Russia’s Transport Industry Adapts To A New Way Of Life

Bottleneck problems need time and investment to solve changes in logistics and deliveries

The past year has ushered in new economic conditions, however the Russian transport and logistics industry has been able to adapt to them, says Alexander Morozov, the Managing Director of the SDEK international logistics and foreign economic activity company, based in the Urals.

According to him, the trend towards containerisation is continuing, although road transportation, on the contrary, shows a decline and is being reoriented to the domestic market. This adaptation will continue, and the formation of infrastructure and organisational solutions are now the main development priority in the Russian logistics sector.

The reorientation of cargo flows has become a global change and a test for the industry. A significant share of Russia’s foreign trade turnover falls to China, where goods previously delivered to Europe are exported and from where substitutes for Western cars, tires, oils, industrial equipment and spare parts for them, as well as chemical raw materials, essential goods, clothes and shoes are imported into Russia.

In addition, relations with Turkey, the United Arab Emirates, Vietnam, India, and Iran are actively developing. “Along with China, these countries have become a transport hub for most international cargo to Europe and the United States. Some companies support trade with Western countries because of the need for unique goods, but the prospects for this direction are vague and depend on the foreign policy situation,” explained Morozov.

Against the backdrop of an increase in cargo volumes from Southeast and Central Asia, the demand for transportation between Russia and the CIS countries has increased. According to the Urals Customs Administration, the volume of trade between the Sverdlovsk region and neighbouring countries increased by 10%, while deliveries to non-CIS countries decreased by more than 13%.

Despite large-scale restructuring of business processes, carriers showed a positive trend in 2022. The volume of CDEK’s shipments last year increased by 10% compared to 2021. Morozov says that this was due to an increase in the number of shipments within the country, while the volume of international cargo decreased by almost 80%. For PEK, the volume of cargo transportation to Russia from the CIS countries and Central Asia grew by 17%, while from China it continues to increase by a consistent 4% each month.

However, Vadim Filatov, a Deputy Director of the IEC notes that the industry is still unstable due to sanctions and the reorientation of cargo flows, which has caused infrastructure congestion and payment difficulties. All this was reflected in the timing and cost of logistics.

“International shipping rates have increased by 5-80% depending on the type of transport and route. This is due to the lack of carrying capacity in areas with growing demand. So, a year ago, five to seven regular container services operated on the India-Russia route, cargo was delivered on ships with a capacity of more than 13 thousand TEU. Today, the number of flights has been reduced by about half, and large container ships have replaced feeder ships with a capacity of up to 2.5 thousand TEU,” he said.

Over the year, tariffs for road freight transportation in Russia increased by 5–12%. This was due to an increase in the cost of servicing equipment and purchasing auto parts, which have become difficult to deliver to Russia due to sanctions and the inability to pay foreign currency bills. Morozov says that “Dealers, referring to the sanctions, refuse to service cars even under the contract and warranty obligations. International carriers can undergo maintenance abroad, but Russian companies are deprived of this opportunity. As a result, the costs of spare parts and repairs have to be included in the tariffs.”

In 2022, a third of all goods were exported by trains from the Sverdlovsk region, and 70% were imported. At the same time, container transportation is gaining popularity. So far, their share in Russia is 2-3% against 40-60% in the West. But, according to the Ural Logistics Association (ULA), this delivery method has great potential: “Due to the technological effectiveness, container transportation does not require access to the cargo and its reloading from one vehicle to another, which significantly increases the speed of delivery.

Now even such exotic cargoes for container transportation as fertilizers and coal are being tried to be transported in containers.” From January to October, Sverdlovsk Railways shipped 195.2 thousand TEU containers, which is 10.4% more than the same period in 2021. Since the beginning of 2023, 36.2 thousand TEU containers have been sent, which transported 423.4 thousand tonnes of cargo.

However, the increasing volumes of freight traffic have actualised the problems of low capacity of railways, especially in the Eastern direction. “Here we need modernisation and construction of auxiliary lines. The work is already underway, but they started quite late, so completion is planned for 2024–2026.

According to Sergey Mazurkevich, chairman of the SOSPP Committee on Transport and Logistics, additional locomotive crews and technical staff in problem areas can also help reduce supply chain tensions.

With the change of logistics chains, Sverdlovsk claims to be one of the key points for the redistribution of cargo flows and for this it implements ambitious infrastructure projects. In particular, the Dry Port project, which includes in a single system the key sorting and cargo stations of the Northern Railways, a network of cargo terminals on the main line, logistics centres and container facilities. The concept involves the introduction of modern technologies for transhipment, processing and storage of goods, as well as the synchronisation of the operation of various modes of transport.

As part of the project, at the end of last year, the Uralsky transport and logistics centre (TLC) opened in Yekaterinburg. It is also planned to build the Ekaterinburg TLC. It is located near the Sedelnikovo station, near the Yekaterinburg ring road, the M5 Ural federal highway and Koltsovo airport. According to the project, the cargo turnover of the centre will be 6.1 million tonnes per year by 2030, and 10 million tonnes by 2035. Both centres provide for the provision of a full range of logistics services: transportation, assembly, packaging, labelling, consolidation and deconsolidation, loading and unloading, door-to-door delivery.

According to Alexander Salautin, the head of the Association of International Road Carriers (ASMAP) in the Urals Federal District (UFD), during 2022, the volume of foreign economic cargo transported by Ural road carriers decreased by an average of 35%: imports by 28%, exports by 40%. “Due to the stoppage of transportation in the Western direction, many carriers have reoriented to domestic Russian routes, which has led to an oversaturation of the cargo transportation market by road, a reduction in rates for the delivery of goods and the profitability of the transportation itself,” he said.

Problems with infrastructure congestion have a negative impact on the activities of companies. At the Zabaikalsk-Manchuria checkpoint, carriers stand in line for 7–10 days, and a day of downtime costs 5–7 thousand rouble. The situation on the borders with Georgia and Azerbaijan is no easier. With a design capacity of 400 trucks, up to 650 such vehicles per day can pass through the Upper Lars checkpoint. Part of the company’s goods flows are forced to be redirected to the border crossings between Azerbaijan and Dagestan, which increases the logistics shoulder by an average of 1,000 km.

It is hoped that digitizing the routes and laws adopted in February on the launch of an electronic queue booking service for the passage of international checkpoints will help eliminate long downtime. This also provides for reducing the burden on drivers by arranging areas at checkpoints installing lighting, trash cans, free toilets and technical means for reserving the date and time of crossing the border. However, carriers also insist on speeding up the reconstruction of border checkpoints with Georgia and Azerbaijan, but the work will be completed only by 2026.

Currently, more than 60% of goods on these routes are subject to delays. It is now necessary to reduce the reconstruction period by 1–2 years, increase the number of inspection sites and parking lots for vehicles, create additional storage facilities and reconstruct the existing ones.

Other industry sources believe that it is too early to talk about stability and there will be changes. “The process of reactionary adaptation will continue, which may affect the number of players and the conditions of the services provided. One of the main priorities for the development of the industry will be the formation of the necessary infrastructure and organisational solutions that can increase throughput. Since the logistics component is embedded in every piece of bread, a spoonful of sugar and a glass of juice, its reduction in the final cost of the product is possible only if stable and predictable working conditions are created.

Market players are ready to be flexible and adapt to changing reality in order to stay afloat. Some companies intend to restore the share of international transportation that remains in demand on the market. In connection with this, business consulting will become a promising area, in particular, services for the creation of a foreign economic activity department at the enterprise. Due to the abolition of the mandatory registration of a foreign trade participant in China, unscrupulous sellers who prefer to save on product quality and raw materials can now become exporters. Therefore, a thorough check of the counterparty for good faith will become a mandatory service in the new realities.

Source: Anastasia Reutova at Kommersant

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