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Russian Parliament Feeding Foreign Hauliers

Russian Parliament Feeding Foreign Hauliers

26.08.2009 — Analysis


The international cargo trucking market in Russia has virtually been taken over by foreign companies for quite some time. The RusBusinessNews observer has found out why a quarter of these companies work in the country illegally, why the conflict with the Lithuanian hauliers arose, and how to get rid of the Western European middlemen when transporting cargo.

 

In the middle of August 2009 there was a traffic jam on the Russia-Latvia border consisting of more than a thousand Lithuanian trucks transiting into Russia. The officially declared reason was the decision of the Federal Customs Service of the RF on intensifying the monitoring of Lithuanian truckers due to ever more frequent cases of missed deliveries of goods and transporting vehicles to destination customs warehouses. The situation had lightened up only after the Lithuanian Customs Department had promised to withdraw international haulage permits from companies which have violated customs laws of the RF.

Aleksandr Trakhtenberg, the Deputy Director General on the Strategic Development of OJSC Lorry (one of the largest trucking companies in Russia), reckons the source of the conflict lies much deeper. In his opinion the need is ripe for redistribution, for the benefit of domestic business, of the international cargo trucking market where companies from neighbouring countries reign currently.

 

 
 
- Mr. Trakhtenberg, what happened to the Lithuanian truckers?

- Russia simply reminded our Lithuanian colleagues of the existence of Russian laws, essentially beginning to apply the non-tariff limitation to the access of foreign companies to the domestic international cargo haulage market. The Lithuanians, however, complained to the EU about the discrimination on national grounds. And thus the purely economic issue acquired the political tinge.


 

trakhtenberg

- What share of international cargo trucking do foreign companies take in the Russian market?

- Unfortunately the international cargo haulage market in our country is not Russian. Domestic hauliers take less than 40% (in the most recent five years their share has grown only by a few percent). The situation in the Urals Federal District is even worse with less than 20% of haulage carried out by local trucking companies. The rest are foreign, predominantly from the Baltic states, Poland, Belarus, and some from the Ukraine. Hauliers from Kazakhstan transport a lot of cargo to Russia too, this is, predominantly, fruit and vegetables from the Central Asia, these routes are of no interest to us, they are not a threat, this is not even our competition. Most of the competition is occurring on destinations to Europe. Also, taking into account the Silk Road revival project, the routes to China are the future highly competitive market.

 

- How could these Eastern European companies have managed to conquer the Russian market? These companies are large international holdings, are they not?

- No, they are not. Fortunately the cargo trucking, by definition, cannot be monopolised, in contrast to railways for instance. Generally, the share of large hauliers is not critical here. The largest Russian company has four-five hundred trucks maximum. Our foreign competitors are not that large either.

Urals industrial companies have a preference to foreign hauliers thinking they offer better trucks and service than Russian companies and, therefore, are more reliable. However, this is far from the truth. In the Urals we see foreign haulier with the average age of their trucks just under five years. Average age of trucks in our company is just over two years. This does affect the reliability of the vehicle and the speed of cargo delivery.

The main paradox is in that very often the "primary" haulier is a Western European company while it would be a company from Poland, Baltic states or Belarus that physically carries the cargo to Russia. We have never seen English, German, French, Italian, or Czech hauliers in the Urals.

 

- Why is this happening?

- It was a usual practice before - to obtain tied funding when everything is stipulated in advance, the manufacturer and other project participants including the company organising and providing haulage. So, Italian equipment was transported by an Italian haulier, German equipment - by a German haulier, Czech equipment - by a Czech haulier etc. All these "primary" hauliers subcontracted the actual trucking to Eastern European companies, and a very small proportion - to Russian hauliers.

So, the chain for the transportation of cargo from Italy to the Urals may include three or four middlemen. This takes approximately a third of the price of haulage from abroad which amounts to 2-4% of the value of cargo. So, equipment worth 50 million Euro is not yet installed, but the losses already amount to 1-2 million Euro.

At the moment, however, most of the foreign trade projects of our companies in the Urals, including those involving the supply of production equipment, are funded by Russian banks. Nevertheless the situation of foreign hauliers dominating here remains the same. This raises a question where does a German or a Czech haulier come from when the funds are provided by the Urals Bank of the Sberbank of Russia? This seems to translate into the State owned Sberbank's and VTB's money feeding foreign business?! It is exactly so, yes.

Our banks, unfortunately, even those owned by the State, do not understand or do not want to understand that when the system is well tuned, like in Europe, some of the money will simply stay in Russia. Moreover, there are real savings for the end consumer - a company in the Urals - through the haulage of cargo without middlemen. There's no special wizardry required here, a state-like approach is needed in the State owned banks, which is all it will take to get things moving.

At the moment, as it stands, the country is wasting vast amounts of money. In 2008 the value of Russian international cargo trucking market amounted to almost eight billion US dollars, five billion out of which went to Europe.

All this would be tolerable, if all foreign hauliers in Russia worked in accordance with the law. Up to a quarter of them, however, drive around the country not entirely legally.

 

- A quarter is quite a lot. What countermeasures are being undertaken?

- The official penalty for foreign hauliers working in Russia without an appropriate permit is only 1,500 roubles. Then you pay and get on your way. If a Russia transport company finds itself in a similar situation within the borders of the European Union, it would risk a fine of up to 15,000 Euro and the truck would be impounded. That is rather costly.

For about five years now a bill has been in the Sate Duma which stipulates a 50-60 thousand roubles fine with the truck being impounded, but nothing has changed so far. This bears witness to the lack of political will in the matter of reciprocity in the Russian legislation.

We do have the Association of International Road Carriers (ASMAP). The association's leaders had raised in the Government the issue of the support for domestic transport companies, of the reciprocity of the appropriate legislation. The reply was "we have no time for you now; we have to sort out the meat imports first".

 

- How are things with the development of routes to China which you mentioned?

- China is even tougher than the European Union; the country does support their own hauliers. No foreign company has a right to drive further inland of China than 50-100 kilometres from the border. This is why non-Chinese hauliers deliver the cargo to one of logistic centres located along the border and drops it off there. From there the cargo is transported by Chinese hauliers. It is the same with cargo exported from China.

 

- Taking into account distances to Chinese destinations, would it not be cheaper to haul cargo by rail?

- The situation with the railway tariffs for cargo hauling in Russia is totally absurd. Even before the crisis we began to compete with the railways, at least when transporting cargo to the West. This is why, for instance, the Ural Mining and Metallurgical Company started using us for the haulage of their products in Russia.

The Russian Railways, substantiating their argument with the falling volumes of orders, raises the tariffs in order to compensate for the lost income. The situation, therefore, is getting even worse, as they lose some of their custom to trucks. This has to happen, objectively; the share of haulage by trucks is unjustifiably low in Russian economy.

Hauling cargo by trucks is more comfortable for clients, by definition. First of all, there are no transfers from railway carriages to trucks and back. Nobody has abolished the door to door principle yet. Secondly, the arrival time of the truck to the receiving end is known precisely.

 

- But Russian roads are bad!

- However badly the Russian roads are spoken of, crockery, crystal glass, and intricate electronic devices do get transported along them. In this case, simply, the requirements to the truck are tougher; there is the air suspension of the truck and the trailer and so on. And lastly, using Russian roads for international cargo hauling must become the prerogative right for domestic transport companies.

By Pavel Kober

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