"A bear in a bull ring"
Cooperation was a keyword at this year’s conference in Russia, both as a means to raise
the standard of logistics services and as a must for a customs procedure still baffling
car makers and carriers alike
Prime Minister Vladimir Putin has announced the
establishment of the Eurasian Economic Union, the aim
of which is the complete integration of the economies of
Russia, Belarus and Kazakhstan by 2013
Prime Minister Vladimir Putin has announced the
establishment of the Eurasian Economic Union, the aim
of which is the complete integration of the economies of
Russia, Belarus and Kazakhstan by 2013
Tendencies in the car logistics sector of the RF. In terms of new passenger car sales, Russia takes second place in Europe (following Germany) and seventh in
the world (between India and France). According to forecasts published by BDW Automotive, by 2014 Russia
will become the largest car market in Europe.
The “Regional Economic Cooperation and Integration (RCI) in Asia“ Programme of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH supports subregional integration initiatives in Asia. Among the focus topics of the programme is the support of the ASEAN-China Pan-Beibu Gulf Economic Cooperation (ACPBG) mechanism. Next to the Greater Mekong Subregion (GMS) Economic Cooperation Programme, ACPBG Economic Cooperation is one of the two major pillars of ASEAN–PR China cooperation. This in-depth study on potentials of port cooperation and development in the ACPBG region allows involved partner countries to evaluate and eventually realise concrete cooperation projects in the sector of ports and logistics.
RDIF, Russia’s sovereign wealth fund, announces joint investments with leading Middle Eastern and Asia-Pacific funds in NefteTransService (NTS), one of the largest Russian operators of railway rolling stock.
Joint survey by EY and the Russia-China Investment Fund (RCIF), which was established by the Russian Direct Investment Fund (RDIF) and China Investment Corporation (CIC).
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Carmakers and LSPs getting to grips with the omplexities of the new Customs Code unifying Russia, Belarus and Kazakhstan need a good eye for detail and a close
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of compromise and hidden costs
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1. Automotive logistics russia conference
12
T
his year’s Automotive Logistics Russia conference
held in St Petersburg at the end of June presented
a market showing tentative signs of growth.
Renault Nissan, in alliance with Avtoframos and
Avtovaz, is investing heavily in the region and
forecasting a growth in production across its brands. Similarly,
VW’s Jan Bures, head of the company’s Group Service
Division, anticipated a“reasonable” recovery with overall
market growth in 2010 of 8%.According to the Association
of European Businesses,VW is ranked third in Russian sales
behind first place Avtovaz and second place GM.
Filling empty miles
Contrary to expectations in a market that shrank as rapidly
as Russia did, capacity problems were very much a part of
the sessions at this year’s conference.According to Rolf SCS’s
Marc Brenneiser, OEMs have reacted to the shortages in 2007,
exacerbated by the financial crisis in 2008-2009, by binding
transport fleets to their production strongholds. Given the
disparate nature of the clusters of automotive manufacturing
in Russia (St Petersburg, Moscow and Kuluga,Togliatti and
further east), this makes filling empty finished vehicle carriers
with backhauls virtually impossible. So there is the odd
situation that, despite adequate assets on the ground, the way
they are being used is causing a capacity crunch.
Brenneiser identified a backhaul ratio of between 5-6%
(although even that was“optimistic”, he said), lamentable
when compared with the situation in Germany, which is
typically closer to 80%.“[In Russia] we include how many cars
we have put on a backload.When Germany does a report they
say how many cars they have not put on a backload. They are
talking about empty kilometres, we are saying‘hey, we moved
ten cars on a backload’. Great.”
The problem is a lack of cooperation, as a number of
delegates identified, and as Brenneiser went on to say,
“everyone is talking about combining brands and sharing
volumes into different regions, but are we doing it together? I
have not seen any major cooperation on this.”
Russia’s automotive industry is struggling with obsolete
technology and a lack of state policy for its development,
according to Alexey Serezhenkin, deputy executive director
for the Association of Russian Automakers. The country is
also facing poor quality management in its supply base, with
only 5% of Russian suppliers meeting international quality
Russia’sautomotiveindustryisstrugglingwithobsoletetechnologyanda
lackofstatepolicyforitsdevelopment,accordingtoAlexeySerezhenkin,
deputyexecutivedirectorfortheAssociationofRussianAutomakers
OCTOBER–DECEMBER10
A bear in a bullring
Cooperation was a keyword at this year’s conference in Russia, both as a means to raise
the standard of logistics services and as a must for a customs procedure still baffling
carmakers and carriers alike. Maxine Elkin and Marcus Williams report
2. standards. Serezhenkin was adamant that a lack of innovation
and resources continued to hold back the potential for Russia’s
car industry.
That said,VW’s Bures pointed out that those logistics
providers still operating after the crisis will be stronger and
more focussed on quality.“One year ago VW Rus launched its
transportation quality programme,” he told delegates.“We see
all the key indicators, such as transport damages, missing cars
and timely pick up of vehicle orders, all improving and believe
this trend will continue. LSPs will focus more on quality and
that this is good for the logistics industry overall,” said Bures.
But in terms of production Serezhenkin stated that,
compared to 2008, the first few months of 2010 showed a
significant drop in passenger car production, at 60% of the
former level. Though the recently-announced continuation
of the scrappage scheme will assist recovery this year, Gefco’s
Christian Zbylut warned delegates“the crisis is not over”,
something reiterated by Brenneiser who said Rolf was“still in
the battle” and it would be so at least until the end of the year
or until the contracts it had signed in the last 12 months had
expired and the company was able to change its pricing.
Local sourcing
The localisation of parts sourcing in Russia is progressing
slowly. The generally accepted ratio is 30% local sourcing
to 70% sourcing from overseas, but Jean-Philippe Jouandin,
supply chain director, Renault Russia, said that Renault
Nissan had already achieved 44% local sourcing for its
Moscow plant, with the aim of a 10% increase each year to
achieve the 75% volume it has targeted for 2012. It means the
company has to find 30 new suppliers that are up to a western
European standard, said Jouandin. It also needs to make them
understand the technical logistics requirements needed to
achieve the quality standard demanded by the French OEM.
Renault is keen to increase local sourcing because it is more
cost effective from a logistics point of view.“To import parts is
very expensive and quite difficult,” he said. Based on Renault
figures, 74% of the cost associated with parts sourcing in
Russia is taken up by importation, while 26% is accounted
for by localisation. The company is looking at reducing
those inbound costs by 28% over the next two years with
localisation efforts and direct management by the Alliance. But
quick and cost efficient transport solutions for locally-sourced
parts must also adhere to the transport conditions that are the
standard of the Renault-Nissan supply chain in the movement
of these parts.“It is not very easy and today it is not a standard
in Russia,” admitted Jouandin.
Invest to address the shortfall
Serezhenkin complained that many Russian suppliers are in
the old Soviet mould with a lack of research and development
and little or no technical investment. He called on the
government to invest in the industry to address this shortfall.
“The Federal government has adopted a lot of measures
supporting automotive production, but more measures are
needed,” he said. Meanwhile, foreign tier suppliers seem
reluctant to invest in production facilities in Russia until
volumes increase.
So approximately 70% of parts still have to get through
frontier processes, and the dark art of clearing customs
continues to baffle and elude clarification.
With its domestic supply base still lagging behind, imported
parts and kits present a real challenge for logistics providers,
often requiring up to 600 suppliers to be consolidated at the
Russian border, as well as the coordination of hundreds of
container shipments from Asia by sea and rail to different
entry points.With lead times for ocean transport up to 40
days, Gefco’s Zbylut emphasised how the development of rail
routes was essential and that multimodal business should be
the dominant mode for Russia–but he said it would fail to gain
market share without a reduction in costs.
Automotive logistics russia conference
13
Renault’sJean-PhillipeJouandinsaidlocalsourcingwasapriority
becauseitismorecosteffectivefromalogisticspointofview]
OCTOBER–DECEMBER10
4
[In Russia] we include how many cars we have put
on a backload. In Germany they say how many cars
they have not put” – Marc Brenneiser, CEO Rolf SCS
3. C words: confusion, caution and customs
Recent and proposed changes to procedures, and the
introduction of the customs union with Kazakhstan and
Belarus alongside the stated aim of moving clearance to the
new borders, was causing a lot of concern among carmakers
and logistics companies (for more see customs feature, p38).
VW’s Bures voiced the opinion of many delegates when he
said that there was too little transparency and that, rather than
a form of regulation, customs was more often a money-maker
for the government. The significance of customs revenue for
the government was outlined by Wilhelmina Shavshina, legal
director at global law firm DLA Piper, who highlighted that in
the Russian Federation the revenue is 50% fuled by customs
taxes.“This is why everything the customs office does is of
great significance for the federal budget,” she told delegates.
While the new customs border was officially brought into
being a week after the conference on July 5th, companies with
inbound and outbound logistics operations in Russia are still
having to rely on guidance from the Federal Customs Service
until a second signing later in the year. Many are still unsure
which rules they are supposed to be following and from which
code (old or new), something that is adding to the confusion.
Shavshina revealed that local customs officers and
operations often disagreed with or had conflicting paperwork
from the central Federal customs organisation, leading
to a nightmarish situation for time-critical deliveries to
plants.“LSPs need to understand that their services must be
co-ordinated with the customs offices. Individual customs
sheds or officers may not agree with the codes, and you must
negotiate coding with the local offices first,” she advised.
Alexander Rogan, of Priority Freight CIS, said that the
customs situation was yet another of the challenges that
characterise the Russian market as fundamentally different
from most of the rest of Europe.
Rogan outlined that it was physically impossible for
Priority Freight to do in Russia what it did in Europe in part
because of the vastness of the region and the condition of
the infrastructure in place. On top of those challenges was
the problematic geopolitical relationship Russia has with its
neighbours (specifically Belarus at the time the conference
was being held, where a dispute over gas prices had led
to border closures).And finally there was the significant
14 OCTOBER–DECEMBER10
Automotive logistics russia conference
Automotive logistics survey results
[Manufacturers or affiliates] In the next year my logistics purchasing in
Russia will…
32% Grow less
than 10%
6% Stay even
3% Shrink 10% or more
3% Shrink less
than 10%
56% Grow more
than 10%
For the automotive industry does Russia still belong in the BRIC
acronym?
89% Yes
11% No
The area of automotive logistics in need of most improvement for my
company in Russia is…
20% Relationship
with customer
28% Better
management
information
12% Supply chain flexibility
25% Current
rates in contracts
15% More rail and
intermodal services
My company is currently investing most heavily in the following
emerging markets…
15% China
65% Russia7% India
13% Other
65% Government
policy inc. high
duties, closure
of borders
8% Lack of investment
in logistics by LSP
4% Overinvestment by
carmakers/LSPs
4% Lack of investment
in logistics by carmaker
19% Poor infrastructure
What is the most significant challenge facing Russian automotive
logistics?
PriorityFreight’sAlexanderRogansaidthemostobviousdifficultyfor
bringingconsignmentsintothecountryiscustoms
4. and much discussed challenge that the customs procedure
presented.“It is very convoluted and now that the new
procedure is being implemented and no one really knows what
is going on,” Rogan said.
He went on to point out that a cautious and progressive
relationship had to develop with customs posts, something
that required the building of trust and ensuring that
documentation is absolutely accurate.
Even so, that may not be enough. The conference heard of
the recent total breakdown in the supply chain for vehicles
at St Petersburg port when foreign carmakers changed
their pricing simultaneously and the customs office was
overwhelmed by the paperwork.
But for all its frustrations, there is still great potential for
automotive production and logistics in Russia.Volumes this
year are expected to rise modestly from last year to between
1.5m-1.7m vehicles. For a country with large oil reserves and
a low rate of car ownership, the opportunities for further
growth are obvious. Though logistics is in desperate need
of a global vision for its supply chain, Russian providers are
making progress and strategic partnerships with logistics
providers outside Europe promise to bring the supply chain
up to standard. Gefco announced two such enterprises: one
with full-service logistics provider Russian Transport Lines
called Smart Supply Systems (3S) which is expected to be fully
operational within a year; and one with rail freight container
operator Transcontainer.
According to Artur Borcovs, Gefco Russia’s managing
director, the logistics market in Russia requires a consolidation
of efforts from market participants and the establishment
of new solutions as it moves out of the crisis that had such a
negative impact last year. Next year’s conference will no doubt
show how much progress has been made. q
Automotive logistics russia conference
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Rahofer.
Gefco’sChristian ZbylutsaidthatformaterialflowsfromAsia,the
developmentofarailroutewouldbeessential