Logisticians without borders
With 13 new countries preparing to join the European Union, it`s clear that more trade and customs barriers are about to come tumbling down. What will that mean for shippers?
By Anthony Coia -- Logistics Management, 6/1/2002
Europe's economic geography is about to undergo a significant change: Ten countries in Eastern and Southern Europe are striving to complete the requirements for membership in the European Union (EU) next year. The countries that may complete their negotiations for EU membership by the end of 2002 are Poland, the Czech Republic, Hungary, Slovakia, Estonia, Latvia, Lithuania, Slovenia, Malta and Cyprus. In addition, Bulgaria and Romania are scheduled to join in 2007. Turkey has also applied for membership, but it is unclear when it might be eligible to join.
The accession of these new countries to EU membership will bring significant changes for international shippers. Most important will be the spread of uniform customs regulations to Eastern and Southern Europe, which will likely make it easier to distribute goods throughout the Continent. The move toward distributing products from those regions, sparked largely by lower manufacturing costs, has already begun. And as infrastructure and logistics efficiency in the new member countries improve, those countries are likely to realize even greater growth.
Eliminating Red Tape
One manufacturer that is looking forward to the EU expansion is U.S. Steel Kosice, s.r.o., headquartered in Kosice, Slovakia. The U.S. Steel Corp. subsidiary ships its products to 40 different countries, with 90 percent of that volume moving via rail. Although the company is not planning a major change in its distribution strategy, says Paige Palombo, the company's general manager of customer service, it does expect to gain several benefits when the EU expands.
"Mostly, we anticipate the elimination of red tape that is counterproductive to delivering steel to our customers," Palombo says. Among the expected improvements is a reduction in delays at national borders for truck and rail shipments. "Delays at some places are worse than at others, but it really depends on the timing—how many trucks are lined up and waiting, because not all customs facilities are open 24 hours," she explains. "We expect that these delays will be minimized once Slovakia joins the EU." Not only will that speed up shipments to customers, she says, but it also will allow for more efficient equipment utilization.
Another problem that U.S. Steel Kosice hopes will end is the need to redirect cargo because of problems with customs paperwork. Palombo says the company sometimes must redirect a shipment while it is en route and move it into storage until a customs formality can be resolved. "For example, a shipment destined for Italy may be stopped at the Italian border if [Italian Customs] finds that an import license has been omitted. This means that the documents would have to be reissued to a customs warehouse in Slovenia if we believe that the situation would not be quickly resolved," she says. "That type of delay would be eliminated once Slovakia joins the EU."
Warehousing Challenges
Another company that expects to benefit from the European Union's expansion is Masterfoods Lithuania, a subsidiary of Mars Inc. that distributes pet foods from its plant in Gargzdai near the port city of Klaipeda. Masterfoods Lithuania already exports about 90 percent of its products to EU countries and is continuing to expand its production facilities in anticipation of increased business.
One issue that Masterfoods hopes will be resolved after Lithuania and other Eastern European countries join the EU is the quality of warehousing infrastructure in the region. Masterfoods' products require a certain level of humidity, says Gytis Racius, commercial manager, manufacturing. When the company began distributing in Lithuania in 1993, the existing warehouses could not meet Masterfoods' requirements. To address that problem, he recalls, "we acquired small warehouses near our plant in Klaipeda that were basically shells." Masterfoods updated those warehouses to its own specifications, but Racius hopes that once Lithuania joins the EU, increased investment in the country will lead to the availability of more sophisticated warehousing services.
Like Palombo, Racius cites customs delays as one of his company's biggest problems today. Though there have been a number of improvements in the last two years, border checks in Eastern Europe are still handled inefficiently, Racius reports. "There need to be uniform customs standards," he says. "Cargo should be allowed to proceed in transit without repeatedly being stopped." He hopes that situation will be eliminated once Lithuania enters the EU.
Better Information Technology
In addition to streamlining customs procedures, it's likely that the EU expansion will bring other changes. For example, many think it's likely that the move will encourage the development of satellite logistics centers in Eastern and Southern Europe. Herbert Wennink, director of marketing in North America for Geodis Logistics, a French logistics firm that operates warehouses in Hungary, says that will quickly raise the quality of logistics services in the new EU countries.
"In logistics, information technology is [what differentiates] Eastern Europe from Western Europe," he says. "As manufacturers open more satellite distribution centers in Eastern Europe, the advantage to the new EU members is that they can leapfrog in areas such as information technology. They do not need to go through every step of the process that their Western neighbors did." He predicts the biggest changes involving information technology will be in the areas of customs clearance and payment of value-added taxes.
Another result of the EU expansion could well be an explosion in outsourcing. After the EU expands, more and more companies could find themselves distributing products in unfamiliar territory, and they may turn to third parties to help out. Palombo of U.S. Steel Kosice, for example, uses freight forwarders to solve problems in countries where her company does not have its own representative.
As the current EU accession talks conclude in the next several months, U.S. shippers will be eagerly awaiting the changes that promise to open borders throughout the Continent. At the top of their list will be infrastructure improvements, advances in information technology and the removal of customs barriers in the new EU member countries.
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