Of the major market segments, investments in transportation and storage decreased at the highest rate in 2011, by 23.3%, due to a considerable drop in investments in land and pipeline transport, air transport and the construction and renovation of road networks. “I do not see anything on the horizon that could revive the logistics sector, although we cannot know yet what the government has up its sleeve in terms of new investments or whether the Chinese connections will be fruitful or not,” said Péter Kiss, chairman of the Hungarian Association of Logistics, Purchasing and Inventory Management (MLBKT), and also the head of supply chain management and logistics at pharmaceutical producer Mylan Hungary.

Kiss is a little skeptical about potential Chinese investments saying that it is a huge mistake to think, “anything will do for the Chinese”. He pointed out that the Asian country has undergone significant developments over recent years, they now employ the most advanced technologies and they expect the highest quality services. He added that the recently announced big investments by car makers Mercedes, Audi, Opel and Knorr-Bremse, could help somewhat, but alone they are not enough to revive the sector.

Kiss does not consider the grounding of national carrier Malév a major blow to the transport of goods, as this activity can easily be taken over by other providers, such as Lufthansa or KLM. Ground handling at Liszt Ferenc International Airport is not a problem either, as it is carried out by Turkey’s Celebi, a company completely independent from Malév. On the other hand, the temporary closing of the airport’s older Terminal 1 represents a significant drop in capacities, which will inevitably lead to a deterioration in the quality of logistics services. He thinks the terminal should be reopened as soon as possible.

In turn, the recent Nokia announcement that it was laying off 2,300 employees will “trigger an avalanche”, as it has more far-reaching consequences than just the restructuring of Nokia’s operations, Kiss said. The Komárom Industrial Park, where both Nokia and Mylan are located, is largely based on Nokia with the exception of only a few businesses. “The park now sees its buildings becoming empty as the companies here are losing business,” he said, adding that other firms in the region will be able to take on only so many of the employees. 

Disappearing warehouse development

There is also an oversupply in warehouse capacity, which has led to continuously decreasing rental fees even in the premium category, Kiss said. Another unfavorable trend is that contract times have shortened from the previously common five to ten years to only one to three years.

According to property advisor Eston, speculative warehouse developments have disappeared from the market due to financial difficulties and decreasing tenant activity caused by uncertain economic circumstances and low domestic consumption. In such a business environment, logistics market players, manufacturers, distributors and suppliers all aim to rationalize their production and property use.

The volume of modern industrial and logistics property stock in Budapest and its agglomeration stood at 1,807,207sqm at the end of 2011, of which 1.637 million sqm is within logistics parks, while the registered stock of city-logistics takes up 170,000sqm.

On the upside, the need for outsourcing logistics activity even in smaller areas is likely to be more common, which will increase the demand for the warehouses of professional suppliers, Eston said. In addition, companies involved in international distribution may restructure their real estate use strategy on a regional level, meaning Hungary could successfully compete for new regional distribution centers due to its favorable geographic location and low rental fees.

“Concerning the quality of logistics services, we are very far from the top countries, such as Holland,” Kiss said. Only the best Hungarian logistics parks are able to provide truly sophisticated services, but they are rare and not always in the best possible locations, he added.

Transport performances indicate recession

The 2011 freight data published by the Central Statistical Office (KSH) highlight concerns over macroeconomic stagnation. Although there was a small increase in transport performances measured in freight tonne kilometers (ftk) in 2011, it was because international goods transport was able to offset a drop in domestic road performances. International transport rose by 5% in volume and 3% in ftk terms, while domestic transport declined by 11% in volume and 6% in ftk terms.  

In 2011, the volume of goods transported decreased by 6% to 263 million tonnes. By modes of transport, rail transport and pipeline transport increased by a respective 2% and 7%, while road transport dropped by 8% and inland waterway transport by 28%. Road transport accounted for 70% of total volume and 89% of domestic transport volume, which the KSH attributes to the primary international character of rail, inland water, pipeline and air transport.

Transport performance saw a 1% increase to 51 billion ftk. Rail and road freight transport both increased by 2%, while inland waterway and pipeline transport fell by 23% and 1%, respectively. Within the total, road transport accounted for 67%, followed by rail transport (18%), pipeline transport (11%) and inland water transport (4%).

Domestic road goods transport decreased by 12% in volume, while a 16% increase was seen in international transport. KSH attributes this to a change in the road vehicle fleet, as road vehicles with a carrying capacity of more than 3.5 tonnes tend to take part in long-distance international goods transport. 

An alarming trend is the 19% decrease seen in the volume of goods transported by individual entrepreneurs, while corporations saw only a 6% decrease. The decline in the volume of domestic goods transport resulted primarily from a sustained decrease in construction output, which last year’s favorable agricultural output was unable to offset, according to the KSH. The volume of goods within the total that crossed the border was up to 18% from 14% in 2010. 

The performance of road goods transport measured in ftk was up by 2%. This increase resulted from a 7% growth in international transport and a 6% decrease in domestic transport. The KSH points out that fewer goods were moved for a longer distance both in international and domestic transport. The average length of haul increased, while the proportion of empty running remained essentially the same at 20-21% in the case of enterprises and more than 31% in the case of individual entrepreneurs. 

Rail goods transport increased by 2% both in volume and in ftk terms in 2011. Inland waterway goods transport decreased by 28% in volume and by 23% in ftk, primarily as a result of a significant decline in export volume. In 2011, the very low water level of the Danube was also responsible for the unfavorable change in inland waterway transport. Ships under Hungarian flag accounted for only 7% of both the total goods transported and the total performance. In air traffic at Budapest-Ferenc Liszt International Airport, goods traffic was up 6% to 69,700 tonnes.