Rising Freight Costs Give Turkey an Edge Over Investors

Rising Shipping Costs Present Opportunity for Turkey's Investors ANKARA (AA) - ZEYNEP ÇETİNKAYA - Turkey has attracted intense interest from European investors in recent months due to surging global shipping costs, standing out through its geographic position, transport network, demographic structure and investor-friendly conditions. According to information compiled by AA, shipping costs rose during the COVID-19 pandemic as global supply chains faced disruptions. Increases in shipping and freight rates were driven by rising energy prices as well as labour costs and container equipment expenses. With over 80 percent of global trade conducted via maritime transport, rising costs have prompted companies to reconsider Far East production and sourcing options. This has led globally operating companies to seek alternative markets to reduce costs. According to experts, Turkey stands out among the preferred options for European investors looking to relocate production from the Far East to closer regions. In its latest analysis, international rating agency Fitch Ratings noted that Turkey is positioned as the country that will gain the most from supply chain shifts in Europe.

- Turkey Within 4-Hour Flight of 26 Trillion Dollar Market

Among the factors making Turkey competitive against other alternatives are its geographic location, transport network, demographic structure and investor-friendly conditions. Located near European, Middle Eastern and North African markets, Turkey sits within a 4-hour flight of a 1.3 billion-strong population and a 26 trillion dollar market. Beyond geographic advantage, Turkey offers investors benefits through its young, dynamic and qualified workforce and competitive labour costs compared to similar countries. Additionally, the country serves as a bridge between Asia and Europe while sitting at the intersection of important trade routes.

- Maritime and Air Transport Capabilities

As a key part of the global logistics network, Turkey operates ports on the Black Sea, Marmara, Aegean and Mediterranean that are accessible to all types of vessels. Turkey, which holds a key role in the Belt and Road Initiative aimed at creating seamless trade from Beijing to London, has in its hinterland approximately 40 million square metres of area with over 60 countries and 4.5 billion people following recent investments in railways.

- Incentives for Investors

Turkey creates an investor-friendly climate through reform efforts that enable private sector development. The country offers investor advantages through bilateral investment protection agreements with over 80 countries and agreements that prevent double taxation. In Turkey, company registration can be completed within one hour, and foreign individuals and entities are subject to the same rules as domestic investors. Additionally, if a company operating in the region relocates its regional operations management centre to Turkey, no income tax is withheld from the salaries of its employees working there. Various incentives are also provided to help companies move up the value chain to higher product groups. Investment incentives vary by region and sector, ranging from full tax exemption on investment amounts to the state covering the employer share of social security contributions. Beyond various tax exemptions and deductions in Turkey, investors receive support through interest rate assistance, capital contribution, infrastructure, energy, education and credit support as well as purchase guarantees.

- 1,225 R&D Centres, 89 Technoparks, Over 350 Organized Industrial Zones Operating

Domestic and international companies conducting R&D activities in Turkey can also benefit from various R&D incentives. To take advantage of these incentives, many international firms have opened R&D centres in Turkey, creating significant employment. Turkey has 1,255 R&D centres, of which 204 belong to foreign or jointly-owned companies. The country operates 89 technoparks. These technoparks stand out as places where R&D activities, technology transfer centres and incubator centres are concentrated. Turkey also has over 350 organized industrial zones (OIZ). As one of the most important factors for industrial production, OIZs where energy and other main inputs are easily and stably provided are managed by entrepreneurs and can offer special deals to investors regarding energy, natural gas, water and other main inputs. Furthermore, Turkey's Customs Union Agreement in force with the European Union and free trade agreements with 22 countries open direct access to different markets.

- "Production in Turkey More Advantageous for European Countries"

Margaret Kidd, Lecturer at the Department of Supply Chain and Logistics at the University of Houston, provided an assessment to AA regarding the increase in global shipping costs and its impact on Turkey. Noting that shipping prices have risen exponentially due to supply-demand imbalance linked to enormous demand from US and European consumers, Kidd stated that container and equipment shortages as well as capacity constraints on vessels have played an important role in rising shipping costs. Drawing attention to the fact that the cost of a 40-foot container rose from under 2,000 dollars in late 2019 to over 12,000 dollars in 2021, Kidd stated, "Container shortages have caused cargo shippers to pay up to 24,000 dollars per container. Rising shipping costs are ultimately passed on to consumers. Price increases in essential items like food are an indicator of the inflationary pressures we are currently witnessing." Addressing the path countries could follow to avoid these costs, Kidd said producing closer to Europe could be a solution. Kidd stated, "Production in Turkey could be more advantageous for European countries when considering uncertainties due to power outages at Chinese factories as well as shipping and container prices. Recent news from IKEA, LPP, DW Reusables and Boehringer Ingelheim demonstrate Turkey's appeal and the attractiveness of production there due to its advantageous geographic position as a bridge between Europe, Asia and Africa." Emphasizing that rising logistics costs between the EU and Asia and global supply chain constraints are a positive sign for Turkey due to its geographic proximity to EU markets, Kidd added: "Turkey is already the EU's 6th largest trading partner. The young, well-educated workforce pool in Turkey compared to Western Europe, its advantageous labour cost advantage, particularly for the clothing, furniture and automotive industries, presents a compelling reason to consider production in Turkey."