autoMOTIVE Logistics Leaders Russia 2010 | THE global automotive logistics conference

Conference presentations now available online

Some of the panelists at Logistics Leaders Russia made interesting and informative presentations. Those delegates who attended the conference may wish to refresh their memories of them, and those who were unable to attend may welcome the opportunity to view them.

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Mixed outlook at autoMOTIVE Logistics Leaders Russia conference.

The global automotive market has suffered from the worst economic recession for many years and few countries have felt the effects more than Russia. Last year, the market lost half its volume to 1.5 million units, and the many delegates attending the autoMOTIVE Logistics Leaders Russia conference last week in the Hotel National in Moscow were keen to hear the views of leading industry players on what the short to medium term future holds.

There are signs in many global markets that recovery may be on the horizon and, in the first session of the conference, Boris Firsov of Roland Berger and Ivan Bonchev of Ernst & Young gave delegates their views on the situation pertaining to Russia. Firsov was far from bullish, predicting that the market would see a further slight decrease this year to 1.3 million units before recovery began in 2011 with market sales reaching 1.8 million and increasing to 2.4 million in 2012 by which time the share of foreign cars manufactured in Russia would reach 50%.

Imports of new cars to Russia in 2009 fell even more dramatically than the overall market and hammering the car logistics business. The start of the car logistics market recovery is expected next year with a major increase in 2012, however, even by then, sales of imported cars will not achieve the pre-crisis level according to Firsov. He pointed out that the economic crisis has reinforced price competition in the contracting logistics market. There has been a decline in freight turnover and capacity utilisation and falling growth rates of harbour shipments. The intensification of price wars was due to the fact that a significant part of the market is in the shadow, leading to a dramatic drop in truck rates.

The worsening financial positions of market players has led to difficulties in operations and a freezing of ongoing investments. There has been a reduction of the active truck fleet due to the exit of minor players and the return of leased vehicles. Warehouse operators have implemented optimisation measures to lower operating costs and cut investment plans.

Firsov foresaw some major trends in the development of the car logistics business. In parallel to the development of local car assembly by international OEMs, the market will gradually shift towards the logistics of foreign cars manufactured in Russia. Large companies will continue investing in assets and expanding in the regions. The unstable financial positioning and increasing price pressure will cause some companies to exit the market or consolidate. Major players will diversify business through entering or broadening LCV and truck logistics and leading global players will start entering the market, mainly by acquiring large Russian logistics companies when local production of their key account OEMs reaches planned levels.

Ivan Bonchev underlined some of the government measures designed to support car sales. These include new customs regulations, increased state purchases, regional car parc renewal subsidies, lower auto credit rates, preferred car transportation rates to Far Eastern regions, increased purchases of State leasing companies and allocation of subsidies to leasing companies.

He pointed out that sales of foreign brands have decreased by 51.% in 2009 compared to 2008. The sales of domestic brands have decreased by 46% over the same period. In order to support domestic brands, the government increased the import customs duties by 5% effective from mid-January 2009. The increased duty has significantly affected the price of new imports. At the same time, as most car dealers were able to accumulate significant stock in late 2008, most of the foreign car sales in January-July 2009 consisted of the old stock which the dealers had purchased under the old duties. Because of the weakening ruble in January-July 2009, most retail prices for cars in US dollars tended to decrease, while the ruble prices tended to increase. In September 2009, the government extended the high duties on imported vehicles by a further 9 months. Bonchev forecast that oil prices will remain at the US$60-80 level in 2010-2012, leading to stable revitalisation of the domestic economy and slowly growing disposable income. The new passenger car sales in this scenario will show only a marginal increase to 1.6million in 2010, followed by mild revitalisation in 2010-2012.

Russia’s rail road transport system exceeds its road transport network by approximately 10 times due to the country’s size and historic focus on rail transport. Another important transport mode in Russia is shipping, with great use being made by the automotive industry of the advanced seaports in such places as Saint Petersburg and Kaliningrad. The global economic and automotive downturn had significant impact on automotive logistics. In the past, economic growth and increasing industrial globalisation drove logistics providers to continuously increase their capacities. Not so anymore, with the sharp downturn of Russian vehicle production (along with decreased imports) leading to substantial overcapacities in the local automotive logistics sector. Smaller local logistics companies are hit hardest due to their limited geographic focus and a higher dependency on single customers. Due to the challenging market environment, logistics providers in the industry have implemented initiatives focusing on cost cutting, restructuring and process optimisation to help increase utilisation and profitability. Recovering automotive demand in Russia will offer future growth potential for large, international logistics companies focusing on inbound and outbound logistics, as well as for smaller local companies specialising on the automotive industry’s demands and leveraging their local experience, presence and flexibility. These factors will allow automotive companies in Russia to select their logistics service providers on a case-by-case basis to fit their specific needs.

This session, along with the remainder of the conference, will be covered in full detail in the March issue of autoMOTIVE Logistics Leaders magazine.

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