The FINANCIAL — Yesterday’s Silk Road has left traces in various transport connections in the air and by sea, road or rail to Tbilisi. Suffice to say, over 10% of Georgia’s 14 billion GDP comes from the transport and communications sector.
With Poti and Batumi, the two main Western cities of the country, having vast sea terminals, there emerges a need for logistics centres with hinterland connection capable to accommodate such amounts of cargo carried from the West to the East of Georgia. In addition cargo coming from Azerbaijan, Armenia or from Central Asian countries require a logistics passageway in order to be distributed to Western countries or the other way around. Tbilisi in all these regards is a hotspot at a glance – and it has the potential to become a logistics hub in the region.
Current logistics centres in Tbilisi are comprised of old renovated Soviet-era storage facilities added to private centres built by companies on their own. However there has not yet been an integrated terminal and storage facility built in the region. Now this niche is going to be filled by Tbilisi Logistics Centre planned to be in full-swing operation by the end of 2013.
Located near Avchala Railway Station and lying on the Tbilisi Railway Bypass Project TLC is planned to stand as a centre for multi-modal transport in the region. The project was developed as a result of a joint venture between German-based consulting and project management company TransCare AG and TLC Property Management. The latter being a landowner and co-investor.
With 26-38 million USD invested, the centre is planned to generate a return of 25-35% in the coming 7-8 years. The main shareholder is TLCPM, that of 45%, whilst 5% of the funding was secured by TransCare AG. The ownership company will keep 50% for an operational company to ensure neutrality of the services for third parties. The project is supported by the US Government’s Economic Prosperity Initiative (EPI) in terms of expansion, investment facilitation and consulting.
Ralf Jahncke, the founder and CEO of TransCare AG believe that the project will facilitate goods movement within the country and support increase of Georgia’s exports.
“Out of 4.5 million tons of containerized cargo which moves in Georgia – 50% have a relationship with Tbilisi, and this is the cargo which will have an increased requirement for handling it. The demand for first class warehouses which is emerging will be catered for by Tbilisi Logistics Centre (TLC) who will fill this gap. It will be focused on import warehousing and commissioning / distribution of consumer goods. The centre has a direct railway connection to Georgia Black Sea Ports – direct railway connection to neighbouring countries Azerbaijan and Armenia, which will cut transporting costs and consolidate different types of cargo storage into one facility,” said Jahncke.
“TransCare AG, established in Germany in 1993, has offices in India, Russia, Spain and headquarters in Germany. TransCare has undertaken several logistics projects in Georgia and Azerbaijan – namely warehousing and transport of cargo. So we know the market,” he noted.
“Georgia as a transport corridor in the region is equal to Switzerland and Germany in Europe – thus it’s a good place for logistics development. Tbilisi is actually a place to coordinate distribution and the collection of logistics in the region which is why it’s becoming a hub,” said Jahncke.
Initial bids on storage facilities have been made already. McDonald’s signed a memorandum of cooperation with TLC last week and there are also another 2-3 companies which are interested in getting their needed part of the warehouse. “Once the three other contracts will be signed the whole area will be instantly constructed,” claim TLC representatives.
According to George Doborjginidze, senior representative at TransCare AG, TLC will provide companies with a portfolio of: Customs Clearance, Cross-docking, Warehousing, Assembling/labelling/finishing of cargo, manufacturing support, order taking, picking, commissioning, final distribution, collecting/reverse. A temperature control system will also be installed in the warehouse which will reduce last mile cost dramatically because you have a much higher stop factor.
“26-38 million USD of investments has been apportioned for warehouses of food, fast moving and consumer goods and also include building of the terminal. About the safety of the centre – we are taking security precautions and at this stage the keeping of chemicals will not be allowed,” said Doborjginidze.
Out of a total 91,500 square meters of land at TLC, 25,000 m2 are for storage facilities with a 7,800 m2 extension possibility and 16,000 m2 integrated two-storey office area, a container terminal with rail and road access with a starting capacity of 26.500 TEU (twenty-foot equivalent unit) per year, container depot and TIR parking. The TLC warehouse includes 56 inbound and outbound truck gates and provides over 30,000 pallet locations. Annual throughput capacity of the warehouse will be 450,000 pallets (about 270 tons).
“There are negotiations currently going on with operation companies of logistics centres. The thing is that we want one company to take care of the warehouse as well as inter-model terminal operation in order to create efficiency which is why we are looking for high level logistics service operation. The target for putting the terminal in operation is summer of 2013,” said Doborjginidze.
“At the moment there are only old logistics centres which were last renovated at the end of the Soviet times. The largest one in Tbilisi is called Lilo 1. Even after the opening of TLC, the need for such logistics centres will remain as there is huge demand on the market.”
“The price for the old logistics centre and the new one will be about the same and the advantage of the new centre is that it has temperature control, easy access via road or rail, all procedures including customs taken there and many other advantages,” noted Doborjginidze.
Zurab Shengelia, head of the Expeditor’s Association, also outlined the importance of the project saying “The building of such a top notch centre is very important for Georgia due to it being a transport corridor for neighbouring countries as well as Europe. This is just the beginning and it will be no wonder if we see such centres open in Karsi-Akhalkalaki which will provide the Southern part of Georgia with high level logistics or Kutaisi, Khashuri, etc. As you know in logistics there two main processes: collection and distribution.”
“In addition there is a perspective of assembling certain products which can then be exported to Central Asian markets. There is no integrated terminal and storage facility in the region, that is why this centre will fill this niche,” Shengelia told The FINANCIAL.
Cost of Service — The cost of keeping goods in TLC will be 9 USD per 24 hours. Different prices will apply to palettes and their cost per 24 days will be 15 USD. A container of 320 kg will be 30 USD.
“There are companies in Georgia who have built storage facilities, their own logistics centres, themselves like Aversi, but they don’t have integrated terminals and various other advantages. There are 2-3 western companies who are interested in taking their share of TLC. 1,200 square meters is the minimal requirement which the companies have to purchase. We anticipate return from investment within 7-8 years, an optimistic outlook. It will be 25-35% of invested money on average,” Said Doborjginidze.
George Doborjginidze also summarized the statistics saying, “Out of total cargo transits 75% comes to Georgia on regional transit lines. As long as 95% of imports come to Tbilisi from Western Georgia it’s clear that our logistics centre will fill that niche.”
“MAF Carrefour is for example in the process of building a central logistics centre in Tbilisi whilst it has representative offices and centres in Azerbaijan and Armenia.
The Tbilisi Logistics Centre will also be cost effective and the reason is simple – if a trailer (with containers) coming to Tbilisi has to detour to “Lilo’s Bazroba” (35 km) for example and pay 185 USD for it (average price) – by choosing TLC it will be exempt from such financial burden. In addition Avchala is useful in terms of distribution of goods. 30% of Tbilisi’s population is spread within a 5 km radius from there,” concluded Doborjginidze.