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Calculating Transportation Costs in Central & Eastern Europe

September 9th, 2008 · by Daniel Laumayer · 1 Comment · LCCS and trade, automotive sector, best practices, enviro/social sustainability, events, oil/energy, skills rectruitment and development, sourcing, supply management

As my recent post discussed, the key to successfully utilizing Central & Eastern Europe (CEE) as a low-cost sourcing region is finding the “sweet spot” - the location where costs, distance to market and capacity all add up to provide the optimum sourcing opportunity. Clearly, there are lots of moving parts and variables in this equation, including but certainly not limited to exchange rates, regulations, skill level of the workforce, and potential as an emerging market. But with skyrocketing fuel prices, smart companies are putting even more weight on transportation costs when selecting a sourcing location.

When considering transportation costs, it’s important to not only consider current prices, but to also model how fuel prices changes will impact your location options. For example, does a €0.25/liter petrol price increase put another country in play even though their labor costs are higher?

As the map below shows, the relative transportation costs across CEE varies greatly.

Map Central and Eastern Europe Transportation Costs

Since transportation costs can more than triple as you move east, it’s imperative to consider present and future costs pressures that may result from chasing lower labor or raw material costs.

For example, Czech Republic and Romania both have extensive automotive component manufacturing operations. But Romanian hourly wages can be as little as 50% of those in the Czech Republic (who boast the second highest average of all CEE nations). However, depending on the weight and associated shipping costs of those automotive components, Romania’s lower wages may not make up for it’s higher transportation costs, which can be approximately 2 to 3 times of the Czech Republic.

The bottom line is, when it comes to choosing a CEE nation for a low-cost sourcing operation, they each have their pluses and minuses. So it’s essential to factor in each and every cost driver to find that “sweet spot.”

Daniel Laumayer is a Senior Category Manager for EMEA in Ariba’s Global Sourcing Organization. Based in Frankfurt, Daniel works with global companies on strategic sourcing projects in EMEA.


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1 response so far ↓

  • 1 Jean // Sep 10, 2008 at 6:45 am

    Interesting observations but how can we make a comparison that will stay valid throughout the year? As the brent crude went back below the $100 a barrel limit this week, transport costs will be readjusted and the ranking in competitiveness between countries is likely to change. Has anyone got an answer to this?

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