#### Express delivery market in Russia

 

 

POST OF ORIGIN:                              MOSCOW

 

DATE OF REPORT:                              112299

 

AUTHOR:                              MarinaVigdorchik

 

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND THEU.S. DEPARTMENT OF STATE, 1999. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

 

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U.S. & ForeignCommercial Service Moscow

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121069, Moscow, Russia

Tel: 7-095-737-50-23

Fax: 7-095-737-50-33

E-mail:[email protected]

 

SUMMARY

 

Development of theexpress delivery service industry today in Russia is rapid, comparable to thatof the telecommunication business. The total turnover of express delivery companies in Russia is estimatedat about $100 million.  During thelast three years foreign companies invested about $40 million in development ofinfrastructure for express delivery services in Russia. Their Russiancompetitors on the contrary did not spend as much, but managed to obtain 1/3 ofthe market. 

 

Despite a flatpost-crisis growth in the Russian express delivery market since mid-1998,Russia remains viewed as having good potential for business.  The major players on the deliverymarket consider that competition for market position has already begun.  According to experts’ opinions majorincrease in demand for express delivery services, in domestic deliveries andinternational mail traffic, is anticipated after Russia’s June 2000presidential elections, which is seen as likely to bring a measure of politicaland economic stability.  A lotdepends on how fast the economy grows. Russia is different from other markets, and a relative shortfall ofdirect road and air infrastructure is a barrier to expansion of service.  Current players need to develop theirservice networks as fast as possible to ward off potential futurecompetitors.   

 

# Market shares of the major players

 

Objective informationabout the market shares of the major players is scarce.  However, according to a recent studyconducted by Research International, at the beginning of the 1998, DHL was thelargest player and controlled - 55% of the market in Russia.  Its closest rival, UPS controlled 17%,TNT-16%, FedEx, only 7%, and local company EMS Garantpost -5%.  The study estimated shares only in Russia’sinternational deliveries market.

 

At the same time,other sources give quite different figures of the market shares.  For example, according to recent UPSestimates, which includes deliveries not only outside but also within Russia:DHL controls 35%, UPS - 25%, TNT - 15%, FedEx - 15%, and EMS Garantposttogether with other local companies - 10%.  

 

EMS Garantpost,however believes it holds about 60% of the total delivery market within Russia,DHL - 22%, FedEx - 10%, UPS - 6%, TNT - 2%.

 

The first majorcompany in the express delivery business to establish its presence in Russia in1984 was DHL.  Later on, with therapid development of the international business relations in Russia in the1990s, the need for courier services became obvious.  Other big international express delivery companies such asUPS, TNT, and FedEx  appeared onthe Russian market.  During thisperiod the annual growth of international mail traffic was estimated at about50-60%. In fact, 90% of this traffic was concentrated mostly aroundMoscow.  The August 1998 crisissignificantly curbed the annual growth of the international mail traffic, toapproximately 25%.  

 

***Major customers of the expresscourier services in Russia.***

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The following dataprovides figures on the major customers of the express courier services inRussia. The research was carried out by the Association of Express Carriers,which was formed in May 1995 and has among its members such firms as DHL,FedEx, TNT, UPS, and Russian companies City-Express and Rusco. 

 

41% - Companies withforeign participation and representative offices

59% - Russiancompanies 

 

Office and consumersequipment and electronics - 23%

Banks and insurancecompanies - 12%

Legal servicescompanies - 4%

Governmentorganizations - 11%

Pharmaceutical andmedical companies - 9%

Automobilemanufacturers and trading companies - 4%

Advertising agenciesand publishing companies - 8%

Private users - 4%

Manufacturers of foodand food trading companies - 8%

Metallurgic companies- 4% 

Oil and Gas companies- 4%

Telecommunicationcompanies - 4%

Others -6%

 

 

***Most of thegrowth in the express delivery market is in domestic deliveries.***

 

Russia’s domestic couriermarket is developing three times quicker than the local demand forinternational service. Geographically, Russia occupies 1/6 of the world and the potential ofthe Russian domestic market is enormous, as express mail delivery servicepractically did not exist in the country until recently.  In 1997 domestic mail traffic grew atabout 30%.  Multinationals, thecore customers for express delivery firms, are one of the primary driversbehind this trend, ordering more domestic deliveries as their operations expandfrom Moscow to the provinces. Russian companies have also started using express courier services moreoften. 

 

International expresscourier companies were forced to turn their attention to the domesticmarket.  The companies haveannounced expansion plans, saying the 1998 financial crash had not dealt afatal blow to the still underdeveloped express delivery business.  In 1998 such companies as DHL, TNT, andUPS significantly expanded to the regions. Today DHL has about 30 branches inRussia and 65 agents, providing services to 250 cities.  DHL expansion plans call for theaddition of 12 to 15 new agents, which would add another 50 cities to DHL’sservice roster.  UPS has opened 2branches and about 20 agencies, TNT has expanded to 11 branches and agencies,and plans to open offices in Irkutsk, Murmansk, Yekaterinburg, Krasnoyarsk andKaliningrad before the end of the year 2000.  FedEx today serves about 1200 CIS cities, mostly inRusia.  This expansion is supportedby aggressive advertising policy and adaptation of the procedures to localconditions, such as filing documents in the Russian language.  

 

# Local companies increased their market share

 

Local companies alsohave been mastering the market for the last several years, though their marketshare so far remains relatively small compared to big internationalcorporations.   EMSGarantpost, Rusco, and Pony Express are the local leaders.  Before the crisis local companies couldnot compete with the foreign companies as their prices were almost at the samelevel and they were serving only about 10% of the market. Today their marketshare increased to 30-35%, as local companies have seen their foreigncompetitors’ rates rise in relative terms as a consequence of Russia’s 1998currency depreciation. 

 

The post-crisiscourier business significantly slowed down as the number of clients was reducedand the demand for express deliveries decreased by 20-25%.  All the market players were forced toundertake a number of aggressive fee-slashing steps to stimulate demand.  These measures appear to have beenrather effective and by the middle of 1999 international mail traffic almostreached its former level.  Theinternal delivery market also decreased significantly, by 20-28% after thecrisis.  Domestic companies tookadvantage of the depreciation by reducing their prices.  Today the cost of mailing a 4kgshipment by Russian courier service costs about $20, while the same serviceprovided by a foreign company will cost $40.  Standard delivery time for Russian companies is down to 1 to4 days and today local companies consider their share on the domestic market tobe about 60%.  Together withexport/import operations they control 32.5% of the market (according to EMSGarantpost estimates). 

 

Local courier anddelivery companies consider the quality of their services today to becomparable to that of foreign companies and are planning to furtherexpand.  However, speaking aboutinternational segment of the market, local companies do not possess globaltransportation and computer networks and cannot compete with big internationaldelivery firms on Russia’s international deliveries.  On the other hand, international companies often use localservices to deliver correspondence to the provinces within Russia. This maylead to joint ventures or acquisition of local companies by big internationalcorporations seeking inroads into the Russian internal market.

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***New customs regulations forexpress deliveries***

 

Beginning the 1stof January 2000 new customs regulations for express delivery of documents andparcels come into force in Russia. Customs registration of goods will now be processed in a new simplifiedorder.  Today documents aredelivered usually in time as they can be cleared through customs withoutproblems; but for parcels current customs procedures can cause delay of a weekor more.  With the new regulationthe carrier itself will be named as the temporary receiver of the cargo.  He will deliver the goods to therecipient under his own responsibility and is obliged to submit a customsdeclaration within 15 days after delivery with the full information on thegoods delivered.  If the cargo isnoncommercial and costs less than 100 Euro (which is the case with the majorityof express parcels) the customs declaration is filed for the whole shipment andnot for each item separately as it was before.  The new customs regulations will allow the carrier todeliver the parcel within 12-72 hours, depending on the distance.  Selective inspection of goods willstill be conducted in order to discourage transportation of illegal goods orcircumvention of tariffs, but the customs registration is simplified. 

 

Specialists expectthat the new customs process will not lead to a significant increase ininternational express delivery turnover to or from Russia.  However, by cutting resources spentresolving customs hassles the new order will free up the companies to focusmore actively on exploring opportunities of the domestic market, whosepotential may remain as much as 90% untapped.  

 

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***Moscowmarket for express-courier services is occupied mostly by small businesses***.

 

Whilebig international companies and their major local competitors are dealingmostly with long distance mail traffic, express delivery services within Moscowrepresent a different segment of the express delivery market. 

 

Thereare about twenty express-mail delivery companies in Moscow, which serve mostlyforeign clients (80-90%).  Localcompanies still prefer to use their own resources (company couriers anddrivers) which are more expensive, but perceived as more reliable.  The express delivery service is a newservice for the city.  To send aletter within the city by post, which formerly was the only possible way, usedto cost 4 kopecks and took 2 to 3 weeks to get to the addressee.  That is the reason why local companies,having little information about the quality of courier services, prefer lowerrisks over lower costs. 

 

Most of clients areinterested in how quickly and how expensive is the express delivery.  Delivery time offered by the Moscowcompanies is usually up to 48 hours. In fact the average delivery time is about 24 hours, the express servicetakes from 2,5 to 3,5 hours.  Thepricing policy is difficult to define and rates differ sometimes from 3 to 6times. Not all the companies offer to deliver mail if the addressee is locatedoutside of Moscow, and not all of them provide confirmation of delivery, whichis very important. The price for delivery of a single package is much higherthan that of a dozen or hundreds of letters, and only few companies agree totake such an order.  Larger or onthe contrary smaller companies usually serve individual orders.  The former are sensitive to theirreputation, the latter are looking for all possible orders to survive in themarket.

 

However, therequirements for business documentation are becoming more strict and in a lot ofcases companies insist on getting original documents.  Local companies are slowly breaking free of stereotypes and,with the reviving of the economy, the demand for express-courier serviceswithin the city is growing, as already noticed by the express-couriercompanies. This suggests that the express-courier service in the city hasplenty of room to expand, but that competition will be tight.

 

According to themagazine “Expert”, the following companies are among the major players on theMoscow market today: 

 

Number of permanent                Numberof deliveries               Number

                              couriers                              permonth                                  ofclients

 

COURIER                       142                                             106000                                217

City-Express           100                                                     17000                                  100

Zest-express            50                                                        35000                                    55

BB-Courier                             60                                10000                                    20

 

 

 

***Express delivery services contactinformation:***

*** ***

## DHL International

3rdSamotechnyy Per., 11, Moscow, 103473

Tel: 7-095-956-1000

Fax: 7-095-974-2105

##  

## Federal Express

8/17 AviatsionnyyPer., Moscow, 125167

## Tel: 7-095-234-3400

## Fax: 7-095-234-9942

## Email: [email protected]

www.fedex.com

 

## TNT Express Worldwide

3rdBaltyyskiy Per., 3, Moscow,125808

Tel: 7-095-931-9640

Fax: 7-095-9319644

Email: [email protected]

www.tntew.com

##  

## UPS 

8, Bolshoy TishsinskiyPer., Moscow, 123557

Tel: 7-095-961-2211

Fax: 7-095-254-4015

www.ups.com

 

## EMS Garaantpost

33, VarshavskoyeShosse, Moscow

Tel: 7-095-956-2454

Fax: 7-095-956-2654

 

 

Pony Express

Vorobyevy Gory, MoscowState University, Moscow, 119899

## Tel: 7-095-930-2080

Fax: 7-095-930-1520

Email: [email protected]

 

## Rusco Russian Courier Service

2ndFrunzenskaya Str., 8, Moscow 110146

Tel: 7-095-245-1760

Fax: 7-095-246-3418

 

## Courier

22, Balchug Str.,Moscow, 103035

Tel/fax:7-095-958-2929

##  

## City-express

27, Petrovka Str.,Moscow, 103031

Tel: 7-095-792-3232

Email: [email protected]

www.cityexpress.ru 

 

Zest-Express

8, Vvedenskogo Str.,Moscow

Tel: 7-095-334-4041

Fax: 7-095-333-6179

Email: [email protected]

 

VV Express

125B BolshayaCherkizovskaya Str., Moscow

Tel: 7-095-964-4610

Fax: 7-095-964-4601

Email:[email protected]

 

 

The U.S. & ForeignCommercial Service Moscow offers assistance to U.S. companies interested inexpanding their sales to the Russian market or developing contacts, includingidentifying distributors and arranging meetings with prospective buyers, duringbusiness visits to Russia.  Formore information on FCS Moscow services U.S. exporters may visit the BISNISsite at: www.mac.doc.gov/bisnis or contact us directly.