29
Oct 2019

Logistics firms suffer from bad infrastructure, road closures, and a lack of people

A survey from 108 AGENCY has shown that Czech logistics and manufacturing companies consider poor quality infrastructure and frequent road closures to be the most pressing problems impeding their business activities today. They also suffer from a lack of employees and rising labor costs.

The leading Czech consultancy in the field of commercial real estate conducted a survey in August and September of this year, and logistics (68%) and manufacturing (15%) companies made up the majority of the respondents. Most of them operate large warehouse spaces of over 10,000 square meters (60%). The survey focused on areas that companies perceive to be inhibitors to their businesses, and where they see the most room for improvement. Part of the survey also dealt with brownfield sites and e-commerce.
 
More than three quarters of shipping, logistics, and manufacturing companies see the lack of quality employees as the biggest problem. They also suffer from rising labor costs.
Another brake on business in the Czech Republic is poor quality infrastructure, a lack of highways and first-class roads, and never-ending road closures due to road works.
Companies believe the State should support the establishment of industrial facilities in brownfield sites. The problem is that logistics and manufacturing companies can not afford them, so more and more residential, office, and shopping spaces are built instead of industrial spaces.
The majority of the firms surveyed say that they do not offer same-day delivery and do not plan to. The reason is that customers do not want it – they are discouraged by the high price of the service.
 
Too few people for too much money
The most vexing problem faced by logistics, distribution, and manufacturing companies is the current lack of quality employees, a problem considered significant by 78% of respondents. This is related to the rise of labor costs, which is viewed negatively by 68% of those surveyed. “We have extremely low unemployment and finding people today is an impossible task that all firms across all sectors are facing. It’s the same with wage growth – in logistics, it now accounts for about a third of all costs, which has more of an impact in this field than in others. Companies are feeling immense pressure to keep prices as low as possible, while at the same time, all costs are rising. From some this can spell the end, in the sense that they will be bought by bigger and stronger entities. We are already seeing such regrouping among multinational companies I think that it’s going to happen more and more,” says Jakub Holec, CEO of 108 AGENCY.
 
Few motorways and bypasses
Nearly half –  44 percent – of participants in the survey believe that the quality of infrastructure and the state of transportation in general are very significant problems. In response to the question as to where they see the biggest shortcomings, 81 percent of respondents said constant and long-term road closures, 68 percent said a lack of highways and first-class roads, and 60 percent said the poor quality of the current roads. More than 62 percent of those surveyed said that they don’t believe the quality of Czech infrastructure has changed in the past three years; 15 percent said that it had gotten worse, and 22 percent perceived it to have improved.
 
“On the one hand, it might be surprising that carriers consider the state of Czech roads to be a big obstacle, but on the other it’s understandable. Carriers have precise time windows that they have to meet, whether they’re transporting goods to production sites or to end customers. Drivers miss these time windows due to constant long-term road closures, as they have to go around them or sit in traffic. The carefully-planned logistics process definitely suffers from this,” explains Holec.
 
Speeding up the construction of infrastructure is the key phrase on this theme that appeared most often from those surveyed. Respondents also cited badly connected logistics facilities to public infrastructure and the unfinished highway network, which lacks routes in all directions to our neighbours and bypasses in bigger cities. “This is unfortunately a big problem this field suffers from – and it seems a solution is nowhere in sight. Just think about the most recent piece of news that the finishing of the Prague beltway will begin in 2026 at the earliest. I don’t want to even get into the fact that Austrians have gotten highways from Vienna to our border, and we haven’t even started work on it,” disgruntledly explains the owner and director of 108 AGENCY.
 
Municipalities should receive their fair share of taxes
This means above other areas to which taxes are distributed by the State. There is a lot of room for improvement here. “When, say ten years ago, the leadership of some municipality supported the construction of industrial facilities on its land, the argument was that it would create jobs, among other things. This doesn’t work anymore with today’s low unemployment rate. People from villages don’t want these projects, because they don’t get anything from them. Just more traffic. The state is not distributing the taxes these industrial companies are paying properly – part of it should go back to the municipalities. It works this way in Germany, for example, where cities and villages directly attract investors and set aside their land for them. It’s not so much about job creation as much as it is about them getting part of the taxes. This money goes directly to their budget and to enhancing their environment and quality of life. And what’s more, German municipalities are able to come together and share the money – for example, an industrial facility is established in one municipality, but others in the area suffer from increased traffic. So they make an agreement that part of the money will go to them as well. The result is that the construction of an industrial facility in one municipality supports those around it. We have a lot to learn from this and we’ve got a long road ahead of us,” he explains.
 
Brownfield sites don’t favor industry
Another topic covered by the survey was brownfield sites. Three quarters of respondents were either fully or partially convinced that the State should support the construction of warehouse facilities within them.
 
Jakob Holec offers insight: “The advantage of brownfield sites is that they are in urban areas of cities, so they have existing connections to transportation, networks, and the like. The disadvantage is, that while they came into existence at a time when they were on the outskirts of the city, today, they’re inside and often part of residential areas – we see this for example in Prague’s Liben or Vysočany quarters. And then there’s another factor: when we look into who owns these brownfield sites today, they’re mostly owned by speculators who are looking to make the highest profit possible. They are selling them for prices that manufacturing or logistics companies can’t pay. This is why residential, office, or retail projects are often established in former brownfield sites, because their developers can pay significantly higher prices. Last but not least, I see the nearly complete lack of continuity in municipal leadership as a very counterproductive factor. I’ll give you an example. Recently we managed to find an industrial investor for a long-abandoned brownfield in the Solo Sušice site. But then a new mayor came in with his interests and threw the existing zoning decision out the window, actually going against what the previous administration had started. Things are much too politicized at the community level here, they’re addressing populist themes to pander to people and get re-elected. There is a lack of continuity and work for the good of the municipality,” explains Holec.
 
Same-day delivery? Thanks, but no thanks
The last area that 108 AGENCY’s survey dealt with was e-commerce, specifically the phenomenon of same-day delivery. A small majority of respondents – 53 percent – said they did not offer this service. An even greater number of companies – 76 percent of those surveyed – said that they were not planning on rolling out same-day delivery in the next twelve months. The reason being, that the majority of customers have not requested it, the companies do not have adequately prepared networks, they often deliver outside the Czech Republic, and it would pointlessly increase the price of logistics and thus of goods. Even though customers are not requesting same-day delivery, respondents say the shortest possible delivery time is important to their customers: three quarters of those surveyed cited this factor as very or moderately important.
 
“E-shops often compete to deliver on the same day, but in the end customers would rather wait a day or two on a package when they find out how much more they’d have to pay. In addition, it’s not realistic to offer this service for the whole country, just locally. This is exactly how the internet supermarkets Rohlík.cz and Košík.cz found their success. They only deliver to places that they have specified, and they have perfectly planned and optimized delivery routes to those places. That’s how they’re able to deliver just a few hours after an order is placed and still make it within very short time windows,” concludes Holec.
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