Loss Prevention Russian Style

CDEK is a leading express delivery and logistics service provider in the Commonwealth of Independent States, which includes Russia.

Being part of Generation X, I’ve had the opportunity to witness some major events that have taken place on a global level. Back in the 1980s, the United States and the Soviet Union were the two major superpowers. Very little was known by the general public about the communist-controlled country, especially in light of the lingering fear over the potential of nuclear weapons being used if a conflict were to break out between the two countries. In fact, only now do we know that the Soviet Union was just as worried about the possibility of a nuclear attack as the US.

A glimmer of hope grew between the two world leaders of these competing superpowers during this period of time. That hope was known as “Glasnost,” or openness, which eventually set the stage for continued talks between the two countries, the fall of the Berlin Wall, and the eventual collapse of the Soviet Union into what we now know as the Russian Federation. So while I was thrilled by the opportunity to travel to Moscow this year for business, a bit of trepidation was mixed with that excitement.

The Emerging E-commerce Market

Like most people, the unknown can be both fearful and intriguing. Obviously, I was concerned on a multitude of fronts traveling to Russia, especially based on reported cyber-security risks and economic espionage. After all, I have never met anyone in loss prevention who has done business in the country, let alone colleagues within the supply chain.

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After consulting with business connections in both the public and private sectors, I obviously made inquiries regarding security, safety, and the best places to eat. More importantly, however, I wanted to explore the business culture in Russia, especially as it relates to loss prevention. What I learned is that loss prevention is a very new concept to most Russian businesses. This put me in a good position, knowing that I essentially could be an ambassador of sorts in educating supply chain executives more about the overall concept of loss prevention.

Saint Basil’s Cathedral
Saint Basil’s Cathedral

One of the very first things that I noticed upon arriving in Moscow was that capitalism is alive and well. As I got closer to the old city center, which has iconic structures such as the Kremlin, Saint Basil’s Cathedral, and the former offices of the KGB, I noticed something familiar. The streets were aligned with shoppers whizzing in and out of familiar brands of retail shops. With the obvious abundance of retailers in the country, ordering online for Russian consumers has become an economic driver.

In supply chain terms, Russia is considered an emerging market, which has grown very quickly in a short period of time. Because of this, little if any well-known retailers from the United States or Europe have logistic operations in country. This forces most retailers to use a transportation broker that specializes in shipping throughout parts of the country. However, not all brokers are the same, and in most instances will subcontract the regional and final-mile transportation to Russian-based carriers.

This is no different than in most parts of the world, but with the stringent compliance standards that are in place, it could pose a problem for online orders. In addition, traveling to Russia is difficult, sometimes taking several months and multiple attempts to obtain a business-travel Visa. These challenges can be extremely problematic since unlike doing business in the US, you can’t simply get on a plane to audit an operation that is known to have compliance problems.

The Life Cycle of an Online Order

The vast majority of retail online orders originating from the US and Europe arrive into Russia via commercial flights at either Sheremetyevo or Domodedovo airports in Moscow. Both these airports have a vast array of transportation brokerage warehouses either on or near the airport. As with most orders arriving into a foreign country, the parcels have to undergo a customs clearance process and tax collection. These two processes account for the vast majority of delays in e-commerce shipments into Russia.

The government has a continuing list of merchandise that constantly changes listing commodities banned from coming into the country. For example, a retailer might be shipping the latest fashion, which could resemble combat gear. However, if customs documents are not filled out correctly, officials may mistake that apparel for military gear, which is considered a banned item. It’s actually the retailer’s responsibility to know this and provide accurate information to the brokerage company prior to shipping.

In addition, tax collection can sometimes be the responsibility of the consumers. Depending on the retailer’s website, if proper tax documentation is not provided prior to shipping, the order won’t be permitted to proceed. Because of these two major challenges, it’s advisable that the retailer work directly with the brokerage company and have outbound orders staged in the country of origin to ensure all clearance issues are rectified. If the retailer waits until the parcel arrives in Russia, it may be stuck in a customs hold for weeks at the airport. This will obviously result in a consumer complaint for nonreceipt, and a claim.

Another major challenge for shipping goods into Russia is the sheer size of the country. Most supply chain transportation is done through a hub-and-spoke model, with the hub being a major city that can receive, process, and ship large volumes of parcels. These parcels are then shipped farther down the supply chain to the spokes, or smaller cities. Russia spans over 6,000 miles west to east, covering eleven time zones and some of the worst winter weather on the planet. The time it takes for a parcel to get processed in Moscow and shipped down the supply chain has to be calculated ahead of time and made known to the consumer. This should be at the top of the list of questions the retailer is asking of its brokerage company. Also, it’s important not to assume that the brokerage company is always the expert.

Local Ship and Receive Centers

When looking at delivery methods for the average consumer in Russia, it’s very rare you will find a final-mile provider or postal service solution delivering a package to someone’s residence. In most of the major cities in Russia, citizens live in high-rise apartment complexes, and the ability to receive packages at their doorsteps is limited.

Several of Russia’s large transportation providers have come up with a solution to this problem by establishing PUDOs or pickup/delivery stations. These are either owned by the company or franchised to local owner-operators. Most PUDOs are located in areas of the city center that have high foot traffic or near the entrance of large apartment buildings. The stations are normally open for twelve hours to accommodate consumers’ work schedules, are manned by employees, and have full security functions including CCTV.

One of the most unique functions that these PUDOs offer is a dressing room for the consumer to receive their order, try it on, and return it immediately to the retailer if it’s not to their liking. These delivery stations are not exclusive to Russia. During my travels throughout Europe, I have increasingly been seeing the same type of stations.

2020 and Ongoing Globalization

As we move forward, we’ve just closed out 2019 and are moving into a new decade. For all the negative political stories that seem to occupy our lives on a daily basis, the reality is we’re in one of the longest economic growth periods that has ever taken place in history. What this means is that consumers worldwide are going to continue to order online, and both retailers and transportation companies will have to evolve to support those needs.

Countries that most Americans have never heard of before will be evolving as part of this economic globalization period, and retailers will have to support these e-commerce demands. We’re now in a period where any company or individual has the ability to ship an item to someone else on the planet. The innovations in the supply chain that help make this happen are ever-changing, and I’m excited to see what the next decade will bring us.

 

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