Back to the Future: Heading for China

Назад в будущее: разворот на Китай

Let’s imagine the situation in baseball. An outfielder hears the sound of a ball being hit. The first thing his does in this case is to step back to catch or hit the ball. Seeing the ball, he corrects the direction of his movement. Further he is ready to perform all the necessary actions.

Today, in the logistics industry, as well as in the Russian economy as a whole, there is a situation of uncertainty. It is difficult and even risky to develop strategies and make decisions in such conditions. To a greater extent, logistics market players work under manual control. The horizon of planning is now for a day.  

The events of 2022 force us to completely reconsider our usual views on foreign economic activity.

Sanctions pressure on Russia from Western countries continues. Therefore, as the main alternative, large logistics companies see partnership with Asia, in particular, with China. Due to their geographical position, the southern regions of Russia traditionally cooperate with Europe and the Middle East. The reason for this is convenient chains, transit time and similar languages... But for an indefinite time, this remains in the past.

Many Western brands have announced their exit from the Russian market. Perhaps the companies are experiencing temporary difficulties and will return soon. Now it is better to reorient purchases to the countries of Southeast Asia as much as possible.

In China, unlike European countries, there is everything and even more. The prices are much more pleasant. You can quickly find analogues of any equipment or raw materials. And if you look closely, it turns out that most European goods are produced in the countries of Southeast Asia.

Why China?

Назад в будущее: разворот на Китай
Назад в будущее: разворот на Китай
Назад в будущее: разворот на Китай

Over the past couple of decades logistics and freight market has been on a constant rise along with the dramatic growth of China economy. Now, it is the world-largest logistics market. It expected to grow further. Out of top ten busiest container ports in the world, seven ports are located in China. – i.e., Shanghai, Ningbo-Zhoushan, Shenzhen, Guangzhou, Qingdao, Tianjin, and Hong Kong.

In recent years, there have been significant port delays as well as trucking backlogs due to the pandemic and following restrictions. And the entire world has had to struggle against global supply chain crisis which grew out of Chinese manufacturing and logistics industries. However, service providers and relevant organizations across the industry are making every endeavour to get back on track soon.

Назад в будущее: разворот на Китай

Мирослав ЗолотаревMiroslav Zolotarev, Head of ACEX Group:
«Transport corridors are undergoing global changes today – China is becoming an even greater leader. Transport interaction is growing. Many Russian importers who bought goods in Europe turned to China. In the Far East, a certain movement is unfolding to create new hubs and border crossings. One example of such cooperation is the opening of a large transport and logistics complex in Zabaikalsk on the border with China. Other major logistical Russian-Chinese investment projects are also developing.

The Chinese try to understand if they can ensure the production of the necessary items which were previously produced in Europe. For this they are asking Russian companies to send them applications for the release of these goods. After that, logistics routes and possibilities for transportation will be built.

It is too early to talk about a complete restructuring. Now the market is being rebuilt, we will import some goods from other countries, but some will not. Logistics in this case depends on where and what will be produced. Accordingly, we cannot influence this now, because manufacturers and importers are looking for new markets for purchases and sales.

However, we continue to build up capacities in Southeast Asia and carry out major joint projects. We met a new partner from Hong Kong who recently joined ACEX Alliance and opened a RMB account for foreign trade with China.

Виктор ТкачViktor Tkach, Commercial Director of NAWINIA, ACEX in Moscow:
«Almost 80% of operating lines have announced the suspension of work. At the moment, the following ones remained on the market: Fesco, Sasco, Sinocor, Torgmoll, Transit. The decrease in cargo volumes led to a reduction in delivery time.

Our experts observe a drop in rates for direct railways and dumping from Chinese lines. This is due to a lull in the market and competition for redistributed volumes. Container cargo flows from Europe to Russia are redistributed to the direction China – Russia.

As part of the redistribution of container traffic flows to Asian destinations, we predict the following: despite the current reduction in rates, in the near future the market will face their increase for all types of delivery, as well as a lack of space on ships, a shortage of containers and an increase in delivery time.

As a preventive measure to deal with future problems, we are launching our own ships. The first vessel has already left on March 25 on the route: China - Russia, with the possibility of feeder delivery of goods to the main ports of China.

Назад в будущее: разворот на Китай
Назад в будущее: разворот на Китай

Is China ready to host guests from Russia?

Peter JH YuPeter JH Yu, General Manager of WAC International Logistics, ACEX in Hong Kong:
Majority of Chinese business organizations hope to expand Russian business across industries. Even before the recent restriction on Russian trades, Russian market has drawn Chinese enterprises great attention. They have been always hoping for great partnership with Russia for a long period of time. Hence, it could be a great opportunity for companies in China to develop Russian business at this time.

Nevertheless, two economic hubs of China, i.e., Shanghai and Guangzhou, are under ongoing lockdown and severe restrictions due to the spread of Covid-19. That has been hindering business parties from exploring the market and networking.

We, WAC, are glad to have taken a big step with you for mutual growth as well as our customers. It is likely that Chinese Russian business will show significant growth when physical interaction resumes and industrial environment gets recovered.

When it comes to our customers, a lot of multinational brands (mostly, electronic goods/smartphone/appliances) have plans for further expansion of Russian market. However, there have been immense backlogs under the situation. Some enterprises in FMCG are also looking for marketing opportunities.

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