One light at the end of the tunnel could be the IMF’s forecast that global inflation will fall to 5.8 pct in 2024 and 4.4 pct the following year. In addition, EU GDP is also expected to rise. Moreover, from our Polish perspective, we welcome the announcement of the inflow of EU funds, including from the National Reconstruction Plan, which will be essential for increasing investment and boosting our economy,” he adds. He also believes that diversification is the answer to the current problems faced by the industry: “At Rŏhlig Suus Logistics, we are focused on the diversification of our services, our customer industries and our geographical presence. We have branches across the CEE region, including in Hungary, the Czech Republic, Slovakia, Slovenia and Romania. And we also opened a new office in Kazakhstan last year. This business approach ensures that our company can develop even in the face of specific route shutdowns or reduced orders from companies in any particular sector without jeopardising our existence.”