The FINANCIAL - Logistics Sector in Georgia in Search of its Architects

Logistics Sector in Georgia in Search of its Architects

The FINANCIAL -- Georgia, often referred to as the transit country with potential to become the logistics hub for the Caucasus region, has all the geographical predispositions to fulfil this role. Due to its strategic location, the country forms part of the Eurasian corridor andthe historical Silk Road; itoffers a secure way for the European economies to reach Asia and its landlocked countries;and it represents the shortest way from the Black Sea to the Caspian Sea.

The importance of Georgia as the transit country can also be revealed with an increased transit share in cargo flows (from 65% up to 95%) and with the augmenting flows of the foreign financing to the road infrastructure development. The “External Aid in Georgia 2015”report mentions several big international players interested in this field. For example, the Asian Development Bank finances the road construction along the Black Sea Coast while the World Bank and the European Union keep on funding the construction of the East-West (E60)highway. The aforementioned projects are very costly and the involvement of international / multilateral aid entities is soughtfor financing these projects. 

The Ministry of Economy and Sustainable Development of Georgia has recently published the statistical data showing that in 2015 the total cargo transportation amounted to 44.2 million tons, almost half of which (19.2 million tons) was handled by the sea ports and terminals. There is a slight decrease in the amount of cargo flowsto be observed: in 2011, this number was of 48.9 million tons. 

Even if shipment to the Georgian ports is more expensive in comparison to the ports In China, Iran and even Europe, the country has other advantages to put forward such as efficient customs system, free economic zones and, in general, a well-developed liberalisation policy. The task concerning the improvement of competitiveness of the Georgian ports still remains on the agenda of the decision-makers of the country. One of the governmental resolutions was the construction of the Deep Water Port in Anaklia. The port is to be constructed by the public tenderwinner –Anaklia Development Consortium set by the Georgian and US companies (TBC Holdings and Conti Group). Thus, the transit of larger ships with greater volumes shall become possible for Georgia. Consequently, the tariffs for container transportation should be expected to decrease. 

The improvement of sea port infrastructure can also boost the competitiveness of the Georgian ports. Owing to the recent governmental investments, new container cranes were delivered to Potiin order to address the anticipated growth of container flows. The extension of the Poti sea port infrastructure is a necessity considering that Anaklia Deep Water Black Seaport will start realizing its potential capacities (40 million tons) in about 15 years. 

Mr. Gia Tsipuria, Secretary General of Georgian International Road Carriers Association, estimates that the creation and growth of given ports offer additional investment opportunities for the development of infrastructures adjacent to the ports. Along with constructing the new port in Anaklia, highways and railroads are to be developed assuring the logistical connectivity with the sea port.

As far as the road infrastructure is concerned, the overall length of international roads in Georgia amount to 1,603 km while the inner roads account for 5,298 km. The government currently undertakes the efforts to build secondary roads, such as the bypasses near Gori, Kutaisi and Kobuleti, as well as the roads leading to remote areas to assure a better connectivity within the country. Together with the construction of new roads, it is crucial to establish facilities for long-distance truck drivers along the way. Mr. Tsipuria mentioned the need for creation of special parking/stop-over places for haulers: “a driver’s work day must not exceed 8 hours. Currently, there are few special parking places in Georgia for them. Unfortunately, we still do not have enough facilities to accommodate the needs of long-distance drivers along the transit road in Georgia”.

Together with construction of roads and road facilities, the development of intermodal transport will contribute considerably to amelioration of traffic conditions in Georgia. The construction of the “Baku-Tbilisi-Kars”railway is beneficial to all stakeholders because it improves the regional interconnectivity. It will also enable Georgia to get integrated into the network of the European railroads since Turkey has railroad connections with the European Union countries such as Poland and Germany. 

Observing the transport infrastructure development, it is important not to limit the notion of logistics to this matter. Logistics is a process that, according to Mr. Zurab Sapanadze, Development and Project Manager at DHL, can be compared to architecture: “Logistician is a supply chain architect; a well-designed supply chain can be in the origin of the success stories as it is in the case for such big companies as McDonalds and Apple. Their high quality supply chain is designed in a way that enables them to buy a cheaper product and to distribute it worldwide preserving its quality. The cash to cash cycle of these companies is rather short defining logistics efficiency”.

Mr. Sapanadze assumes that Georgia has unexploited logistics potential. This statement can be proved with the ranking of Logistic Performance Index (the World Bank): in 2016, Georgia took the 130thplace among 160 countries. The poor position can partially be explained due to the lack of qualified experts in this field who are able to perceive logistics in its complexity and not like a simple cargo expedition from one point to another.

Professional approach to logistics can become an important source of revenue. Professor George Doborjginidze, Chairman of Georgian Logistics Association, gives his feedback upon this opportunity: “the transit itself does not represent the major part of earnings for a logistic company asabout 60% of revenue usually comes from additional services. Big trade companies are potential clients for such firms as they often ask for logistic outsourcing. In Georgia, few societies offer such kind of services at this point”.

According to Mr. Doborjginidze, the Georgian logistics market is very fragmented and in need of consolidation. He believes the cooperation with international companies, such as Gebrüder Weiss, can contribute to a better regional cooperation as well as promote higher work standards among local companies. 

The lack of logistic centers, as well as cold storages is also observed in Georgia. For instance, there are only 2 A-class warehouses in the country owned by Gebrüder Weiss and Diplomat Holding. Because of the lack of storage facilities, a considerable number of agricultural products do not reach big consumption markets in time. Consequently, investments in this sector will contribute significantly to not only the development of logistics but to other adjacent industries as well.

Finally, another niche for investments is to be found in the packing industry. Mr. Sapanadze estimates that it containsvast opportunities, especially in the sea port zone as it could contribute to the growth of shipped products: “to illustrate this idea, I would like to take an example of Nutella. Currently, one container of the packed Nutella can contain about 8 tons of the product. However, had this container held solely the product without retail packaging, it would accommodate a much bigger quantity of up to 14 tons of chocolate”.Local packing industry could certainly contribute to the growth of export in Georgia. The re-exported packaged products could have a positive impact on the GDP of the country. 

Having cited different investment opportunities, it becomes easier to unveil the versatility of logistics starting from the development of road infrastructure ending with the elaboration of full supply chain. The mentioned international ranking shows there is still work to be done before Georgia becomes a real logistics hub and in order to achieve its aspirations, it is high time for the country to find its logistics architects.