DHL Freight Russia

Challenges in realising DHL Freight’s business strategy in Russia.

Timo Jaakkola
Managing Director Russia, CIS and Baltics and FI Transit Traffic
DHL Freight – our strategy for growth in the Russian market

DHL has prepared a market entry strategy based on analysis

of market research and feedback from customers worldwide

Our strategy which includes considerable investment into the

RU market is part of a plan to become the recognized leading
logistics provider in the Region.

Our task has not been an easy one – we are in this market
not because it is easy but because it is hard !

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Initial market research identified strong potential growth for International traffic
– in fact the market reality has outstripped these predictions !
Relevant International Freight Market Outlook1), 1999-2009
CAGR CAGR
USD millions , Paid in Russia (1999 -2004) (2004 –2009)
7,694 10.7% 9.7%
DHL Freight will: 7.4% 7.0% Ocean, OB
765
Expand X Docks across Russia
19.5% 14.0% Ocean, IB
with advantage C&B services 233
Expand Tradelanes 892
Explore Niches & focus on 8.3% 8.0% Rail, OB
Supply Chain Solutions X 4,842 857 15.5% 13.0% Rail, IB
divisionally combining INT + DOM
545 467
Transport
122 Air, OB
4.6% 4.6%
607 1,500
2,979 465 6.0% 8.0% Air, IB
OB 382 373
Ocean IB 50
OB 407 1,021 841
Rail 227
IB
297
OB 522 11.3% 10.0% Road, OB
Air 765
ROAD
IB
2,139
OB 306 16.8% 12.5% Road, IB
Road 1,187
IB 546

1999 2004 2009

Source: Ministry of Transportation; Federal Statistics Service; interviews with industry 1) International river not shown in graph but included in overall
experts and competitors (n= 7) calculation, Bonn Cube, and transportation

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The Domestic market was also identified as a strong area for potential growth and
influenced our decision to create a domestic Freight Network
Relevant Domestic Freight Market Outlook, 1999-2009
USD millions

CAGR CAGR
DHL Freight will: (1999-2004) (2004-2009)
Expand DOM production Total 4.5% 6.1%
2,956
platforms across Russia for
retail / automotive distribution
976 2.4% 3.0%
Expand our Road Ground
Network & link into new X Docks 2,188
22 3.7% 4.1%

1,755
422 5.1% 6.9%
842

Rail 749
18

15
Ocean 302
Air 236
ROAD
1,536 6.3% 8.4%
Road 755 1,026

1999 2004 2009

Sources: Ministry of Transportation; Federal Statistics Services; Interviews (n = 6)

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Our analysis of the market enabled us to create a clear strategy to build market leading
Freight and Logistics solutions.
The Russian Logistic Market was effective but not efficient

Main differences

Russian Logistic Market Western Logistic Market

- Underdeveloped infrastructure - Well developed infrastructure
Macro
- Huge geographical area - Small countries

- Very fragmented (only some - Multiple single supplier

single supplier) Supply
- Highly professional +
- Lack of Professionalism experienced
e.g. experience
- Strong focus on quality +
- Lower service standards service levels

- Price intensive Demand - Harmonized price / Quality

- Less professionalism / - Highly competent partner /
experience experienced

Growth, fast changes Saturation, slow changes

Development

DHL ‘s strategy
Quelle: DHL Research, SMI Research

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Our investment into infrastructure and staff has helped us to lead the change and
modernization of the Logistics Landscape.
Russia a 2 PL Logistic market – moving into 3 PL

Phase 1 Phase 2 Phase 3

W. Europe 1970 s Late 1980s Today

Russia Mid 1990 th - > 2007 2008 and future

Customer Customer Customer

In-house Logistics Solutions
Logistics Management Management
Logistic-
Warehousing Transport Management
Warehousing Transport
3PL/4PL
In-house External Commodity Service External Solutions Company /
Company / Industry examples Customer examples Industry examples
• IKEA • BP/Castrol Lubricants • MNC
• Pepsi-Cola (partly) • Kraft Foods • Schneider
• Nestle (partly) • Johnson & Johnson • P&G
• Akzo Nobel (partly) • Pernod Ricard • OBI
• Oil & Gas Industry • JTI • MOBIS (Hyundai / KIA)
• Steel & Heavy Industry • Metro • Legrand
• …

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DHL has developed a full range of Logistics Services to enable us to offer
one stop shop services for our local and multinational customers.

The Russian Logistics market is moving to a ONE provider philosophy

Qual
Decision criterias
Price

Many Number of ONE

Provider Provider Provider
Past FMCG
Today High-Tech
Future: 2-4 years Automotive
Quelle: DHL Research; SMI Research
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The Russian Logistic Market moves to a ONE provider philosophy

International Domestic
transport International National
Transport
Transport Transport

X-Docking/ Customs
x-docking/ Customs Warehousing
Warehousing

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Our strategy to meet the challenges has enabled us to create the following infrastructure

DHL FREIGHT RUSSIA

Office • 11 key locations

and Domestic Hub • 300 Employees
Office only • 200 cities covered in RU
• 4 bonded warehouses
• MOW (2x) / LED / GOJ with
St. Petersburg clearance facilities
Regional office
• 9 international line hauls
linking MOW / GOJ / LED
N.Novgorod
Branch
and 9 domestic line hauls
linking key “millionaire”
Moscow Kazan
Headoffice Branch
cities in Russia
• ISO 9001 – 2001 certified

Woronesh Samara Yekaterinburg

Branch Regional office Branch

Rostov Don
Branch
Novosibirsk
Regional office
Vladivostok
Irkutsk Regional office
Branch

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Our market strategy allows us to offer Full Service Supply Chain in Russia

Supply Chain & Distribution Chain in Russia

Supply Flow
Returns Returns

RDC DHL X Dock regions LDC / Consignee

Transport Network
Logistics Distribution
Full Loads daily X Docking Services
Services Final Mile
LTL daily Network Road

Supply Chain Management

Supply Chain & Control Tower function
Supply
Chain Mgmt Transport Management FTL + LTL
Services
Implants at RDC upon necessity

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Our market leading Domestic Freight Network services both domestic and
multinationals with timetable road services

DOMESTIC NETWORK

• Daily Trucks to all Hub’s

from Moscow
• Final Delivery to a total of 200
St.Petersburg Cities on regular bases
Regional Hub
• 200 cities generally covered
• Service both ways:
- from Moscow
- to Moscow

• 25.000 shipments per month

Moscow • Track and Trace
Main Hub N.Novgorod
Regional Hub
Kazan
Voronezh Regional Hub
plan Dec07
Yekaterinburg
Regional Hub
Samara
Regional Hub
Rostov Don
Regional Hub

Novosibirsk
Regional Hub

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Challenges we faced when implementing our strategy

Infrastructure People
Building and training teams
Developing a network of own infrastructure terminals etc Attracting and retaining staff
Planning and implementing large projects Creating a company culture
Resource planning and footprint establishment Implementing value driven leadership
Planning for growth and aligning with customer forecasts Creating quality
Long term partnerships with investors and developers Managing compensation expectations
Aligning customer requirements with local legislation Creating transparent career paths

Challenges are not

Customers surmountable Business Environment

Managing Customer expectations Managing third party relationships

Managing Head office expectations (internal customers) Creating compliance
Creating and delivering quality Combating a culture of commissions
Aligning company cultures Creating transparency and openness
Managing customer forecasting Coping with complexity
Building ‘win win’ partnerships

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