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ITE Transport and Logistics

How e-commerce is driving Russia’s logistics market

When e-commerce and online shopping begins to take off in a certain country, transportation networks and logistics facilities benefit from new investment, ideas and products to meet the demands of a changing shopping environment. The supply chain adapts, new warehouses appear to store and dispatch the goods, and logistics service providers – both 3PL and specialist – look for new technologies to adapt to the changing behaviour of their customers.

The pattern is the same around the world. Take India for example – its 40% annual growth rate in online purchases means more and more companies are establishing dedicated e-commerce logistics divisions. Hong Kong is another market to prove the rule, with its excellent air links and connections to China attracting brands to base their B2C distribution there. Local logistics firms that can adapt to this demand are thriving – to take one example, logistics app firm Aftership is seeing a 20% monthly increase in online merchants using its delivery tracking services.

As Hong Kong’s example shows, even small countries are rewiring their logistics sectors to meet the new demands of e-commerce. But what about the world’s largest country, Russia?

First things first, Russia certainly is an exciting market for e-commerce growth. The total number of Russian internet users, already the highest in Europe, passed the 76 million mark in the first half of 2015, helping boost the country’s e-commerce market to $14.5 billion. This figure is growing 15% year on year.

What’s more, these already impressive numbers have potential to grow even faster. While Russia’s 76 million internet users is a big enough target market, this is only 65% of the adult population. Compare this figure to other countries – Norway’s internet penetration rate, for example, is 95% http://www.internetworldstats.com/top25.htm - and it becomes clear that Russia’s e-commerce boom shows no signs of running out of steam. Finally, Russians are starting to trust online merchants to handle their transactions, even ones based abroad. 12 million Russians now shop in foreign online stores, according to Bloomberg News. This has led to a flurry of new launches in the country, with H&M becoming the latest retail giant to capitalise on Russia’s online potential by opening an online store this October.

So what effect is this having on Russia’s transport and logistics market? Russia’s huge land mass, with large distances between population centres even in the European part of the country, has always posed a unique challenge for cargo owners and distributors. Now, as more and more Russians feel safe enough to buy online, transport and logistics in the country is looking forward to a huge amount of investment and new ideas.

One area seeing bigger spending is warehousing. Adapting to e-commerce and increased home deliveries means companies need the latest technologies to stay ahead of demand. Christopher van Riet, founder of Radius Group, estimated this year that Russian warehousing logistics will need $30 billion of investment in the long term to keep up. Van Riet is well qualified to make this prediction. Radius signed a deal this year to build a 100,000 square metre national distribution centre for Leroy Merlin near Moscow’s Domodevodo Airport, the largest retail warehouse contract in the world in 2015.

International players are also getting involved elsewhere in the supply chain – particularly as foreign e-commerce grows. Itella Russia, the Russian branch of the company formed after the privatisation of Finland’s postal service, launched a major new service for foreign e-tailers in Russia last year – in short, everything they would need to succeed in Russia. The service, implemented with a local partner, includes order processing assistance, customer delivery, warehousing, demand analysis, and much more. “E-commerce in Russia has its specific features,” said Itella’s e-commerce vice-president Aku Happo. “We are providing a suite of services for international online retailers, helping them concentrate on making sales to customers.”

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