Russian’s rapid economic growth is increasingly highlighting the limits of the country’s warehousing and transport options. A mere 30% of the demand for class A storage facilities is covered. This makes logistics activities an attractive field for property developers to enter.

Litier Logistic Management Company, headquartered in Moscow (Russia), is planning the country’s first private freight villages. It envisages a network of logistics parks with rail and road access near airports and seaports. The centers would have their own customs clearance facilities and would be located in Moscow-Vnukovo on the River Dmitrov, near St Petersburg, in Nizhny Novgorod, in Rostov-on-Don and in Kaliningrad, among other places. Each of these sites lies on international transport corridor 9 (Helsinki, Finland – Caucasus) or 2 (Paris, France – Yekaterinburg). The scheme is supported by Berlin (Germany)-based Wagener & Herbst Management Consultants GmbH, which contributes its experience from the Berlin region and wants to connect the freight village in Grossbeeren (near Berlin) to the facilities planned in Russia.

“Everyone is talking of China, but Russia is very interesting too”, declared Dr Norbert Wagener during a podium discussion at the “transport logistic 2007” in Munich (Germany) in June. “We are lending our know-how and networks to help develop warehousing and distribution centers in Russia. Our long-term goal is to back that up with a supply chain.”

Modelled on Grossbeeren

Wagener & Herbst is collaborating with Moscow-based Cominfo Logistics Solutions and IPG Potsdam, as well as the Russian investment group Markos, in the frame work of a German-Russian Logcinet consortium on a project to establish a multimodal logistics centre with an adjacent 300 ha industrial park in Vyasma near Smolensk, directly on the Moscoe-Berlin rail line. Approximately EUR 300 million are to be invested there. The plans include a 270,000 sqm class A warehouse with a bonded zone, a multimodal terminal and container service center, as well various service facilities such as a petrol station, a vehicle maintenance centre, a business centre and a motel.

Ulrich Koch, director business unit CIS at Intercontainer-Interfrigo AG in Basel (Switzerland), is acting as an advisor to the project. The railway company operates trains to Russia. However, Koch believes the project will remain problematic as long as Russian customs clearance for rail containers is far more complicated than for trucked freight.

The rapid growth of the Russian economy is increasingly constrained by a dearth of warehousing and transport capacity. A mere average of about 30% of the demand for class A storage space is currently covered. As a result, increasing numbers of privately-finance logistics centers are springing up in crowded urban area. The company concentrating on this market include RGS Real Estate with its Lieter subsidiary, and the Markos Group.

Expensive logistics real estate

There are only about 6 million sqm of warehousing space in all Russia at the moment. The leasing costs for logistics property in Moscow are among the highest in Europe in view of the limited supply of high-quality storage facilities. Attractive yields are also being generated in other locations, such as St Petersburg, Rostov-on-Don, Nizhny Novgorod, Novosibirsk, Samara and the Ural Mountain region, where the number of class A logistics facilities has practically doubled over the past twelve months.

Nevertheless, transport requirements such as fast rail and road connections have not always been taken sufficiently into account when launching new logistics projects. As a consequence, the German freight village scheme and the idea of creating a network of logistics centers has met with increasing interest.

The Russian logistics market is currently showing strong development towards Western European standards and trends, according to surveys by the EuroAsian Logistics Association (EALA). Customers have been setting the bar higher, and ever more companies are starting to outsource their logistics activities. The market for logistics services is estimated to be worth about USD 93 billion. (The German logistics market is valued at EUR 150 billion, by compression). Approximately USD 17 billion of the Russian logistics market is located in the Moscow region, and of this segment, 2.2 billion applies to warehouse managing services. The overall Russian market for warehousing services is thought to be worth about USD 3 billion – with robust growth expected. Nikolay Tityukhin, president of EALA, calculates this area to be worth at least USD 15 billion.

Tityukhin said that the demand for efficient logistics services is continually growing, but this is widening the gap between providers which have suitable information technology at their disposal, and less developed, more traditional transporters. Competition is heating up between domestic and international companies active in the Russian market. As well as between domestic, region and local firms.

The retail trade has generated increasing demand for the management of large quantities of containerized freight from Asia to Europe. Industry has also starting purchasing in Asia. The majority of these imports enter the country through St Petersburg. Supply chain management has ceased to be a foreign phrase in Russia, according to Tityukhin.