I interviewed Christoph Szakowski who discussed Winning in CIS-Logistics market despite the complexity in its supply chain.
Introduction and my experience
My name is Christoph Szakowski and I have been acting for a couple of years – as Managing Partner of LogCon East- as consultant and interim manager mainly for logistics providers in Central and Eastern Europe and Emerging Markets. Prior to that I learned how to develop, transform, restructure business of 3 PL providers in commercial, operational and general management roles with DB Schenker and Logwin AG. It was also DB Schenker where I had my first responsibility for Russia, it was back in 2004.
Russia belonged at that time to one of the trade lanes in Eastern Europe I had the target to significantly develop together with commercial and key account teams. This role was based in Frankfurt, Germany. Then a few years later after I accomplished this task I have received the new invitation for the same company, this time for joining the Directors Board in Russia, in Moscow.There for 3 years I was in charge for the strategy, operations and commercial leadership of a diversified business unit. This unit was providing several blue chip companies and local clients with cross-border transportation, customs brokerage, project cargo solutions, rail service, global sport events solutions in Russia and in the trade lanes to/from Russia. And my last experience let’s say in this CIS environment I gained as interim Chief Operating Officer at AsstrA AG, which a Switzerland based logistics provider with strong background in countries of the region we are talking about today and an remarkable footprint in the East-West transportation.
Description of the CIS logistics market
First of all a remark. I use the word CIS just to give a short description to a region consisting of several countries like Russia, Ukraine, Kazakhstan, Belarus, Azerbaijan, Armenia and others. I know some people might have another wording for the region but let us agree here to use this description for countries where Russian is the language spoken and which are located in Eurasia. OK. The total logistics market value for this region is estimated at 105 billion euro. Very important is that out of this only about 20% is outsourced transportation services. So only a fifth of the market is in hand of logistics providers and transportation companies. This is quite a huge market potential to be captured. In the European market, about 65% is outsourced and in China about 50%. So this creates space for developing services even though there are constraints to growth, something, I come back to later.
How about looking at the Russian logistics market in comparison to another Emerging Markets?
So considering the Agility Emerging Market Logistics 2017 index Russia is In position 10th out of 50 countries and scores about 23 % less than China which is the leader. So apparently business environment there, infrastructure, regulations, market size make for you as a company in the Russian business maybe by 20% harder to be successful than in China. But actually the ranking of Russia in on the same level as for the Turkish market for example which is currently rather popular with logistics companies and investors.
Last but not least – if you consider the CIS markets, you need to see that having established as a player there you have a great position in the transit corridor from China to Europe and Europe to China. So you can win not only in the traditionally strong domestic transportation market in countries like Russia but also cross-border transportation by road and by rail offers you a huge potential in many industries like Consumer
– Oil & Gas for project business
What makes supply chains in this region so complex and challenging?
There are 3 aspects I would like to underline here on the example of Russia. The first reason for the complexity is there that is – in long-term – high probability of economic crises, energy prices turbulences, strong currencies instabilities. Actually, in a long-term of let us say 7 to 10 years you can simply anticipate such turbulence. Your supply chain strategy as retailer, for example, needs to consider that consumption might be pushed down dramatically as first reaction. On the other side real estate infrastructure for example in region of Moscow might become or is becoming now by far cheaper compared to the situation before the last crisis. So you can significantly save your real estate costs whether you have your own distribution facilities or you have outsourced to your provider.
And in the meantime, the consumption is increasing when the economy stabilizes. And then you might end up with higher operational efficiency, streamlined networks and transportation operations. But this advantage you only will gain if you have the patience to stay long enough on this market.
The second point which makes managing your supply chain, managing your cost and time really hard is that there is only a small number of high-quality logistics providers and thousands of low-cost carriers. So let us say your decision whether and to whom outsource your supply chain operations might be restricted to a few players (if you want to achieve a high-level service, reliable delivery times, value added services etc.) or you have a huge selection once you want to go for the cheapest company with all the risk of cargo damage or loss, no information, bad customer service or transit delays which might be huge in the largest country of the world.
The third point which has a strong impact on managing supply chain is the human factor. Something I mentioned in earlier discussions and which might require to make it a special topic again. To put it in a nutshell. you need to build up a very trustful hierarchy and a chain of decision and command for people in the supply chain, including different official authorities, your partners, your suppliers, your 3 PLs your carriers. Actually then and only then you will win finally managing successfully your supply chain
What should cooperation between retailers or manufactories and 3 PL providers base on?
The basic thing is from the point of view of a 3 PL provider that they are well prepared for the discussion and negotiations with their client. They should know in which areas they can partner within outsourcing project to increase the operational efficiency of the network, improve the delivery KPis etc. According to some research and also our projects 3 PLs can, for example, shorten the time from an order to delivery by 20% and save by 15% the total logistics costs. But it needs first of all an open discussion and also the readiness of the retailer or the manufacturer to create an evaluation system of the 3 PL providers,, decide on their priority areas and then define a standard service level agreement.
What is also needed is quite an amount of contractual paperwork and agreement at the end of the negotiation process and then, of course, a steady control and professional evaluation on both sides. So a good, profitable cooperation needs here to follow a systematic approach and openness to discuss the whole aspects of supply chain and logistics
Personal stories and recommendations
Yes. Quite good here will be probably not one specific story but just a reflection on my time in being directly involved in the Russian or CIS logistics markets. I believe that has been a huge lesson about dealing with a large market with its big changes and an absolute amazing spectrum of people you meet or work with. I think as long as you consult or steer from a head office abroad or so you can apply your skills and your brain and that is enough but once you start to be living and working in the CIS markets you need to apply quite a large amount of emotions and people understanding and personal leadership.
I made my lessons and I feel with any new similar project which might be coming now how important those skills, those experiences, those successes and drawbacks have been. My recommendation is, despite the complexity of the supply chain and further challenges, to really dive into these markets. This is probably one of the best leadership lessons you can have in real business. Companies interested in the CIS market and seeking for advice in any particular areas of logistics and management can, of course, contact me on LinkedIn.
I would be looking forward to support.
About Christoph Szakowski
CEO / COO / MD / VP /Logistics / General and Interim Manager in CEE, CIS, Asia, Emerging Markets