The Central Urals LOGOtype

The former governor, Eduard Rossel, came up with the idea to transform the Sverdlovsk region into a transportation and logistics center. Ambitious ideas popped out of his mouth like hot cakes from the oven. In 2008, on the eve of the Shanghai Cooperation Organization summit in Yekaterinburg, a regional Framework for a Transportation and Logistics System (TLS) was developed for 2015-2030 period. However, it later became apparent that it was all just big talk from governor's team meant to impress their foreign guests. 

But in the spring of 2010, the transformation of the Central Urals into a transportation and logistics hub once again was named as a main economic priority. The new governor, Aleksandr Misharin, decided to include the development of this plan in the transportation program that was being worked on for 2011-2016. The government gives its assurances that it won't discard its previous plans. Players in the market are really counting on this. They think that despite the political motivations behind Rossel's idea, the most important part of it is an understanding of the direction in which logistics in the Urals should develop in the coming decades.

The framework's primary plan is to distribute freight traffic throughout the entire Sverdlovsk region, thus giving the regional capital some room to breathe. Priority is given to the development of a logistics infrastructure, without which there is no point in even talking about creating a TLS. 

An intermodal transportation and logistics center (ITLC), plus eight logistics hubs, will be created in Yekaterinburg, which is a high-capacity transit hub. Also, eight regional logistics centers (RLC) will be built in Krasnoufimsk, Tavda, Kamensk-Uralsky, Nizhny Tagil, Serov, Ivdel, Bogdanovich, and Irbite. Experts claim that each of these eight cities has fairly good "storage potential." For example, Nizhny Tagil can install 10,000 to 20,000 sq. meters of container terminals a year, which would amount to 400,000 sq. meters by 2030. Smaller cities have smaller capacities - between 30,000 and 65,000 sq. meters over the next 20 years. So, by 2030, the Central Urals should have added 1.4 million sq. meters of class A warehouse space. 

Yekaterinburg's share of this construction is 450,000 sq. meters, but that will require about 90 plots of land. Where they are to come from is a serious question, given the land shortage in the regional capital. Dmitry Shitselov, the representative of AVS-Group, believes the government should provide the investors with the land and also take responsibility for installing the utility lines, which vastly increase the cost of building modern warehouse space. He is certain that without this kind of help, one shouldn't count on the development of a logistics infrastructure in the Sverdlovsk region. It will cost 36 billion rubles just to create nine transportation and logistics centers (at 2009 prices).

Another important issue is the creation of a transportation infrastructure, which the authors of the Framework also believe should be the government's responsibility. There are plans to construct three major transportation arteries, which will make the Sverdlovsk region an important transit point between Europe and Asia. One of these will be a continuation of the international transportation corridor (ITC) no. 2, the Berlin-Moscow-Nizhny Novgorod route, taking it as far as Yekaterinburg and then on to Beijing. It has been proposed that the Trans-Siberian Highway and the federal highways between Yekaterinburg and Tyumen and between Yekaterinburg and Kazan all be used to create this new section of the ITC. 

Equally ambitious projects are being asked of those in charge of the railroads and airports. Developers believe that the Sverdlovsk railroad should become the main transit point between Europe and Asia. Most of the freight traffic will be concentrated in those places where the transportation and economic interests of Siberia, the Far East (including regions of the Northeast), the Upper Volga region, and the Russian Center meet.

Also, the authors of the Framework are betting that the Uktus airport in Yekaterinburg will develop as a center of business aviation. A lot of attention is being paid to the creation of an organizational hub for international, domestic, and regional freight shipments based at the primary airport in the Urals, the Koltsovo. 

If the Framework is implemented by 2030, the main result should be tax revenues for the region totaling more than 58 billion rubles. In twenty years, annual freight traffic could reach 60 million tons, helping to create more than 16,000 new jobs.

But, as they say, "If wishes were horses..." Today, the Sverdlovsk region TLS is still in its infancy. Only a tiny fraction of Eduard Rossel's infrastructure projects have yet come to fruition. At the end of 2008, there was approximately a 500,000 sq. meter shortage of class A and B warehouse space in Yekaterinburg alone. "Only 5,000 sq. meters of warehouse space was built in the city in 2009. That's astoundingly little. Not a single warehouse has been completed in 2010 - the developers simply have no money to finish the work. It is too early to make predictions for the end of the year. What the developers promise the officials is one thing, but what they actually do is something completely different," comments the Central Urals analyst Konstantin Selyanin.

The economic crisis has dealt logistics in the Urals a hard blow. Some of the projects are still stalled, but even the existing warehouses stand half empty. According to K. Selyanin, Yekaterinburg is the only city in Russia where the cost of renting class A warehouse terminals has practically fallen to the level of class B - a difference of about 200 rubles. But, analysts believe that in the next year or two the economic crisis should improve, and the Central Urals will then once again be faced with a shortage of modern storage facilities.

During 2009, an economically difficult year, freight traffic turnover in the Sverdlovsk region fell by 18%. And this is the trend. In recent years, Chelyabinsk and Perm have taken over a significant part of the transit routes in the Central Urals. Neighboring regions are not flush with warehouse space, either, but at least they have roads. And only a few of the talked-about road projects have been carried out.

And there is one more worrisome sign - local companies only carry 20% of the total freight shipments. "Outsiders" hold the remaining 80% of the market. Experts believe that it is precisely the lack of a transportation and logistics infrastructure that makes the local players so vulnerable to Belorussian, Ukrainian, Polish, and Lithuanian commercial carriers. In addition, the major retail chains, both European and Russian, are starting to buy their own trucks and build their own warehouses. As a result, the local commercial carriers are losing customers and the local budget is losing tax revenue. 

"Retailers don't understand that it costs too much money to service their own trucks and warehouse space. Outsourcing the logistics allows the dispatchers of retail goods to save at least 15% of their costs. No one is calculating the economics of this," emphasizes Aleksandr Trakhtenberg, the deputy general director for strategic development for the transportation company Lorry.

Meanwhile, analysts believe that the reason most retail chains are deciding to take transportation and storage matters into their own hands, once again has to do with the fact that the Sverdlovsk region's infrastructure is so underdeveloped. For the most part, local logistics companies have nothing to offer the suppliers of goods, especially Western suppliers, who have exacting standards for warehouse space and transportation service. 

A full set of measures will be required to correct the situation, including the construction of modern warehouse space, roads, and tax breaks for local transportation companies. The players in the market are advocating for all of these. "All of the elements of the TLS need to be developed jointly. Logistics requires an integrated approach. And each participant in the process should understand what his benefits are from the creation of a TLS," claims Rudolf Kovalev, the chair of the department of economics and corporate transportation management at the Ural State Forestry Engineering University.

He believes that the Sverdlovsk region has everything it needs to become one of the largest transportation and logistics centers in Russia, pulling in business from other regions of the Urals federal district and maybe even from Siberia. The advantages of the Sverdlovsk region include its favorable geographic location, good consumer potential, and a developed economy.

But the political will is needed, as well as government support, and qualified professionals. And, of course, a plan broken down into specific steps is also needed, because a framework is just a two-dimensional document. Unfortunately, the region has difficulties with all of the above. And the current governor, Aleksandr Misharin, is at risk of outdoing his predecessor in coming up with short-lived projects. One of these is a high-speed rail line between Yekaterinburg and Moscow. The former railway engineer is certain that one should be able to get from Yekaterinburg to the Russian capital in 5-6 hours, not the 28 hours it requires now. But the cost of the project, and whether Russians really want this, is another issue.

Meanwhile, if the Sverdlovsk region manages to become the transportation and logistics heart of the Urals, it could claim at least a third of the Russian market, which is now several billion dollars and could grow to a hundred billion dollars. But for now, the region is making do with the pie's crumbs.