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. Last Updated: 07/27/2016

Russia's Role in World Trade Grows With EU

Itar-TassContainers transiting the Kaliningrad port. Last year container traffic hit a new record, but the market still has a long way to go.
When asked what it's like trying to provide logistics services in a country like Russia, David Lind put it this way:

"When a trucker heading from Istanbul to Moscow reached the Russian border, the border guard took one look at his passport and refused to accept it, saying, 'That's not a passport.'

"So the trucker put 50 bucks in it and gave it back. 'Now it's a passport,' the guy said."

Moving goods in, out and across a country the size of Russia is no easy feat, even without taking into account the unwritten and often contradictory rules of the game. But for Lind, managing director of NYK Logistics (CIS), and many specialists like him, business is only getting better.

While logistics in Russia remains something of a specialty market -- open to those who can handle the vast geographical expanse, poor infrastructure and intimidating bureaucracy -- experts say the looming expansion of the European Union will give added stimulus to an industry already developing at a rapid clip.

"What's driving the boom is companies moving into Russia to supply the domestic Russian market," said Alex von Stempel, editorial director of next month's Transport and Logistics Russia 2004 conference in Moscow. "That's what will be driving the Russian logistics industry over the next 10 years, easily."

Logistics -- broadly defined as the combined means of transporting and storing merchandise -- is one of several industries growing faster than the economy as a whole.

According to Vladimir Ashurkov, general director of the international logistics consulting firm Transcare, the sector has been experiencing 20 percent to 25 percent growth for several years, and will likely slow down only marginally over the next decade.

Container traffic in and out of the country, a leading gauge of the industry's robustness, last year hit a record 1.5 million 20-foot equivalent units, or TEU's, the standard container measurement -- a figure that includes containers destined for Russia but unloaded in Baltic and Finnish ports. But the market still has a long way to go.

"Look at the container flows in Western Europe, and we see that there's about one container per 10 people. But in Russia last year there was about one container per 100 people," Ashurkov said. Based on overall economic growth rates, he said that within 10 years, per capita container traffic in Russia will be half of that in Western Europe.

Russian logistics firms tend to be more stratified than their European or American counterparts, focusing on trucking, railroads, warehousing and ports, rather than trying to be everything to everyone. "But around the world, the trend is for logistics companies to become more integrated," Ashurkov said. "I think that's what we will see in Russia."

Major foreign players have tended to enter Russia piecemeal as well, such as FM Logistics, which has emerged as the largest player in warehousing. Russian companies Stim and Severstaltrans, however, are tops in trucking and rail shipping, respectively.

But with the European Union moving closer to Russia's borders, foreign interest is building.

Investors, anticipating rising input costs in EU accession countries like Hungary, Poland and the Baltic states are already looking at moving production to Russia, von Stempel said.

This should be a gold mine for those companies that can effectively manage transit between Russia and Europe.

"In Russia, you have an outbound flow in bulk, such as oil, and an inbound demand for containers," von Stempel said. "You've got full containers going into Russia and empty containers coming out. But in order to operate containers cost effectively, you need to have some kind of balance."

If von Stempel is right, producers will eventually start filling these outbound containers with goods headed for Europe -- making the Russian logistics market considerably more enticing.

Oceangate Distribution, a subsidiary of German logistics giant Eurogate, plans to start building distribution centers in Moscow and St. Petersburg by the beginning of next year. Oceangate sales director Marcus Granzow said his company is positioning itself for an expected increase in demand in EU accession countries for electronic goods from East Asia.

"You have to look at where the consumers are located, and how you can provide efficient distribution," Granzow said. "Step by step, we want to develop this network in Russia."

Lind, of NYK Logistics, said rising wages in Eastern Europe will likely push companies to use more Russian-based logistics firms.

"Before, a lot of people would use Polish trucks or Baltic trucks to go to Russia," Lind said. "But they won't be as cheap as they have been in the past. They're going to rely more and more on homegrown, local servers."