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. Last Updated: 07/27/2016

Express Carriers Steering Through Red Tape

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Express delivery is a very foreign concept in Russia.

So foreign, in fact, that there is no set of regulations or laws that govern companies working in the sector. And that lack of clarity has made it extremely difficult to develop the industry, which is considered a vital lubricant for the wheels of business worldwide.

But all that is changing.

After some 18 months of lobbying the Transportation Ministry to define the laws under which express carrier companies must operate, the association that represents those companies announced a breakthrough last week.

The Association of Express Carriers and the ministry signed an agreement in which the ministry pledged to provide cooperation and assistance in solving the industry's problems — mainly by clearly defining the rules of the game and simplifying the paperwork needed to play.

While an agreement to help doesn't sound like a landmark achievement, the association considers it a major victory.

"The whole office is celebrating the agreement with the Transport Ministry," said association president Vladimir Stroikov.

"We are also very happy," said Alexander Filimonov, a spokesman for the ministry. "The main dialogue will be in the future," Filimonov said, "because the desires [of the association] have not been formulated yet." But the agreement signifies the government's readiness to work with the association to develop the industry, he said.

"This is a turning point in the history of the industry," said Dmitry Cheltsov, manager of Russian operations for international express company TNT.

"Several years ago, no one knew about our industry. … There were doubts about how to categorize us — as post or as transport, though, of course, we are closer to the transport industry," Cheltsov said.

The agreement comes at an important time for the industry, which is expanding with the economy as a whole.

Express companies account for 34 percent of Russia's international export delivery market in dollar terms, according to a report commissioned by DHL that was completed at the end of 1999 and released last year by Research International.

With less than two dozen members, the Association of Express Carriers is one of the smallest industry associations in Russia. But it carries substantial influence due to the fact that its member companies posted total global sales last year greater than Russia's annual budget, which is roughly $40 billion this year.

The market share of the express carriers, according to the Research International report, shows that the leader of the industry is DHL Worldwide Express with 51 percent, followed by TNT Russia with 19 percent, United Parcel Service and Federal Express with 10 percent and 7 percent, respectively.

"It is still necessary to define the legislative aspect in the functioning of express delivery companies," said the association's Stroikov.

"The industry today has a rather developed structure, but has to play by nonapplicable rules," he said, referring to the fact that legally, express companies operate in a categorical vacuum.

One example of such "nonapplicable" rules, Stroikov said, is the recent customs crackdown on tariff dodgers and illegal imports.

Late last year and early this year, the Central Customs Department, which controls imports and exports in Moscow's 16 regions, issued a series of decrees that has dramatically slowed the clearance process for cargo trucks and caused the number of imports into the capital to plummet.

The original decree targets a group of imports in the 5 percent tariff category. Customs officials now fully unload trucks carrying less than $15,000 worth of goods and open each container.

The result is a huge backlog of trucks waiting to get through customs, with truckers reporting a wait of as long as 17 days.

The Association of Express Carriers estimates that while the figure varies from company to company, on average its members transport roughly 10 percent of their packages by truck.

And as all express deliveries fall under the category of goods worth less than $15,000 per truck, the association's members were faced with the possibility of losing at least 10 percent of their business by the new delays.

"It was catastrophic for our industry," said TNT's Cheltsov.

The association immediately wrote a letter to the State Customs Committee and, for more effectiveness, to the Central Custom Department and directly to different customs chiefs, asking for a "green corridor" of exemption to the new decrees.

"All steps were taken very energetically," Stroikov said. "There were so many goods [being checked] at customs that everything came to a standstill," he said.

Faced with the unintended prospect of striking the industry a major blow, the State Customs Committee responded, issuing a decree Feb. 14 that exempted express delivery companies from the lengthy customs checks.

Central Customs Department spokesman Viktor Sokolov said that express carriers were classified as the customs "risk group" subject to full inspection through an "official mistake."

The "green corridor" actually turned a near disaster into a major boon — as importers faced longer and longer delays at customs, many turned to using express delivery as the only way to guarantee timely delivery of their products.

"Every cloud has a silver lining," said Cheltsov.

"The amount of road freight delivery our company does has increased ... a minimum 20 percent," Cheltsov said.

Adrian Marley, DHL's CIS operations manager, said DHL also is seeing "encouraging" growth.

For other companies, however, the customs crackdown is reaching crisis proportions.

The American Chamber of Commerce said that hundreds of its member companies have had "serious difficulties" with the new customs decrees.

AmCham, together with the Foreign Investment Advisory Council, the German Business Association, the European Business Club and the International Road Union, asked Prime Minister Mikhail Kasyanov in a letter Feb. 23 to "undertake a number of concrete actions to resolve the problems."

In what AmCham said was a "first-of-a-kind" reply, the chairman of the State Customs Committee, Mikhail Vanin, invited the signatories of the letter to a roundtable March 13.

On Friday, Sokolov from the Central Customs Department said that a list of "reputable importers" had been created and the number of companies approved for "green corridor" status is 150 and growing. He refused, however, to name the companies.

"The increase of companies on that list is the principal measure of the current crisis," he said.

However, the director of one of Moscow's customs inspection terminals, who asked not to be named, said last week that the situation is only getting worse.

"It is ridiculous that the list of companies is the main measure. In my terminal there are 200 trucks, and only five belong to a company from the [green corridor] list," he said.

The crackdown at customs led to a 75 percent drop in imports in January, figures for February are still not available, said Sokolov.

Marina Stepanova, the spokeswoman for Canon North-East OY, which makes cameras and office equipment, said that Canon distributors "are in trouble and retailers do not have any goods at all."