SUPPLY CHAIN MANAGEMENT
INTERVIEWS, SPEECHES
2013, 21 FEB
Russian Railways Logistics CEO Pavel Sokolov's interview for Africa Business.

SOKOLOV: “…JSC Transcontainer, where I worked before, was one of the first subsidiaries of the RZD Holding, which started providing logistics solutions. When Vladimir Yakunin, the RZD Holding President, decided to create a new subsidiary to develop logistics business within the Holding I was appointed as a CEO of the new company and started this logistics business from the grassroots. Since then Russian Railways Logistics started. Currently the number of RZDL staff increased to approximately 300 employees who are working in the Moscow hub, 8 branches and 11 separate subdivisions of the company in Russia.

We launched a number of projects and worked with diverse clients mainly on Europe-Asia axis. Among the most distinguished developments are following during these two years:

  • Russian Railways Holding (RZD), the parent company of Russian Railways Logistics, signed a memorandum on development of transport and logistics with Kazakhstan Temir Jholy and Belarusian Railways, which envisages the creation of a joint transport and logistics company with participation of RZDL to control rolling stock and terminal storage facilities, providing attractive transit solutions on route Europe-Asia. Currently the South routes destined to Iran and Turkey, are based on cooperation of RZDL with Customs Brokerage center Zhibek Zholy in Kazakhstan, which offers customs clearance, terminal handling, transport and forwarding and transshipment services.
  • In 2012 RZDL introduced several joint ventures including container train Europe-Asia, a joint project with international container transit transportation operator Far East Land Bridge (FELB). Since signing agreement in March 2012 RZDL has started cooperation with FELB in the framework of its strategy on expansion to European and Asian markets, which aims to develop the transit potential of the Russian Railways Logistics and to organize integrated services for transportation of transit cargo on the China-Europe route via Zabaykalsk, Russia. Russian Railways Logistics has now acquired 10.2% of the FELB shares. Other two joint ventures – Euro Rail Trans in Latvia (to Baltic sea) and YuXinOu in China (on Duisburg- Chongqing route transiting through Kazakhstan), where RZDL owns a 16.3% stake along with Russian, Kazakh, Chinese, German partners.
  • Last year Russian Railways Logistics initiated freight forwarding services from Saudi Arabia, Thailand, Malaysia, China, South Korea through Dostyk, the border crossing point in Kazakhstan. This option offers full range of services including container provision at the port of departure, sea freight to Qingdao and Lianyungang ports in China, port forwarding, freight forwarding in Chinese Railways containers, customs clearance, providing hauling stock and reloading into broad-gauge railway carriage, freight forwarding in CIS countries.

 

2. WHAT ARE THE MOST MEMORABLE MOMENTS IN YOUR CAREER?

SOKOLOV:

“Memorable things happen to me quite often. For me personally the most valuable experience is successful implementation of projects, which have never been implemented before and to offer attractive and up-to-date integrated solutions to our clients. Also in cooperation with carriers and terminal owners RZD Logistics team develops new transportation schemes to enhance our business priority, which is a possibility to ship to any world destination.

What does attract me in the logistics market?

1. Well, first of all, the fact that it develops rapidly, especially its services. Currently RZDL offers its clients 3PL door-to-door integrated logistics solutions based on multimodal transportation (air, railroad, road, and sea freight) supplemented by customs clearance, warehousing, consulting and supply chain management. We have already worked a lot on diversification of our service portfolio and on implementation of more complex projects. Our long-term agenda focused on even higher optimization of import-export traffic to add value to the businesses of our clients. RZDL perspective for the future is launching 4PL services supplemented by the outsourced financial, customer services and computer systems to support commerce, which demonstrates dependence on innovations in IT sector and demands integration with the newest technologies.

2. Secondly, there is an opportunity to diversify transportation routes to different destinations locally and internationally, which is possible due to the closer cooperation between governments and companies. A number of joint projects with the participation of RZD Logistics have appeared on the Eurasian logistics market since November, 2010.

For example, currently we serve Duisburg-Chongqing route (Europe-Asia), which is a transport bridge of 11,000 km of railways, or 20 days, while previously the main transportation mode on Europe-Asia route was sea freight with a total distance between the two continents amounted to 20,000 km or 45 days by sea. Thus our transportation solutions allowed the customers to save time on the transportation of goods and cut their costs.

As a reference:

Chongqing route goes via Kazakhstan (TransKazakhstan) and from RZD Logistics side the services are provided by RZD Logistics subsidiary YUXinOu  from Chongqing (China) to Bryansk, Russia and further to Europe. In Aktogay (Kazakhstan) this route may be forwarded to Novosibirsk on Trans-Siberian railway (see the attached map).This route mainly serves the interest of producers of Central China. From the other side we may serve the interest of the clients in the North, North East of China, and offer another route via Zabaykalsk, Russia in other words Tran-Siberian railway. We serve this route in cooperation with Fas East Land Bridge, which is also our subsidiary based in Austria.  These two routes are not competing with each other as they serve the interest of the clients-producers from different parts of China and optimize transportation. Our approach is to offer best possible solutions based on the needs of our clients.

3. One more challenge while organizing delivery through other countries is the difference in legislation or the complications with the adoption of the new laws. The latest developments, which positively affected Eurasian logistics market and our clients, are following:

  • Significant development in the Eurasian logistics market in 2012 was simplification of the procedure of shipment to far destinations, the new solution introduced by Russian Railways logistics, delivery with CIM/SMGS Common Consignment note. The document is issued both in paper and electronic form and fulfills EU requirements for prior authorization through the Eurasian rail corridor to countries like China, Kazakhstan, Mongolia and Russia. This will save clients’ time and money as it eliminates the charges for re-issuing the CIM consignment note at each border crossing, as well as reduces potential delays and speeds up the certification process. According to preliminary calculations in the upcoming years transportation via Russia may be reduced to 7 days, while travel time between the two continents may be shortened from 21-22 days (for Duisburg-Chongqing route) to 15-17 days. The first multi-client train with common consignment note, which consists of 42 forty-foot containers and loaded with Acer, ASUS and other producer cargo, dispatched from Chongqing (China) on October 31, 2012. Freight forwarding was organized by Russian Railways Logistics in cooperation with YuXinOu (Chongqing) Logistics.
  • Another important implication is non-tariff barrier elimination in transportation sector by creation ’1520 space’ linking Europe and Asia as the 1520 mm gauge of the railways in Russia and the CIS opposed to the European and Chinese ‘standard’ gauge of 1435 mm. Difference in the gauges slows down the speed on the route between the EU-China and Trans-Siberian Railway and cargo has to be transferred to a different train at the national border, which is a significant demurrage while the transport volumes on this route are rather high.

4. Another challenging question is meeting requirements for transportation of specific goods, e.g. Russia is quite famous for cold and even extreme weather conditions. The low temperature may damage the shipped goods (mostly electronics) thus the shippers prefer either to postpone rail delivery until warmer temperatures or order shipment in special containers, which increases the cost of shipment. RZD logistics in this case offers transportation with 45-foot containers with autonomous diesel generators, which are larger than the ordinary ones and can keep the necessary temperature inside.

 

3. ANY BAD MOMENTS YOU CAN RECALL? IF YES, HOW DID YOU OVER COME THEM?

SOKOLOV: “For any individual the most difficult and negative thing, which unfortunately may happen, is the loss of the beloved ones. Complications may occur in the business as well; however, people may overcome them as these issues are just the facts of reality”.

 

4. DO YOU THINK YOU ARE IN THE RIGHT DIRECTION REGARDING YOUR REACHING YOUR FUTURE GOALS?

SOKOLOV: “Definitely! Our company has its own strategy for development and we operate within it. We try to plan our activities in advance and to predict the needs of the market and changes, which may occur, in the long-term perspective until 2030. I believe that any company should set goals ahead and move towards them accordingly; otherwise you may not succeed in reaching them.

 

5. AS A RUSSIAN, WHAT DO YOU THINK AFRICA HAS TO OFFER YOUR BUSINESS AND WHAT DO YOU THINK YOU CAN OFFER AFRICA?

SOKOLOV:

Russian-African cooperation has long history, which unfortunately was disrupted first by the collapse of the USSR in 1990 and later hindered by rapid political changes in the countries of Africa. Nonetheless Africa remains a fast developing continent and it attracts the foreign investors not only from Europe and America, but also from Asia (namely India and China) and becomes an effective partner in developing transnational businesses. In these circumstances Russia, of course, cannot lag behind. A lot of Russian and foreign businesses observe high potential for investment in the African continent due the fact that many regions of Africa are rich for extractable resources. As you know Russian companies have a long history and sufficient expertise in exploring mining fields. However, the capitalist Russia changed its strategy in the region: the main aim is not only to explore the new deposits, but also to develop them, which will increase natural resource potential for both Russia and Africa and strengthen two-side cooperation. For this reason many Russian companies have entered this market and built up partnerships with other foreign companies in order to get involved in efficient geoexploration and other mining activities. Particular interest of Russian companies is around energy sector (Africa being number four in the world in oil extraction) and extraction of precious metals, carbohydrates and fertilizers. From the other side cooperation with Russia maybe useful for African partners in exchanging expertise in mining, construction of water schemes and facilities and  water desalination projects in agriculture, and  infrastructure projects.

The main challenges for the Russian business in the region in this regard are political instability and different level of development of different countries of Africa. I may also count lack of infrastructure, different weather conditions, labor need to be trained for specific needs of the businesses. But from the other side, all these give comparative advantage to the companies and high risks may be somehow highly profitable in the end. As a result this foreign expansion to the African continent may add greatly to its development and its role on the global market.

Currently a number of Russian mining companies in involved  in implementation of investment projects in Africa, e.g. Russian Aluminum has interests in Nigeria, Rusal invests in aluminum refinery plant in Guinea, Alrosa, which is the Russian diamond monopoly developing ore mining in Angola, whereas Norilsk Nickel invested in gold mining company in South Africa. And these are just a few ones to name.

As I mentioned before currently we are focused on diversification of transportation routes and global expansion.  RZDL was established just two years ago and we have offered logistics solutions to and from a wide range of places and of course Africa is also on our agenda. Recently RZDL delivered some cultural goods to the South Africa. Thus, I believe considering the number of industrial giants developing business in production of raw materials in Africa we may offer special attractive logistics solutions for this sector as well.  I think that by improving logistics solutions and maximizing the speed of delivery of raw materials and other goods, the time spent on delivery will be reduced as well as the transportation costs. This will further increase competitiveness of Africa on the global trade market and eventually lead to the development of production and creation of new jobs and boost further economies.

Source: Africa Business