Sector Spotlight: Automotive Logistics in Russia
Published on 27/02/2017
In the first part of a new series examining transport and logistics for specific industry sectors in Russia, ITE Transport & Logistics takes a look at the automotive industry. Despite declining output and sales, thanks to Russia’s economic slowdown, green shoots are displaying themselves – leading to a potential demand for increased logistics services in the near future.
Russia’s automotive sector: an overview
Russia has been a major producer of automobiles, including cars, vans and commercial vehicles, since the days of the Soviet Union. During the Soviet era, millions of vehicles were produced annually, establishing a number of popular marques throughout Russia and the CIS. Lada, GAZ, and ZiL are just some of the major Russian manufacturers still in production today.
Today, it is one of Russia’s most important industries, politically and economically. Over 600,000 Russians are directly employed in the sector. A further 2-3 million workers are supported by the Russian automotive industry.
Despite this, Russia is still the 5th largest auto-market in Europe (behind Italy but ahead of Spain). Forecasts from the Boston Consulting Group predict sales will hit 1.9 million by the decade’s end. PWC expects 7% growth in new car sales and a 5% rise in truck/heavy vehicle sales across 2017 – showing optimism is starting to return to the market.
In terms of production, Russia holds an annual capacity of 3.1 million vehicles a year. Car manufacturing is dominated by Russian specialists, who enjoy tie-ins and deals with international brands, with over half of all cars made by just 2 brands: AvtoVAZ, with a 50% share, and Avator accounting for 10% of Russian vehicle production.
Unfortunately, production has dipped. Manufacturing output contracted 7.4% to a total of 1.1 million passenger cars in 2016. Although it is not all bad news for auto-manufacturers in Russia. Truck production rose 6%, hitting a total of 137,000 units. The new bus market also increased 15.6% throughout the last 12 months, amounting to 10,400 units built.
Russia’s government is not idly standing by while the nation’s automotive sector is going through this transitional period. It is pumping more cash into subsidizing the industry – to the tune of $631 billion. In part, this will fund development of new facilities with an eye on boosting production output by the end of the decade.
While Russian brands consistently outsell foreign marques, a number of international companies are enjoying greater market presence. Korea’s Kia is the most popular foreign brand and has been for the past three years, with 150,000 sold last year. They are planning to launch up to 6 new or updated models in Russia.
Where does Russia build its vehicles?
Due to its importance as a market, Russia is littered with car factories. Given that most cars per 1,000 people sold are in either Moscow or St. Petersburg, the majority of production and associated infrastructure can be found in these two cities.
Many foreign producers, including Volkswagen, Toyota and Ford, have dedicated Russian production sites. Toyota and Ford, for example, have set up shop in St. Petersburg. Nissan-Renault, on the other hand, has played things differently.
The Franco-Japanese alliance is actually the controlling shareholder of AvtoVAZ, thus controls its production plants. Its main facility is in the city of Tolyatti, roughly 1,000 kilometres south-east of Moscow. Additionally, it also has sites in the capital, St. Petersburg and Izhevsk, over 1,000 km east of Moscow.
Tolyatti is something like Russia’s Detroit. A seventh of its 700,000 population is employed directly at AvtoVAZ’s production facilities in the city, making vehicle production a part of everyday life - and a vital part of the city's economy.
Sollers, Ford’s Russian partner, also employs production sites in the Far East of Russia, including Vladivostok. A number of international companies, including Fiat, Izuzu and Ssangyong, also have cars built there, as does Japan’s Mazda.
A look at automotive logistics in Russia
Along with dedicated vehicle road transporters, rail handles the majority of Russian automotive freight. Thanks to its extensive rail network, Russia’s car makers are able to ship new models ably across the country.
There are approximately between 1,300 – 2,400 active transporters in Russia at the moment. However, as automotive sales are expected to rise in 2017, a demand for transporters and logistics service will rise by the decade’s end.
The government subsidises automotive logistics in the Far East, owing to the difficulty in getting vehicles made there to the most high-demand regions. $50 million has so far been allotted to the Far East, making transportation a smoother, cheaper process. How? More roads, more available cash to cover transport costs and faster customs and inspections procedures.
In terms of export/import activity, vehicles tend to come and go through Russia's major sea ports. The biggest of these is, of course, the Big Port of St. Petersburg, which handles mostly European and American models. Vladivostok, on Russia’s Pacific coast, takes in Asian cargoes from China, Japan and Korea.
Experience Russian automotive logistics at TransRussia
TransRussia is the largest Russian business event for transport and logistics services and technologies. If you would like to understand how automotive logistics is changing in Russia, and grow your business leads in the the world's 5th largest auotmotive producer, it is the place to be.
TransRussia 2017, running between 18 – 20 April at Crocus Expo in Moscow, will be attracting major industry figures, including logistics managers, transport supervisors, freight forwarders, and more looking for the latest transportation solutions.
Get more information on the show today, or get in touch to register your interest in visiting.