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The Estonian logistics sector: innovation shaped through cooperation

Estonia: cooperation leads to innovation in a dynamic market situation

The Estonian transit sector has been going through constant changes - all operators acting on the extremely dynamic bulk cargo transport market have been forced to quickly react to various external factors and ever-tightening competition. Despite everything, Estonia has managed to adapt according to market needs and maintain its role as an important freight transport corridor on the East-West and West-East axes.

A few years back, Estonia was one of the largest transit zones for bulk cargo in the region, with annual railway freight volumes reaching to 45 million tons. The environment changed dramatically and prompted the transit sector in Estonia to focus more on specific service segments in order to maintain its competitive advantage even when a decline in freight volumes was clear and present. The whole sector collectively focused on listening more accurately to the customers’ needs and on developing innovation.

The defining factor in innovation has been cooperation between the market players and jointly developing new innovative services and products that match the customers’ demands. Transit companies in Estonia have benefitted from Estonia’s compact size and its ability to quickly readjust to changing circumstances, but also from the highly developed infrastructure and facilities.

Cooperation between Port of Tallinn and terminals in changing market conditions

Port of Tallinn’s Muuga harbour boasts a depth of 18 meters, which has given the largest cargo port in Estonia a considerable advantage in the transshipment of bulk cargo - this natural advantage coupled with good railway connections, long quay lines and ample capacity in terminals allowed Port of Tallinn to receive considerably larger tankers than  other nearby ports. The economies-of-scale effect greatly contributed towards the cost-efficiency calculations of the port’s customers.

Today the situation on the bulk cargo market has changed drastically due to the emergence of new ports in northwest Russia. Thus the need for the transshipment of oil products has decreased and the necessity for storage and value-added services has increased. The tanks in Muuga are capable of holding 1.55 million m3 of oil products with an additional 700.000 m3 being added in the near future, the

possibility to unload incoming tankers and highly efficient unloading operations have given the customers financially attractive reasons for using the terminals in Estonia for long-term storage, collecting larger consignments and blending - consequently helping to ensure Estonia’s continuous competitive edge before other ports and terminals in the region.

One of the key advantages of Port of Tallinn is also the development of freezones in the port area, as the ownership of goods can be changed there without being subject to additional tax or regulation. The cooperation between Port of Tallinn and the operators has led to a partnership to develop all the necessary preconditions to keep Estonia competitive in the sea-terminal-sea configuration as well.

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Alexela reprofiled to add value in the processing of oil products

Alexela Logistics is an Estonian logistics company focusing on oil transport and storage that recently expanded its operations from Port of Paldiski to Port of Sillamäe, located just 25 kilometres from the Russian border. The terminals of Alexela Logistics are capable of processing oil, but primarily the company deals with various oil products ranging from petroleum to heavy fuel oil.

The oil terminal in Sillamäe was jointly rebuilt by Port of Sillamäe and Alexela Logistics, as originally the oil terminal had been intended to serve as a transshipment point for heavy fuel oil from the Kirishi oil refinery in Russia. As the result of the rebuilding project, it is now possible to process dark oil products all year round and even from such distant locations as Kazakhstan.

In Paldiski, Alexela had to reprofile its bulk cargo operations after oil transport by railroad suffered a steep decline in 2007. The company shifted its focus to adding value to low-grade oil products that are brought in tankers by sea. Alexela Logistics has managed to upgrade the entire processing chain to a level that allows them to produce such complex products as aviation fuel for example.

Full cooperation between partners gives container trains their efficiency

Historically the Estonian railroad network has served as a corridor for hauling bulk cargo on the East-West route - e.g. oil products, fertilizers, coal etc. Railway operators, terminals and freight forwarders in Estonia have recently had to adjust to a new environment due to the active development of Russia’s own ports and their national transport strategy of hauling as much freight as possible through their own harbours.

One example of such adjustment is in the field of container goods, which are flowing in the opposite direction to bulk cargo. Container volumes have for some time now been compensating for the decline in bulk cargo volumes by rail. Container trains must be dispatched in block trains in order to remain competitive in efficiency - this can only be achieved in very close and well-coordinated cooperation between all the partners involved.

After years of cooperation, the Estonian freight forwarders, the container terminal, customs officials and the railw

ay operator have achieved an unparalleled degree of efficiency - all transport documents are completed in advance by the freight forwarder, reducing any delay after loading to a minimum, as the terminal has sufficient advance information to plan the loading of the train. All customs procedures are handled already during the loading process and the railway operator plans a schedule that allows the train to ride non-st

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Estonia
s future - distribution centres

op through the entire country. Border-crossing is handled swiftly, as the border guards are notified of the train and its cargo well in advance. The long-term vision for this partnership project is to take this streamlined process one step further to be completely paperless and rely only on electronic data, but this depends on even wider cooperation and special agreements between several countries.

Further growth opportunities for the Estonian transit and logistics sector lie in the development of distribution centres. Being a member of the European Union, NATO, the  Schengen are, the Eurozone and WTO, Estonia is a safe environment for business. The favourable economic climate and innovative solutions create the preconditions for foreign corporations to consider setting up their distribution centres in Estonia, where the geographical location and great connections allow to serve end-consumers in Northern Europe, CIS countries and Central Asia.

Active cooperation in the development of new products and joint marketing efforts undertaken by Estonian logistics companies has already yielded the first results as well, when one of the largest logistics companies in the world, Katoen Natie from Belgium, started to expand its operations in Estonia in 2013. The advantage of Estonia as a distribution centre lies in providing quality services in a safe environment - this is particularly important and topical at the moment from the perspective of risk management, as it has introduced several companies who are actively interested in serving the eastern markets through warehouses and logistics companies in Estonia.

16.04.2014

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