The China-Russia connection: E-commerce demand supports a booming trade lane

Easier than across the country?

However, once the cargo arrives in Moscow, inadequate infrastructure can make dissemination across the country difficult, Elena Konkina, Deputy General Director – Commercial Director of the Sheremetyevo “Moscow Cargo” terminal, told Air Cargo World. Spurred on by the quick demand growth for e-commerce, Russia “is currently engaged in focused development of regional transport and logistics capacities,” Konkina said. To that end, in 2018 the Russian Post signed an agreement with VTB bank to build 38 logistics hubs across the country, amounting to more than 400,000 square meters of storage and fulfillment facilities. That project is expected to require about 130 billion rubles (more than US$2 billion) over the next four-to-five years.

Despite the efforts to improve Russian logistics, the 2018 Logistics Performance Index ranks Russia as low as 75th in the world for logistics efficiency, which helps explain why nearly all the traffic transits through the hub at Moscow. While progress is made toward improving Russia’s internal logistics efficiency, other organizations are working to reduce inefficiencies where possible.

Late last year, SVO’s cargo division partnered with the Russian Post and Russian carrier Aeroflot to launch “EMS Express.” That project aims to reduce mail delivery time by eliminating some internal processing.

“The main advantages of the new service include the reduction of mail acceptance period to 2 hours before the scheduled flight departure,” Konkina explained. “While regular Russian Post mail has to be dropped off at Sheremetyevo Airport at least 4 hours before the departure, EMS Express items come directly to the Moscow Cargo terminal, bypassing Sheremetyevo AOPP, and are delivered on board the aircraft by dedicated trolleys. At present, the project covers 12 domestic routes, and the network is set to be expanded to 25 destinations by the year-end.”

SVO is also streamlining its own internal cargo operations, Konkina said. As of this year, “customs transit clearance between customs posts of the Russian Federation for imported goods to be sent to Russian regions by truck or rail upon arrival in Sheremetyevo has been fully digitalized,” she said. SVO also plans to launch a sorting facility next year at the Moscow Cargo terminal, aimed at separating parcels destined for recipients in Moscow from those intended for domestic flights and delivery to other regions in the country. The project is expected to speed up domestic airmail processing.

A gateway to the world

As the hub airport for Russia’s national carrier Aeroflot as well as AirBridgeCargo, and also serving eight Chinese carriers, SVO “is the main link between Russia and China and the main airport for cargo and mail arriving from China,” SVO’s Konkina said of the hub’s place in China-Russia trade flows. With regional weakness in Russian infrastructure connectivity, airport estimates state that about 80-85% of cross-border trade into and from Russia is delivered by air. Of that, a huge proportion – about 95% in 2018, SVO estimates – is delivered by the Russian Post, “with a share of shipments from China of about 94%.” Many, and perhaps all, of the major Russian cargo carriers fly on behalf of the Post, leaving plenty of opportunity for the country’s carriers to benefit from the surge in e-commerce. Regarding international imports, nearly 80% of cargo moving into SVO is from China, and about 24% of the total import volume handled at SVO’s cargo terminal is e-commerce goods, “with their share ever on the rise,” she added.

While the airport did not have information regarding e-commerce shipments specifically, Sheremetyevo’s Konkina indicated that up to 80% of cargo moving from China through SVO on carriers with hubs at the airport is in transit to Europe. The transshipments make their way to airports such as London Heathrow (LHR), Amsterdam Airport Schiphol (AMS), Liege (LGG) and – increasingly – Budapest (BUD).

BUD recently held e-commerce workshops in Shanghai and Hong Kong in partnership with AirBridgeCargo. The carrier has two weekly flights, launched last June, connecting BUD with its SVO hub. Jozsef Kossuth, head of cargo at BUD, said the airport worked to convince the carrier to utilize BUD “as a gateway, a consolidation point, in Central Eastern Europe, basically between Munich and Moscow.” While AirBridge recently named Belgium’s Liege airport as its second hub, the carrier does not have regular scheduled service between other airports between the two cities, and BUD is so far functioning well as the Russian carrier’s gateway into Eastern Europe and beyond.

According to Kossuth, the yearly e-commerce shopping value for the Central Eastern European countries, including Hungary, is estimated at about US$80 billion, “so that is becoming really a significant market population related to their physical area.” Additionally, because Hungary is a member of the European Union, “you can move your cargo very easily between these countries,” he added, making it “very easy to supply these countries from one or two distribution points.”