Transportation and Logistics in Hungary

Sectoral Analysis

Autumn 2005

Executive summary

In the first half of 2005 the positive trend, namely the intensification

of foreign trade in the EU started in the second part of 2003, continued.

It was supported by the dynamic increase of foreign trade of the

NMS, which increased more than the EU average. Thus, the share of

this region in foreign trade also grew.

The value of the goods exported from the Central and Eastern European

countries increased and in line with that tendency, the role of

logistics services augmented. The transportation and logistics market

has grown by double-digit figure for several years which reflects well

the dynamism of this market.

In line with the increasing oil prices the costs of transporters also

grew. The increase of oil prices seems to be a permanent process with

which the actors of the sector have to reckon.

In the first half of 2005 the transportation sector in Hungary reached

a significant growth mainly due to the outstanding performance of the

international transportation (approximately +25%). The annual

growth of the sector was more than 18% which is significantly higher

than the average of the previous years (2.5-4.5%).

The role of the road is growing continuously in modal split figure of

transportation, in line with the decreasing role of railroads. However,

the share of road transportation is still lower than that of the EU average.

In Hungary, the share of road in transportation is 15%- points lower than the EU-average.

The increasing role of road transportation is partly due to the significant

investments in the road infrastructure. The length of the motorways

in Hungary increased significantly in the previous years and that

trend is expected to continue in 2006 too.

There are four places in Hungary where significant National Logistic

Centers are operated (in Budapest, Debrecen, Sopron and Székesfehérvár),

while in case of the other 7 NLCs more development is

needed to enhance the functioning of these places. Mainly because the

demand on logistics services close to these places – or far from the

capital city - is expected to grow.

In case of transportation sector the role of small-sized enterprises is

significant, mainly in road transportation. On the other hand, the EU

accession and its result, namely the larger competition is expected to

decrease the role of these entrepreneurs. Besides that, the large actors

of the sector plan to become regional actors, mainly because

Hungary has an adequate geographical position.

However, we must mention that the competition among transporters

of NMS is increasing. In case of the trade between Hungary and Poland,

and Hungary and Slovakia, the role of those haulers which are

operated in the trading partner is dominant.

 

1. Trends in the European Union and in the region

Positive tendencies 2004-2005 in the EU

…and also in the New Member States

Road: winner, railroad:loser

 

In the first half of 2005 the positive trend, namely the intensification

of foreign trade in the EU started in the second part of 2003, continued.

During the first eight months of the year foreign trade of EU-25

increased by 8% compared to the same period of the previous year in

euro terms.

It was supported by the dynamic increase of foreign trade of the NMS,

which increased more than the EU average. Thus, the share of this

region in foreign trade also grew. This positive tendency is expected

to continue in the future, thus the trade – and as a result, the transportation

- between Western and Central Europe is expected to increase

further. While the share of the four so-called Visegrad countries

(namely the Czech Republic, Hungary, Poland and Slovakia) in

the foreign trade of EU-15 was only 2.5% in 1995, this figure increased

above 4% in 2003.

 

Regarding the modal split figure in case of the transportation of

goods, one can observe that the share of road transport is increasing

while the share of other transports is decreasing. Accordingly, road

transport has a dominant share in the EU.

On the other hand, road transport has a much more dominant share

in the old Member States than in the NMS. While in case of the EU-15,

75% of all transport (sea transport is excluded) is road transport, in

case of the four Visegrad countries this figure is about 60%. In case of

the latter countries, railroad transport still has a bigger role mainly

due to the former (communist) regime. On the one hand, it is true that

the role of railroad and the length of railways decreased significantly

after the transition, on the other hand, the figures of the railroad

transport – such as the role of railroad transport or the density of

railways - are generally higher in the NMS than in the EU-15. Anyway,

the role of road transport is expected to increase in the future in case

of the NMS too, which will result in the further decline of the railroad

and other transports. Probably, the biggest advantage of the road

transport is that goods can be transported from house to house. Thus,

despite the fact that the figures of railroad transport improved in

many NMS in the first half of 2005 (such as in the Czech Republic or

Hungary), the role of road transport increased further.

The value of goods transported from Central and Eastern Europe increased

continuously in the last years. In 1999 the average value of a

ton of goods was EUR 1000, while this figure increased to EUR 1400 in

2003. This means that these countries export goods with higher and

higher values. Among the countries in the region, Hungary exported

goods with the highest value (a ton of goods was valued at 2700),

mainly because of the fact that the share of electronic products is

quite high in the export. It is interesting that the figures of the Czech

Republic and Slovakia in 2003 were EUR 1600 and EUR 1800, respectively.

Among the important tendencies we have to mention that the EU tries

to put more emphasis on the dispersion of those modes of transports

that have less negative effect on the environment, such as the intermodal

transportation methods (Ro-LA, Ro-Ro, etc.).

In line with the increasing oil prices the costs of transporters also increased.

The increase of oil prices seems to be a permanent tendency

with which the actors of the sector have to reckon.

In the global logistics sector one can observe that information and

communication technologies has larger and larger role in logistics services,

which make transportation easier and more efficient.

 

2. Evolution of the sector in Hungary

2004: a good year in Hungary 

2005: the good tendency continued

International transport is the main engine of growth

Increasing role of road transport

In 2004 Hungary joined the EU and this factor influenced the figures

of transportation too. In 2004 the value of international transports increased

significantly. Compared to 2003 that figure increased by almost

17% in terms of ton-kilometre. Thus, total transport figure –

which includes national transport - increased by more than 10%,

while that figure averaged around 2.5-4.5% in previous years.

In the first half of 2005, the good tendency continued. The performance

of transportation increased by 18.1% compared to the same period

of 2004. Basically the road transportation reached an outstanding

growth (+28.3%), while inland water transport also increased significantly

(+23.1%). On the other hand, the performance of railroad and

pipeline transport played a less important role in overall growth of the

sector.

In the first half of 2005 international transport remained the main engine

of the growth. During the first two quarters of the year international

transport increased by almost 25% in terms of ton-kilometre

mainly due to the outstanding performance of road transport. International

road transport increased by approximately 50%.

Basically due to the aforementioned factor, the share of each mode of

transport changed. In the first half of 2005 the share of road transport

increased to 58%, which represents a 5%-points jump compared to

the same period of the previous year. The share of inland water

transport also increased by 0.2%-point (to 4.3%) in the examined period.

The share of the other modes of transport decreased. The role of

railroad transport decreased despite the fact that its performance increased.

The share of pipeline transport also decreased.

 

Significant development of infrastructure in 2004

and 2005

…which is expected to continue in the future

 

The development of the road infrastructure, namely the increase of

the length of the motorway network had a positive impact on road

transport. In 2004 the M30 motorway (which connects Miskolc to M3)

was opened and the M3 motorway was also lengthened by a 12 km

section (between Polgár and Görbeháza). Besides that, in the Western

part of the country two small section of M7-M70 motorways were

opened (M7 Becsehely-Letenye 8,7 km, M70 Letenye-

Tornyiszentmiklós 18,6 km). In 2004 57 km of motorways was

opened which was almost the double of the 2003 figure (29 km). In

the summer of 2005 another almost 20 km long section was opened,

namely the section of M7 between Balatonszárszó and Ordacsehi. Accordingly,

the length of motorways in Hungary reached 668 km.

According to the plans the length of new motorways will reach 95 km

in 2005. In 2006 the planned length of new motorways is 219 km (including

the lengthening of M3 to Nyíregyháza, the opening of M35 that

connects Debrecen to M3, and the M6 motorway will be built to Dunaújváros).

In 2005 the longest section that is expected to be opened

is the remaining section of M5 that will reach Szeged.

At the end of 2006 we expect that the length of motorways in Hungary

will reach 963 km in accordance with the plans. This means that

the density of motorways, namely the total length of motorways per

Increasing tolls

Decrease of standard VAT rate

100 km2 figure will reach 1 km of motorway.

 

At the beginning of 2005 motorway toll fees increased by 15% in average.

The increase was explained by the rate of inflation and the increasing

costs of the infrastructural development.

Considering the high oil prices the government decreased the VAT

rate on petrol products to 20% from 25%. Due to the decrease of VAT

rate, prices of petrol decreased by around HUF 10-11. However, that

decrease has no significant impact on the transport sector mainly owing

to the fact that transporters reclaim VAT on gasoline. It means the

competitiveness of the Hungarian transporters has not increased by

that measure. On the other hand, that measure may have a positive

impact on the budget due to the fact that the demand of petrol can

increase in the border region and in case of transit traffic.

 

Pan-European corridors

The aforementioned development of infrastructure network is in line

with the Pan-European infrastructural development.

Pan-European Transport Corridors

 

Due to the good geographical position of Hungary 4 out of the 10 so-called

Helsinki corridors crosses the country. These are the following:

Logistics service centres

Corridor IV.

Dresden/Nuremberg – Prague – Wien/Bratislava – Gyõr – Budapest –

Bukarest – Craiova/Constanta – Sofia – Thessaloniki/Plovdiv - Istanbul

Corridor V.

Venice – Triest/Koper – Ljubjana – Maribor – Budapest – Uzhorod –

Lvov

V/A: Bratislava – Zilina – Budapest

V/B: Rijeka – Zagreb - Budapest

V/C: Ploce – Sarajevo – Osijek - Budapest

Corridor VII.

Danube

Corridor X.

Salzburg – Villach – Zagreb – Belgrade – Nis – Skopje – Thessaloniki

X/B: Belgrade – Novi Sad – Budapest

 

Obviously, the Corridors influence the development of the Hungarian

infrastructure network, basically the motorway network. Besides that,

the development of the inland water transport route, namely the Danube,

is also needed.

Regarding the intersections, there was no significant advance since

our latest report. According to the conception, there are 11 logistics

regions in which there are 13 national logistic centres (NLC). However,

most NLCs are under planning or development. Among the NLCs

the most important centres are in Budapest, Debrecen, Székesfehérvár

and Sopron. These NLCs increased continuously their capacity.

Trans-European Transport Network and National Logistic Centres

in Hungary.

 

 

 

There are other smaller logistics centres in the country but those are

mainly situated near Budapest and obviously close to motorways.

 

3. Market structure

Outsourcing

Logistics services

About the enterprises

Decreasing number of private entrepreneurs

The biggest players

Foreign actors

Outsourcing is relevant in the logistics and transportation sector. Two

thirds of the largest enterprises in Hungary outsource its storage activity

but the same amount of outsourcing is observable in case of the

transportation and customs management services.

In Hungary the value of logistics services increases by 20% in average

according to estimations. If Hungary was able to be a regional logistics

centre this figure could be even higher.

The majority of logistics enterprises are private entrepreneurs. Their

share in total number of enterprises reached 60% in the middle of

2005. One can find most private entrepreneurs among road transporters

where the number of private entrepreneurs is twice as much as

the number of companies.

In the last few years the number of private entrepreneurs decreased

gradually. This trend is partly due to the accession to the EU which

resulted in growing competition in the sector. Thus, those private entrepreneurs,

which were not able to keep the pace with the competitors,

ceased to operate.

According to their revenues the biggest actors of the sector are the

MÁV group, the Magyar Posta (Hungarian Post), the Waberers Group,

the MASPED and the Raaberfreight Group. The revenue of these five

companies reached about HUF 250-300 billion in 2004.

Among foreign actors the Dutch investors (such as Rynart, Vos, Versteijnen)

have the largest share in the sector. They are followed by

the Austrians (e.g. Hödlmayer, Delacher) and the Germans (such as

Schenker, DHL-Danzas and Dachser). Besides these investors, Italian

and American investors also play a significant role in the sector.

 

4. Regulation and policy measures

Transportation and logistics policy in the EU

Road transport

Railroad transport

Intermodal transport

Air transport

No customs borders

Derogations

 

In the European Union there is no detached common transportation

and logistics policy. However the EU has a common transport policy,

which includes transportation and logistics. The main features of this

transport policy related to transportation and logistics are the following.

The regulation of road transport in the EU defines the conditions of

participating in international transportation, while the regulation of

national transportation remained in the hand of the governments. In

general the transportation in the EU is bounded to three conditions;

these are the personal reliability, the professional competency and the

adequate financial safety. The main directives of the regulation of international

road transportation are the following: access to the market

of the international road transport; free provision of services; no discrimination;

equal conditions in the provision of services.

The international road transportation is based on the EU’s quota-free

permission system. This activity can be operated in possession of the

permission of the Community. Regarding the national transportation,

the permission is given to all enterprises that fulfill the aforementioned

conditions.

The market liberalization of the railroad transportation is dual. On the

one hand, the liberalization of trans-European transportation of goods

on railroad has been completed in the old Member States until 2003.

On the other hand, the entire liberalization of international transportation

is planned to be completed until 2008. Then the real single market

of railroad transportation will be achieved.

Regarding the intermodal transportation, the Commission tries to put

more emphasis on the dispersion of these modes of transportation by

allowances and by the possibility to give subsidy. The Hungarian regulation

is harmonized with this regulation. In Hungary those (road)

transport vehicles, which are used in intermodal transport, are

granted rebates of vehicle taxes and these vehicles has an exemption

from the weekend restrictions on heavy goods vehicles.

The directive of the EU’s air transport policy is liberalization which can

enhance further the increase of the air traffic. Regarding the stock of

airplanes, those planes which make heavy noise must be taken out of

operation.

The EU is a customs union in which the customs duties were abolished.

Accordingly, the products can be transported tax-free within

the European Union. In the destination country (where the product is

transported) VAT must be paid on the imported goods. Obviously if

the product is imported from a third country (outside the EU) then not

only VAT but also customs must be paid on the product.

As a result of the accession negotiations, Hungary received temporary

derogations in the following cases related to transportation and logistics,

which are still in effect:

. For a maximum of 5 year after accession, Hungary does not need

to open its cabotage market, however, according to the agree-

ment, the Hungarian transporters also cannot access to the cabotage

market of the other Member States.

. Until 31 December 2006 Hungary needs to open its Trans-

European Rail Freight Network only partly.

. Hungary has also been granted transitional arrangement on the

maximum authorised weights and dimensions of road vehicles (until

31 December 2008).

 

5. Short and long term prospects

The effect of the relocation on the sector

Concentration is expected

 

The role of centres in the country is expected to increase

It is an interesting process that the increasing wages have a positive

impact on the transportation and logistics sector. Since the relocation

means the companies move their production to another country,

mainly situated in the neighbourhood of Hungary, it increases the demand

of transportation. On the one hand, Hungary is a significant

market for the neighbouring countries, on the other hand, the good

geographical position of Hungary makes the country a good logistics

centre towards Southeast and East European region. Thus, the multinational

companies transport back and storage their products in Hungary

and they can also export it from here. It means the role of Hungarian

transport and storage companies will grow.

Most directors of the largest logistics companies believe that concentration

is expected in the logistics sector in the next 1-3 years. In line

with the aforementioned factor, namely the process that the assembly-

based manufacturing is leaving the country, the role of services

will increase in the future and in parallel the role of storage and logistics

services are also expected to grow.

Traditionally, Budapest and its region have the leading role in logistics

activities. In the future we expect that the position of Eastern Hungary

will increase, storage companies will grow their capacity in this region

which can result in the increasing prices of building sites.

 

Support of intermodal transportation

Strong competition

Single market

"Threats" from Visegrad countries

 

Regarding the EU tenders, mainly those actors can apply for these

calls which operate intermodal transport services. In the Community’s

policy mainly these enterprises can get support. On the other hand,

those companies that cannot provide complex and comprehensive

services will have to face with severe difficulties in the future. Their

hope can be the specialization rather than a wide service portfolio.

EU Enlargement certainly has an impact on the previous relationships,

the conditions of the competition and the business climate. The challenges

to keep competitiveness and to stay in the market are vital for

the actors in the logistics and transportation sector, which is obvious

regarding the market structure of the sector. Several hundreds of

thousands enterprises compete in this sector.

As a Member State of the Union, Hungary has become a part of a

transport market where Hungarian transporters could have appeared

only by special permissions before the accession. Besides that the

Hungarian enterprises had to cope with transport enterprises which

knew the market better and had international experiences. Although

the regulation of freight and passenger transport services is harmonized

to EU legislation, there are significant differences between the

transporters of Hungary and that of the EU-15. Basically, most Hungarian

transporters are capital-scarce and less modern compared to

those operated in the EU-15 both in terms of transport safety and environmental

aspects.

According to the view of the Association of Hungarian Forwarding and

Logistic Service Providers (AHFLSP), the majority of the international

transportation became services in the single European market. In that

environment the Hungarian haulers can find good market opportunities

if they specialize and focus on a few activities. The large national

holdings are expected to cooperate with each other which is more

likely than mergers and acquisitions in the market. Those larger Hungarian

haulers, which can provide adequate, specialized and high

quality services, will be able to cope with the competition even in the

single market. However, it also means that those large enterprises

have the best chance to survive and grow which have good stock of

vehicles and are present in the market for a while.

Unlike the international transport, national transport remains protected

from foreign competition for some years. 

The elimination of border barriers is a positive factor for the road

haulers, while that is not so positive for those enterprises which provided

customs management services. The Hungarian haulers’ share in

the transport from and to the European Union is around 54%. Although

that figure decreased by 2%-points in the last 1-2 years, in medium

term the Hungarian haulers can increase their share.

The status of the Hungarian Railroads (MÁV) can be protected only in

short or medium term. The company’s future depends on the factor

whether the MÁV can get in the dynamically expanding intermodal

transport.

EU enlargement has a positive impact on the railroad transportation

too, the time of transport can be decreased and that increases the

competitiveness of this mode of transport. We expect that the liberalization

of railroad transport will also generate further increase of

transportation. The biggest competition is expected in case of international

haulage and intermodal transport according to international experiences.

These are the most profitable services and liberalization

influences mainly these activities.

Air transport can be one of the biggest winners of the EU enlargement.

The performance of Budapest Airport can be doubled in the

next 10 years. It is also a good factor that almost half of the transport

is transported by Hungarian enterprises. Regarding the potential increase

of air transport, it is worth mentioning that the share of this

mode of transport is significantly higher in the EU15 than in Hungary.

 

6. Sectoral SWOT analysis

Strengths Weaknesses

• Good geographical position of Hungary;

4 out of 10 Pan-European corridors run

across the country

• As a Member State, Hungary is the

Southeastern border of the EU. Thus,

Hungary is the link between Southeast

Europe and the EU and also between

the CIS countries and the EU

• Rapid growth of foreign trade and

transportation in the last years

• There are several high-quality logistics

services centers in Hungary.

• The cooperation between firms is

smaller in Hungary than in the Western-

European countries

• There is a duality in the sector: oversupply

of capacity, while shortage of

complex, good quality logistics services

Opportunities Threats

• As an EU Member State, Hungary’s

connection with the Union’s logistics

sector is strengthening, thus, Hungary

is attractive for investors. The increase

of foreign direct investments is expected,

which can spur the growth of

competitiveness of the enterprises in

Hungary.

• Hungary’s share in international (European)

transportation can grow further

due to the developing infrastructure.

• Hungary has its strategy to become a

regional logistics center which can also

spur the multinational logistics enterprises

to invest in the country.

• The provision of high quality logistics

services demands a small number of

highly qualified workers, which is

against the interest of the workers

• Increasing competition in national and

international transportation due to EU

membership. This threat mainly concerns

to those small and medium sized

enterprises which are not present in a

transportation chain.

• Without high quality services the country

will become only a transit country

which has no significant value added

but costs.

 


(c) 2001Copyrights, Hungarian Trade Office, Taipei   
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