A Natural Freight Hub

Turkey's freight transport sector is set to benefit from a strengthening in growth in the country's economy, as well as an uptick in demand from key trade partners. The country's freight transport sector is steadily attracting interest from global operators, with privatisations of its port sector bringing in big names such as DP World and APM Terminals. Global firms are enticed by Turkey's relatively strong growth outlook, but also its position as a link between Europe, Asia, Central Asia and the Middle East.

Turkey's real GDP growth is projected to strengthen year-on-year (y-o-y) in 2013, forecast to grow by 4.4% in 2013 up from the 2.2% expansion previously estimated. Greater growth opportunities and further pressure will be placed on Turkey's freight transport sector in the medium term (2013-2017), with an annual average economic growth of 4.8% predicted over this period, a much stronger growth outlook than the 3.2% annual average recorded in the previous five years (2008-2012).

Stronger Growth Outlook
LHC: Turkey Real GDP Growth, % Change y-o-y. RHC: Turkey Real GDP Growth, Annual Average % Change y-o-y

Turkey's trade growth is ticking up on the back of this, with trade measured in real terms forecast to expand by 5.7% in 2013, up on the 2.4% growth estimated in 2012. Over the medium term we project Turkey's total trade to expand by an annual average of 5.3%.

Despite Turkey's strengthening domestic outlook it is exports that are set to be Turkey's trade outperformer in the medium term. Turkey's imports are forecast to grow by an annual average of 4.6%, while exports are projected to expand by 6% over this period.

Exports Outpacing
Turkey Imports, Real Growth, % y-o-y and Turkey Exports, Real Growth, % y-o-y

Turkey is heavily exposed to the eurozone and its exports have been negatively impacted by the downturn in the region. Germany, Italy and France are ranked the first, fourth and fifth-largest out of Turkey's export partners, accounting for 10.3%, 5.8% and 5% respectively.

While the eurozone's downturn has fed back into weakening demand for Turkish exports, the country will now start to benefit from recovery. We forecast that the eurozone will emerge from recession with a growth of 0.1% projected in 2013. Over the medium term we forecast the Eurozone to expand by an annual average of 1.3%, a strengthening on the annual average decline of 2% recorded in 2008-2012.

BMI also highlights that Turkey's freight transport sector will benefit from the country's exposure to the high-growth, emerging market of Iraq, which is Turkey's second-largest export partner, accounting for 6.2% of Turkey's total exports.

Exposed To Eurozone, But Also Exposed To Emerging Markets
Turkey Export Partners % of Total Exports

Iraq's economy continues on its road to recovery and rebuilding, with double-digit expansion of 11.5% and 14.9% projected in 2013 and 2014 respectively. Over the medium term we project Iraq's economy to expand by an annual average of 9.7% up from the estimated annual average growth of 7.3% over the previous five years (2008-2012.)

Road: Playing A Dominate Role Domestically And Connecting Regions

Road freight dominates Turkey's freight transport mix. Road freight's domination of a country's logistics sector is normal, with a country's road network traditionally more dense thereby offering greater connection options. This is the case in Turkey with the country boasting a road network measuring 352,046km, compared to the country's railway network, which stretches for just 8,699km.

Turkey's road network is well developed with 89% of the total network paved and offering 2,010km of expressway.

Turkey's road freight sector not only functions as the country's largest freight transport option domestically, but also plays a role in connecting Asia and Europe. Expansion of this role is underway, with road connections between the two continents set to be boosted by the development of the Eurasia Tunnel (also known as the Istanbul Strait Road Tube Crossing).

The planned 5.4km tunnel, which is due to be built 25m under sea level will offer more connection options and relieve the congestion on the two bridges that link Turkey's Anatolian and European sides.

BMI also highlights that road is a key link for Turkey and its second largest export partner Iraq, with the country's bordering on another.

In line with our Turkish trade outlook BMI forecasts road freight volumes to strengthen y-o-y up by a forecast 2.77% in 2013 to 204bn tonnes- km, a recovery on the 2.14% decline estimated in 2012.

Over the medium term we forecast road freight volumes in Turkey to expand by %16.5, an annual average of 3.1% to reach 231.5bn tonnes-km in 2017.

Rail: Investment And Expansion Offers Upside

Rail currently accounts for only a small percentage of Turkey's freight transport system, but the country is determined to expand its logistics position and is investing and expanding to ensure rail plays a greater role.

Like road freight Turkey's rail freight sector is expected to benefit from the strengthening economic growth outlook. In 2013 we forecast Turkey's rail freight volumes to expand by 2.8% to 25.5mn tonnes, up from the estimated growth of 0.1% in 2012.

Over the medium term we project Turkey's rail freight volumes to expand by 16.8%, an annual average increase of 3.2%, to reach 29mn tonnes in 2017.

BMI highlights upside risk to this forecast stemming from investment and expansion. Turkey plans to expand its 8,699km rail network by a further 15,000km over the next ten years and lift the percentage of freight transport by rail in Turkey to 20% by 2023.

To drive this investment and expansion Turkey is considering opening up Turkey's railway network, which is currently operated by the nationally owned Turkish State Railways (TCDD) to the private sector, in a bid to fund the expansion and modernisation.

BMI notes that this strategy was used to great effect in the port sector. TCDD controlled the majority of Turkey's ports, but in a bid to drive up capacity and modernize parts of the port sector specifically the container terminals were privatised. Companies such as APM Terminals and DP World bought stakes and have boosted throughput at these ports and invested in expanding and modernizing them.

As BMI has highlighted, Turkey's freight transport sector not only caters for the country's domestic logistics needs but also plays a role in connecting Asia, Europe, Central Asia and the Middle East. Road freight's superior connections have ensured that road plays the major role in this key logistics sector, but BMI believes it is an area where rail could also play a role.

Turkey And Its Neighbours Railway Network Overview
Country Railway Network Length Railway Network Gauge
Source: CIA World Factbook
Turkey 8,699 km Standard
Bulgaria 4,152 km Standard
Greece 2,548 km Standard
Syria 2,052 km Standard
Iraq 2,272 km Standard
Iran 8,442 km Standard
Azerbaijan 2,918 km Broad
Armenia 869 km Broad
Georgia 1,612 km Broad

Out of its eight neighbours Turkey shares the same gauge network, thereby ensuring quicker connections with five of them, offering a number of development options. Plans are even in place for the development of railway links between Turkey and its neighbours which operate broad gauge rather than standard gauge systems. A railway to link Baku in Azerbaijan, Tbilisi, in Georgia and Kars, in Turkey is being constructed, with another railway to connect Azerbaijan and Turkey also on the drawing board.

Air Freight: Fastest Growing Sector And Carrier

BMI forecasts Turkey's air freight sector to be the fastest-growing freight sector in the country. In 2013 we forecast the country's air freight volumes to grow by 6.6% to reach 2.5mn tonnes, a strengthening on the 5.8% growth we estimate for 2012.

Over the medium term we project Turkey's air freight volumes to grow by 39%, an annual average increase of 6.8% to reach 3.3mn tonnes in 2017.

This growth outlook is enticing global operators, further driving up air freight growth, but the expansion in air freight is also due to the development of the country's national carrier Turkish Airlines, which is currently the world's fastest growing major carrier.

Turkish Airlines expansion plans shows no signs of letting up, with the company expanding beyond linking Turkey by air to the rest of the world to investing in stakes in other carriers. The company for a while mulled taking over Poland's LOT, which would have given it greater access to emerging European routes, but in the end favoured purchasing a 49% stake in Niger Airways, thereby gaining greater exposure to the high-growth Africa market.

Maritime: Transhipment and Gateway Potential

Turkey's strong growth outlook is also enticing foreign players into the country's maritime sector. The country's ports were previously operated by the national firm Turkey State Railways, but a privatisation drive, specifically in the container terminal sector at the ports, has led to throughput increases and investment as major port operators, such as DP World and APM Terminals have entered the market.

The throughput outlook at Turkey's ports is well displayed by one of the country's largest ports, Ambarli. Following an estimated decline in total tonnage of 3.9% in 2012, BMI forecasts volumes through the port to grow by 6.3% to reach 3mn tonnes in 2013. Over the medium term we forecast total tonnage volumes through the port to expand by 32.7%, an annual average of 5.8% to reach 3.9mn tonnes in 2017.

While Turkey's domestic growth story has enticed a number of major players BMI believes that Turkey's maritime sector could play a more regional role. The country's location near the Suez Canal is ideal for one of Turkey's ports to develop into a transhipment hub, although such a role would place that port indirect competition with Greece's port of Piraeus, which under COSCO Pacific's guidance is seeking to play the role of transhipment hub for the region.

Turkey's ports also have the potential to develop into gateways, with Turkey offering a potential route for imports and exports to and from Azerbaijan and the north of Iraq and Iran.

This article is tagged to:
Sector: Freight Transport, Shipping
Geography: Turkey, Turkey, Turkey, Turkey

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