A Shift to the East

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For those of us whose Eastern European geography is a trifle fuzzy, the name Constanta means very little. It seems to have meant very little to pre-glasnost gazetteer writers too as its only claim to fame, according to my 1970s copy of Where’s Where, is that the Roman poet Ovid died there in AD18.

But, if logistics experts and distribution pundits are to be believed, Constanta – on the Black Sea, is set to become the new Rotterdam.

While many distribution companies, and no doubt many truck drivers, regard Romania as a wild frontier – around 50 km of motorway in the entire country with a high chance of encountering a horse and cart around every bend – it is also significantly closer to Far Eastern markets than any of the EU’s founding members.

Shipping goods from Romania, which even before it joined the EU was a major clothing and textiles supplier to Western Europe, has not always been easy. According to John Harvey, former chairman of Tibbett and Britten and now listing chairman of the Delamode Group, a specialist in Eastern European logistics, among his many activities, collecting and consolidating loads from scattered Romanian factories can be time-consuming. Add the travel time, customs delays and taxes needed to bring those non-EU goods across Europe and it can take up to six days and several hundred euros to make the trip.

With Romania firmly in the EU all that starts to change. Gone are the customs delays, the roads improve thanks to EU funding, andperceptions start to alter.

In general, UK retailers don’t have a positive view of Romania,’ says Harvey. ‘They are concerned about bureaucracy and corruption but the country is changing at an astonishing rate. There are still shortages of warehousing, very little use of EDI or other modern technologies, and industry is fragmented and dominated by small companies, but during 2007 much of the bureaucracy will go and that will cut the cost of doing business substantially.’

Not only will these changes make it easier and more attractive for retailers to extend eastward opening stores in key towns, but buying from comparatively low-cost Romanian producers also becomes more attractive.

The past 12 months have already seen several clothing retailers starting to bring production of fast fashion lines back to Europe – typically Turkey or Romania – to cut Far East lead times. Importantly, too, Romania’s accessions starts to change Europe’s distribution networks in significant ways.

Harvey, who was speaking at a recent seminar on Romania’s fashion trade organised by the British-Romanian Chamber of Commerce, suggests that in future it may be faster and cheaper for goods from the Far East to arrive in Europe via the Black Sea port of Constanta than to be shipped directly to Western Europe.

‘I expect Romania to become a transit hub,’ he says, ‘The first port of entry for goods from China coming into the EU. It will also provide a back door from Hungary for goods shipped to the East.’

Importing goods via Constanta using a combination of sea freight and road transport from Romania could cut at least six days off seashipment times from the Far East. Lower wages in Romania would also result in reduced handling costs at the entry port while, with maritime charges continuing to rise, cutting time spent at sea will bring substantial cost reductions.

First beneficiary is likely to be Germany where full container loads from the Far East can be moved directly without the need to break bulk and consolidate as happens with many shipments to smaller European markets.

None of this is going to happen overnight.

Even the predicted three-fold increase in Romania’s motorway network expected this year is not going to have a massive impact. In five years’ time however, it could be very different. The Poles received €1.5bn for improving infrastructure in their first 18 months in the ‘club’. Romania, and indeed Bulgaria, will be looking for similar levels of investment.

Dr. Penelope Ody is a regular columnist  with Supply Chain Standard – a technology and retail market specialist and contributor of the Financial Times

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