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26.10.2014

The internet not only lowers barriers to market entry, but it allows small companies to compete with large ones, despite their limited resources

The company ‘Vozovoz’ is a project of Sergey Demidov, one of the founders of ‘Business Line’ (he sold his shares in ‘Business Line’ last year). This new firm specializes in delivering assorted cargoes (placing many small products into one container and transporting them in one direction) by vehicles. The company emphasizes that they organize the transport of goods, and this will involve the use of contractors. By the end of the year, Sergey Demidov will have invested around 2.5 – 3 million of his own money, but in his own words, he expects the business to pay for itself in 1.5 – 2 years.

The company estimates the consolidated package road transport market today at 67 billion roubles, of which 9% is generated via e-commerce. Similar figures are generated by consultants Strategy Partners Group (SPG), who estimate the Russian consolidated package cargo market at 70 billion roubles (4% of the overall freight market). Alexander Ermakov, Director of the Transport and Logistics practice at Strategy Partners Group, considers that the consolidated package segment will decline slower than the freight market as a whole. “The decline in consumer demand from traditional customers will be offset by a rise in demand from new customers who previously received supplies from fully-loaded trucks, ordered directly from goods carriers. This will compensate the negative effect from the falling market”, noted Ermakov. The e-commerce sector in the overall cargo transportation market appears to be the most promising, but to rely solely on this sector is not possible, because its share of the overall market is too low, he added.

To compete with the long-standing rivals in this market, the company is focusing on delivery speed (the distance between Moscow and St Petersburg can be covered in under 17 hours), competitive prices, and simplified ordering and internet payment.

Alexander Ermakov considers it feasible for ‘Vozovoz’ to gain control over 3% of the volume of road transport between St Petersburg and Moscow, providing there is a positive change in the overall macroeconomic situation. However, achieving 20-25% of the e-commerce road transport segment between the two cities could be much more of a challenge. “E-commerce demands competencies that are not held by classic cargo carriers: cash on delivery, order processing, etc. There are already successful and growing courier companies, such as DPD and Pony Express, that will be extremely difficult to compete with” Ermakov explained.

 

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