Spending on logistics and storage in Central and Eastern Europe (CEE) and Russia is predicted to rise 36% by 2012, a new study has found.

London-based market analyst Datamonitor's latest research, "CEE Logistics Outlook 2008", estimates annual logistics and storage spending will grow from the current USD272.3 billion to USD369.4 billion by 2012. Growth is forecast to be mainly derived from the region's growing domestic markets and expanding merchandise exports.

The automotive, consumer goods, electronics and machinery, retail and telecom industries are expected to contribute to the region's economic growth of an average rate of 5% for the next five years.

Praveen Ojha, Datamonitor's senior logistics analyst and the study's co-author, says lenient tax policies and privatisation moves have attracted foreign direct investment into the region.

In the past, the CEE countries were economically unstable and had a low quality of overall transport infrastructure, Ojha says.

But following the EU accession for most CEE countries, improved fiscal management by the governments and foreign direct investment for infrastructure development have helped tackle those challenges, she adds.

Railway infrastructure, the study says, is still under-developed in the region. Only about half of the railway tracks are operating due to poor investment and maintenance.

Most cargo that is suited for transport by rail is being carried by trucks as road infrastructure is well developed. The region's governments would like to see more foreign investment in railway infrastructure, the report says.

Maritime and rail transport have lost a significant market share to road freight over the last decade but in Poland, Bulgaria and Latvia, there has been an increase in rail freight volumes for that period.

The report says manufacturing and distribution activity is concentrated in several major trading centres like Prague, Warsaw, Budapest, Bucharest, Sofia, Poznan, Kiev, Moscow and St Petersburg. In the next five years, other cities will need to develop as distribution and logistics hubs to avoid congestion around those centres.

For the report, the CEE region covered Bulgaria, The Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Russia, Slovakia and Slovenia.