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REPUBLIC OF TURKEY PRIME MINISTRY Investment Support and Promotion Agency of Turkey TRANSPORTATION & LOGISTICS INDUSTRY REPORT DECEMBERJANUARY 2010 2009 CONTENTS 1. Executive Summary 3 2. Sector Overview 4 2.1 Global Sector 4 2.2 Domestic Sector 5 2.2.1 Overview 5 2.2.2 Road Transport 7 2.2.3 Railway Transport 8 2.2.4 Air Transport 10 2.2.5 Maritime Transport 12 2.2.6 RoRo Transport 13 2.2.7 International Trade 13 2.3 Main Players 14 2.4 Sector Outlook and Trends 15 2.5 SWOT Analysis 16 2.6 Investment Opportunities 17 2.7 Sector Establishments and Institutions 19 LIST OF FIGURES 20 ABBREVIATIONS 21 2 1. Executive Summary The transportation and logistics sector, broadly defined to include airlines and airfreight, shipping, road and rail transport and the associated infrastructure and services, generated US$ 3.4 trillion of revenue globally in 2007. It has grown with a CAGR of 6.2% between 2003 and 2007. By 2012, the global transportation industry is forecast to reach US$ 4.5 trillion growing with a CAGR of 5.4%.1 The share of the logistics sector (broadly defined to include all transport as above) in Turkey’s GDP is estimated between 8-12%.2 Thus the size of the sector can be estimated as being around US$ 65-95 billion in 2008. The size of Turkish transportation & logistics industry is determined as US$ 59 billion, while the share of the logistics service supplier market is estimated as US$ 22 billion in “Turkey Logistics Industry Survey 2008”. It is also stated that the industry has tripled since 2002 while the share of logistics service suppliers has increased by only 7%, which signals an unrealized growth potential for logistics service companies.3 The industry has grown by 20% on average in the last 5 years and the forecast size is US$ 120 billion in 2015.4 Road transport is currently the major mode of freight and passenger transportation in Turkey: at present 95% of passengers and 90% of goods are carried by highway transport.2 The Turkish Government intends to further modernize existing roads and construct new roads. The estimated investment cost for such modernization and construction amounts to TL 37 billion.5 Privatization of the two Bosphorus bridges and various motorways is planned for 2010. The railway system has suffered from a legacy of past underinvestment. The Turkish government aims to modernize the railways through a range of projects, for which a budget of US$ 23.5 billion has been allocated up to 2023.5 The flagship project is the Marmaray Project (the Rail Tube Tunnel under Bosphorus in Istanbul) where construction is well advanced and completion is planned for 2013. Another major infrastructure project is the Kars-Tbilisi-Baku railway. Turkish Airlines is the largest airline in the country and now the 4th largest in Europe in 2009 according to passengers carried.6 It has achieved one of the best growth rates of any airline worldwide in the past decade. Although traded on the Istanbul Stock Exchange, it is mainly State-owned, but it is included in the national privatization program. There are currently 45 airports in Turkey. These are mostly very modern, but a budget of around TL 4 billion5 is projected for further airport modernization and construction. Turkey has a competitive advantage in maritime transport since it is surrounded by seas on three sides. By August 2008, the Turkish maritime fleet consisted of 1,631 ships and ranks 25th in the world according to the number of ships.2 Shipping is the most usual method of transportation for Turkey’s exports and imports, with respective shares of 46.0% and 59.1 %. Second to shipping for Turkey’s foreign trade is road transportation, with a share of 41.7 % for exports and 23.6 % for imports.7 Air transport comes third. In addition to the shipping of foreign trade, maritime transport of individuals is also significant, especially by IDO (Istanbul Sea Buses and Fast Ferries) in the Istanbul region. Currently there are 2,000 customs clearance companies, 1,200 international road transport companies, 1,000 international maritime companies, 250 freight-forwarders and 200 bonded warehouses which offer logistics services to international trade firms.8 1 Datamonitor, 2008 2 IGEME (Export Promotion Center of Turkey), 2009 3 Quattro Business Consulting “Turkey Logistics Industry Survey 2008” 4 Capital Magazine, 2007 5 Deloitte, Investors’ Guide Turkey, 2009 6 Association of European Airlines, 2010 Traffic Data 7 TUIK (Turkish Statistical Institute) 8 TSKB (Industrial Development Bank of Turkey), Sector Report, 2009 3 2. Sector Overview 2.1 Global Sector Logistics are a critical factor in a country’s overall foreign trading competitiveness. The importance of logistics is also increasing in BRIC as a result of the growth in their economies. In addition, the location of a country is a critical factor for logistics: countries such as Turkey can serve as a transport hub or a link between neighbouring countries. The transportation industry has experienced fluctuating growth between 2003 and 2007. Growth is expected to continue in future, but at slightly lower rates than the recent past, as shown by the yellow line in the chart below. Figure 1 – Global Transportation Industry Value Global Transportation Industry Value and Forecast 5,000 8.0% 7.4% 4,500 7.0% CAGR: 6.2% 4,000 6.2% 5.9% 6.0% 3,500 5.4% 5.5% 5.5% 5.4% 5.4% 5.3% 3,000 5.0% 2,500 4.0% 2,000 3.0% US$ billion US$ 1,500 2.0% 1,000 500 1.0% 0 0.0% 2003 2004 2005 2006 2007 2008f 2009f 2010f 2011f 2012f $ billion % Growth Source: Datamonitor f: forecast With respect to geographic classification, Asia-Pacific and Americas create 35.9% and 32.4% of the total sector revenue, respectively.9 Figure 2 - Global Transportation Industry Segmentation Segmentation by Modes of Transport % Geographical Segmentation % Share by Share by Value, 2007 Value, 2007 3.2% 11.1% 31.7% 35.9% 16.8% 48.9% 19.9% 32.4% Road&Rail Transportation Infrastructure Marine Airlines Asia-Pacific Americas Europe Air freight Source: Datamonitor Source: Datamonitor 9 Datamonitor, 2008 4 Road Transport Industry A decline in the global road sector’s size is believed to have occurred in 2009 but the sector is expected to resume growth in 2010 since carriage by truck is often the initial and final stage of freight transport. The global road sector produced total revenues of US$ 2,308 billion in 2008, with a CAGR of 7.8% between 2004 and 2008. Competition is intense and entry barriers are low, which can be illustrated by the fragmented nature of logistics with the top 50 companies having a market share of only 33%.10 Increasing costs due to high oil prices and new environmental measures adopted, since road transport is the largest contributor to global warming, negatively impact the margins of the road transport companies. Railroad Transport Industry After good growth between 2003 and 2007, with a CAGR of 6.3%, the growth of the railroads sector is forecasted to lose speed. The global railroads sector created US$ 472.1 billion of revenue in 2007.10 Since expansion of the network is so capital-intensive, the rail sector is mostly constrained to operate with its existing network. However Europe and North America are working towards improving and renovating existing railway infrastructures. Air Transport Industry The global air freight sector created total revenues of US$ 100 billion in 2008, with a CAGR amounting to 5.6% between 2004 and 2008. After a rapid growth stage between 2004 and 2007 (a CAGR of 7.4%), the air freight sector grew only by 0.1% in terms of value and contracted by 0.5% in terms of volume in 2008.10 In 2009 some airports reported extreme decreases in freight volumes due to lower frequency, merged routes and bankruptcies. Also high oil costs challenge the companies and force them to pass on such costs to customers. The global airline industry has experienced strong growth since 2003 and that growth is expected to continue in the future. The global airline industry produced US$ 429.9 billion of revenue in 2007, with a CAGR of 11.2% between 2003 and 2007.10 Price has been becoming a dominant factor in competition between airlines, even for the business segment. The use of on-line booking enables customers to find the lowest priced ticket for their trip. Even though the intensive capital investment requirement and safety regulations are barriers to potential new entrants, low-cost competitors have managed to challenge the established airlines in recent years. Maritime Transport Industry The global maritime industry grew very fast, with a CAGR of 34.5% between 2004 and 2006 but revenues then declined by 21.4% in 2007. Further decline is expected to have occurred in 2009 but a recovery period is forecast to start towards 2013. The maritime industry earned US$ 749 billion of revenue in 2008.10 The industry is highly capital intensive due to the cost of vessels and large cash flows required for funding working capital requirements. Moreover, expertise and technical know-how are critical factors since the international shipping regulations related to safety are strict. Competition is price based; however, companies with younger fleets can charge a premium. 2.2 Domestic Sector 2.2.1 Overview Turkey's geographical location establishes links between the East and the West which makes the transportation industry crucial for the economic development of the region. The Customs Union agreement between Turkey and the EU that came into force in 1996 and potential EU membership are important opportunities encouraging new investments in this industry.