Russia: Growth at the frontier

Russia’s geographic position allows the country to connect the economic heavyweights Asia and Europe. Logistics service providers offering efficient and effective services on the emerging transport corridors will serve as an enabler for intensified trade between Asia and Europe. The level of competition of multinational logistics service providers on the Russian logistics market is expected to grow in the coming years.

The Russian economy is rather vulnerable to oil market fluctuations and is dependent on the world economic situation. The Russian government is drafting policies directed at changing the state’s export structure from exporting primary products and resources to exporting integrated and advanced technology products and services.
New transportation corridors will need to be developed and existing ones significantly improved. Russia is already looking at options. One plan under consideration would make the Northern Sea route as the shortest seaway between Europe and Eastern Asia, along with the development of land routes connecting Asia and Europe.
According to PriceWaterHouseCoopers’ recent report on Transportation and Logistics 2030, thinking about new transportation routes is especially important for Russia due to its geographic location. Russia physically connects the Chinese and European markets and represents the shortest way from Europe to Asia.
Since China is interested in using the land connection to accelerate its exports to Europe and Russia, both countries are interested in this new ‘Silk Road’. The continuing work of the member states aimed to develop “international transportation and simplify border crossing procedures in the region” is regarded as a first step towards the realisation of this plan.
“This is a long term strategic planning to develop and promote the inland transportation and trade routes from China to EU and Middle East. Russia plays a crucial part in such gigantic moves. We already see the incoming flow of investments drifting into cross-border terminals between China and Kazakhstan as well as going into the rail infrastructure and port facilities on these routes. In our opinion, the ambition of the Silk Road is big enough to change the cargo split between inland and deep sea transportation routes from South East Asia to EU and CIS within the next decades,” said Evgeniy Reznikov, Business Development Director, A.R.T Logistics. An international freight forwarding, project logistics company, A.R.T Logistics offers logistics solutions to the CIS region, Mongolia, South-East Asia and Europe.
The Russian government sees the transport and logistics industry as one of the key priorities for the economy. The government is willing to actively use public private partnership (PPP) tools to develop infrastructure projects. Russia is planning to build toll roads by securing private investment. The government is also aiming to attract foreign players as a means of accessing modern technology and expertise along with financial resources.
Russia is a major exporter of crude oil, petroleum products, and natural gas. Sales of these fuels accounted for 68 percent of Russia’s total export revenues in 2013, based on data from Russia’s Federal Customs Service. Russia received almost four times as much revenue from exports of crude oil and petroleum products as from natural gas. Crude oil exports alone were greater in value than the value of all non-oil and natural gas exports, notified the U.S. Energy Information Administration.
The growth of oil and gas industry in Russia in 2013 as well as in previous years has again created a ripple effect, which brought a positive influence in logistics, infrastructure development, and many other associated areas. This general tendency applies to Russia as well: the development sites are spreading outwards to more undeveloped and rural locations thus creating even more challenges to market players. “Last year, our company has been involved in a number of projects for delivering O&G equipment from a number of origins including China to multiple destinations in Russia and CIS countries,” informed Reznikov.
Russia also plans to use special economic zones as a lever to achieve its objective to create new transportation corridors. Russia has established around 20 special economic zones; major objectives are to create optimal conditions for foreign and domestic investments and to develop modern industrial complexes able to produce high-quality products. The resulting production is intended to stimulate the economy and the Russian export base.
In an attempt to increase global connectivity, as Russia’s largest international cargo airline and a leader in the Russian aviation market, AirBridgeCargo’s decision to develop its hub at Moscow’s Sheremetyevo Airport was an important strategic step in its plan to become a network carrier. Part of the Volga Dnepr Group, AirBridgeCargo operates scheduled cargo services on routes between Russia, Asia, Europe and North America. “The company’s strategy is firmly in place already which is to develop Airbridge further on its anchor Asia/Europe routes (via Russia) and to develop new routes. This development will take place step by step as it also involves development of resources e.g. fleet-size, crew etc. We wish to develop and expand our customer base and expand our organisational presence in the world,” Robert van de Weg, senior vice-president, marketing and sales, AirBridgeCargo.
A lot of has been done within the last 5-10 years to boost the efficiency of the cross-borders, availability of roads and rail tracks, ease of doing business with these countries. However, there is still a lot of job to do here. “Let us keep in mind, Russia and CIS, is a huge territory. It requires tremendous amount of effort to cover it with rail tracks and quality roads evenly. The investments and resources spent on developing these infrastructure will give both cargo-owners and service providers more flexibility and tools for trade development,” said Reznikov. 