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. Last Updated: 07/27/2016

Logistics Firms See Tentative Growth

Weak demand for integrated logistics services has meant that the industry in Russia has remained underdeveloped. This is despite the fast pace of construction of high-class warehousing in recent years. “A lack of demand for outsourcing solutions provided by logistics operators hindered the development of the industry,” said Vyacheslav Kholopov, director of Knight Frank’s warehouse, industrial and land department in Russia.

Nevertheless, a growth in demand for third-party logistics providers, or 3PL, has begun, said Kholopov, citing a deal between Auchan and FM Logistics in Novosibirsk as one example. While the industry at times has had difficulties selling its services, the current economic difficulties have reduced costs and made certain services more attractive.

“Manufacturing companies are more and more concentrating on their core businesses and relying on specialists in logistics to handle supply-chain functions,” said Marcus Ruulio, sales and marketing director at Kuehne + Nagel Russia. Indeed, the current financial downturn may bring about an increase in demand for logistics services, as firms look to focus on their key functions. “Companies are now willing to outsource their logistics to avoid fixed costs such as long-term warehouse rent and salaries,” said Kholopov, identifying the growing market experience of logistics services as a secondary stimulant for industry growth.

Still, many industry players point to the state of the country’s infrastructure as the industry’s major obstacle. “The biggest issue for the development of logistics in Russia is without a doubt infrastructure,” said Christopher Van Riet, founding partner and managing director of Giffels, a warehouse development and management company. This in turn is hindering companies trying to implement modern supply chain models, Ruulio said.

Improvements to Russia’s underdeveloped logistics infrastructure fall broadly into two categories: building modern warehouses and developing the road transport networks, Van Riet said. Moscow currently has 3.2 million square meters of quality warehousing space, of which 746,000 square meters were delivered last year, according to figures from CB Richard Ellis. Although vacancy rates have increased to about 17 percent since the fourth quarter of 2008, after being close to zero for three years, they are expected to stabilize and then fall to about 6 percent or 7 percent in the next five years, the company’s analysts wrote in a year-end report.

The industry, it appears, will become focused on providing services for concrete clients. Less speculative warehouse development is expected, while “major 3PL operators will follow their customers rather than investing money in speculative leases, as they did before,” Kholopov said.

The economic downturn has not had a major effect on transport service providers. “Demand remains high, but the problems also remain,” said Nikolai Voinov, general director of DPD in Russia, a firm providing transportation logistics services. He highlighted road surface quality, traffic problems, road cleaning and maintenance, as well as security on various routes as the key areas that the government needs to focus on. “It requires an integrated approach,” he added.

Investment in logistics infrastructure during the pre-crisis boom improved things, as billions were invested, Van Riet said. “It has been a two-pronged flow of investment, with the government investing public funds in roads and transport infrastructure and private investors investing financial capital in warehousing facilities,” he said. Corporate financing, however, has only recently begun to have a noticeable effect on the market, he added.