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ITE Transport and Logistics

5 big reasons why Russia is your new transport & logistics market

The world’s largest country’s very geography necessitates an extensive transport and logistics network. Stretching across 17.1 million square kilometres, larger than the surface area of Pluto, Russia is truly vast. In order to service its 140 million inhabitants with up-to-the-minute goods and services, air, sea, road and rail logistics are in high demand. 

Russia’s continent-straddling size is both a blessing and a curse. Despite existing transport links, Russia ranks 99 out of 160 countries in terms of logistics performance. The World Bank’s Logistics Performance Index ranks Russia far lower than other comparable economies such as Germany (1st) and the United Kingdom (8th).

Current low logistics performance, however, does not close off investment avenues. Rather, it points towards some golden opportunities. Russia is in need of updated technologies, methodologies and attitudes when it comes to transport. Foreign companies can deliver them.

Here are five enticing reasons to make Russia your next transport and logistics market.
 

1. Russia is an intermodal hotspot – but there is always room for expansion



With over 86,000 kilometres in rail track, a road network over 1.4 million kilometres long, plus countless air and seaports, Russia is a well-established intermodal network hub. Domestic suppliers vie with international companies to provide comprehensive services. 

That said, there is still major room for improvement and expansion.  Former Vice Prime Minister Sergey Ivanov estimated the market’s potential at $150 billion in a report from research firm PricewaterhouseCoopers. Fresh warehousing stock is in demand, updated cargo handling facilities at ports, new airports, rail hubs and logistics centres are needed to match government ambitions. Foreign firms are well placed to aid in the development of Russia’s transport and logistics sector
 

2. Russia’s Far East needs transportation development



Despite the presence of major ports, such as Vladivostok, Russia’s Far East is comparatively lacking in terms of sophisticated transport services. Through government subsidies and spending initiatives, that is slowly beginning to change. 

For example, a $3.5 billion mega project is taking place in the Khabarovsk region in order to overhaul the port of Sovetskaya Gavan. The port, which enjoys free port status, is to serve as the region’s main transport conduit for the Baikal-Amur Mainline. From here, Russia’s Far East will be linked to European Russia plus China, Japan and neighbouring trading partners. Vladimir Putin’s administration sought international investment to facilitate this project – demonstrating how suppliers of technology, rolling stock and machinery can partner with Russia for lucrative Far Eastern endeavours. 
 

3. Foreign investment in transport & logistics is being sought



Due to a lack of competitiveness in domestic operators, foreign logistics businesses are already being courted for investment – often in the form of tie-ins, joint ventures or operational cooperation. 

Huge sums are being injected into transport and logistics from overseas investors.  Dubai’s DP World, global port infrastructure and management specialists, inked a deal with the Russia Direct Investment Fund in January 2016, for example. The $2 billion agreement will see the formation of a joint company, DP World Russia, to enhance Russia’s port infrastructure networks. 

Other foreign firms, such as DHL or Finnish company Itella Russia, are already well established on the market. Technological advantages, plus efficient operations and experience, puts international brands at a significant advantage. Russia’s government greatly desires dynamic, cost-effective transport and logistics solutions, so international operators can score some big wins in Russia.
 

4. E-commerce is changing the face of Russian logistics



Home to over 76 million internet users, and internet penetration rates reaching 70%, Russia is growing its e-commerce sector in the face of economic hardship. Online retail grew 6.6% in 2015 during the peak of the Russian recession, and is now worth in excess of $23 billion. E-commerce in Russia is only set to keep expanding. The Economics Foundation predicts a market valuation of $24 billion by 2016’s end.

So what does this mean for transport and logistics? Simply put, Russia requires a higher number of fulfilment centres, increased third-party and courier services and extra warehousing real estate. Warehousing alone, according to Christopher van Riet of the Radius Group, is estimated to need $30 billion of extra investment to keep pace. E-commerce is gaining further prominence in Russia’s retail makeup – and extra logistical services are needed to match growing online sales numbers.
 

5. 3pl logistics underdeveloped



Again, it’s a lack of development and competitiveness from Russia’s domestic 3pl providers that is hampering the sector. As such, a range of foreign companies such as DHL and TNT Express already dominate the market.

Foreign firms are able to do so due to their significant technological advantages, operational efficiency and access to financing. Logistics technology manufacturers can supply Russian 3pl operators with the tech needed to claw back a larger market share. Fulfilment, cargo tracking and intelligent inventory solutions are in hot demand – and providers find success in Russia as a result.
 

International investment, know-how and technology desired by Russia



Russia’s transport and logistics sector is fertile ground for foreign companies. Opportunities abound across the length and breadth of the country. Investors and companies should certainly look to the world’s biggest nation as their next market for investment or expansion.

 

Related Events

Event15 Apr

TransRussia 2019..

15-17 April, 2019
RUSSIA

MOSCOW, RUSSIA
Venue: CROCUS EXHIBITION CENTRE

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