Automotive logistics russiA conference

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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 milesContrary 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’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

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

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 sourcingThe 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 shortfallSerezhenkin 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

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Renault’s Jean-Phillipe Jouandin said local sourcing was a priority because it is more cost effective from a logistics point of view]

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

C words: confusion, caution and customsRecent 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

MIC customs software saves companies time, energy and money through the automation of customs import/export processing across the customs supply chain. The software has already been implemented and operationally proven at more than 700 customer sites in over 40 countries on fi ve continents.

MIC specializes in customs software for:· Multi-Country Import and Export Customs Clearance with Direct Electronic Communication to the National Customs Administrations‘ Systems (Self Clearance)· Single Authorization for Simplifi ed Procedures (SASP)· Bonded Warehouse, Inward Processing Relief (Duty Drawback & Suspension), Outward Processing Relief, Processing under Customs Control, Free Trade Zone· Automatic Conversion of Export Data into Import Data – Global Trade Data Chain (GTDC)· Import Control System (ICS)· New Computerized Transit System (NCTS)· Excise Movement Control System (EMCS)· Intrastat Reporting (for all 27 EU Member Countries)· Rules based Classifi cation Automation (Global Product Classifi cation)· Automated Origin Calculation and Supplier Solicitation (40+ FTAs fully supported)· Sanction List Screening

All MIC products are available as in-house installation or as hosted solution (Software as a Service). Get your personal presentation of fi eld-tested customs solutions:

MIC Customs Solutions | Austria | Tel.: +43 (0)7 32 - 77 84 96 | sales@mic-cust.com | www.mic-cust.com

www.mic-cust.com

You think of customs?

We have solutions!

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AZ_Automotive_Logistic_210x148_engl_RZ.indd 1 09.07.10 09:37

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?

Priority Freight’s Alexander Rogan said the most obvious difficulty for bringing consignments into the country is customs

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

MIC customs software saves companies time, energy and money through the automation of customs import/export processing across the customs supply chain. The software has already been implemented and operationally proven at more than 700 customer sites in over 40 countries on fi ve continents.

MIC specializes in customs software for:· Multi-Country Import and Export Customs Clearance with Direct Electronic Communication to the National Customs Administrations‘ Systems (Self Clearance)· Single Authorization for Simplifi ed Procedures (SASP)· Bonded Warehouse, Inward Processing Relief (Duty Drawback & Suspension), Outward Processing Relief, Processing under Customs Control, Free Trade Zone· Automatic Conversion of Export Data into Import Data – Global Trade Data Chain (GTDC)· Import Control System (ICS)· New Computerized Transit System (NCTS)· Excise Movement Control System (EMCS)· Intrastat Reporting (for all 27 EU Member Countries)· Rules based Classifi cation Automation (Global Product Classifi cation)· Automated Origin Calculation and Supplier Solicitation (40+ FTAs fully supported)· Sanction List Screening

All MIC products are available as in-house installation or as hosted solution (Software as a Service). Get your personal presentation of fi eld-tested customs solutions:

MIC Customs Solutions | Austria | Tel.: +43 (0)7 32 - 77 84 96 | sales@mic-cust.com | www.mic-cust.com

www.mic-cust.com

You think of customs?

We have solutions!

Rah

ofer.

AZ_Automotive_Logistic_210x148_engl_RZ.indd 1 09.07.10 09:37

Gefco’s Christian Zbylut said that for material flows from Asia, the development of a rail route would be essential