The date of creation of logistics cluster in Georgia is still unknown
Logistics cluster services are used by many supply chains around the world. Such clusters are mostly located near consumer markets, ports and airports. Logistics clusters include a wide range of enterprises: Logistics service providers, distribution companies, and freight carriers. What are the advantages of joining such a cluster?A large volume of cargo usually accumulates in a logistics cluster,which allows economies of scale. Carriers reduce one-way loading, the number of so called "empty backpacks" by pre-determining the capacity for further loading. In addition, resources within the cluster can be exchanged, such as containers, railroad cars, which reduces costs. Existence of efficient cargo flows lowers transportation tariffs, leads to more active trade, and attracts more companies to the cluster. herewith, the number of employees in logistics clusters increases.
Why the creation of logistics clusters was delayed?
The discussion about creating logistics clusters in Georgia, started years ago. This topic became especially relevant after the launch of the Anaklia Port project. Still in 2015, the government announced that a free industrial zone would be set up in the vicinity of the Anaklia port facilitating the formation of a logistics cluster. After the suspension of the Anaklia project, the discussions about the logistics cluster terminated.
In 2017, the Ministry of Economic Development announced that logistics center projects would start working in Tbilisi and Kutaisi. It was said that these modern clusters would have the function of a logistics hub, which would facilitate the development of logistics services in Georgia, including value-added services. It would also increase the country's transit and logistics potential, as well as encourage exports and the country would receive additional foreign direct investment. In addition, more than 800 new jobs would be created in both logistics centers. The total investment value of both clusters was estimated at $ 170 million.
Location of Kutaisi logistics cluster (73 million USD) has determined as 30 km south-west of Kutaisi and about 2 km west of Kutaisi International Airport. The Government of Georgia has undertaken to allocate 46.1 hectares of land to the investor. According to the project, the Tbilisi logistics cluster ($ 95 million) hadto be built near the village of Kumisi. Feasibility study has also prepared by Dornier Consulting International. Call for applications for the Tbilisi and Kutaisi Logistics Cluster Development Project announced in February 2018. The application was submitted by five companies, including Chinese, Turkish, Azerbaijani and Swiss companies. Anaklia Development Consortium (TBC Holdings (Georgia)) and its partner Conti Group (USA)was one of them.
The winner was to be revealed during 2018, which would begin construction within 18 months of signing the investment contract and complete within 5 years. However, the competition failed for unknown reasons. At the end of 2019, the Minister of Economy announced that they are working on a new concept of the Tbilisi Logistics Center and may develop several small logistics center development projects instead of one large logistics hub. According to Natia Turnava, investors for Tbilisi and Kutaisi logistics centers had to be selected last year, but process has failed, and the revision of the project concept became inevitable.
"We are working on Kutaisi and it is possible to attract an interested investor within the existing concept. As for the Tbilisi logistics hub, as we see the concept of small logistics hubs arises greater demand and interest. We are working on it now and soon we may offer potential investors several relatively smaller, flexible and efficient concepts in Tbilisi instead of one large hub”– claimed Natia Turnava.
It is unclear when an investor will be selected. Consequently, the time frame of the construction of logistics clusters remains unknown. Nevertheless, the government wrote in the state budget document for 2020 that "Work is underway to develop modern logistics centers in Tbilisi and Kutaisi, which will help bring together logistics services in one cluster and fully realize the country's transit and logistics potential."
Paata Tsagareishvili, head of the Transport Corridor Research Center, said that the government had not offered anything to the investor and that was the reason why the competition had failed.
"The competition failed because it was not well defined who would build the road to the logistics center, who would arrange the infrastructure. Additionally, the construction of the port of Anaklia has stopped where it should be locatedlarge logistics cluster. This made the investor lose interest in building terminals in Tbilisi and Kutaisi under the management of one company. Meanwhile, our neighboring countries - Azerbaijan and Turkey - have already built such centers. The cargo shifted to these centers and Georgia lost its priority.
The state should buy land in predetermined places, such as near ports, to create infrastructure that will attract investors to invest in the construction of logistics centers. Such infrastructure models have not yet been developed. These projects need to be financially justified and written in a logistics strategy. However, the country does not yet have such strategy. Today, when this document does not exist, the investor enters the country with unclear condition and only after arriving he/she finds out that the infrastructure has not been created.
As the country does not have the capacity to make a large investment, a logistics cluster can be arranged in other ways. In particular, it is possible to develop it gradually – initially, container center has to be built, after that a Wearhouse facilities and enterprises should be created along it. Expansion of the logistics center should be occurred gradually.
Apart from nonexistence of the clusters what are other problems facing the logistics field?
-We do not have logistics enterprises, where 3PLs type (Third-party logistics - logistics service provider, third parties, which integrate operations with warehouse and transport) operators will be introduced. We mostly have 2PLs type carriers that carry cargo from point A to point B. There are already 3PLs companies in our neighboring countries that, in addition to shipping goods, own terminals, carry out brokerage, customs clearance and other procedures. In developed countries, there are already 6PLs, such as Alibaba and other similar companies, which provide a variety of services. We are at 2PLs when the developed world is at the sixth stage. That is why, Georgia ranks 119th according to the World Bank logistics index. While Armenia ranks 92nd, which is depended on our transportation cell. Armenia has about 1,500 refrigerated carriers, which apart from transportation, have cargo cooling services. Their customer is offered a complex service. We do not have such carriers and this situation is impediment not only for trade but also for investment flows.
The main task in this situation should be the development of production, which should be followed by improvement of the service of operators, training of specialists in the field of logistics, managers, development of warehousing terminals and technologies. All this together will give incentive to the growth of this sector.
logistics clusters In Europe
According to the latest data, the logistics sector employs 7.9 million people in Europe. Their average annual salary is 28.4 thousand euros. With these figures, the logistics industry is not among the leading emerging sectors in Europe, however, the logistics sector is characterized by a high average annual growth rate of 2.3% over the last five years. Luxembourg, the Netherlands, Denmark, France, Ireland and Iceland are among the leading European countries in terms of transportation and logistics clusters. The logistics industry and related clusters are growing rapidly in the Baltic countries. Latvia stands out among them, where most of the logistics companies and startups are created.
Author: Nona Kvlividze
The article is prepared with the financial support of the Ministry of Foreign Affairs of Lithuania and "Development Cooperation and Democracy Promotion Programme."