Within the large European logistics market, the Baltic nations have created an interesting niche for themselves post-independence from the Soviet regime. In a period that Lauras Lukošius, Founder and Managing Director of Baltic Freight Services (BFS), describes as ‘Wild Capitalism’, many private logistics businesses were established. Among them was also Baltic Freight Services (BFS), set up in 1996 in Vilnius and operating in a dense and competitive Lithuanian market even today. Where logistics forms a significant portion of the country’s GDP, a company like BFS understands the opportunities and the diverse capabilities it needs to offer to its clients. While the company initially began their journey through air freight services, today, BFS’s portfolio covers all modes, such as air, ocean, road and rail freight solutions, along with services such as customs documentation, packing, labelling and door-to-door service.
In our rich exchange with Mr. Lukošius, we learn not just about the foundations of the company but, in parallel, the creation of the Lithuanian logistics market, the opportunities it offers, and the challenges it tosses. We also take a deep dive into the changing dynamics in the Lithuanian logistics market with the ongoing geopolitical unrest and the upcoming economic recession. Finding the right solutions during a challenging period is a daunting yet rewarding task that BFS executes with expertise and awareness.
In conversation with Lauras Lukošius…
NSRN: Before starting BFS, you worked as a cargo manager for the Lithuanian airlines. What was the motivation for you then to create your own venture? What was the market like back then when you started the company?
Lauras: Back then, there were plenty of new things in the market because it had only been four or five years since Lithuania became independent. We entered the free market, and businesses started to flourish. We call that period ‘Wild Capitalism’ (laughs). There were many state-owned companies of course, and lots of people worked for them, but as the markets opened, more and more private companies appeared.
I had then worked for the Lithuanian Airlines for many years, I enjoyed it and learned a lot. Back then the forwarding market was not novel, but still in air freight service there was space for newcomers. Together with a co-founding partner, I decided to start my own business. Since I had a strong background in air freight, it became a good enough reason to have my business specialise in this sector. This was somewhat special as many logistics companies back then were focused on customs clearance given the surge of business there due to Lithuania’s independence from the Soviet regime.
In those days our typical markets were the European countries. Today one may think that it does not make sense to use airfreight since Lithuania is not far from Europe and trucking services are more efficient and cheaper. However back then Lithuania was not yet in the EU, so border crossing and customs clearance was much slower. For example, a shipment to Germany via road may take only one or two days today, but back then it took much longer as you need to cross multiple borders, making airfreight a more efficient option. This also meant though that we obtained our customs broker license very early on, so we could handle this expertly if required.
Another interesting change we lived through was the slow development of ocean freight. Now Klaipeda is a sizeable hub, but in our early days, ocean freight was not popular at all as few shipping lines were calling Lithuania. There was not yet a need, China was not as central as it is today in global trade, and Lithuania had much more trade with Western Europe than the Far East. Only when China started to really integrate into the global supply chain, together with other globalization forces, did ocean freight start to grow in Lithuania. We then started getting the opportunity to grow our business there and offer either full or consolidated container loads.
NSRN: Talking about shipping lines, we see that you briefly worked at MSC. What was the story there?
Lauras: As I mentioned before, when we started BFS, I had a partner who was also a primary shareholder. Unfortunately, in 2014, we had very different views, and I decided to sell my shares to my partner and leave. But in 2017, things changed again as I returned to the company and the former partner left. Interestingly, right after I left BFS, my wife asked me what I wished to do as the next step in my career. I told her I wanted to work for a shipping line if given the opportunity. Then just by pure coincidence, MSC called the next day asking if I was interested in working for them. I enjoyed working in ocean freight and still do, so I accepted it. It was a good learning curve for me, and I stayed there for three years.
NSRN: How did you envision the development path of BFS in relation to the Lithuania’s market situation?
Lauras: Even though Lithuania is a relatively small market, it has a strategic geographic position. A lot of transit cargo moves from the West to the East or other Baltic countries. So, it almost feels like we are at the crossroads of that trade. We are neighbours of Belarus, a landlocked country with a lot of ocean freight going via Klaipeda Port from/to Belarus. So despite our country and domestic market being small, the total volume moving through the country is substantially higher. After Lithuania joined the EU and border crossings were no longer a problem, it also made sense for our company to focus on the road freight business, apart from our existing air and ocean freight. Road freight is critical because Lithuania mostly trades with other neighbouring European nations, thus the exports are moved mainly by trucks. In short, we have really just continued to add capabilities and services to our portfolio based on the changes in the market.
NSRN: What are some of the critical milestones in the last 26 years that you still remember vividly? And was/is the journey as you imagined when setting out back in 1996?
Lauras: It’s been so long (laughs); it becomes difficult to pick a particular story or a milestone. We had been doing air freight for several years, and then we ventured into ocean freight forwarding, which we have been doing for over 10 years now. An interesting period for us was when we were liner agents for CMA CGM. We had a separate office looking after this part of the business, aside from our freight forwarding business. It was sometime during the 2000’s, and it definitely helped us grow. However as with everything, challenges followed. CMA CGM decided to open their own office in Lithuania instead of using our services, which was of course a blow on us. But we quickly adapted, and our ocean freight volumes continued to grow as we focused more on FCL business. We continue to be clients of CMA CGM, and some years before we were even one of their largest clients in terms of import volume. Now looking back, it was an interesting experience to have once been part of such a big company.
NSRN: Today, the company has 20 people, which for Lithuanian purposes is not small, but it feels like an agile yet comprehensive set-up. What are the company’s key strengths, and how do you set yourself apart from the competition?
Lauras: First, I don’t think I can agree that 20 people is a sizeable company, even in Lithuania. Despite our small country, there are many companies with sizeable workforces. Since we are in the European Union, we come across big companies selling their services in our region. All Lithuanian companies can access the local market, which is not that big, and the European market, which is significantly larger. In Lithuania, the logistics sector is relatively large; it contributes to over 10% of the country's GDP, which is a high number compared to most European countries.
It is good that we offer most of the means of freight. For example, some companies are experts in only air freight or ocean freight, but we really do it all. Sometimes they may say that they can do both, but they end up outsourcing the task. With BFS, that is never the case as we make the bookings with airlines and container lines directly, and we create our own E-Waybills or Sea Waybills. So our strength is that we have solid air and ocean freight expertise. I say this because most logistics companies in Lithuania start with just road freight, and then they might add ocean freight. We have been doing ocean and air freight for over 25 years, and our operational and customer service staff readily offer the best possible solutions due to their competence.
Our clients have varied needs; sometimes they prefer ocean, other times they need air or road freight, so we have become a one-stop shop for all their requirements, making them very loyal towards us. Our customer service is personalised; we are very close to our client and make sure they are comfortable. Despite our engagement being B2B, we need to understand that companies and businesses are made of people; thus, we approach them as people to people. What determines a companies’ success is their ability to maintain strong relations with their clients by understanding their needs and offering the best solutions.
NSRN: We’ve talked a lot about your air and ocean expertise, but as you said, road freight is also a vital pillar. How much road freight are you doing towards Europe and CIS nations as a Lithuanian company? Has there been an impact on these two directions with the ongoing global events in the last two years? Can you give us a few examples?
Lauras: Well, towards the CIS countries, the movement of goods has definitely changed. We are now moving almost no cargo at all to Russia or Belarus. To some extent, we were already not moving cargo towards Russia before the Ukraine-Russia war. We were doing a lot of ocean freight for Belarus; Since Belarus is a landlocked country, many goods were going through Klaipeda port before the war. However recent events such as the Covid pandemic and the sanctions that have been put in, paired with last year’s high ocean freight rates have almost stopped the movement of cargo from China to Belarus via Klaipeda port. Instead, a lot of it goes on the rail directly from China to Belarus, so now our volumes to Belarus are minuscule.
Instead, we have developed a new route towards Kazakhstan. We deal directly with customers in Kazakhstan who are buying goods in Europe, in the Americas and whose cargo is geographically logical to move via the Baltics. Plenty of European cargo towards Kazakhstan goes via road freight, passing through the Baltics. As of now, we are focusing on this direction and speaking with direct clients that wish to sell their products in Kazakhstan. Simultaneously, we try to avoid any transit through Russia. Interestingly, to some extent, Kazakhstan is opening their economy to new investors and decreasing bureaucracy for local companies, which our clients think is a positive change. Even while speaking with people, there is a sentiment that they are pro-European, it is so interesting that our mentalities are very similar and the communication is so simple. It always feels like we are on the same page.
Kazakhstan is also favoured with a large market, much larger than the Baltics. We are pretty active on this route. From Klaipeda to Almaty, it can be anywhere between 10-17 days, depending on the border queues. Despite most cargo being moved through road freight, some clients purchase goods from the Americas, or Mediterranean region, from where we move goods for them via ocean or air freight. There is also a possibility of rail freight, where the containers arriving from the Americas are loaded directly on the rail wagon, mostly in Riga, Latvia. We find this a bit easier, although I can’t explain why we move goods by rail from Latvia and not any other Baltic country. Maybe historically, we have always done this and thus find it comfortable to continue this way. I suppose we feel that we are competitive and the service is stable and sound, so we don’t feel the need to change it at the moment.
So, in terms of CIS countries, this is where we are concentrating on now. We are not the only ones looking towards Kazakhstan, some companies that previously focused on transporting goods to / from Russian before are also redirecting their attention there. Luckily for us, since we were not very active in moving goods to Russia even before the conflict, the impact on us was insignificant. We were much more engaged with Belarus as Minsk is only 200 km from Vilnius. The problem arose when sanctions were put on some Belarusian banks, causing trouble with payments as banks were cautious with payments coming through; things took a long time. It caused a lot of delays, creating problems for many companies. Now, Lithuanian banks are simply not accepting any payments from Russia and Belarus; neither can you send payments to companies in these countries.
Another point I would like to mention is the increase in Ukrainian cargo via Klaipeda port. For BFS, we have some Ukrainian clients who export their goods via Klaipeda because Odessa, their home port, is inaccessible. A significant part of Ukraine is still active in business, so they are finding ways to export their goods to overseas markets. We see that it’s not just us; our competitors are also handling Ukrainian cargo via Klaipeda. Before the war, there was almost no such cargo, but now vigorous activity exists. Between Ukraine and Klaipeda, the cargo journeys on the road through Poland. They are then loaded into containers and shipped to different destinations.
NSRN: You mention that rail freight is possible on routes that also have a strong road freight network. But what is the determining factor of picking one over the other for example for cargo going to Kazakhstan?
Lauras: Sometimes, the clients know it themselves and specifically tell us how they want their cargo delivered. Sometimes it is determined by the weight of the shipment or the volume; these are generally some deciding factors. At the same time, the transit time on rail from Riga to Almaty can be lengthy. It is cheaper but generally takes more time. Recently, most cargo moves by trucks; rail is still growing. Sometimes forwarders are worried about who the owner of the rail wagon is, plus there can be stoppages at the border which we cannot control, adding to the stress. Besides, local or Western insurance companies now refuse to offer insurance if you want containers to go through Belarusian and Russian territories. So, the client has to ensure that he has a deal with the local Kazakh insurance company that can offer coverage for this journey. That’s why we have more airfreight shipments to Kazakhstan, and we simply avoid the trouble mentioned. This works well when the cargo is smaller in volume, or it is more expensive.
NSRN: As Lithuania is a transit gateway, for many logistics companies, Russia and Belarus were key markets. Now, with the current geopolitical situation, what direction do you think the companies will take that previously had a Russian/Belarussian focus. Do you think they will completely shift business towards Europe or focus towards Kazakhstan? We assume this is causing the markets to become more crowded, or how do you see the space changing for freight forwarders? Where do you think the following focus areas for the Lithuanian market should be?
Lauras: Well first of all, not all companies here focused mainly on Russian or Belarusian business before. Plenty of companies focus on the local market, and many concentrate on the European market too. But, of course, the space is getting crowded, especially now because the whole economic situation in Europe feels uncertain. Currently, we can see that companies are ordering lesser goods; they aren’t very active. Moreover, January is never the busiest month; there is less cargo in the market, competition is even more fierce, and the margins are lower. I would say more companies will focus on European Union markets, and of course, there is some congestion or competition in niche markets like Kazakhstan and so on.
This geopolitical change has for sure affected the logistics market. But logistics companies are generally very resilient; we have seen that in the past, and we see so many examples now. They are changing methods and diversifying. Furthermore, since our industry doesn’t have borders, you can find clients worldwide. If you are competent, you can find a way; there are so many Scandinavian and German companies. When you look at the map of the European Union, it might seem like we are at the end of the whole region because there is barely any transit cargo, and we have a small market. On the contrary, we don’t call our local market a Lithuanian market, rather, it is the large European market that we work in, and this was even before we became part of the union.
What we do consider a challenge is how the company should move, because our local economy and our business is strongly export-oriented. This means that we strongly depend on the economic health of countries like Germany and Scandinavia, to whom we export a lot. At the moment, we are growing in road freight. It remains central to us because the market is one of the biggest in road freight, giving us a lot of potential to grow. But we must continue to remain strong in air and ocean as the markets might be smaller, but the margins are definitely higher. The project 'Rail Baltica' is another factor that has influenced not just us but the whole country. The purpose is to link the Baltics with Western Europe by connecting it through the same gauge. As of now, we still have the Soviet-prescribed gauge, the so called “broad gauge”. This project is already underway, and the European gauge has been laid all the way up to Kaunas. Goods are already moving by rail between Lithuania and Europe, a new opportunity for logistics companies. There is a block train from Duisburg to Kaunas, and we have already utilised this service for clients who want cheaper rates and don’t mind longer transit.
Our national rail corporation has invested heavily in this project, they are already exploring another route to move European cargo by rail. One may think that trucking companies can lose some volume to rail companies, as the total volume is generally the same in the market. But let’s think about this in relation to the driver shortage crisis. When you do your main haul by rail, you still need a truck to pick up and deliver at both ends. So, with the same truck, one driver can make multiple journeys in a day instead of being occupied in a long journey. This translates to a win-win situation that tackles the shortage of drivers for the trucking companies while simultaneously allowing companies access to rail freight volumes. I look forward to the rail freight market changing in the coming years, and if I am not mistaken, the project ‘Rail Baltica’ will finish towards 2030. This will simplify freight and passenger travelling from the Baltics to Western Europe.
NSRN: As the New Silk Road Network, one of the key transport sectors we look at is rail, and the Chinese market. BFS has previously offered rail solutions to clients moving cargo from China to the Baltic regions; now, with China finally lifting the quarantine regulations after almost three years of lockdown, do you see this area developing for your company? What are some of the opportunities and challenges you see?
Lauras: I think our situation is very similar to other European countries. Last year, volumes from China decreased, and container rates dropped dramatically. Ocean imports from China significantly dropped. I wouldn’t say that our situation is any different now, nor did any political issues make any difference to our trade with China. I would say, possibly, some specific companies had certain issues here and there, but generally speaking, we did not notice any massive differences. Most of our clients who are importing from China, for whom we shipped containers, LCL cargo and so on, have never complained of having trouble buying from China.
I would say though that the current economic situation does not help in growing volumes from China. Sometime before, we had a direct train from China to Lithuania, but when political issues cropped up, the train was abruptly stopped. This was not a problem because we continued to move goods by rail via Poland. This has not changed the cost or the transit time too much, nor did it influence the volumes, and neither our capabilities. Generally, when ocean rates fell last year, it seemed that cargo from rail would have moved to ocean; we were expecting clients to now move more goods. But that has not happened due to economic changes, the impending recession, inflation, etc. Many have bought products at costly prices last year, and now they have expensive stocks in their warehouses that need to be emptied first. With this in mind, this inflation we are experiencing now, will take time to settle.
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