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Hungarian government to limit the number of subcontractors in supply chains

The Hungarian government is considering limiting the number of subcontractors in supply chains, setting a minimum service fee and improving border crossings and transit capacity to ensure faster entry into the European Union, the economic development minister said on Tuesday when outlining plans to develop the logistics sector.

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The logistics and transport sector currently accounts for 5 per cent of Hungary’s GDP, which could rise to 10 per cent by 2030, stated Minister of Economic Development Márton Nagy at a conference in Budapest on Tuesday.

According to the Hungarian News Agency, the minister stressed that the inflow of foreign direct investment (FDI) will increase the share of exports in GDP from 70 to 100 per cent by 2030, while the share of manufacturing will rise from 20 to 30 per cent.

“And, with increased manufacturing capacity, it is important that the increased logistical tasks are provided by domestic players,” he added.

The government has identified ten breakthrough points to help Hungary reach 90% of EU development by 2030. These include increasing energy production capacity by one and a half times, building a green energy mix, attracting half a million new workers and improving border crossings and transport.

According to the minister, Hungary’s infrastructure is a given for development, and the increase in the length of Hungarian motorways is outstanding by European standards as motorways can be reached within 60 minutes in 90 per cent of the country’s territory.

The country’s transit role is paramount, as Hungary is the point of entry to the European Union on three routes. The politicians added that the war has only strengthened this role.

In this context, he mentioned that the government is planning to widen the M1 motorway between Budapest and Austria. However, the limited capacity of the eastern and southern border crossings limits the potential for growth.

“If there’s a bottleneck in Hungary, raw materials and finished products cannot be transported, delivery times increase, costs rise and this can also be reflected in FDI investments,” Nagy added.

The freight transport sector employs about 130,000 Hungarian families, with 285,000 people employed in 2022, representing 6% of the active labour force. While the sector accounts for 5-6% of GDP, it will contribute 1% to annual GDP growth in 2021.

Nagy also said that warehousing is becoming an increasingly important part of the logistics sector. Warehouse capacity has increased from 1 million square metres in 2021 to 2 million square metres in 2023, and is increasingly dominated by Hungarian players.

Among the challenges, he mentioned that not only in the international markets but also in the Hungarian market, Hungarian players are continuously losing share and foreign competitors are pushing them out of the market.

However, “as FDI increases, export capacity will increase, which will also increase the demand for freight forwarding, and this is a great opportunity for Hungarian freight forwarders,” Nagy said.

The government is working with industry on a package of proposals to double emissions from the logistics and transport sector by 2030. These include limiting the number of sub-contractors in the transport chain, setting minimum service charges, and improving border crossings and transit capacity to ensure faster access to the European Union.

“The government’s goal is to make Röszke (a border crossing with Romania, and thus a Schengen border of the EU – the ed.) the most important logistics centre not only in Central and Eastern Europe, but in Europe as a whole,” added Márton Nagy.