Turkey, the hidden champion: the logistics country with a future
Growth in the Turkish logistics sector
Turkey has risen to become the eleventh-largest economy in the world, with GDP growth of 5.1 percent during the last five years. Many international companies, particularly retailers, are switching their production to Turkey because of the rapidly changing market situation. The country is also playing its part in this process: it is participating in economic initiatives and development projects in order to make its logistics sector even more attractive. For example, Turkey is introducing measures to promote investments to support projects and they will meet the capacity requirements and the minimum amount of the set investment figure. The region where the projects are based is not a criterion here. Machines and equipment that are acquired for the projects by means of a general investment support arrangement are exempt from value-added tax.
The country is also reinforcing its position by establishing free trade zones for logistics. They are an initiative introduced by the government and enable companies to import and export goods without having to pay any taxes. No import taxes or tariffs have to be paid for imports. The government requires no tax returns for exports. As a result, production facilities from many sectors are located in the well-structured industrial areas.
Obstacles for the logistics specialist
Turkey has had to overcome various obstacles along the way to becoming an expert country in logistics matters. As Turkey is located outside the Schengen Area, freight forwarders have to apply for a Schengen visa. On average, it takes two or three weeks for the visa to be issued. The visa is only valid for six months – and this means that drivers can complete about five journeys to Germany and back from Turkey during this time.
Turkey is a member state of the EU’s Customs Union, but is not part of the European Union. Products are therefore subject to extensive checks at the borders with Bulgaria and Greece. The customs officials examine not only the goods, but also the drivers and the documentation. The latter includes transport documents, invoices and shipping lists. This creates traffic jams on the roads near the borders. They lead to delays and an enormous waste of resources in terms of fuel, perishable foodstuffs, time and money. A journey from Turkey to Bulgaria may take up to five days at particular times. It is therefore helpful for companies to have AEO certification, which speeds up the processes at the borders.
The Logistics Performance Index (LPI), which is calculated by the World Bank, indicates that Turkey is losing value because of the customs regulations. It is clear that Turkey is suffering serious losses in the customs, logistics, transportation, infrastructure, international shipments and punctuality categories, but particularly in the customs segment. The country has now set itself the goal of overcoming this drawback.
Focussing on international flows of goods
Turkey has invested more than US $150 billion in its infrastructure during the last fifteen years. The country handles imports and exports of goods using ocean, road or air transport services. Overall, Turkey has 69,000 kilometres of roads, and 56 airports handle more than 150 million passengers every year. In percentage terms, freight forwarders transport 60 percent of their goods by sea, 31 percent by road and 7.5 percent by air.
Turkish ports handle more than 526 million tonnes of goods every year. A coastline of approximately 8,400 kilometres provides an outstanding starting point for combined means of transport, including many instances of handling cargo using RoRo facilities (Roll on, Roll off). Instead of loading a container vessel using a crane, the goods are rolled on board (either using their own wheels or on roll trailers). This reduces the effort and expense and also allows ships to dock at smaller ports that do not have any cranes. The short sea routes between Istanbul, Izmir, Mersin, Samsun and Zonguldak reduce the CO2 footprint for the transport services and also increase the capacity of the outbound activities.
Railway transport services only handle about 1 percent of the country’s entire foreign trade to date. This share will increase during the next few years, as Turkey already has rail links with Azerbaijan via Georgia, Greece, Bulgaria and Iran. The latter route in particular benefits from the development of the Middle Corridor of the New Silk Road as a trans-Caspian trade route.
Business centres in Turkey
The most important driving forces in terms of demand for high-quality warehouse space are the growing volumes of exports, the expanding e-commerce sector and the very recent trend to use nearshoring services. Production centres and third-party logistics warehouses (3PL) are therefore located on industrial parks, where large companies and spare parts manufacturers set up business operations very close to each other. Licensed warehouses, refrigerated storage facilities, storage units for hazardous and special goods are based at the highly diversified logistics centres. Companies that offer value-added services and container transfers, are also setting up business operations there. Filling, unloading and storage areas are also available for logistics and transport companies. Insurance companies, banks and financial institutions, non-governmental organisations as well as the customs service have pooled their operations in these free-trade zones. As a result, Turkish logistics centres have become key facilities for companies and service providers.
3PL providers, food retailers, manufacturers and e-commerce traders are particularly constructing warehouses in the Marmara region that are certified in line with the Safety & Quality Assessment for Sustainability system (SQAS). The Aegean region, Ankara and the southern region of Turkey are also important logistics areas. Both Istanbul and Bursa, which both have populations exceeding one million, and the Kocaeli Province together handle more than 65 percent of Turkey’s entire foreign trade.
Customs regulations for imports and exports to and from Turkey
As a member of the World Trade Organization (WTO), Turkey gears its customs clearance operations to the requirements of the General Agreement on Tariffs and Trade (GATT). “Before companies import or export their goods, they should find out about reference price systems and certificates of inspection that have been introduced,” says Korcan Tugrul, the Head of Rhenus Intermodal Systems Turkey. Customs officials perform strict checks at the borders and they include complex requirements in terms of documentation. Customs brokers handle the customs processes instead of freight forwarders. The customs brokers must have a permit to operate in their profession and must be Turkish.
The agricultural and pharmaceutical industries are subject to additional requirements. Other tariff quotas and stipulations determine, for example, in which areas companies from abroad may compete. “The protectionist measures and the localisation stipulations also affect the clothing industry and medical equipment, for example,” Korcan Tugrul explains.
Is Turkey the new Far East?
Turkey could replace the production that is currently taking place in the Far East in the near future – and do so in the long term. Turkey has a young and well-educated population. According to the Organisation for Economic Cooperation and Development (OECD), about 30.5 million workers live in Turkey. This means that the country is the third-largest labour market in Europe. The minimum wage is about EUR 250 per month and this therefore exceeds the minimum wage in the Far East. While the quality of production is very high in Turkey, the country has been dependent on importing raw materials up to now. “Once this obstacle has been overcome, it will be much easier to focus on Turkey as a production country from a commercial point of view,” Korcan Tugrul explains.
Turkey’s geographical proximity to the European Union creates savings when transporting goods and has a favourable effect on production costs. “We have well-developed, vertical supply chains available, where companies can control the lion’s share of the entire supply chain,” says Korcan Tugrul. The production country has become cheaper than the Far East during the last few years because of inflation. The loss in value of the Turkish lira increased drastically just recently. However, the country’s gross domestic product (GDP) is growing. “Direct foreign investments are increasing in line with the devaluation of the Turkish lira. Paradoxically, the depreciation in the value of the currency is attracting more money to Turkey,” Korcan Tugrul explains. The investments by foreign companies are long-term capital for developing the logistics market in Turkey. It is therefore possible that production in Turkey will replace manufacturing operations in the Far East in the long term, particularly when it comes to clothing, motor vehicles and spare parts, white and brown goods as well as equipment for the defence industry.
A central element in European supply chains
Turkey could become a major player in EU supply chains during the next few years. Its geographical location, which enables easy access to different European and Asian regions, is already a positive element in this regard. The industrial sectors, which are constantly growing, are attracting a healthy export market that will continue to expand. The number of products exported around the world is more than one billion at the moment – and that figure is likely to rise.
The population of Turkey will probably grow by one fifth in less than 25 years and therefore increase to 90 million people. Tomorrow’s young population will be well-educated. The public and private sectors are already investing in advanced production and modern information processes and a modern health sector on a large scale. All these points lead Korcan Tugrul to draw only one conclusion: “If Turkey adopts the EU regulations, it will be the most attractive production centre in the near future, given its starting point.”
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