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Indiaexportnews.com

The сustomer opts for quality

  13.04.2004    

Transport and freight-forwarding company Asstra Associated Traffic AG has representative offices in seven countries both in Eastern and Western Europe. The company's marketing director Oleg Germanovitch says that access to international transport is the main factor which determines how the company distributes its vehicle fleet. At the moment AsstrA is planning to enlarge its vehicle fleet in Russia. Lease payments generally make up about 30% of road transport companies' expenses. At the moment customs duties for imported new trucks are favorable for transport companies in Russia. This makes it easier for transport companies to reach profitability in a relatively short time.



The concerns and demands of the Byelorussian market

The competition on the Byelorussian transport market is relatively high nowadays as the capacities of Byelorussian road carriers greatly exceed the demands of the market. Around 80% of Byelorussian road carriers move export and import cargoes to and from Russia. The demands of that market are high and the rates are favorable. In contrast, there is not much work on the Byelorussian market. Companies in Belarus avoid working with freight forwarders, while the paying capacity of Byelorussian customers is often doubtful. This proved true for even the largest manufacturing plants.

Different policies in different states

The first priority for any transport company deciding on the geographical distribution of its vehicle fleet should be the availability of international transport market. Our company has gained enough experience on the Byelorussian market and has a good standing with customers there. We have a high cargo turnover in Belarus and consequently high revenues. However, our tax burden is also high. Due to the protectionist policy of Byelorussian truck manufacturer MAZ and due to the lack of stability in Byelorussian transport and customs policies many transport companies do not renew their vehicle fleets. Over the last year a lot of hauliers left Belarus and relocated to Russia and the Baltics. It is hard to tell the exact number, but it is estimated to be between one and three thousand vehicles. Quite a number of Lithuanian hauliers relocated to Russia as well – especially to Kaliningrad region which offers some advantages to international road carriers. Although AsstrA has only been working for a year in Russia, we have already acquired the status of an international transport company as well as access to TIR system. However we have come across some very curious cases in Russia's transport and customs legislation as concerns transportation by light-weight trucks. In Russia AsstrA Group is enlarging its vehicle fleet mostly by acquiring light trucks of less than 3,5 tons. These trucks distribute small consignments from Europe to different regions of Russia. We hope that our experience in resolving these curious cases will be helpful to the Russian Association of International Hauliers (ASMAP) and to the Ministry of Transport as well. We hope these bodies will take note of those cases and work out effective measures that would give light trucks equal access to the international transport market. At the moment a revitalization of the Russian market is underway as Russia strives to enter the WTO by stabilizing its economy. Russia is open to foreign investment. Customs duties for imported new trucks are low enough for companies to invest actively into renewal of their vehicle fleets. However, international leasing system for Russian companies still has quite a few disadvantages. International leasing is not recognized by Russian customs legislation. For that reason a truck that is being delivered to a Russian lease-holder from abroad is only allowed to enter Russia as temporary import. The maximum period of temporary import is two years. The lease-holder has to pay 3% of customs duties (the duty + customs tax) every month up until the end of the period. If the lease period is longer than 2 years, then in two years the truck has to be moved abroad and then moved back into Russia under the same conditions. The customs duty paid previously is not returned and the customs value of the truck is not reduced. As a result, if the lease period is three years then the customs duty will constitute as high as 108% of the truck's value, which means that leasing for a longer period is unprofitable.

Sometimes road transport is not the best solution

It appears at first glance that road transport can deliver imported goods all over Russia. Cargoes are taken by road to Ural and Western-Siberian regions. In February 2004 the route Chita – Habarovsk was opened and cargoes can now be taken by road everywhere from Moscow to Vladivostok. However, in most cases other transportation modes are used. Cargoes are moved by road beyond the Ural region in very time-sensitive cases only. Most cargoes – export and import – are moved by railway in rail wagons or containers. This provides for a much cheaper transportation over long distances. We have had some pretty absurd orders though. For example, in the end of 2003 a German shipper asked us to take some cargoes from Germany to Vladivostok and Irkutsk by road. We had to explain to the customer that trucks can reach these destinations, but at that point they will have to be dumped as utterly useless. A glance at the map of Russia does not always give a right impression about its actual size. Quite often the problem is not the distance but the condition of the roads. For example, in January 2004 AsstrA had to deliver some cargoes from Tatarstan to one of our large customers. Four out of ten trucks used for transportation later had to sustain week-long repairs. They were damaged in Tatarstan to such an extent that they had themselves to be carried by bulldozers. Trucks can only go to Tatarstan in winter as ice provides a good way of crossing rivers because often there are no bridges available. In summer though there is an alternative – local authorities offer truck drivers to use railway bridges. But only KAMAZ trucks can stand a test like that, and KAMAZ trucks are not allowed in Europe.

The mosaics of road transport market
A market is attractive for us if we have an opportunity to grow there. AsstrA Group is represented in seven countries – both in Eastern and Western Europe. Our customers are located virtually in every European country. Therefore we do not need to read analytical reports to know the peculiarities of the market in a given European country – we find out what the market is like merely by serving our customers. The Lithuanian market is overloaded with transport companies. Shippers are usually very well-informed and the rates for transportation are quite low. It all depends on the cargo traffic – the larger the traffic, the lower the rates. At the same time the Lithuanian market provides good conditions for import, storage of cargoes and their customs registration. That is the reason why AsstrA is actively engaged in deliveries of combined cargoes in Lithuania. At the same time intermodal transport is very developed in Lithuania. A large share of Lithuanian freight is being sent to Russia via the port of Klaipeda. Lithuanian hauliers handle most of the traffic from Europe to CIS countries and the Baltic States. Ukraine is a very large and independent market. Some very large transport companies operate on that market and the regulations for business are simplified, but still the transport market is not yet full and there is much room for development. Local hauliers have enough work. Ukrainian hauliers mostly provide for the demands of their own market and have not yet entered the markets of neighboring countries – unlike Lithuanian, Belorussian and Polish hauliers. Exports and imports between Russia and Ukraine take up only a little share in Ukrainian hauliers' business. What's more, Ukrainians offer transport services far cheaper than Russians. The competition on the German transport market is high nowadays. The presence of foreign carriers on that market is also quite high. The enlargement of the EU will increase competition further because ten more countries will gain access to the German transport market. In order to guard against that Germany intends to introduce some restrictions for the movement of labor force for the duration of 5 to 7 years after the EU enlargement. They are also planning to restrict the number of licenses for transportation inside EU countries. Most probably, transport companies will use alternative schemes, such as transportation of cargoes to Latvian and Lithuanian warehouses first and then combined delivery by truck to Russia. Logistics specialists will search for new opportunities and try to make use of cheaper services provided by the new EU member-states. Traffic from Europe to Russia is still dominated by foreign companies. Many Russian transport companies work on the intra-Russian market exclusively. Traffic from Russia to the Far East is growing fast. Our company is also expanding its presence to Russia's East. Last year AsstrA Group opened its subsidiary RTL-Rustransline in Yekaterinburg. At the moment the Group is represented in Moscow, St. Petersburg and Yekaterinburg – the largest Russian industrial and trade centers. More and more often we see Kaliningrad number plates on Lithuanian trucks and Smolensk plates on Belorussian vehicles. Business is being transferred to the countries where it costs less to operate, where more opportunities are offered, the tax burden is less tough and the customs procedures are simpler. Judging by legislation, the most favorable conditions for business development to date are found in Russia. Some types of trucks are represented on the Russian market, but others are not yet introduced. For example, Russia produces heavy tankers and bitumen carriers. However these vehicles are not suitable for Europe, as higher quality vehicles are required to work on the European markets. Russia lacks trucks with temperature control. It is mostly the Polish transport companies that operate in this share of the Russian market. Russian Transport Ministry is planning to import 4000 trucks into Russia under state guarantee and on preferential terms from 2004 to 2005. This decision offers a very good opportunity for Russian hauliers to enlarge their vehicle fleet and to expand their business. Consequently, the share of Russian companies on the transport market is likely to grow. However, it is predictable that the increase of competition among Russian hauliers will cause rates to drop considerably (primarily national hauliers' rates). As a result, it will take longer for transport companies to reach profitability. Cargo volumes will not grow too fast so it will not be easy for hauliers to find some work for the new vehicles.

Transit via Belarus or around it?

We hope – says Oleg Germanovitch – that the undercurrents in transport and customs legislation will not divert transit traffic from Belarus. Therefore we decided to open an additional customs bureau on the border of Belarus and Poland. We realize though that after May 1 cargo flow may shift towards Latvia and Lithuania as the new member-states start getting closer to the Old Europe. However, even now some Russian companies prefer transiting cargoes through Ukraine rather than Belarus because the customs processes in Ukraine are simpler and the fuel is cheaper. The disadvantage is that the distance increases by more than 450 km and they have to cross two additional borders. But the advantage is that they manage to avoid Brest – the Belarussian border crossing notorious for its queues. They also avoid the fees on Belorussian roads. In addition, there is only one road in Belarus where a three-axle trailer's maximum load is 24 tonnes – like in EU countries. On all the other roads, the maximum permissible load for a three-axle trailer is only 21 tonnes. In spring and summer seasonal restrictions for total weight are applied, and the result is that Belarus loses most of its international transit.

Broker's financial pedestal

The new Customs Code in Russia has raised the requirements for customs brokers to such an extent that middle-sized businesses can no longer enter this market. Customs brokers have to be able to provide a guarantee of 50 million Russian roubles. That means that brokers will have to pay 60–70 thousand US dollars in interest payments to banks in order to be able to provide the necessary guarantee. That explains why the cost for customs registration services has risen from 150 to 300 US dollars. The existing customs brokerage market in Russia can be called an oligopoly – there are from 10 to 15 large companies that are dictating their terms to all the rest of the market. Russian customs authorities have refused to cooperate with insurance companies while in Europe this type of insurance is one of the most common for customs brokers. As a result of these measures, AsstrA had to refuse to work with a customs brokerage company located in the North Western part of Russia even though this company has obtained a license a long time ago and employs highly qualified customs specialists. At the same time Ukraine, Lithuania, Poland and Belarus are more favorable to customs brokers and many importers use the services of our customs agencies in these countries. In these countries insurance premiums are adequate to customs brokers' revenues and the level of security corresponds to the requirements of customs bodies.


A conflict with a consequence

Russian customs has struggled for a very long time to have the guarantee from IRU (International Road Transport Union) ensuring that cargoes moved within the TIR system are delivered to the customs office of their destination and that all the customs duties for them are paid. It appears that this conflict will soon be resolved. Most probably the TIR system will be done away with. However, up until now the CIS countries have not yet worked out a single system of transit guarantees that could replace the TIR system. The new Customs Code that was adopted in Russia did not bring any difference. Russia could try to resolve this problem by relying on customs brokers: the responsibility to provide the guarantee of delivery and payment to the customs could be placed on them. But in this case the question remains – how to ensure controlled transit through the territory of CIS states.


China as panacea for TIR

The TIR system was created for the Western Europe and therefore it could never work well in the Eastern Europe. The further East it spread, the more problems arose. Taking this into account, is it possible to introduce TIR in China? China is a relatively unknown, but huge and growing transport market. However the Chinese have set restrictions for foreigners – foreign transport companies can only come onto Chinese territory as far as 100 km away from the border. Then cargoes have to be discharged and stored. From there the cargo is picked up by the local transport distribution system. Those who saw this system in action say that it is not of the best quality. China has recently become a member of IRU, but it does not yet have an access to the TIR system. But still IRU sees a potential TIR member in China.


The alternative will be cheaper

As yet TIR remains the only transport guarantee system in Russia. But it is predictable that in a few years after the EU enlargement the TIR system will be shaken further because the new member-states will develop their own system of transit. Since May 1 all the legislative acts that are in force in the EU countries will come into force in the new member-states. However, the new EU members will yet have to ensure that their authorities work in full compliance with EU requirements. The existing customs legislation in Russia already offers the possibility of exporting cargoes without TIR carnets. The "T" procedure for transit that was developed in Eastern Europe is available to all carriers. This system does not require the haulier to provide guarantees like security deposit or bank warranty. Instead, this system presupposes the responsibility of customs brokers to the customs authorities. AsstrA customs agencies located in Poland already work with T1 documents. There will be an alternative to TIR in Russia. It is only a question of time. When the situation with the new EU members stabilizes, the "T" procedure for transit will get closer to Russian borders. It may well become the alternative for TIR carnets that do not really provide the guarantee they claim to provide. The alternative system should be cheaper and more convenient.


The new Customs Code in Russia

Analysts predict that the volume of goods moved in Belarus will drop significantly as a result of the introduction of the new customs code in Russia. Already now imports into Belarus have shrunk in comparison to the same period of 2003. However, the new customs code was also responsible for a sharp growth in cargo volume in the end of last year as many companies tried to import as much cargoes as possible into Russia before the taking effect of the new code. Shippers did not spare their money on imports. All of this was done out of caution because nobody knew how the new customs code was going to work. The result is that now there is some deficit of imported cargoes. However it is still difficult to judge about the operation of the new Customs Code (the interview was taken only three weeks after the new customs code took effect in Russia). It appears that no significant changes occurred. Only a few small things have been altered. For example, previously, when exporting goods from Russia pallets had to be declared. Now they do not have to be declared, and the net weight of a palletized cargo equals its gross weight. Thus on the whole the customs is operating as it has before. At least that is the experience of AsstrA. Some irregularities in the flow of imported cargoes could be attributed to the depreciation of the US dollar against the euro. AsstrA is trying to tie all its transactions to a single currency. Two years ago we chose the euro because our biggest partners after Russia are western European countries like Germany, Italy and France. Russian companies still mostly use US dollars, but the euro is gradually gaining more and more popularity there.


In railways' tight grip

Belarus could not maintain its hold on the international transport market. It is also gradually losing its grip on the Russian market, and its home market is too small. The influence of Polish international transport companies contributes to the weakening of Belorussian transport business. Polish transporters possess more finances. Credit possibilities and modern transport equipment are more available to them than to Belorussians. It is true that the Polish do not go as far as Ufa and Yekaterinburg, but they work quite well on the roads up to Moscow. Beyond Moscow the roads are different and other modes of transport are mostly used. Cargoes there are mostly moved by railway. But railway transportation also has quite a few problems like rates, the sate policy etc. Russian Railway has undergone some changes, but these changes did not have a deep impact upon its work. It is true that new treaties have been signed, but the conditions of the new treaties are the same as those of the old ones. On the whole, the new Russian railway is the same old one in a slightly different package. Of course the state should put some restrictions, but it is doubtful that statesmen can assess to the full extent the economics of a large company. The state should collect taxes and set an adequate tax level – so that businesses can pay taxes and develop at the same time. For what reason does Russia strive to enforce rail transport? Countries like Austria or Switzerland motivate their policy to develop railway by reasons of ecology. They say that the number of trucks on the road should be reduced. The Germans, for example, have fenced their roads, set severe standards for trucks and introduced highway tolls.


The choice of railroad is not incidental

The Russian Railway is trying to restrict the growth of other modes of transport. Raw materials are the most common type of cargo transported by railway in Russia because the transportation of manufactured goods is not so safe. Manufactured goods can be damaged or stolen and the delivery time is often too long. Moreover, rail transport is being more and more criticized even in Germany, mostly for its slow speed and the lack of security. As concerns returning a container by rail, in many cases it is impossible. Customers tend to prefer transportation by road as trucks take cargoes from door to door. On the railway the preference is given to customers moving hundreds of thousands tonnes of metal or iron as trucks are not suitable for that kind of cargoes. Railway usually disregards clients that need only one platform or wagon for transportation, although most railway users are little businesses. Railway is good for a large mass of cargoes that are needed for a large industry. Road transport serves trade deals well enough. There is one more inconsistency – in Western Europe only a little share of traffic goes by railway, while in Eastern Europe this share is 70%. However, in Eastern Europe it is mostly raw materials that are moved, but in the case of Western Europe railway is a part of a logistics process. At the same time it is difficult to compete with railway when it comes to the transportation of raw materials. Thus every mode of transport has its share on the market. AsstrA makes use of all the modes available and therefore we can offer what suits individual customers best. Our goal is to deliver the cargo for the customer and do it in full accordance with the customer's wishes. That is the essence of quality service.


The customer opts for quality

It is very important for any company to define its position on the market. In general, it means defining the company's attitude to customers – what the company offers and how customers are served. If a company wants to value its every customer it has to understand each client's needs and expectations and provide the services that correspond to these needs and expectations. The degree to which the services offered answer the customer's expectations determines the quality of the product. In AsstrA Group we have a system of quality control that really works. The analysis of our customers' questionnaires proves this. This year the Group's quality control system was certified with the international standard ISO 9001:2000. All the branches of the Group in Switzerland, Russia, Lithuania, Ukraine, Belarus, Poland and Italy have been examined by the independent Swiss auditing company SGS which has confirmed the quality of their services. For us it is not just a certificate, it is a real proof that our work corresponds to world standards in business. We have taken all these steps in order to serve our customers and contractors most effectively.



















































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