Automotive Logistics Russia Conference
23 - 25 June 2009
Moscow, Russia
www.automotivelogisticsrussia.com

More than 230 senior automotive executives came together at this year's Automotive Logistics Russia conference to discuss the future of the industry in a vehicle market set to become the second largest in Europe by 2010.

For the first time, delegates could participate in the round-table forums and an interactive voting system which encouraged even more lively debate.

Many delegates have said that they found the Automotive Logistics Russia conference beneficial, interesting and enjoyable.

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A location for the 2009 event is still being investigated, but a decision will be made soon, after careful evaluation of the feedback from this year's conference.

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Automotive Logistics Russia 2008 - Conference report

The second annual Automotive Logistics Russia conference was held this week at the Astoria Hotel in St Petersburg, where 250 delegates gathered to discuss one of the world's fastest growing automotive markets, but also one of its most challenging for logistics. While no one issue took precedence, Fesco's Anton Gans set the tone early when he told delegates that when it comes to logistics, Russia suffers from "a lack of everything: terminals, wagons, trucks, warehouses; you name it, Russia lacks it."

Delegates tended to agree with Gans, as a live voting survey taken at the conference showed that 57 per cent of attendees - including Russian and foreign car and truckmakers, tier one suppliers, logistic service providers and various experts - considered Russian infrastructure as the biggest challenge facing the car market today. A draconian Customs regime was second, named by 22 per cent of attendees.

What Russia doesn't lack just yet is oil and thanks in large part to that, neither does it lack people ready to buy cars. The market reached 2.6 million last year and by all accounts it looks set to surpass Germany as the largest market in Europe by 2012 at the latest, selling around 4 million new cars. Some forecasts, including that of rail provider RailTransAuto, predicted it would happen by 2010.

Either way, the growth is putting a strain on the logistics infrastructure both for inbound material, as many carmakers and suppliers are setting up plants, and for finished vehicle imports. Emil Benaim, from Toyota, admitted that he didn't know how Toyota would be able to import all the vehicles that its forecasts predict for Russia in the next few years, despite a new, albeit small plant in St Petersburg. "That is a concern of mine, and also that the government appears to taking its time when it comes to addressing infrastructure issues," he said.

Infrastructure is a problem for suppliers as well as carmakers. Delphi's Tony Humphrey's said that an overall lack of investment from the government and companies makes it very difficult to import to Russia, leading to most of its deliveries moving as full truck loads (FTL) rather than less than truckloads (LTL), which has led to more inventory and cost. This is something the supplier industry cannot afford. "If there is no LTL than there will be very little localisation [of content] in Russia, which needs to happen more," he said. He predicted that LSPs that made investments, and would be able to offer more LTL delivery, would capture a lot of business in the coming years.

Behind the lack of localisation in Russia was the lack of human resources and skills. According to Gefco's Yves Fargues, his company has experienced the highest staff turnover in Russia, comparable only to China. "Commitment appears to be more of a feminine trait in Russia, as women have lasted longer than men for us," he said. Indeed, when surveyed what logistics companies need most in Russia, carmakers and tier suppliers at the conference named more skilled people (36 per cent), second only to more physical assets (44 per cent). The lack of skills has led to difficulty in recruitment and a lower quality service from logistics providers and other suppliers in the industry.

Yet another deterrent to wide scale localisation is cost. Fargues, Humphreys and several others, made it clear that Russia is not a low-cost country. Labour costs and salaries are rising as fast as 20-30 per cent in some areas, and the cost of real estate and development is among the most expensive in the world. Consultant Diana Arakelyan, of Cushman and Wakefield Stiles and Riabokobylko, said that the rent for warehouses in Russia was as much as two to three times more expensive. Hyundai's Ivan Karasev told delegates that Hyundai uses Kotka, in Finland, for finished vehicle imports rather than a Russian port, not only because of capacity, but because it is significantly cheaper. It is these costs on top of difficult logistics that made delegates uncertain if the flurry of automotive and supplier plants being set up in Russia today would one day be used to export cars and material. In a survey, 52 per cent said yes, 48 per cent, no.

Other important topics included Customs, packaging, port development and entry into Russia, discussed in groups in new, roundtable formats where delegates could discuss issues both more privately and in detail. Among the topics to emerge was the need to address road issues to the government, as well as the need for foreign companies to partner with local companies when entering the market.

Something that was missing somewhat from the debate, in comparison to other conferences, was concern for the environment and CO2 emissions. In the survey, 39 per cent of attendees said that such issues were not important today in Russia, with 33 per cent saying the environment is important (the rest was split between very important, and somewhat important). The lack of debate in sessions may have been telling, though one carmaker made an important call for sustainable business in Russia. Bentley's Veronica Hurst suggested that, because "everything in Russia seems like a fight," the automotive industry might help itself and Russia by making more commitments toward education, training and skills there.

In the short term, however, today's logistics market looks more like a war, as described by several speakers including RTL's Konstantin Skovoroda, and the answer was partly more collaboration among players in the industry. "We don't want to fight anymore," he said, speaking on behalf of terminal operators, but echoing the sentiments of manufacturers and LSPs as well. "We need to find ways to work together."

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