BMI Logistics Index: Emerging Europe

Emerging Europe is ranked fourth in the BMI Logistics Index out of our six region breakdowns. The US and Western Europe region understandably leads the pack given the strong supply chain options, followed by Asia and the Middle East and North Africa (MENA). At the bottom of the spectrum is Sub-Saharan Africa, a region that offers so much potential in terms of trade growth but faces massive logistical challenges.

Logistics Index - Emerging Europe Outperformer: Estonia

Emerging Europe's logistics outperformer according to the BMI Logistics Index is Estonia. The country's Logistics Rating is 73.5 out of 100, placing it in 26th position globally out of the 191 countries that the BMI Logistics Index covers. The country is the only Emerging Europe state to fall in the top thirty. The country's highest score of 92.1 is for Trade Procedures and Governance, while its lowest score of 57.2 is for Market Size and Connectivity.

In The Middle
BMI Logistics Index Score (Out of 100)

BMI Logistics Index: Emerging Europe

Emerging Europe is ranked fourth in the BMI Logistics Index out of our six region breakdowns. The US and Western Europe region understandably leads the pack given the strong supply chain options, followed by Asia and the Middle East and North Africa (MENA). At the bottom of the spectrum is Sub-Saharan Africa, a region that offers so much potential in terms of trade growth but faces massive logistical challenges.

In The Middle
BMI Logistics Index Score (Out of 100)

Logistics Index - Emerging Europe Outperformer: Estonia

Emerging Europe's logistics outperformer according to the BMI Logistics Index is Estonia. The country's Logistics Rating is 73.5 out of 100, placing it in 26th position globally out of the 191 countries that the BMI Logistics Index covers. The country is the only Emerging Europe state to fall in the top thirty. The country's highest score of 92.1 is for Trade Procedures and Governance, while its lowest score of 57.2 is for Market Size and Connectivity.

In comparison with its eurozone peers Estonia offers one of the strongest growth outlooks, with the country's real GDP forecast to average an annual growth of 3% over the medium term (2014-2018). This places it second in terms of economic growth in the eurozone, just below Luxembourg which boasts a forecast annual average economic growth of 3.1% over the medium term. In a Europe wide comparison Estonia's forecast economic growth ranks it in 22nd position out of the 52 European states that BMI covers.

Estonia: The Logistics Champion
Estonia BMI Logistics Index Score Breakdown (Out of 100)

Estonia's growth outlook will be aided by the country's relatively developed supply chain. The country has historically benefitted from Russia's use of its supply chain, with Estonia being a major conduit for Russian commodity exports, specifically oil. This has ensured that the country boasts a relatively developed transport network and seaport.

The move by Russia to re-route more of its oil exports via its domestic ports has negatively impacted throughput on Estonia's railway network and at the port of Tallinn, but Estonia has been quick to diversify and develop a role in the container shipping sector. Estonia is seeking to re-position itself as a gateway into Russia, thereby playing a role in Russia's consumer growth story.

Estonia is also planning to play a role in the logistics network catering for the Central Asian states, with these countries offering strong growth, but plagued by underdeveloped transport networks, low connectivity, due to lack of links to international trade routes and relatively high levels of trade bureaucracy which are all negatively impacting on their logistics networks.

Estonia is developing as a gateway option for containers shipped from Asia, the US and Europe into Eastern Europe and Central Asia. Chinese firms are investing at the country's port of Tallinn, viewing it as an entry point both into the EU and the wider region.

Eurozone Growth Outperformer
Real GDP Average Annual % Change (2014-2018)

The fact that Estonia is a logistics outperformer will aid the country as it carves out a role in the global supply chain, especially as the country faces stiff competition from the two other Baltic States of Latvia and Lithuania, which are also seeking to play a role as a logistics gateway into Russia, Eastern Europe and Central Asia. The development of Estonia's key role in Emerging Europe's logistics network will benefit Estonia's domestic logistic market and will likely led to regional and international logistics companies expanding their exposure to this market, which offers relatively strong domestic growth, as well as a role in the regional supply chain.

Trend Alert: Central Asia Offers Strong Growth Story, But Logistics Nightmare

As highlighted, Estonia and the other Baltic States are seeking to play a greater role in Central Asia's logistics supply chain. This strategy is understandable, as not only are the Baltic States seeking to expand their role in the regional supply chain and also diversify their exposure from Russia, but by catering for some of the logistics requirements of the Central Asian states they have struck upon high growth markets.

According to BMI's real GDP forecasts over the medium term 2014-2018, the Central Asian states are projected to be the Emerging Europe region's economic growth outperformers. Five Central Asian states feature in the top ten of BMI's Emerging Europe states in terms of real GDP average annual growth over the medium term, with Turkmenistan topping the list with real GDP forecast to expand annually by 8.1%.

Central Asian States Growth Outperformers...
Europe's Top Ten Countries By Real GDP Average Annual % Change (2014-2018)

The country, like the rest of Central Asia, is weighed down by a poor logistics network, which will place a drag on Central Asia's development. Turkmenistan is ranked 29th the BMI Logistics Index out of 31 Emerging Europe states, with a score of just 30 out of 100, placing it in 167th position globally out of 191 countries.

... But Face Major Logistics Challenges
Emerging Europe BMI Logistics Index Rank

Central Asian states are plagued by their geographic position; they are landlocked, with the Caspian Sea only offering maritime links to its neighbours. This curtails the ability of these states to trade internationally and damages their global logistics role. The closest ports for Central Asian states are located on the Black Sea (Russian, Georgian and Ukrainian ports remain the major ones utilised by Central Asian States). To reach these ports goods must go by road, rail and in some cases via ship across the Caspian Sea. This leads to long lead times for the transport of goods and damages Central Asian states logistics score.

BMI highlights that previously Central Asian states main role in the global supply chain was a supplier of oil. To meet the logistics needs of this commodity pipelines were developed. Steadily Central Asia's trade needs are diversifying and their role as oil and gas exporters is leading to the development of a consumer sector in these countries and with it new demands on Central Asian states supply chains, with a container focus coming more to the fore.

We also note the development of Central Asian states as a land route for Asian goods into Europe, specifically Kazakhstan and China. The development of this supply chain is leading to investment in the region's transport network, which in turn will speed up the transport of goods and the region's connections.

Logistics Index Emerging Europe Underperformer: Kyrgyzstan

It should come as no surprise then that Emerging Europe's logistics underperformer, according to the BMI Logistics Index is a Central Asian state; Kyrgyzstan. The country scores just 23.4 out of 100 and is in the BMI Logistics Index global bottom ten ranked 183 out of 191 countries. The country is dragged down by its low score of just 15.8 out of 100 for Trade Procedures and Governance, with the country like the rest of Central Asia blighted by the impact of long lead times and high levels of trade bureaucracy.

Low Scorer
Kyrgyzstan BMI Logistics Index Rankings (Out of 100)

Kyrgyzstan is further afflicted by the fact that, unlike its Central Asian peers, the country does not offer a strong growth outlook, with the country's real GDP growth set to average just 1.7% y-o-y between 2014-2018, placing it in 35th position regionally out of the 52 European states that BMI covers, in terms of strength of economic growth. Kyrgyzstan's geographic location further drags the country down as unlike some of its Central Asian peers it does not have access to the Caspian Sea and is sandwiched between the Central Asian states of Tajikistan, Uzbekistan and Kazakhstan leading to even greater distances between the country and a port.

Kyrgyzstan is also a neighbour with China, but unlike Kazakhstan, Kyrgyzstan has not been developed as a land gateway for China into Europe. BMI believes that there is little likelihood of the country developing such a role, as with Kazakhstan China has a direct partner, whereas any goods imported via Kyrgyzstan would have to then pass through Kazakhstan to reach Russia and then onto Europe or go via Uzbekistan and Turkmenistan to reach the Russian border.

BMI Logistics Index Emerging Europe
Logistics Rating Rank, /191 Quality of Transport Network Trade Procedures and Governance Market Size and Connectivity
Estonia 73.5 26 71.2 92.1 57.2
Turkey 69.6 33 72.2 59.4 77.1
Poland 67.8 35 54.4 75.1 73.9
Lithuania 67.3 36 73.0 79.6 49.5
Latvia 67.3 37 68.9 76.2 56.9
Czech Republic 67.0 38 76.9 75.4 48.6
Slovenia 65.0 40 66.8 72.1 56.1
Hungary 60.5 52 69.6 65.1 46.8
Slovakia 58.0 62 61.7 69.8 42.3
Romania 57.6 63 44.0 72.4 56.3
Croatia 57.4 64 68.1 56.5 47.7
Georgia 55.5 72 53.7 67.1 45.6
Ukraine 52.7 80 57.4 34.0 66.6
Bulgaria 51.7 82 50.9 60.9 43.4
Montenegro 51.5 83 50.2 60.6 43.8
Albania 49.4 88 52.0 47.3 48.9
Macedonia 49.0 95 40.7 65.6 40.6
Serbia 46.8 99 40.6 58.6 41.2
Armenia 44.4 108 47.5 52.0 33.6
Russia 43.7 110 55.9 22.0 53.2
Moldova 43.2 112 43.2 44.0 42.5
Belarus 43.0 114 53.9 25.5 49.8
Azerbaijan 38.2 129 56.6 18.6 39.3
Kazakhstan 37.7 131 46.5 15.4 51.1
Kosovo 37.3 133 37.4 45.2 29.2
Bosnia-Herzegovina 35.2 148 26.6 51.1 27.9
Uzbekistan 32.3 158 46.6 2.9 47.5
Turkmenistan 30.0 167 50.5 2.7 36.9
Tajikistan 30.0 168 44.9 9.3 35.7
Kyrgyzstan 23.4 183 31.9 15.8 22.4
Source: BMI Logistics Index

Quality of Transport Network: Emerging Europe Boasts Strong Links

A measurement included in the BMI Logistics Index is a ranking of each country's Quality of Transport Network, with matrixes for both the extent of a country's transport network and the quality of a country's transport infrastructure. The Quality of Transport Network is where Emerging Europe scores its highest average in a breakdown of the BMI Logistics Index, with Emerging Europe's quality of transport network placing the region second globally, out of six regions measured.

High Score For Emerging Europe
Quality Of Transport Network Scores (Out Of 100)

A breakdown of Emerging Europe's Quality of Transport Network rankings places the Czech Republic as an outperformer. The country's geographic position has, in BMI's view, been the major catalyst in the development of a strong transport network in the Czech Republic, not only in terms of the density of its transport network, but also the networks quality.

The country is located in the heart of Europe and plays a key role in the region's logistics by linking Eastern and Central European states to Western Europe. The Czech Republic borders five countries and plays a major role in Germany's import and export supply chain. The country's landlocked status has also led to the Czech Republic investing heavily in its internal transport network.

Czech Republic In A Pivotal Logistics Position
Map of Europe

Emerging Europe's quality of transport network underperformer is Bosnia & Herzegovina. The country has a relatively dense transport network, but its score is dragged down by the quality of the country's transport infrastructure. BMI sees little in the way of a catalyst for Bosnia & Herzegovina's transport network to develop.

According to the BMI Infrastructure Key Projects Database a total of eight major transport infrastructure projects are currently underway in Bosnia & Herzegovina, but there is little in the way of impetus for the overhaul that would be required for the country's quality of transport network score to improve. The country's main trade partners are its neighbours and although Bosnia & Herzegovina does boast access to the sea, via the coastal town of Neum, the area has been developed for coastal tourism and the country is reliant on its links with Croatia's port of Ploce for its maritime freight needs, thereby ruling out Bosnia & Herzegovina for a role in the wider regional supply chain.

Trade Procedures and Governance: Differing Levels Of Trade Bureaucracy

In terms of the BMI Logistics Index Trade Procedures and Governance Emerging Europe ranks in fourth place out of the six global regions. The Trade Procedures and Governance matrix is broken down into the sub sectors of Ease of Trading and Institutional Quality.

Trade Bureaucracy Must Be Addressed
Trade Procedures and Governance Scores (Out of 100)

The top scorer in the region is Estonia and the country's Trade Procedures and Governance score is the key factor in Estonia topping our Emerging Europe Logistics Index. The country has scored highly in terms of Institutional Quality, but what makes it an outperformer is its high scores in the Ease of Trading sector, with the country benefitting from low levels of trade bureaucracy. Shippers importing into or out of Estonia have relatively few documents to fill in and this low level of bureaucracy coupled with the country's relatively developed transport network ensure there are short import and export lead times for goods.

Estonia's Trade Procedures and Governance high score will in BMI's opinion further bolster the country's strategy to develop its logistics operations and its role as a gateway in and out Central Europe, Eastern Europe and Central Asia.

The BMI Logistics Index Trade Procedures and Governance Emerging Europe underperformer is unsurprisingly one of the Central Asian states, Turkmenistan. Once again this highlights the trend that the Central Asian states are the BMI Logistics Index underperformer, with Turkmenistan joined in the bottom five ranking for Trade Procedures and Governance by Azerbaijan, Kyrgyzstan, Kazakhstan, Tajikistan and Uzbekistan.

The Central Asian states trade procedures are bogged down in high amounts of bureaucracy with at least at least eight documents required for import or export. This coupled with the long distances required to reach a port means that Central Asian states lead times are some of the longest in the world, with import lead times into Uzbekistan for example taking 99 days.

Market Size and Connectivity: Demand Strength To Drive New Connections

Emerging Europe's lowest score when compared with the other regions of the world is within the Market Size and Connectivity breakdown of the BMI Logistics Index, with Emerging Europe ranked in fourth place out of six regions globally.

Low Score For Emerging Europe
Market Size and Connectivity Scores (Out of 100)

The outperformer for the region is Turkey, with the country scoring highly in terms of both market size and connectivity. In terms of market size Turkey offers a strong growth outlook. The country's real GDP over the medium term (2014-2018) is projected to expand by an annual average of 3.7% placing it in 12th position regionally in terms of economic growth outlook. The country's expanding and youthful population ensure that Turkey is of interest to both the manufacturing and retail sector and this in turn makes it of interest to the logistics sector.

The country's domestic demand is a strong growth story in its own right, but Turkey has a bigger logistics role to play. The country is positioned to offer a gateway from the Middle East, Central Asia and Asia into Europe and Turkey is already developing this role, with railway projects in the pipeline which will connect these regions with one another via Turkey.

The underperformer in BMI's Logistics Index breakdown for Market Size and Connectivity is once again a Central Asian state. Kyrgyzstan scores the lowest in terms of Market Size and Connectivity, but other Central Asian states also falling into the bottom ten. Their low ranking is due to the fact that despite Central Asian states offering strong economic growth outlooks and so stronger demand for trade their landlocked status makes them difficult and costly to reach.

As investment is made in Central Asian states transport networks and new logistics developments, such as Kazakhstan's role in China's supply chain take off Central Asia's supply chain credentials will improve. Although there is a long way to go the demand is there and as such frontier markets from a logistics perspective Central Asian states offer unique development opportunities for logistics firms.

Russian transport companies are already expanding and steadily international players are breaking in, such as the UAE's DP World, which is due to develop operations both at Kazakhstan's Caspian seaport of Aktau and its new logistics hub in Khorgos on the Chinese border.

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