WORLD OF INDUSTRIES 04/2019 (EN)

tioned above, increase in productivity is the key driving factor, which has maximum impact
on Russia’s potential growth. In order to increase productivity in such short span,
Russia needs to heavily invest on innovation, skills and competition.
Downside and Upside
Downside risks to Russia’s medium-term growth outlook arise from the risk of deepening
of economic sanctions, financial crisis in emerging markets, a deteriorating global trade
environment due to trade war between US and China, and a dramatic drop in oil prices.
Russia also suffers due to its limited portfolio of exports. For more than 30 years, oil, natural
gas and energy products have been Russia’s largest exports. Through continued efforts
from the government since 2014, growth in non-energy export volumes has been outpacing
that of energy and contributing to export diversification. But despite this, Russia’s
export portfolio is shallow, with the share of oil/gas products still totaling close to 60 %.
In the last few years, Russia has prepared itself quite well for reducing the impact of
external shocks and volatility of the commodity prices on it’s economy. Another area
where Russian macro-economic strengths lie is the low public and external debts, no
fiscal deficits, in-fact significant fiscal surpluses. On the upside, government has
launched multiple national projects aimed at strengthening human capital and increasing
productivity, if well-implemented, could positively affect Russia’s potential growth
in the medium-term. Also, changes in labor legislation, with focus more on formalization
of workforce is a strong step as it could benefit the economy by 2.5 % of the GDP. The
share of informal labor is quite high in Russia, it is estimated to range between 15-20 %.
Russia continued its efforts to improve the business and regulatory environment for
SME sector by carrying out reforms in the areas such as getting faster permits for construction,
electricity connections, paying taxes became less costly by allowing a higher
tax depreciation rate for immovable assets, and cross border trading was improved with
less bureaucracy and online customs clearance facility. As a result of this, Russia advanced
to 31st place in the global ease of doing business ranking, representing an improvement
from the 35th place last year and ranked 120th seven years ago.
Russia’ logistics sector overview
After struggling for years, growth and optimism has finally returned to the nation’s
transport and logistics sector. From 2018 the industry saw a return to the high levels of
freight entering and exiting Russia. Russia is stepping up both its exports and imports it
receives from non-sanctioned trade partners. China, which is Russia’s second largest
trading partner after the European Union, is keen to bump up Russia bound exports,
and Russia is ready to reciprocate. And this brings with it enhanced opportunities for
foreign companies, not just in terms of pure investment, but also as a market to sell
transport services and technologies.
With the rise of e-commerce industry, the market for 3pl service is expected to witness
significant growth. As competition amongst manufacturers increases, they aim to focus
more of their resources on their core competencies and outsource the logistics part of
the operation to professional third party service providers. This is set to escalate the demand
for 3pl service. Moreover, the 3pl services have a larger role to play as gains in
productivity, reliability, and significant reductions in cost can be derived.
Let’s take a look at the market situation of logistics service providers in the country.
Revenues generated by the sector reached around $ 17 billion in 2015 and $ 19 billion in
2017. Russia’s third party market is by far the largest in the CIS region, which is collectively
valued more than $ 25 billion. Outsourcing of transportation services takes roughly
of a fifth of market share in Russia. Comparatively, 3pl service providers cover more
than two thirds of the European and almost half of China’s market. There are roughly
4000-6000 logistics companies in Russia. Out of these, only 100 can really be considered
true third party logistics service providers. Some of the big names include Eurosib, Nienshants
Logistics, STS Logistics and a subsidiary of Russia’s railway, RZD Logistics. The
unsaturated nature of the market means international firms are well positioned to progress
in Russia. Firstly due to the fact that 3pl as an industry is a fairly new phenomenon
in post-Soviet Russia, many Russian companies handle transportation in-house. Most
of domestic firms also struggle to meet international service standards, this gives foreign
firms a competitive edge. The fact that the Russian outsourced transport sector is relatively
unorganized creates space for international companies to expand. So, third party
logistics sector in Russia is currently underdeveloped, ready to expand and fertile
ground for international companies to grow their Russian operations.
Photographs: Lead Photo Fotolia
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