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Monday 18.11.2019 | Name days: Doloresa, Aleksandrs

Russia decision threatens international road haulage growth

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Latvian association of international cargo-carriers Latvijas Auto President Valdis Trezins

Starting from January 1, Russia is going to introduce road transport restrictions in its territory by reducing permissions issued to foreign carriers.

BNN was informed by the Latvian association of international cargo-carriers Latvijas Auto President Valdis Trezins (Valdis Trēziņš). Latvian international road transport sector with 9 thousand trucks provides employment for around 20 thousand people in Latvia. Similarly, it also indirectly ensures auto services work, traders, leasing companies etc. Currently the industry is recovering from the severe crisis – freight volumes have increased by 30% this year. Freight rates have increased rapidly, which has allowed the exhausted carriers to recover and get back current assets. Decision adopted by Russia might stop the successful development; it provided limiting the amount of central permissions that allow carriers to operate in Russia starting from January 1. This might decrease freight volumes to Russia by 20%. Latvijas Auto and their colleges from Estonia, Lithuania and other countries will discuss these matters with the responsible Russian officials on October 5. In an interview to BNN V. Trezins points at carrier industry prospects also in other countries’ markets.

What is the most urgent task of international cargo-carriers industry in Latvia?

At the moment? To maintain its positions. The industry is slowly recovering from the crisis and some kind of activity has resumed.

Is smaller competition the reason? Or there is an actual cause for that?

Currently there is actual goods flow in both Latvia and our biggest market – Russia. Cargo traffic has grown by 30% this year, carnet issuance – by 15-16%. This is the actual cause. In addition, the number of trucks that had dropped last year from 12 thousand to 9 thousand,is gradually going up at the moment. Currently, the Latvian entrepreneurs have 9700 trucks. Everything testifies for the fact that the market is very active.

Given that fleet of international carriers has grown by 700 units, does this mean leasing companies have resumed financing car purchase?

Not exactly, these cars are mostly the ones that banks had taken away last year. That was obvious – about two thousand trucks had to be given away or sold. Currently the cars that had been idle standing are also operating. This is not so easy anymore for carriers to get a new truck like it was when the banks were actively issuing loans.

Are the car purchase criteria more strict?

They are; which is good. Now if you take a new truck, you know that banks are actually watching whether you have a good project and basis under that. The banks evaluate whether the basis is actual. Moreover, many carriers are currently acquiring second-hand trucks.

Is that more economically advantageous or simply easier?

There are many companies unable to meet bank’s requirements… Transport regulations are not so strict anymore that one definitely has to take a new car. The market is not able yet to earn back the value of a new one. There are certain problems also with Russia and permissions – this does not encourage fleet renewal.

Speaking about facts and transportation tariffs… Have they returned to the pre-crisis level? They say it is even exceeding the pre-crisis level…

Depends on the company… There are companies with long-term contracts. They cannot say freight level has grown significantly. Practically nothing changed for them neither during the crisis nor after it. There is certain stability. But for the rest – yes, the freight level is currently growing. The market is regulating that. At the moment the market is starting to lack trucks. Huge amount of them was removed from the turnover. The situation is that now there is growing demand and cargo amount, yet the supply is smaller, so the shortage occurs; therefore many are searching for ways of purchasing new trucks. Time is needed for the situation to flatten. I am trying to explain to the members of the association: guys, calm down. Do not make the same mistake. We have bitter experience. It is important not to overexaggerated, because the Russian market future prospects are not stable. If the market is well one day, it can be worse the other. The next year’s forecasts are quite worrying. There is no real clarity regarding Russia…

What is the problem of operating in Russia?

Russia wants to protect its market. We are used to working here, but they want more as well, so they are launching the protection mechanism employing the mentioned permissions. The Russian responsible officials already announced they were going to reduce the number of issued permissions per year by half.

Does this concern any foreign carrier or only Latvian?

Basically our region: Estonia, Latvia, Lithuania, Belarus, Poland, Moldova and Ukraine.

So they are reducing the number of permissions for carriers concentrating on the Russian market?

And those who can compete with the local ones. This is meant as market protection… market protection mechanism. It is their principle of parity – fifty fifty – they are talking about that all the time. Now they want to implement this principle through the center licenses, which allow to work not only between two countries, but also to operate transportations from third countries as well.

If the restrictions are introduced, what does it mean for Latvian carriers?

We have been calculating that if this is introduced – our cargo transportation to Russia will be reduced by 15-20%.

Has this issue been discussed on a higher level?

Yes, it has. It has not reached the Prime Minister yet, as the decision is quite recent, but Gerhards (the Minister of Economics Kaspars Gerhards) is aware of that.

Has the Ministry spoken to Russia about this issue?

They are planning some kind of meeting. International negotiations will take place as well. There will be discussions on this matter all the time until the end of the year.

Will the restrictions come into force from January?

Yes, they will. We have to think about what to do with those 15-20% trucks that might be excluded from the market. We need to look for other ways, for alternatives, including the European market. However, it is limited as well. Geographically we are some how in a periphery. Poles are dominating the centre region with their 100 thousand and more trucks.

What are the other alternatives?

There is an interesting project for freight transportation to Afghanistan. Apart from the railway, companies organizing cargo transportation with refrigerators to Afghanistan have entered Riga port, but we are not there, unfortunately. Basically Belorussians, Bulgarians and Poles do that…

How is that possible? Via Latvia but without our carriers?

The contract was won by a famous German transport company Willi Betz, who has a large agency in Bulgaria. They are currently dealing with all the logistics matters here. We have met with them for several times already. The European Union policy is that, if you transport from one country to the third one – you need the permission of the third country. This is what we are negotiating. Given that their carrier is a Bulgarian company, we want them to «share» with us instead of attracting their own carriers or Belorussians exclusively.

An what are Willi Betz representatives saying?

They are ready to give us information. Any way the aim is to employ these Russian permissions as efficient as possible, namely, to transport farther, obtaining greater added value.

In Russia?

In Russia or in transit via Russia. The permissions have to be used more efficiently. After all there is also the Caucasian region, the East, Kazakhstan and the already mentioned Afghanistan. The carriers need to understand that if we want to stay in the Russian market, we have to look for new opportunities. We have to search for partners and operate via them. We have to make use of new technologies – uncoupling – Latvians drive up to the border and give the truck trailer to the partner who transports the cargo until its destination. Logistics centers can be built near borders…

What are the forecasts of cargo volumes this year? Given that the market is recovering, could they grow?

They could grow by one third. We are returning to the level of 2006. The last year’s fall was very severe. It will not be enough with a year to recover completely.

You are saying that the industry suffered a great deal and it has to make use of the situation gaining strength?

We have to gain strength and consider the bitter lesson. Not only us, also other areas – banks, traders, businessmen, people. One should be calmer. Banks, fuel providers, leasing companies understand that… All the market players that survived – understand that now. They have more pragmatic approaches to all matters and they really examine all aspects before subscribing to one or other activity.

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