At a Crossroads of Continents, Ancient Turkish Port City is Modern Logistics Hub

By MarEx 2012-04-16 14:49:10

By Edward Lundquist

“The Aegean Free Zone is not only close to the airport and seaport, it has its own space port.”

Part 1

The Aegean Free Zone, located at the port city of Izmir on Turkey’s Aegean coast, takes advantage of Izmir’s desirable maritime hub and a favorable business environment.  Known as ESBAS, the Turkish acronym for Ege Serbest Bölge, the Aegean Free Zone Corporation has been an engine for economic development. 

An important Mediterranean port for centuries, Izmir is also a modern-day commercial center for Turkey and the region.

“Turkey’s economy is a success story, especially in Izmir,” said Ertugrul Isiksoy, ESBAS director of marketing.  The free zone’s location is in the center of a vibrant market, he says.  “Within a three hour flight radius of Izmir, there are 1.5 billion people with $25K or more purchasing power.”

Officially known as the Aegean Free Zone Development and Operating Company, ESBAS is located near the port of Izmir, which along with several other nearby ports, are growing in containerized traffic, and is just five minutes from the international airport

There are 19 free zones in Turkey, which, like ESBAS, were established to create jobs.  ESBAS was the first free zone run privately, and had a mandate to bring in high-tech employers to take advantage of the well-educated and qualified work force in the Izmir area. “There is no difficulty finding skilled labor,” said Isiksoy.

With a total population of nearly four million people, Izmir is Turkey’s third largest city after Istanbul and the capital city of Ankara. 

The basic advantage is the human resources,” he says.  “We have eight universities nearby, and can offer high-quality workers at competitive prices compared with the rest of Europe.

“Hugo Boss is our largest company in terms of employment, with 3,500 workers, and land, with 122,000 square meters,” Isiksoy says.  “Hugo Boss started their plant at ESBAS with 24 German engineers.  Now there’s just one.  The rest are from the domestic market.”

Murat Ozgurtas, marketing manager at ESBAS, said the free zone is near capacity.  “When the new investments start operating in the Aegean Free Zone, the employment will have reached over 21,000 people, and US$5,5billion in trade.”

When the government approves the plans to expand the Aegean Free Zone by 200 acres, the expansion area will create as many as 12,000 new jobs, Ozgurtas says.

The second greatest advantage is location.  “We’re very close to an airport and a seaport,” he says.

Connected to the sea

“We are a port city,” said Zeynep Tansu?, city marketing and foreign relations coordinator for the Izmir Development Agency.  “We are always connected to the sea.  Maritime, air and ground transportation are all important to our growth.”

Turkey is in the middle of two continents, a crossroads for both land and sea.

Izmir’s ambitious goal is to host the World Expo in 2020, the second biggest global event after the Olympics.   Tansu? said more than 36 million tourists would visit the area over a six-month period.

“We are not as interested in mass tourism, as you might find in such places as the beach resort cities.  Instead” she says, “we are in favor of boutique tourism.”

“Our marinas provide a great deal of service.  We currently have five large marinas with three more on the way.  We welcome a yachtsman to spend a week with us as much as cruise ship full of passengers that spends three hours.  That yachtsman is likely to be a businessman who might be impressed with the business climate and opportunities here,” she says.

“This has been a port city for 8,000 years,” said Geza Dologh of the Izmir Chamber of Shipping.  “Throughout the centuries, civilization has passed through here, including the Greeks, Romans, Byzantines, and Ottomans.  Ephesus, about 90 km away, was also a port city of ancient origins.”

While Istanbul is the nation’s import center, Izmir is the export hub for Turkey.  Today, said Dologh, Izmir is Turkey’s second largest container port, handling about 1 million TEU a year.  That figure is expected to grow.  In addition to box ship traffic, Izmir’s port has two piers for cruise ships.

Turkey’s rail network is not yet developed enough to be able to move large quantities of container traffic to points inland.  But there is regularly scheduled RO/RO traffic from the nearby port of Cesme to Trieste in Italy.

The planned Northern Aegean Container Port at nearby Çandarl? is projected to be one of the world’s top ten container ports when built.

“Ten years ago, Turkish tobacco was a major commodity,” Dologh says.  Today, raisins, figs, apricots and other agricultural products are exported.  And Izmir has much more industry in the past decade, including machines and textiles.”

A significant and ongoing dredging project is removing silt from the bay and deepening the channel and harbor areas to counter the alluvial effects of the 16 rivers that enter the Gulf of Izmir to reduce draft limitations.  This will open the port to more and larger traffic.   New quays are being built, and gantry cranes are being repaired.  And, Dologh says, new equipment is being installed for handing containers.

Turkey’s biggest container fleet, the ARKAS Group, is based in Izmir.  ARKAS operates in the Mediterranean and Black Seas.  Izmir is also a port for MSC and Hapag-Lloyd, with connections to Europe, North America and the Far East.  “A lot of Turkish traffic to North African ports was disrupted by the crisis in Libya,” Dologh says.

Izmir’s tugs are state-owned.  There is some ship repair capability, but it is mostly limited to local vessels.  Izmir is also homeport to Turkish naval ships and a naval shipyard.

Dologh said the Izmir port was intended for privatization, but that was derailed by the 2008 financial crisis.  “Now, there are no plans to turn it over to a private operator,” he says.

ESBAS

To qualify as a free zone, the majority of goods processed or produced must be exported outside of Turkey.  For trading, companies can maintain commodities and large inventories here for unlimited time without paying either customs duties or levies.  Electronic companies can maintain stocks of components for just-in-time delivery to customers.

And the free zone offers two important tax breaks. Manufacturing companies get 100% exemption from corporate tax, and if a manufacturing company exports 85% or more of its production, the company’s employee are exempt from income tax.

The raw materials for food processing and packaging, as well as textiles, can easily be obtained locally, which buoys the region’s economy.  The ESBAS tenants have the opportunity to buy Turkish products at export prices without Value Added Tax (VAT).

Almost all the lots on the 550-acre industrial park are built upon or reserved for construction.  19,500 people work there, with many plants operating in three shifts.

International tenants include Eldor Electronics from Italy, Stean AB from Sweden, German apparel maker Hugo Boss and Delphi Automotive from the U.S.   Some tenants are Turkish companies that locate within the free zone to import materials from outside the zone and then export finished products abroad, while enjoying the tax advantages.

Manufacturing companies can obtain 45-year operating licenses, while trading companies are able to procure 15-year operating licenses.

ESBAS embraces the ‘build, operate and transfer’ business model.  In addition, there are many services for tenants.  ESBAS can provide security, water, power, stock management, processing services, trash, and an industrial kitchen that serves 18,000 (and delivers) meals a day.  There are five banks located within the zone.  There is a world-class child care facility, medical and dental clinics, a concert and sports hall, and a nursery to support the ornamental plants and trees for the well landscaped grounds.
“It’s a pleasant and productive environment,” said Isiksoy.

Of the 19 free zones in Turkey, employing at total of 53,800 workers, ESBAS is the biggest, with 19,500 workers and US$5 billion in trade volume.   ESBAS is a U.S. corporation, which has operated the AFZ since 1990.  There are currently 370 ESBAS employees on site serving the tenants. 

Tenants pay the government for their leases, but ESBAS handles the transaction for a small handling fee.  Likewise, ESBAS charges a small premium for utilities such as gas, which is offset because the tenants do not pay the taxes they would outside the free zone.

Murat Ozgurtas, marketing manager at ESBAS, said they wanted to avoid becoming a heavy industrial site.  “We wanted to attract high-tech tenants.”

Turkish construction equipment manufacturer Hidromek is assembling construction vehicles for export.  Eldor has 750 people making linings for automatic brake systems.  German manufacturer Mahle is producing pistons and cylinders.  ESBAS has a significant and growing aerospace cluster.  Fokker Elmo assembles wire harnesses; FTB manufactures fasteners for F-16 fighter jets; and PFW Aviation makes fuel lines and tanks for Boeing and Airbus jets.  The Kale Pratt & Whitney Uçak Motorlar? Sanayi A.?. joint venture will manufacture critical engine fabrications and parts for the F135 engine that powers the F-35 Joint Strike Fighter.

“Pratt & Whitney views Turkey as a valued, long-term partner,” said David P. Galuska, Senior Vice President, Module Centers & Operations for Pratt & Whitney.  “Both United Technologies and Pratt & Whitney are fully committed to Turkey and the Turkish aerospace industry.  Izmir is a prime location for the new Kale-Pratt & Whitney facility, with a workforce and supply base ready to meet the needs of our global customers.”

For trading, companies can maintain commodities and large inventories here for unlimited time without paying either import or export taxes.  Electronic companies can maintain stocks of components for just-in-time delivery to customers.

Some tenants are Turkish companies that locate within the free zone to import materials from outside the zone and then export finished products abroad, and enjoying the tax advantages.
Indiana-based Cummins Inc. is investing US$70 million for a new filtration manufacturing plant, followed by a facility to produce alternators for the company’s power generation business.  800 people will be employed.

Cummins evaluated various locations in the region, including four different tax-free trade zones in Turkey.  The choice was narrowed down to Izmir’s ESBAS and the European Free Zone in Çorlu, near Istanbul, which is connected to a major European road network. Izmir and its sea connections was the winner.

...Part 2 of this guest editorial will be featured in this Thursday's (4/19/12) edition of the MarEx newsletter.