Russia nearly doubled its car imports from the previous year to over 370,000 units between January and May 2011. Th is considerable volume lends weight to the pundits’ assertion that Russia is leading the way to becoming the biggest car market in Europe.

Given the volume of inward investment by OEMs across the manufacturing sector and the number of international component manufacturers already in situ (over 40 companies, with three new arrivals in 2010) the Russian Government’s plan behind Decree 166 to boost indigenous manufacturing (localisation) and develop R&D has worked.

Th e OEMs take up of Decree 166 shows the importance of the Russian automotive market and the importance the Russian authorities attach to “getting the deals done” before accession to the World Trade Organisation (perhaps later this year) and the constraints that come with joining that august club.

Mazda announced this week that it will be building a plant in Russia. Details are scanty at the moment but early indications suggest a plant in the Russian

Far East. Th is makes sense given the proximity to the home country and the experience and foresight Mazda has shown in taking up capacity on the Trans Siberian railroad to move fi nished vehicles east to west. With the Russian government providing subsidies to RZD Russian Railways to promote inward investment in its outer regions, the lower costs in the Far East become attractive. Mazda already have experience moving cars from Japan via the Vladivostok region to European Russia so the logistics from the new plant will be nothing new.

All the increases in Russian car sales should have both LSPs and OEMs rubbing their hands in glee. However, as the volume increases put pressure on scarce transport resources there appears to be only one winner. Th e scenes are reminiscent of pre-crisis 2008, when car manufacturers fought for delivery assets, cars stacked up in ports and compounds and prices were on an apparently continual upward spiral.

Most recently, one OEM publicly said that its 2011 delivery costs are now perhaps 20% higher than they were in Q3 2008. Th is is quite remarkable, given that Russian fi nished vehicle logistics tariff s during the crisis (Q4 2008 onwards) were at 30% to 50% of the boom time levels.

Statistics for the automotive industry are opaque but it is a given that there is a gulf between the OEMs’ needs

Russia on the way to number one in EuropeThe Russian automotive market continues to thrive reports Alexander Rogan.

LogisticsLeaderswww.logisticsleaders.org

and what is being provided by existing Russian logistics providers. Too much resource was lost during the crisis, too many companies went bust or got out of the market entirely, and spiralling costs are the result.

I heard a reference this week to seasonal pricing; where an infl uential player referred to ‘peak season’ (higher) prices in September and ‘low season’ prices in other months. Given that drivers are not paid more in September than in other months and that truck and trailer prices are fi xed for the term of the contract, it was an interesting viewpoint.

Th e time is right for new logistics service provider entrants to the market, whether as start-ups or through partnership (bringing a cheaper investment capital requirement) or via the merger and acquisition route. I know of two European operators who are seriously considering such an investment which may add 600 trucks and trailers to the market. One distributor is requesting shareholder approval for a €50 million investment to achieve stability with their own vehicle deliveries.

All of these challenges came at just the right time to start the new Customs Union protocols between Belarus, Kazakhstan and Russia. Fortunately the feared meltdown did not occur, but the delays are ongoing as new procedures and processes are learned by all. Customs has estimated a three month settling-in period.

Fallout from the ‘cucumber wars’ was felt in the trans-European/Russian supply chains in June as the Russian government swiftly responded to the outbreak of e-coli in Germany by banning the import of fresh fruit and vegetables. Th e Polish truck parc once more took the brunt of this and their fl eets were idled. Producers from outside the EU quickly took up the challenge and Turkey benefi ted from greater sales within Russia.

On a positive note, Russian Customs has implemented a change to its process at the Russian ports and no longer has to board a vessel to inspect the cargoes prior to clearance to dockside. SeaNews reported that the OOCL container vessel ‘St Petersburg’, bound from Hamburg, completed formalities without the usual boarding process. It shows that, despite much negative press (and perhaps sometimes being as much a victim of the “Power Vertical” that is Russian Government, as the shippers and

distributors), Russian Customs authorities are willing to change their processes and work towards best practice.

Th e resurgent market and the bad weather earlier this year aff ected the thinking behind OEMs’ strategic dependence on the north-west route to Russia. Th e six weeks of ice fl oe delays at St Petersburg caused much pain in the supply chain amongst all sectors, so eyes are now fi rmly fi xed on the Black Sea and whether a viable solution is in the offi ng.

Th ere is a new Russian fi nished vehicle port opening on the Black Sea in the next month which will provide access for car companies shipping from Asia, Europe and Turkey. Early indications are favourable: swift and effi cient customs clearance for bona fi de trading companies, an impressive infrastructure as a result of a $1 billion public and private investment programme, and a reduction in the cost of working capital tied up in the respective supply chains. Th is is substantially less as a result of the much shorter delivery lead time between China, Japan and Korea and the key Russian market.

20-21 September - Swissotel Moscow

All eyes are once again on Russia as car sales forecasts blossom. Th e Automotive Supply Chain Conference, Russia will allow delegates the opportunity to drive their businesses forward by listening to supply chain management and logistics experts, networking with decision makers from inside and outside the market and building relationships with the resurgent manufacturing sector.

Th e Automotive Supply Chain Conference, Russia will examine the ramifi cations of the new measures for all sectors of the industry. OEMs, component manufacturers and supply chain service providers will all vie for the new opportunities which domestic expansion will provide. Capacity, both in manufacturing and transportation, may be an issue as will the never-ending confusion surrounding the Russian customs system. Th ere will be increased demands on the transportation infrastructure which will need to keep pace with the market growth.

Find out more at www.automotivesupplychain.org

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