Russia's automotive market continues to grow rapidly, making it likely to become the largest car market in Europe. However, this growth is straining logistics resources and driving up delivery costs for automakers as competition increases for scarce transport capacity. New logistics providers are needed to enter the Russian market to help meet rising demand and stabilize costs.

1. LogisticsLeaders
www.logisticsleaders.org
Russia on the way to
number one in Europe
The Russian automotive market continues to thrive reports Alexander
Rogan.
Russia nearly doubled its car Far East. This makes sense given the proximity to the
imports from the previous home country and the experience and foresight Mazda
year to over 370,000 units has shown in taking up capacity on the Trans Siberian
between January and May railroad to move finished vehicles east to west. With the
2011. This considerable Russian government providing subsidies to RZD Russian
volume lends weight to Railways to promote inward investment in its outer
the pundits’ assertion that regions, the lower costs in the Far East become attractive.
Russia is leading the way to Mazda already have experience moving cars from Japan
becoming the biggest car via the Vladivostok region to European Russia so the
market in Europe. logistics from the new plant will be nothing new.
Given the volume of inward investment by OEMs All the increases in Russian car sales should have both
across the manufacturing sector and the number of LSPs and OEMs rubbing their hands in glee. However,
international component manufacturers already in situ as the volume increases put pressure on scarce transport
(over 40 companies, with three new arrivals in 2010) the resources there appears to be only one winner. The
Russian Government’s plan behind Decree 166 to boost scenes are reminiscent of pre-crisis 2008, when car
indigenous manufacturing (localisation) and develop manufacturers fought for delivery assets, cars stacked up
R&D has worked. in ports and compounds and prices were on an apparently
continual upward spiral.
The OEMs take up of Decree 166 shows the importance
of the Russian automotive market and the importance Most recently, one OEM publicly said that its 2011
the Russian authorities attach to “getting the deals delivery costs are now perhaps 20% higher than they
done” before accession to the World Trade Organisation were in Q3 2008. This is quite remarkable, given that
(perhaps later this year) and the constraints that come Russian finished vehicle logistics tariffs during the crisis
with joining that august club. (Q4 2008 onwards) were at 30% to 50% of the boom time
levels.
Mazda announced this week that it will be building
a plant in Russia. Details are scanty at the moment Statistics for the automotive industry are opaque but it
but early indications suggest a plant in the Russian is a given that there is a gulf between the OEMs’ needs

2. and what is being provided by existing Russian logistics distributors), Russian Customs authorities are willing to
providers. Too much resource was lost during the crisis, change their processes and work towards best practice.
too many companies went bust or got out of the market
entirely, and spiralling costs are the result. The resurgent market and the bad weather earlier this
year affected the thinking behind OEMs’ strategic
I heard a reference this week to seasonal pricing; where an dependence on the north-west route to Russia. The six
influential player referred to ‘peak season’ (higher) prices weeks of ice floe delays at St Petersburg caused much
in September and ‘low season’ prices in other months. pain in the supply chain amongst all sectors, so eyes are
Given that drivers are not paid more in September than now firmly fixed on the Black Sea and whether a viable
in other months and that truck and trailer prices are solution is in the offing.
fixed for the term of the contract, it was an interesting
viewpoint. There is a new Russian finished vehicle port opening on
the Black Sea in the next month which will provide access
The time is right for new logistics service provider entrants for car companies shipping from Asia, Europe and Turkey.
to the market, whether as start-ups or through partnership Early indications are favourable: swift and efficient
(bringing a cheaper investment capital requirement) customs clearance for bona fide trading companies, an
or via the merger and acquisition route. I know of two impressive infrastructure as a result of a $1 billion public
European operators who are seriously considering such and private investment programme, and a reduction
an investment which may add 600 trucks and trailers to in the cost of working capital tied up in the respective
the market. One distributor is requesting shareholder supply chains. This is substantially less as a result of the
approval for a €50 million investment to achieve stability much shorter delivery lead time between China, Japan
with their own vehicle deliveries. and Korea and the key Russian market.
SupplyChain
All of these challenges came at just the right time automotive
to start the new Customs Union protocols between
Belarus, Kazakhstan and Russia. Fortunately the feared
conference
meltdown did not occur, but the delays are ongoing as
new procedures and processes are learned by all. Customs 20-21 September - Swissotel Moscow
has estimated a three month settling-in period. All eyes are once again on Russia as car sales forecasts
blossom. The Automotive Supply Chain Conference,
Fallout from the ‘cucumber wars’ was felt in the trans- Russia will allow delegates the opportunity to drive
their businesses forward by listening to supply chain
European/Russian supply chains in June as the Russian
management and logistics experts, networking
government swiftly responded to the outbreak of e-coli
with decision makers from inside and outside the
in Germany by banning the import of fresh fruit and market and building relationships with the resurgent
vegetables. The Polish truck parc once more took the manufacturing sector.
brunt of this and their fleets were idled. Producers from
outside the EU quickly took up the challenge and Turkey The Automotive Supply Chain Conference, Russia
benefited from greater sales within Russia. will examine the ramifications of the new measures
for all sectors of the industry. OEMs, component
manufacturers and supply chain service providers
On a positive note, Russian Customs has implemented a
will all vie for the new opportunities which domestic
change to its process at the Russian ports and no longer expansion will provide. Capacity, both in manufacturing
has to board a vessel to inspect the cargoes prior to and transportation, may be an issue as will the never-
clearance to dockside. SeaNews reported that the OOCL ending confusion surrounding the Russian customs
container vessel ‘St Petersburg’, bound from Hamburg, system. There will be increased demands on the
completed formalities without the usual boarding transportation infrastructure which will need to keep
pace with the market growth.
process. It shows that, despite much negative press (and
perhaps sometimes being as much a victim of the “Power Find out more at www.automotivesupplychain.org
Vertical” that is Russian Government, as the shippers and