International financial experts predict that this year in Europe may be marked by slower economic growth than in previous years. In addition, large economies such as Germany and Italy are currently experiencing economic stagnation and even recession in certain sectors.
Andis Skele, Director of Baltic Block, anticipates that the situation may also affect Latvia’s export performance.
On year 2019 we look very cautious. Today we can see that the prices of wood pallet blocks are falling by about 5%, which is a significant figure for total volumes, while raw material and production prices remain at the same level. At the same time, demand for this product category is moderately decreasing. Given that our product is related to transport and logistics, this trend also reflects the situation in the trade sector.
The German economy, which is the largest export market for Baltic Block in terms of output, is starting to pick up decreasing speeds. In order to maintain an equivalent export volume, Baltic Block analyzes new sales markets. We are now looking at the Arabian Peninsula with potential hopes and evaluating business opportunities in the region, while the United States also has a vast and yet completely unexploited market.
Nor should we forget the UK market, one of the largest importers and exporters of goods in Europe. In the case of Brexit, there is a concern that the export of products to the UK may decrease, which may result in a drop in demand for pallets and pallet blocks.
Latvian companies have some competitive advantage over many other countries — we are located between Scandinavian, Russian and Western European markets with direct access to all transit routes and the Baltic Sea. This strategic location is beneficial when diversification of export markets are needed for economic reasons. Therefore, in order to achieve moderate growth, losses in the German and Italian markets can be realized, for example, in Poland and Scandinavia.
Unfortunately, for geopolitical and economic reasons, CIS countries are becoming increasingly sophisticated and disadvantaged in terms of exports, where product purchase prices are significantly lower than elsewhere in Europe. In addition, importing from administrative and customs procedures does not make the process cheaper and faster.
This year’s challenge will be to align the fall in the price of the end product with the level of production costs. This means that special attention should be paid to the efficiency of the plant, as the reduction in production capacity is unprofitable. The previous year, Baltic Block, was marked by a year of rapid growth and investment and, given the current situation in export markets, the priority will be to consolidate current processes. The plan to expand the plant over the next few years remains the same, and this next step will be investment-intensive. We must also prepare accordingly.