Winston Churchill said that Russia was a riddle, wrapped in a mystery, inside an enigma — and if you’ve been trying to ship goods in or out of the country this year, you might agree.
In the U.S., there’s very little friction between a customer’s decision to make a purchase and receipt of an item several days later. The Post office, UPS, Fed-Ex all work smoothly, and delivery is both timely and predictable. It’s a parcel delivery infrastructure that’s easy to take for granted. Yet other countries do not enjoy this same level of service, and it hinders the development of both widespread ecommerce and online entrepreneurship.
The Russian Riddle
While Russia is of great interest to American companies looking to go global — and rightfully so — there are hurdles to overcome. The growth outlook is enticing, but these challenges are restraining ecommerce development in an area that has even more potential for growth. The difficulties affect a dozen former Soviet states that rely on Moscow as a hub for international shipping.
Several things make Russia difficult to deliver to. It is big, with nearly 6.6 million square miles of area to cover. Perhaps no surprise that the Russian postal service, Pochta Rossii, needs 42,000 offices to make its deliveries from. It also relies on an aging postal workforce, many of whom are not prepared to embrace new processing technologies.
Beyond the sheer size required to serve Russia, these are problems post offices around the world face. Yet an explosion in ecommerce to and from Russia has brought the system to its knees. The number of international packages arriving in Russia doubled last year, according to Pochta Rossii. It processed more than 21 million packages from overseas and estimates that 70% of the volume is the product of ecommerce.
Most of those deliveries go through Moscow and put a strain on Sheremetyevo Airport. This year, the system ground to a halt in April when the company that processes the packages, Aeroport Moskva, refused to accept any new deliveries until it had digested the 500-ton backlog.
The Express Mail Service (EMS), a rough equivalent to UPS or FedEx in the U.S., is also struggling to keep up with the influx of global shipments. EMS works across multiple countries as a courier service and is popular in Russia because it typically delivers faster and more reliably than the post — for more money. But it too has been laid low by recent delays. The Russian government eliminated certain customs exemptions for couriers in 2011, and now EMS has to go through the same processing centers that Pochta Rossii uses.
Responses to the Moscow bottleneck have varied. Forbes reports that Amazon has opened an office in Moscow to give it a foothold in the distribution chain. Some eBay vendors find that the cost of shipping to Russia, taking into account package tracking protections and insurance, exceeds the value of their goods. Others are afraid that they’ll be unable to guarantee safe and on-time deliveries and suffer a penalty to their reputation scores.
But We Can’t Just Ignore Russia!
However, few large ecommerce operations can afford to ignore the rise of Russian consumers, despite the problems with the post. Internet penetration has rocketed in recent years, as has the purchasing power of a growing middle class. Combine that with a desire for imported consumer goods, and there’s a real opportunity for Internet-enabled vendors.
There are several things companies looking to sell to Russia may do to make their sales go more smoothly. The first is to stay in contact with customers and inform them of ongoing delays. Nobody likes to be in the dark about where an order is. The second is to ensure that products are accurately described for customs officers and conform to local regulations. Anything that causes a customs official to pause or hold something for further inspection may doom the package to months of delays.
Companies that can crack the code to successful shipping to Russia will be well rewarded. Morgan Stanley estimates that ecommerce sales in Russia will see 35% CAGR to top $36 billion in 2015. That’s a rapid growth in a big market. But for those that don’t partner strategically to get their goods into the hands of paying customers, Russia will remain a riddle.
Pitney Bowes enables operational excellence in global ecommerce by eliminating “border friction”, and connecting you to the a global consumer base. If you’re a US retailer looking for more information on cross-border parcel shipping, subscribe to this blog for weekly updates, and contact us for more information. Want to learn more, download our brochure or watch our recorded webinar.