QUESTIONS FOR PAVEL SOKOLOV, CEO, Russian Railways Logistics
Pavel Sokolov started his career in 1997 as a declarant at CJSC Oktransvneshterminal. In 1998 -2000 he was a Rail Transportation specialist at JSC Baltic Merkur, Atlantic Ro-Ro Carriers line. He also occupied several positions at SUE Oktyabrskaya Railway and later joined the Group of companies DIA as a Head of Trading Houses and occupied this position until 2005. During the years 2005-2007 he was an Executive Director at LLC Inter-Freight and was further appointed as a Deputy Director of Sales and Intermodal Transportation and held this position until 2010. He was appointed as a first CEO of JSC Russian Railways Logistics, subsidiary of The Russian Railways Holding, in November, 2010.
Pavel Sokolov is currently a member of The Logistics Committee of the Chamber of Commerce and Industry of the Russian Federation.
Pavel Sokolov graduated in 2000 from Petersburg State Transport University with degree in Rail Transport Management and earned the second degree in Marketing Management from Saint-Petersburg State University in 2004.
1. WHAT IS THE NATURE OF YOUR BUSINESS AND INDUSTRY? WHERE DID IT ALL START FOR YOU?
About Russian Railways Logistics
Russian Railways Logistics was founded in 2010 for the purpose of logistics business development within Russian Railways Holding. In cooperation with Russian Railways subsidiaries and leading global transportation companies RZD logistics offers high-quality delivery solutions for its customers all over the world.
In 2012 the company organized transportation of 3.3 mn tons of cargo against 1.5 mn tons in 2011. Net profit of the company amounted to RUB97.2 mn in 2011.
The company agenda in 2012 was enabling sustainable development. In 2012 Russian Railways Logistics organized transportation of goods both to Europe and Asia and cooperated with more than 450 companies-shippers, including CARBO Ceramics, UNITILE, Chelyabinsk Metals, YugRosProdukt, Italon Keramika, etc.
RZDL has recently launched a new project ahead of the 2014 Winter Olympic Games to be held next year in Sochi, Russia –joint integrated solutions on receiving and handling cargo at the Olympic terminal yard “Sochinskiy” at the Veseloe station of the North Caucasian railway. In the framework of the above-mentioned services RZD Logistics acts as a consignee and will also provide freight forwarding and other services including truck forwarding from the warehouse directly to construction sites.
In 2012 the company introduced multimodal transportation in cooperation with Russian Railways subsidiaries and other partner organization as well as domestic and international freight services with terminal and warehouse handling, truck forwarding, customs clearance and supply chain management.
Along with general cargo transportation Russian Railways Logistics actively developed the service of LCL transportation and introduced consolidated service for delivery of small cargo RZD Express. In 2012 small cargo was delivered to 579 destinations from 54 Russian cities. The company geography extended to 136 Russian cities or 7914 routes. The company started small cargo delivery to new regions of Russia such as Republic of Sakha (Yakutia) and Norilsk and Dudinka cities in the northern part of the Krasnoyarsk region. The company plans to expand this service to commercially unpopular routes such as from/to Magadan and Sakhalin, Chukotka, Kamchatka.
Currently Russian Railways Logistics offers single delivery service on Europe-Asia route transiting through the territory of Russia. Also RZDL actively participates in development of export-import transportation. For this reason in 2012 the company participated in two joint ventures – Euro Rail Trans in Latvia and YuXinOu in China, where RZDL owned a 16.3% stake along with Russian, Kazakh, Chinese, German partners.
The company strategy for 2012 was geographical expansion. The company opened branches and subdivisions in a number of new cities of Russia such as Zabaikalsk, Krasnoyarsk, Irkutsk, Yaroslavl, Kirov, Samara, Kazan, Voronezh, Saratov, Astrakhan, Novorossiysk, Perm, Chelyabinsk, Omsk and Tomsk. In addition, cooperation with Far East Land Bridge (FELB) allowed the company to use the potential of FELB offices in Europe and China.
The company objective for the upcoming year of 2013 is to reach operational excellence in the logistics market. Moreover, the company aims to expand the portfolio of services, as well as to develop further the business of its subsidiaries and joint ventures including YuXinOu in China, Euro Rail Trans Company in Latvia and Far East Land Bridge (FELB) in Austria.
About Russian Railways Holding
The Russian Railways (RZD) is the government owned national rail carrier of the Russian Federation, headquartered in Moscow. The Russian Railways operate over 86,000 km (53,000 mi) of common carrier routes as well as a few hundred kilometers of industrial routes, making it the second largest network in the world exceeded only by the United States. The Railways also are one of the largest companies in the world employing 950,000 people and is also a monopoly within Russia.
Russian Railways owns 50% of Aeroexpress, an operator of air rail link services in Moscow. In
November 2012, it was reported that Russian Railways intends to sell half of its shares (25% ownership in Aeroexpress) to TransGroup AS Ltd.
The Russian Railways were created in 1992, to take over existing lines within Russia from the Soviet Union.
Regarding logistics business Yakunin, the President of RZD: “Creating a logistics operator at the Russian Railways Holding will cut costs at Russian companies”.
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?
“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?
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.
6. WHERE TO FROM HERE?
SOKOLOV: “We believe that there is high potential in food logistics. Food Logistics represents one of the most complex types of logistics business, which requires compliance with a number of conditions, especially in regards to perishable products (foods). Now we are following this market trend and will focus on the development of this business direction.