HOW HAVE SANCTIONS AFFECTED TRANSPORT & LOGISTICS IN RUSSIA?
It’s been over five years since Russia first faced international sanctions
With restrictions on goods and services entering and exiting the country, it’s been a tough half decade for transport & logistics. Please note that the sanctions are a mixture of those imposed on Russia, and retaliatory measures placed by Russia itself.
But has it been all doom and gloom or are there rays of light bursting through the sanctions cloud?
The impact of sanctions on Russia’s transport & logistics sector
Europe-Russia freight hit hardest
European Union cargo volumes have seen the largest drop offs.
The impact of sanctions has hit many areas, but the largest affected group was agricultural products. For instance, the volume of fruit transported to Russia from the EU dropped 36 times, vegetables 16 times, dairy products 10 times and exports of meat stopped entirely.
That means a million tons of goods per quarter that would be transported, mainly by road, has ceased movement.
Other sectors remain relatively unscathed by sanctions. And, despite the large drop off in volume, Russia remains an interesting and high-potential market for food & drink logistics.
Road transport is the key link in connecting Russia and the European Union, freight-wise.
As it stands, of the 16,000 transporters working within EU trade routes, 9,000 are Russian legal entities.
The vast bulk of these are small to medium enterprises. According to Russian researchers Intertransavto (ITA), such companies run a fleet of between 20-30 trucks on average. Their monthly operations tend to be five transports per month. The number of companies carrying out six transports per month does not exceed more than half of the total.
Reorientation to the domestic market
Russian carriers have had to reorient their operations inward to cater for the domestic market.
Indeed, over 53% of carriers operating on the EU-Russia route are not Russian. Covering 3% of total freight carried is market leader Girteka Logistics – a Lithuanian multi-modal company.
Due to this, the costs per-kilometre have dropped, which means Russian carriers are facing a drop in revenue.
For context, Russia’s average road transport tariff is €0.4-0.5/km. In Europe, it’s roughly €1.0/km. The gross profit of European companies travelling into Russia is around 20% higher than their Russian counterparts.
This effectively prices out all but the largest Russian carriers from operating on the Russia-European Union route.
Russian road transporters face fleet upgrade troubles
Another issue facing Russian carriers is their fleets. Many Russian trucks do not currently meet the required environmental regulations. Only about 10% of lorries operating in Russia match the Euro-5 standard necessary for moving freight into the Euro Zone.
Fluctuations in the rouble caused by the twin assaults of sanctions and drop in the global oil price meant Russian firms struggled to afford to replace their aging vehicle pools with up-to-date trucks.
As the rouble depreciated, the price of vehicles increased along with it.
ITA analysis shows that growth for new freight trucks dropped 4% year-on-year in 2018. The average monthly growth rate was roughly 6% that year. In 2017, it was 10%.
One of the largest Russian road haulage firms, Globaltruck, for instance announced at the start of 2018 it was planning on purchasing 300 new vehicles for each half of the year. By H2 2018, this had slumped to 70 vehicles.
A logistics pivot to the East
One of the top trends to watch in 2020 in Russian transport & logistics is the shift towards China. The world’s largest exporter is pioneering a new worldwide update of the Silk Road, One Belt One Road, and Russia is aiming to capture more cargoes from its Eastern neighbour.
China is already Russia’s largest trading partner. In 2019, Russian firms exported a total of $56bn there, representing 12.5% of overall Russian exports. Trade growth between the pair stands at an impressive 24.5%.
Recognising this, Russia has awarded more transport permits for Chinese companies than at any other point in its history. 82,000 bilateral permits, allowing logistics and haulage companies to operate across the China-Russia border, were awarded.
This is still below the number of permits given to European carriers. 260,000 were awarded to Lithuanian transporters in 2019, for instance.
Even so, Russia is gearing up to capture more Chinese cargoes, as well as establishing itself as a key cog in China’s global trade machine.
Some $40bn is being spent on upgrading the rail network in Russia’s Far East and Chinese border regions, for example.
How can international transporters capitalise on Russian sanctions?
For Asian, particularly Chinese, companies the answer is easy. The Chinese government is subsidising freight movement to ensure its economic growth remains consistent.
For such transporters, it’s simply a matter of riding export trends, and establishing routes into Russia. There will be major business in Russia, particularly in supplying the Far East and Siberia.
European companies are advised to simply keep the momentum going. Away from food & drink products, there is still high-level trade between Russia and EU member states. Germany, Italy, and The Netherlands all make the top five for Russian goods, and vice versa.
The most popular products needing transportation between Europe and into Russia included construction materials, timber, vehicle components, heavy machinery, electronics, and other hefty pieces of equipment. With domestic companies either looking to Asian markets or domestic operations, there’s a gap in the market that companies like Girteka are already exploiting.
As discussed, the Russian-EU trade route remains one of the busiest in the world. Sanctions or no, Russia is a nation of 144m people – and it relies on imports and exports for its continued prosperity.
Russia remains a lucrative market to explore. There is as much as $150bn in transport & logistics deal potential waiting there. Find your opportunities at TransRussia.
Be at the heart of Russian logistics at TransRussia
As Russia’s only international transport and logistics exhibition, this is an event you want to mark in your calendar for 2020. For exhibitors, you can meet nearly 17,000 cargo owners, freight forwarders, retailers and others in need of transportation services and technologies on the Russian market.
Visitors are primed for purchasing, and more than two thirds will only attend TransRussia amongst industry events.
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