The express-delivery business in Russia, which basically started from scratch in the 1990s, is today growing by leaps and bounds: It’s still only revving up its engines, with plenty of room for growth, according to industry players.

Alongside the big international companies – DHL, UPS, TNT Express and FedEx — hundreds of Russian firms are making their presence felt throughout the country. Maxim Zyuzin, marketing director at UPS, said that domestic companies now account for up to half of all cargo shipped through the Sheremetyevo airport cargo terminal.

Western companies continue to dominate the global-delivery market, while domestic companies are making inroads on the home front, say experts, who point to companies such as EMC, Garantpost, Pony Express, City Express, Rusko and Armadillo Business Parcel as the leading Russian firms.

The situation is a big change from the Soviet days, when there were only two specialized express-delivery agencies, both owned by the state – the dispatch service and Spetssvyaz, or special-delivery service. The few express deliveries for Russian organizations were carried out by a special department of Soyuzvneshtrans.

Today, many Russian companies concentrate on express deliveries within a particular region or even in a specific city. According to Zyuzin, the sector is growing so fast that companies do not really feel the competition.

"There is growth of dozens of percentage points a year, and, obviously, there is still enough work for everyone," he said. "There are probably more than a hundred companies doing express delivery around the country, and some provide unexpectedly good service. Many use the railways or road transport for their deliveries."

Maria Korbut, marketing and business-development director at TNT-Express, said that, although there are many Russian companies working nationally or in one region or town, the market is still far from saturated. "This has led to state organizations and big Russian holding companies joining the act," she added.

"The Communications Ministry transformed Spetssvyaz into a new delivery company, SPSR. The postal-system-reform program makes development of this sector one of its priorities for profitable development, and [industrial holding] Base Element last year acquired three Russian courier companies – Rusko, Pony Express and Elf-91 [the acting agent for FedEx]," Korbut said.

Olga Proskuryakova, an executive at DHL, said that, even with the upsurge in the number of Russian companies, it is still too early to speak of real competition for the global players. Russian firms still need time to develop and make investments in staff training and developing networks and infrastructure, she added.

"Of course, the level of service these companies provide can’t be compared to that in the global companies," she said. "But they can be an alternative for clients for whom price is more important than speed of delivery and other aspects bearing on quality."

The big players acknowledge, however, that competition leads to improved customer service in any industry. So, the giants say, they cannot afford to rest on their laurels and must continue to improve their services.

The fight for clients

When choosing express-delivery companies, most clients look at the price-quality ratio, a company’s reputation and the range of services provided. As customers become more demanding, delivery companies say they have to become increasingly competitive.

"Clients are becoming more demanding with every passing year," Proskuryakova said. "They want a delivery company with a full range of services – from express delivery of freight and mail to logistics schemes drawn up individually for specific companies."

This is a boon for consumers, as companies are introducing new services in an attempt to differentiate themselves from the competition. Last year, for example, DHL introduced several new services, including delivery by a specific time for European cities and help with customs formalities. This year, the company extended its specific-delivery-time service to Russian cities.

TNT-Express’ Korbut said that reliability, speed and price – in that order – are the keys to success. "This is confirmed by our surveys every year," she said. "The only exception was the period from the end of 1998 to the beginning of 2000, when price became more important than reliability and speed for Russian companies and individuals."

TNT-Express was the first company on the Russian market to offer services such as 9.00 Express and 12.00 Express, which guarantee delivery to the main European cities by 9 a.m. and to other main world cities the following day, plus automatic confirmation of delivery. If a delivery is late, even by a few minutes, TNT returns the customer’s money.

UPS’ Zyuzin said that the only way for express-delivery companies to raise their profit margins is to cut costs and offer extra, exclusive services.

"Modern technology is a help here," he said. "It’s not for nothing that UPS has spent more than $1 billion a year in developing new technology over the past decade.

"Using systems based primarily on the latest innovations in information technology has enabled us to greatly increase the throughput capacity of our operations centers and assure multilevel constant control of deliveries."

He added that this has also reduced the amount of labor involved. "There are plenty of similar examples, and they all show that intelligent use of the latest technological developments can help reduce delivery costs considerably and improve service at the same time," he said.

Transport: The key to success

It does not yet make sense for express-delivery companies to maintain their own fleets of cargo planes, given the still-small overall volume of deliveries in Russia. Some companies have tried but were unable to operate aircraft profitably. The most significant problem with deliveries in Russia, however, is getting them to remote areas where transport infrastructure is poorly developed.

Most express-delivery companies use commercial airlines and, so, are dependent on how much luggage passengers have, the work schedules of airport cargo warehouses and other factors. DHL, for example, works with Lufthansa Cargo, British Airways and Austrian Airlines and Russian airlines, such as Aeroflot, Transaero, Samara, Sibir, Domodedovo Airlines, Krasnoyarsk Airlines and Vnukovo.

The problem is that no airline carrying out domestic flights can guarantee that the cargo will go on the next one, and, so, companies have to find other solutions.

"From May 2003, DHL has begun using an additional charter flight with a Tu-204 plane on the Moscow-Brussels-Moscow route," DHL’s Proskuryakova said. "This cuts the transit time a great deal and makes it possible to deliver a lot of the documents coming to Moscow on the next day."

UPS has long been using charters and was the first of the four market leaders to use its own charter to link Russia to the world. "This makes it possible for us to control each step of the deliveries’ movements from Moscow," Zyuzin said. "By using our own charter, we can guarantee that documents and cargo handed in before 4 p.m. will be sent the same day. There is a special tariff for documents in envelopes and packets. The cost for A4 format documents in a UPS Express Envelope doesn’t depend on the weight or the number of sheets of paper and is paid for according to a preferential tariff."

TNT Express has its own land- and air-transport network in Europe, but does not use it in Russia. "For air transport into and out of Russia, we use commercial flights through the main airports in Europe, and our own Moscow-Belgium charter," said TNT Express’ Korbut. "We also work with leading Russian airlines – Aeroflot, Sibir, Krasair – and with international companies – Lufthansa, British Airways, SAS. We have partner relations with all these airlines, because they help us develop our business and are the key to our joint success."