Doing business in Russia – a country that is 9,000km wide, has 11 time zones and dramatic differences in its climate – is a challenge.
But despite the difficulties, the opportunities are bigger than the risks – a view endorsed by UK timber industry figures who have spent time there.
Peter Hammersley of Churchill & Sim Group Ltd said: “The UK’s relationship with Russian timber goes back a long way and some companies have records showing imports from mills that are still exporting today dating back to the 1870s.
“With the 1917 revolution things became complicated and the legal authority of the new Russian government was confirmed in the early 1920s by a case in London between Churchill & Sim and the previous owners of the mill concerned which effectively made revolutionary government a de facto government.”
Trade continued and the volumes peaked in 1930 at 2.48 million m3.
Centralisation came and went and with the demise of Exportles – the state trading operation – and the ordered market that they achieved, trading moved into the ‘free enterprise’ culture of early Peristroyka.
“In the early days mills had various aims,” said Mr Hammersley. “Those that had been acquired solely to generate money offshore tried to sell as much as possible at whatever price, with no thought of the longer term.
“Others who had a social conscience or a genuine belief in Russia ploughed the proceeds of sales back and these are the strong and reliable producers today.”
Now some large groups are taking the timber interests on board and providing the new capital required to move the industry forward.
“Within Russia we have found some loyal and supportive partners with a sound knowledge of sawmilling and an ability to ‘make do and mend’ that would mystify most other timber producers,” said Mr Hammersley. “However, the amounts of money from all countries – not just the UK – that have been lost in ventures in Russia over the past 20 years are enormous – much from companies who will not admit that they have lost anything!
Russia has always been a challenging country to trade with but he stressed that the timber trade had to look at it as a major supplier. “With the right Russian partners the future is sound but take care to remember that old Russian adage ‘promise everything, guarantee nothing’,” said Mr Hammersley.
Shipping service
Melton Mowbray-based TTS (Shipping) Ltd has been offering “liner” parcel services from Petrolesport (St Petersburg Timber Port) since June 1992.
Director Dougie Bryce said: “Following the break-up of the Soviet Union we were ideally placed to start operations from St Petersburg, having run timber services from Finland and Sweden to the UK since the early 1970s. Not only were we already running the right size and type of vessels from the Baltic to the UK, we were also experienced in timber handling and had good relationships with the UK forest product sector.
The company’s early experiences of loading in Petrolesport were stressful, to say the least. “The rules and regulations in force in Russia in those days were – and to some extent still are – complex and expensive if breached,” said Mr Bryce. “Estimating cargo readiness, both physical and in terms of Customs clearance, was a gamble and at first we regularly sailed with less cargo than anticipated. Chasing dead freight in Russia was not a realistic option in those days and we developed a policy of over-booking sailings to protect ourselves against the heavy losses we were experiencing through dropped bookings. Such was the level of cancellation that we rarely had to shut cargo out.”
At that time, Petrolesport was in a transitional phase, said Mr Bryce. Some of the personnel were “old school” and there was initial reluctance from certain quarters to a UK company offering such services from a Russian port.
“We were told on more than one occasion ‘we don’t need you here’. However, we worked closely with the new management to develop the business and introduce new ideas to help us both move forward. For example, at that time, each mill/exporter had to make their own handling contract with the port and arrange their own Customs clearance,” he said.
“We made the first handling contract between Petrolesport and a UK shipping line. As well as allowing us to offer shipment on FCA terms, our own personnel could now monitor cargo arrival and arrange Customs clearance. We were better able to estimate cargo readiness and avoid those dropped bookings.”
Mr Bryce said today’s Petrolesport is almost unrecognisable from that of the early 90s. Always expert at loading forest products, it has developed into a sophisticated multi-product operation.
TTS’s contract volumes have grown dramatically over the period. In the first contract year, 3,250m3 were shipped. In 2004, out of a total volume shipped of 152,000m3, that figure was 80,000m3.
“The main elements which allowed this growth have been the co-operation with Petrolesport’s management – and their positive attitude towards TTS – and the quality of our own operations team in St Petersburg. Without either one we would not have had the success we have enjoyed to date,” said Mr Bryce.
“That said, this is still Russia. Customs regulations and general bureaucracy remain a problem and, just when you think you fully understand the system…”
