To logistics operators and distributors, snow and blizzard are a nightmare when it comes to the bottom line. Cutting losses is on the list of priorities, writes BUSINESS Magazin.
“The increase in costs is hard to estimate, but I think it’s double the level of a regular February,” says Dragos Geletu, managing director of logistics company KLG Europe Romania. Simply put, if the budget normally included EUR50,000 losses, now losses could easily reach EUR100,000 and might be offset in the second half at best. KLG posted EUR20 million in turnover last year, from EUR15.5 million in 2010, a year when it invested more than EUR25 million in Romania.
Service providers, both distributors and logistics operators, have to bear the increase in costs and most of them budgeted for it in advance.
“Fortunately, we budgeted losses for January and February and were pleasantly surprised to see that even though we did end in red, we were better off than we thought we would be,” says Catalin Olteanu, general manager of FM Romania.
The company he runs was one of those to post growth last year, when its turnover went up to EUR22 million from EUR20 million in 2010. The figures only cover services billed, leaving out the value of the goods stored, forwarded and carried.
FM Romania now loads 180 trucks a day and customers include retailers like Cora, Profi, Bricostore and Carrefour and producers like P&G, Nestle, Danone, Coca-Cola and Unilever. The company has about 80 clients for its transport services, as the crisis drove competitors out of business. The lower than budgeted losses Olteanu talked about were made possible by the fact that two warehouses “were built to our standards and have lower heat loss and upkeep costs that are more reasonable than those of rented facilities.”
However, “the weather makes a serious impact on our business,” Olteanu says. He backs his statement with examples. Trucks are stuck in parking lots or form long lines in front of closed roads, which means they do no travel, do not generate revenue, while the engine runs using up diesel oil that is becoming more expensive by the day.
Moreover, this winter had cold, snowfall and blizzard all at the same time. Had there been cold only, “it would have worked for us, because we have temperature controlled trailers and those who need to shelter their products from cold would have come to us.” The problem here was the blizzard, which caused roads to block. Regardless of how much people might complain about the authorities, the reality is “you can’t go against the elements,” Catalin Olteanu said.
Dragos Geletu, however, is very dissatisfied with the authorities. That is because “unfortunately, all costs and organization in terms of infrastructure (i.e. snow removal equipment and costs) fell upon us while the local authorities to which we pay a lot of money,” did not make their presence felt. The business was “severely affected” not only in terms of access to logistics warehouses – especially to those close to a highway but also in terms of distribution throughout the country.
The winter also made it difficult for warehouse employees to get to work because of blocked roads or medical problems, Olteanu said. Upkeep and maintenance costs go up, too, at a time like this.
Overall losses registered during this period amount to “at least 25%-30% in a year which doesn’t look remotely optimistic in terms global economic growth,” says Dragos Geletu. He added the delay between demand for supply and actual delivery was 72 hours.
“In our case, delays are much shorter, because we decided to take financial losses and keep delivery times under control,” Geletu says. KLG switched to using smaller vehicles for deliveries even to its own warehouses, so costs shot up.
Stocks in stores did not run out completely, even though some products could not be found on shelves. The good thing about this is that soon “we will get somewhat more work at rebuilding stocks,” Olteanu optimistically said.
Other companies are optimistic, as well. One such example is Vos Logistics, a Dutch company that announced it would enter the Romanian market by setting up shop in Cluj County, where it would hire 100 people. Another logistics operator, NDL Frigo Logistics – entered the market last year as a joint venture of dairy producer Danone and the Romanian branch of international carrier Norbert Dentressangle.
(English version by Loredana Frățilă-Cristescu)