The Automotive Logistics Russia conference in Moscow this week revealed a market reeling from its first major decline in vehicle sales for nine years, with sales drops of more than 50% in many segments. But while the logistics landscape has also changed drastically, with issues like a lack of transport capacity or port space turned upside down since last year, carmakers, LSPs and dealers emphasised that the role of logistics has become even more vital in safeguarding precious cashflow and delivering vehicles and spare parts to the more urgent demands of the Russian market. Notably, where only last year customers were willing to wait up to year for a car to be delivered, consumers now expect their cars or repairs immediately.
The decline in Russia has been more dramatic than in most markets: May sales dropped by 58%, and for the year are down 50%. While sales of cars and trucks reached 3.6m in 2008, even the Association of Russian Automaker’s optimistic forecasts for this year predict sales of only 1.9m. PriceWaterhouseCooper, Rolf Group and VW, meanwhile, have predicted sales between 1.4m-1.45m.
The figures most relevant to finished vehicle logistics providers look even worse: the import of new cars and trucks in April dropped from 206,000 during that month in 2008, to 74,000 this year. Truck imports almost disappeared following a nearly tenfold decline according to Vladislav Zaslavskij, President of the Association of Car Importers and Customs Brokers (ACICB). The ACICB projects that imports of cars and trucks this year will not exceed 800,000, down from 2.2m last year.
Local production, which reached 1.3m vehicles in 2008 and had been projected to rise to 3m by 2012, has also been significantly cut this year.
While the economic factors hurting Russia have been well documented, an increase in customs duties has been an extra drag on the market. A survey at the conference put government policy, including customs, as the most significant challenge for logistics in Russia, at 52%, above issues such as infrastructure or investment. Zaslavskij said that the share of duties, tax and other fees due to the government has risen to 52.5% of the purchase price (from 46% last year). He also described a culture within Russian customs endemic with bureaucracy and stifled by efforts to quell possible corruption.
“Anti-corruption measures have made it difficult for the customs officials to initiate any new measures,” he said. “The managers of the federal customs feel as though they are participants in a reality TV show, as all of their offices and cars are bugged and being recorded.”
But while customs reform was recognised as a necessity, most agreed that it was a situation to which LSPs and OEMs have already allocated the necessary recourses. With the decline in volumes, the need to improve the quality of service was widely seen as the most important objective this year. Sergey Sherbinin, the COO of Rolf Retail, the dealer arm of the Rolf Group, noted that the queue for new cars in recent years had reached as much as 12 months for a Nissan Qashqai, or six months for a Toyota Corolla. Today, these cars are available almost immediately. “This year, if the car is not available now to a customer, they will simply go to another dealer,” Sherbinin said. “The industry is becoming more customer focussed.”
Natalia Petrenko, Vehicle Logistics Director for Ford in Russia, also confirmed the need to become more customer oriented. “The issue for us today is no longer the lack of fleets or capacity, but our job has actually become more difficult, as we have to improve lead times to meet our customer’s expectations,” she said. “They don’t want to wait anymore.”
Sherbinin also demonstrated how delays and poor service not only damage a brand image, but also can have a significant impact on the bottom line. A car damaged in transport, leading to a delay of ten days, would knock 8% off the profit margin for a dealer; if the delay or damage leads the customer to cancel his order, the dealer stands to lose more than 70% of his margin.
Dmitry Bulaenko, Logistics Director for Sollers, said that logistics could have an important impact for an OEM during the crisis. He cited critical areas where Sollers was tracking performance and pushing for improvements, including inventory management, re-engineering transport networks, contract renewals and forecasting.
A focus on benchmarking and tracking performance was emphasised by numerous other carmakers and LSPs, including Jan Bures, Head of Group Services for VW Group Rus. Software-provider Vehnet’s Managing Director, Steve Jones, announced a new industry-wide benchmarking initiative that Vehnet will establish in partnership with the American provider ADMI. Carmakers such as Sollers and PSA expressed a keen interest at the conference.
Other highlights included news from the regional government of Kaluga that investments and development in the new automotive production hub was still positive. According to Maxim A. Akimov, Deputy Governor of the Kaluga Region, of the 42 projects and €3 billion worth of committed projects in the region, only two had so far been postponed or cancelled.
Meanwhile, the region is continuing to develop new roads and rail links, along with three industrial parks that will serve VW, PSA, Volvo Trucks and Mitsubishi, among other suppliers. “We believe that we have laid down a foundation for future development,” he said. “It will give the country a positive social impact if we increase the employment levels in the region. It allows us to survive this crisis and gives us hope for the future.”
