Viktor Shevchenko, the CEO of ZAMMLER GROUP of Logistics Companies, told LDaily about the peculiarities of the logistics industry in Ukraine, assessment of performance efficiency and building a relationship with the customers.
LDaily: Tell us please about the foundation of ZAMMLER Group of Logistics Companies.
V. Shevchenko: Back in 2007, we founded ZAMMLER UKRAINE Company, the first company of ZAMMLER GROUP. At the beginning, the Company consisted of seven people, all had some experience in the logistics business at different positions. We were ambitious and young enough to go ahead and not be afraid of the difficulties. At the same time, we understood how the business should be conducted, saw its shortcomings, analyzed what the customers liked or disliked, and gathered the best specialists of the international companies. And that was the beginning of our development. We chose the harmonious and coherent path. Since then we have been following it. We do not spend huge amounts of money and do not pour money without knowing what the result will be. It was possible to go another extensive way and immediately invest a lot of money waiting for some quick wins. This method may have proved good if we had the same access to credit resources in Ukraine as, for example, in Europe. We have lending rates in order of 17-21%, and in Europe this index is from 1.5% to 3% maximum and 3% is given for real estate. Accordingly, with such lending rate in Ukraine, taking loans is not only ineffective, but also impossible. After all, logistics is not a high-margin business, but rather a business of average profitability. In the world, the profitability ranges from 7% to 15%while our lending rate is 21%.
LDaily: What is the profitability in Ukraine?
V. Shevchenko: In Ukraine, logistics is a collective concept. If we take motor vehicles as an example, it is 7%, and warehouse or broker business can reach up to 15%. The price varies depending on the number of directions within the company. In ZAMMLER, all the existing logistics services are integrated into one portfolio. That’s why I say it is somewhere between 7 and 15%.
LDaily: How could you describe the current situation on the market of freight forwarding services now?
V. Shevchenko: I always say that logistics is a very conservative industry. I mean if we take a car, we see that nothing has changed and it still has 4 wheels, and here it’s the same. Therefore, some global significant events rarely take place in this conservative industry. Among the services that now are being actively developed and have tremendous potential, I can highlight the fulfillment, i.e. logistics for e-commerce. Everything is natural here: e-commerce is rapidly developing, and thus the logistics market offers new solutions for its maintenance. After all, logistics does not exist separately from the business processes and economy of the country in whole. When the economy becomes to grow, we also grow up with it; as soon as it falls, we fall with it likewise. We estimate growth of the economy in the country or the tendency towards something by the shipments performed as we transport absolutely all kinds of goods, starting from glasses to various IT devices; it is both imports and exports, and also – shipments throughout Ukraine. According to our observations, a slight economic growth was observed last year – from 10 to 20%. Such growth gave an impetus to development of the warehouse logistics as it has been forced onto the back burner in Ukraine for the last 5 years. Now, thanks to development of the industry in general even rental rates started to rise.
LDaily: What are the changes in behavior on the part of a customer of the logistics service due to influence of the market conditions?
V. Shevchenko: If we compare the ZAMMLER customer 12 years ago and now, then we will see that every year he/she becomes more and more demanding, more capricious, so we have to manage to satisfy these needs. The main features that make us different in the logistics market are flexibility and customer-oriented approach. We do not impose our rules but try to satisfy all the possible wishes and requests of our customers. And in their turn, the clients become more demanding of quality and speed of the service rendered.
LDaily: How many cars are there in your vehicle fleet?
V. Shevchenko: In Ukraine, there are 37 cars; in Poland we have 53 trucks. In Poland, all the 20-ton cars are new — 2017-2018. However, in Ukraine there are different cars, from 2-ton to 20-ton ones.
LDaily: Tell me please, are you going to switch to freight electricvehicles trucks?
V. Shevchenko: We were thinking about it about 2 years ago. However, in my opinion, switching to electric vehicles now is rather the latest fashion statement. The number of kilometers that our truck passes per day currently cannot be overcome by an electric truck. Moreover, the infrastructure for charging such vehicles or providing services in the event of a breakdown on the road is not sufficiently developed in Ukraine. At the moment, an electric vehicle is a city day-off car. As for the trucks, we are looking forward to new offers from the manufacturers regarding the duration of the vehicle operation on a single charge which is one of the few stumbling blocks. Of course, usage of the electric – trucks results in tremendous cost-effectiveness and environmental protection, but so far in our work, under the current conditions, their use is unreasonable.
LDaily: How do you work with your drivers? Do you train them to drive in a more economical mode?
V. Shevchenko: It is difficult to retrain drivers of the old school, but we try to train new people by providing an opportunity to attend some courses and undergo training workshops. However, we cannot cast aside the human factor; one cannot be completely sure that a driver will abide by all the rules: if they wants to drive at 120, they will do it. We limit the speed in a truck at 80-85 km/h. The fuel consumption at this speed is optimal.
LDaily: How does your Company evaluate itself in terms of market efficiency?
V. Shevchenko: You know, if you visit a website of any company, you’ll notice they state they are number 1. It is difficult for me to evaluate the performance efficiency objectively. The performance indicators for me are our client’s opinions or getting into the tender final when there is a choice between ZAMMLER and some other international company and people give us their preference. This is an objective assessment of whether we are working well or not. Currently, the ZAMMLER customer portfolio consists of 90% of the foreign companies. We provide good service at a low price. Customers appreciate it and turn to us.
LDaily: What are the particularities of the Ukrainian market now and what risks do you face here?
V. Shevchenko: There is the only one risk. Our customers are not financially disciplined. That’s not about the international companies if we take them as an example. If we cooperate with the global brands, we understand that these are financially disciplined companies. No one will cheat us and we will go to court and figure it out if there are any problems. We will cooperate further. If we are talking about Ukrainian companies, as practice shows, if you do not have a well-established relationship, they can use you without paying for your work. This financial risk is very high in Ukraine. Both carriers and logisticians suffer from this.
LDaily: How promising are investments in logistics in Ukraine?
V. Shevchenko: Let me explain taking a warehouse as an example. In 2007, the active construction of the warehouse complexes began in Ukraine. Let me make the difference clear: there are 1,5 million square meters of A-class warehouses in Ukraine, and there are 12 million square meters of the warehouses in Poland. The difference is obvious. The rental rate at the start of construction in 2006 was $10 per 1 square meter. By 2008, it has dropped to $7, many warehouses have been constructed. When the crisis began, the rate dropped to $4. A developer who builds the warehouse, the builder or investor break even at a price of $5.5-6 per meter. The price has dropped to $3, so they face losses, and of course, nobody will build until the price rises to the required level. Due to the economy growth in the previous year, the warehouses have been taken up in this year. Since last fall, prices for warehouse space have risen, reaching up to $5.5 per meter. My assessment is the following: if by the end of this year everything remains alright, the price will reach $6 and even more being the starting point for the construction of the warehouse complexes. And this is an enormous investment.
The trend towards development is good. Moreover, if we develop infrastructure embodied in roads, junctions and all such stuff, we will become a normal developed country which makes money off transit, only by passing vehicles and cargo to the east and back. Historically, Ukraine has always been a transit state. We can snatch a large sum of money on this. For example, in Germany, logistics as an industry is ranked third in GDP. The first place occupies the pharmaceuticals, and the motor-vehicle industry is just after it.
LDaily: Tell us please about the Company’s plans for the coming few years.
V. Shevchenko: We are planning to increase our fleet capacity in Ukraine. Another direction which we are now actively developing is air transportation. Cargo transportation services, including air transport, were provided by ZAMMLER earlier, but recently, we opened our office in the cargo terminal of Boryspil airport. That means that we now have a real opportunity to control all stages of the cargo preparation for transportation, to communicate promptly with all the airport services, representatives of various airline companies and partners. And what is more important, we will be able to process additional customer requests quickly, prepare cargo for shipment on our own and instantly react to emergencies.
We are also developing an Innovative Logistics Management System (LMS) platform. It should be a symbiosis of TMS, WMS, CRM, GPS tracking including a financial accounting system, security system, and be the only platform for monitoring processes and consumption of fuel, time, human resources. We want to create some sort of BIG DATA for the logistics processes and get rid of thorn in our side, that is analysis of numerous indicators in different programs.
We are planning to increase the car fleet in Poland next year – up to 60 cars. The number of cars should be 100+ by 2021. This is the first indicator.
We are working on the opening of the representative office in Germany, and we’ll start with 10 cars. The launch is scheduled in the near future.
The USA is also in our plans. However, we are talking only about our plans. The biggest problem is human resources. We had a problem with staff in Poland; a problem with staff in China has always been and remains. Also, we do not know who we can entrust our work in the USA. In general, staff is the key solution to everything.
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