Logistics and the future: Automation, efficiency, and sustainability

— Hello.

— Hello. We are happy to answer your questions. 

— Gerda, thank you for your question. I would probably compare logistics to knowledge transfer. Logistics is often confused with delivering something from point A to point B. In fact, there are a lot of functions, certain processes and knowledge sewn into the management of any flows, which in a fast-paced, dynamic environment come to the fore. The knowledge that someone had in logistics even 5 years ago in terms of routes and connections is now, in fact, meaningless – some routes have already been blocked due to sanctions, some routes are no longer used due to inefficiency. And our task is to learn to understand right here and now what needs to be done. If entities have a need to import or export, if there is a need to conduct economic activity between countries, then we must help the market and offer certain solutions for this.

— I would like to add to Kirill’s answer. People who deal with logistics, who work with it all the time, realize that logistics is a really broad concept. But the average person often thinks that logistics is the delivery, as Kirill said, from point A to point B. In fact, delivery from A to B is transportation. And logistics, actually, assures the supply. I would even say that it is the circulatory system of the economy, because it is very multifaceted and it also keeps people alive.

— Absolutely. One of the important missions is to help businesses. Any business helps other businesses to save money, to enter it or to convert profits. We, on the other hand, help small and medium-sized businesses to adapt in an environment of rapidly changing processes in geopolitics.

— Our job is to help companies. Conventionally speaking, when we discuss company missions at our strategy sessions, we talk about repeating Henry Ford’s path, that is striving to make a previously inaccessible product mass-market. Before Henry Ford, automobiles were a curiosity and he was the first person to make automobile travel a mass story. We now want to make the product of logistics a mass product in the same way.

— Yes. Today is a great time in the economy, it’s a time of opportunity for anyone with some minimal skills, who is commercially-minded and has a desire to be an entrepreneur. This is happening because the market is changing dramatically and marketplaces are replacing large monopolists – retailers, wholesale companies and owners of offline store chains. And if we look at the growth of marketplaces, we will see that a large number of people have the opportunity to become entrepreneurs, to earn money for their families, to be quite independent. A massive process of decentralization is now taking place. And within this process, unlike large companies, small organizations do not have the opportunity to engage in high-quality foreign economic activity, because it requires a large staff of statisticians who will be engaged in the search for goods, procurement, customs clearance. So, our mission is to make foreign economic activity accessible. To do that we create retail branches, to do that we focus on small customers and give them a full range of services.

— I wouldn’t say it has become more difficult. It’s different. Just different. You can complain about the lack of staff, about unstable routes, about the fact that everything changes every day. Or you can rejoice that the monopolists have left the market. Of course, a lot of things have changed – a lot of routes have changed, the sales scheme itself has changed.

If we talk about the events of 10 years ago, the rules were dictated by monopolists, wholesale suppliers and official distributors of products, now the rules are more dictated by marketplaces. You can track how they build logistics, how they form warehouses around the federation. Perhaps my opinion is wrong, but I would say that we have to adjust to them, and others, including regulatory bodies, are already adjusting to the new reality. A person who orders something on a marketplace and picks up the product a day or two later is unlikely to want to go to the market or go to an online store to compare prices or take advantage of a promotion. And this is already commonplace, a norm that people have accepted. The most important thing is the masses, and marketplaces are already in the masses. According to our analytics, the big players are also going into e-commerce, they are also adapting to the new world, and this is not a bad thing.

As far as logistics is concerned, until 2022, at least 50% of imports used to pass through the ports of Hamburg, Riga and Tallinn via the wholesale trade route to China and the Baltic States. Taking into account the fact that the sea is the cheapest mode of transportation, taking into account the sales plan that the supplier and the buyer built under the contract and taking into account the terms of deferral and other conditions – it was a normal practice. All warehouses in the Baltic States and Finland used to be overloaded with goods. In fact, a large supplier from Russia stored almost free goods without payment in the port and could bring them from there at the moment when he ran out of goods here in the warehouses. Now that route is gone.

But now there are other routes, other dynamics, other problems, and we are learning how to solve them and teach people how to work with them, ahead of the changes.

— Well look, the logistics business, like many other businesses, involves the issue of risk management.

In terms of the risk management system, we apply quite balanced solutions. What is important here? The first thing is to build risk models with multiple solution options, because constantly, as you rightly say, something is changing, and there are a lot of problems. These include sanctions blockades, changes in routes, and many other things. And we calculate all these risks so that we have multiple solution options in case they arise. You can jump into the abyss or an undefined space, or you can realize that the first thing that will meet you at the bottom of the abyss will be water, and therefore it is better to learn how to dive.

The second option is a soft pillow, a straw. And the third option is to take a parachute with you.

So, we have business models related to risk management. We calculate all possible legislative and sanctions changes, and, of course, we calculate changes in logistics routes. Accordingly, the next stage is to calculate the options for solutions. And after that, when we have structured everything, we already understand how it will develop, which risks are acceptable, which ones are unacceptable, which ones are operational and which ones are critical.

The second set of questions when we talk about risks is the question of risk sharing. Why do many clients like to work with us in these difficult conditions? Because we clearly discuss such risks with the client and clearly delineate the division of these risks and responsibilities – what we are responsible for, what the client is responsible for, what some external partners are responsible for. 

And when in our business model we have clearly defined risk management structures and responsibility between us and all the counterparties involved in the process, it becomes much easier to work. And the pleasure of work and the satisfaction of all the counterparties is immeasurably increased.

— Yes. We don’t need to jump in head first, we are not a venture capital company, we are not a startup. Logistics is quite a conservative industry, so it’s easier for us to work with risks. Even if it seems that anything can happen, we have already calculated it and we have solutions.

— What we can guarantee is that we will be involved in the process from the beginning of the transaction to its completion. The point of completion is decided by the client, not us. We never say we have done what we think we should have to and wash our hands of it. If the client accepts the completion point, then we move on to the next deals for that client.

We guarantee our involvement in the process, we use our competence, our resources, our capabilities to deal with completely different situations. It could be physical risks, it could be political risks, it could be standard damage to the goods. That is, we guarantee the fact that we are involved in the process, that we are jointly and severally liable.

We will definitely not guarantee the client a successful completion in terms of price or speed if we realize that it is impossible. We assume, we give guidelines, but there are external factors that sometimes adjust all processes, some of them. In general risks, we ensure that we keep up with the client to the last.

— Yes, that’s correct. We always interact with the client and maximize all those obligations that we have undertaken, fix them in the contractual relations and fulfill them. And we demand the same from all our contractors.

— In part, yes. We live a small life of a client, his product, some adventure, some story.

— In a way, yes. But in order to enter the mass market and to make a mass product, there must be a skeleton of a product that is acceptable on the market for the majority. Depending on the goods, on the fragility of these goods, on the cost, on the client’s business structure, on the client’s market, you have to complete this product. Sometimes it adds 10% to our skeleton, sometimes 50%, sometimes even 80%. We do project logistics, because there are some new, very explosive stories that need to be brought in a special way, and for that you have to hire a separate board and so on. There are different cases, but each client is definitely individual for us.

— With pleasure. Let’s imagine that there is one big organism, in which there are different branches and separately functioning subjects of economy – plants, banks, factories, enterprises, just as in the human body there are heart, lungs, liver, brain and other organs. What does blood do? It keeps the entire body functioning. That is, it carries oxygen and saturates each organ with vital substances. Logistics, like the circulatory system, is the connecting factor of all economic entities, whether in the broad sense of the industry or simply at the level of economic entities. 

And the speed and potential for development depends on how well the circulatory system works. A person with a poorly working circulatory system will never set sports records and will never live a normal life. 

But with a good circulatory system, the body is saturated with oxygen, the metabolic rate is high, all useful substances arrive, and a person is able to live well, do sports, raise children, develop and think well. This is what the circulatory system means.

— Yes. And to interact with external organs, organisms. In many respects thanks to the well-functioning logistics industry, our country has the opportunity, despite the efforts of many unfriendly parts, to function and develop normally, as evidenced by all economic indicators in all international institutions. And all this happened, first of all, thanks to logistics in the broad sense of the word, because new transportation and logistics routes were developed, new standards were adapted, physical resources were redistributed. 

All cross-border transportation logistics corridors, the famous Silk Road, and financial models have been emerging for centuries. Some modern routes take decades to form. And now, when certain changes in the world took place, the logistics industry was able to rebuild instantly, because in the scale of the examples I gave, rebuilding in a couple of years is instant, super instant, momentary rebuilding.

Our company and many other large companies have been able to provide a normal life for our country, which is more than 145 million people.

— What a good question. 

— Yes. I think that technology will definitely change trucking, if we, people, don’t prevent it by ourselves. If we properly automate all the processes, systematize the data of the robotic machine taking into account weather conditions, roads, speed and transitions and very many factors. Robots will be able to replace part of the labour force, but the fact that people will become unnecessary may become the main problem. We’re not even talking about strikes. For example, customs could globally delay the inclusion of this experiment for decades to test such innovations. Transportation routes will not be ready for the replacement of drivers with robots. In fact, many obstacles can be created.

But if there are no such barriers and such technologies become the norm, like marketplaces now or iPhones, then I think that in 5-10 years transportation can be completely robotic with standard routes, of which there are quite a few now.

— Progress is inexorable. Even 20-25 years ago, no one could imagine that half of a modern person’s life would consist in some box in the form of a smartphone, and now it is the main source of information.

The smartphone has completely changed social communications – sales, promotion, marketing, financial services, quality communication, everything has now gone there.

Logistics, as I said before, is a conservative industry, but progress is inexorable. In particular, our president has held a meeting on unmanned systems in the city of Togliatti in the center for the creation of unmanned systems. And he voiced a specific program according to which within five years about 30% of local deliveries between cities and districts will be based on unmanned systems. I’m sure it will be. Because this progress is essentially a trend that cannot be stopped. And in this respect, our country is among the top three leaders. 

I am sure that in 5-10 years, digitalization will begin and we will see how it will fundamentally change the social structure. Because according to all macroeconomic studies, by 2030-2035 we will have had two junctures. The first one is that there will be a shortage of human resources. Accordingly, given the right policy that is being pursued to harmonize the social climate in the country, the right decision will be to release these personnel from other sectors of the economy. Logistics is the industry from which it is the easiest to take these personnel by digitalizing it and introducing new technologies. 

And the second trend we see is based on the fact that the current generation does not want to work much. There are often questions about the four-day work week, because people want to devote more time to themselves, to some kind of social contribution to society. They see it as a development, that’s fine.

If you take these two trends, you can see that the automation process is going by leaps and bounds. And it seems to me that it is difficult to predict 30 years ahead, because what we see in the forecasts in 30 years may happen in 10 years.

— If you look at our company, we strive to be the first to create a trend. It doesn’t always work out due to infrastructure, customer demand. There is a certain amount of development that forms new challenges, but the trend is already there – drones have already been launched, robotic cars are already being tested, and we are watching it closely.

As soon as the tests at the state level pass all the necessary conditions and prove themselves positively, we will try to be among the first to introduce this product to the masses with the help of our infrastructure, to adapt it to the Russian market and explain it. It will be important to go this way ourselves, to explain to customers, ordinary people, employees who are standing on the highway, what these tools are, who you can talk to, who you can ask for a pump or a jack. That is, to teach people how to work in new conditions and make this the norm. 

We have no task to block the trend, on the contrary, our task is to check and test this product ourselves, to see that it is successful, that it is interesting from the point of view of environmental friendliness, economy and all other characteristics. And then to bring it to the mass consumer. And as I said, our primary mission is knowledge transfer. It will be the same transfer of knowledge of other products, which are annually replenished, we introduce them to the masses successfully in most cases.

— In terms of the environmental agenda, we, as a responsible business, are trying to monitor these trends and implement them, and we are already doing something every day for the society that surrounds us. Because the environmental agenda is probably one of the main ones for us, if we talk about the benefits we can bring.

— First of all, we are building a regional network. All studies say that nowadays logistics is built as inefficiently as possible, and a lot of goods are determined through listed logistics centers. We are creating a regional network in order to reduce the mileage of cars across the country and to get the goods to the customer by more optimal routes. In principle, we are good at it. We have not calculated our carbon footprint in detail, but if we do, I think it will be a fairly significant contribution to the environment. A concrete, measurable contribution.

And the second thing that we are moving towards every day in small steps is the issue of packaging of goods. We pay a lot of attention to it and try to incorporate all those opportunities to improve environmental standards and recycling of secondary waste from packaging materials into our daily work. It’s a lot of hard work. If you look at the first results, they are impressive. We have significantly managed to reduce environmental damage.

— I think that age becomes not so important if there is a clearly organized structure in the company, there is a list of responsibilities, functions and control. From our experience of building a business, we can say that there are pros and cons for employees of all ages. However, there is an important point that has formed within our experience – young employees, they are like plasticine.

You can make another chemical product out of plasticine by mixing it, for example, with rubber or with another chemical element. You can make a different mold out of plasticine, you can make a spare part for some other product. Of course, there is a process of laziness in all of us, it’s just that young people know how to interrupt it with a process of need or interest. 

That’s why, depending on the task, we try to take more young people to form a product for new trends, for new demands, for new interactions between people, to keep up with changes.

— I’ll complement Artem from the point of view of work. I assume that people complain about young employees because they don’t know how to work with this generation, they don’t understand this generation, they don’t understand their goals and objectives. Conventionally speaking, when we hire an employee from the younger generation to work, we understand that the most important thing is not to attract him or her with a salary, it is important to fascinate such a specialist with the sphere of activity and specialty. When a young person comes to work, he realizes that it takes years to become a specialist in logistics, but at the same time he realizes that here he can become a specialist, grow as a specialist.

When he realizes that there is a comfortable, friendly environment in the office, that there is a quality approach, he will stay to work. When working with the younger generation, it is important to understand what motivation each individual employee has at the start, to create conditions for this development, a comfortable environment, and then we will get a quality specialist who will burn with this business, try to show more results, develop and strive for the future.

We have even created a position in our company for a specialist who deals with personnel development. This person has the task to involve, create comfortable conditions for young specialists and their development. He writes out a program with them for several years ahead, takes into account career ambitions, helps with training and integration. And a person understands that if he or she does not fulfill the current tasks stipulated by his or her job duties, he or she will lose development in our company. It is not a fact that somewhere else on the market he will find the same open, friendly company that will help him become a true professional. 

Of course, there may be exceptions, someone may move to another city, HR managers may misjudge an employee’s potential and value characteristics. But, in any case, these problems are minimal. We will definitely not complain about the younger generation – they are wonderful, they are creative, and we will gladly take such guys, because we see the future in them.

— You have to accept that there will always be a lot of people who are always anxious. They are always anxious. And there is always something wrong for them, and there is always someone to scold, and there is always someone to put the blame on. And there will always be people and companies that are never anxious, that live, enjoy life, give warmth to others, take care of them, try to do something good for society. It is not for nothing that I have focused on this more than once, because, in my opinion, the main indicator of any responsible and successful person and successful business is the ability to make a small contribution to society, so that everyone around, not only you, can live better. Then you yourself will live better. And this is the credo I live by, and this is how we try to build our business. And the choice? The choice happens every day – what is closer to you? To enjoy life, to give, to make this world a little better, to improve your industry, your yard, your entrance, the life of your team, or to be sad and anxious about some things. 

We make choices every day to make this world a little better. “A little better” means implementing sustainable packaging, it means optimizing transportation routes, it means helping our customers and their business, making them more successful, more competitive. I am sure that this issue should be the most important in any field of activity.

— I would like to complement my colleague. We are all human beings and with us there are always external factors, geopolitical and physical. Today it is scary, tomorrow it seems to be not so scary, then it is scary again – it is all relative. Yesterday we thought it was complete chaos, but it turned out to be just the beginning. You can stay in this position. 

You can stay in another position – you are in this world to bring a certain benefit – a small one or a big one, it doesn’t matter. And when you go towards a big goal with small steps, you don’t think about external factors, you don’t complain about them, you just accept them. 

If your position changes, then the position of the team will change, it will also affect the client and the whole environment.

So, in terms of position, we try to accept any situation and, at the same time, stick to the position we took when we started the company and not to change it, no matter what external factor may happen. Fear is not in the industry, it is in us.