Major Russian express operator Pony Express is expecting only 20-25% growth this year as itstruggles to keep pace with the current B2C boom, is training couriers to sell products on
doorsteps but also faces competition from online retailers establishing their own deliveryservices.Pony Express Deputy General Director Adil Suleimanov told CEP-Research in an interview atPost-Expo in Vienna this month that the previously anticipated volume growth of 35-40% couldn’t bereached. While the company is growing at a similar pace as the overall market, it experiencesdifficulties in handling the growing B2C volumes.
“We didn’t expect that our capacities to handle freight/parcels could be limited and we didn’tmanage to expand our production quickly as we fear our service level could suffer otherwise. Weneed to increase our production capacities, human resources, which takes time. Even if we areworking on it, we were forced to limit the number of new clients we take on,” he admitted.
The general market shows a strong trend towards B2C, in contrast to the previous tendencytowards B2B. “Another increasing trend that has strongly developed this year is that big onlineretailers or distance trade companies are organising their own logistics.” Their volumes enablethem to keep an own delivery service serving big cities, he explained.
“Let’s take a big player in distance trade, whether it’s an online retailer or a mail ordercompany, they all work with us in the beginning when they launch their business. But by the timethey have reached certain volumes, they start building their own logistics. Currently, this is avery active trend on the Russian market.”
“We are a courier company with a certain service standard; we are not a sales department. Butour clients want our courier to be a salesperson at the same time. They set up motivationprogrammes teaching how to sell. For example, we come to deliver, let’s say shoes, and our clientsays: you need to sell and I’ll pay you if you sell. But this is not our job.”
This development results in internet players launching their own delivery services targeted atselling a product. “This is a particularity of our market because 95% of orders from online shopsare delivered cash on delivery. When ordering something via the internet, the mentality in Russiais that people do not want to disclose their credit card details by paying in advance. They say:we’ll get it, look at it, smell it and then we’ll pay. There is a certain amount of mistrust. Sowhen we deliver the product, the recipient might say: I won’t buy it, I don’t like it. In thiscase, the online shop must bear the logistics expenses,” Suleimanov explained.
When establishing their own logistics, online retailers train their couriers to sell includingset phrases they need to say to recipients such as ‘This fits you well’. They are prepared to wait1-2 hours for the client and their call centres are also focused on selling, he added.
“In contrast, we have specialised in B2B and are now starting out in B2C, and we can’t affordthat our courier stays longer with the customer than 10 minutes. But this business requires that.We already make a difference between the B2B and B2C shipment flows. In the case of B2C, were-train our couriers teaching them how to sell, the basic things. We are starting to compete notwith similar companies like ours but with our clients.”
In concrete terms, Pony Express trains couriers, in cooperation with online retailers, to reactmore softly to customers’ queries that are not related to delivery such as ‘Which size isavailable?’, ‘How can I return the product?’, etc. “They get a bonus share for a successful sale,on top of their basic salary.”
Suleimanov further explained that the company’s clients have started taking market share awayfrom them, in Moscow for example, which accounts for 50% of Pony Express’ business. “They simplybuy delivery vehicles, hire couriers and start making deliveries themselves. Therefore, we need tobe so cheap and integrated in their systems so well that they wouldn’t even start thinking aboutlaunching their own logistics.” He stressed that this has become an industry-wide trend as allcourier companies have to deal with it and develop their B2C services.
Another trend goes towards economy express with customers requiring express delivery at the costof an economy product. With this trend developing further, it is supported by smaller couriercompanies giving in to customers’ demands. “We, for our part, are afraid of reducing our pricesconsiderably but we see that our competitors are prepared to give discounts for volumes with lowermargins. You make profit only on higher volumes.”
To counter this trend, Pony Express is now developing a strategy to maintain its expressbusiness and provide more competitive B2C services at more affordable prices. In concrete terms,this means process automation and audits as well as investment in technology. “IT will play animportant role in reducing our costs and we are currently working on this strategy.”
Suleimanov confirmed that the Post-Expo in Vienna provided a great opportunity for Pony Expressto get an overview of the latest innovations to implement some of those for its own operations. “Weare looking with interest at the technologies presented here that will enable us to reduce theself-cost of the final product and provide the best possible integration with our clients. Forexample, a customer pays us a certain sum and gets, let’s say, 10 service options. We want to beable to provide 20 services for the same price so they won’t think: It’s time to start my ownlogistics.”
Imports from foreign internet shops continue to be important for Pony Express, with demand fromNorth America, Europe and South-East Asia. “However, customs regulations continue to be a problemand we haven’t seen much progress on this front. But in any case, there is some progress in serviceimprovement giving the international e-commerce players the opportunity to export to ourcountries.” He confirmed that growth is limited by customs barriers. “If customs authorities weremore liberal, this would give a big boost to the market.” The difficulties are also due to theCustoms Union between Russia, Kazakhstan and Belarus. “We are present in different associations andtry to play an active role in pushing this forward even if the progress is quite slow.”
What highlighted the urgency of the issue was the parcel backlog at the airports of Moscowearlier this year which has now been taken to the government level, he stressed. “We actuallyprofited from Russian Post hampering the flow of international shipments into the country as postaloperators from abroad started increasingly approaching us for cooperation in terms of privateexpress services. Also at this Post-Expo, we are seeing demand from companies who have differentrequests.”
In terms of international expansion, Suleimanov said that the company’s domestic operations arethe top priority now. “Why should we go into the European markets that are stagnating while we areexperiencing huge growth within the country?”
In terms of services, the company is focusing on improving the existing products. Its B2Btime-definite delivery implemented last year is showing stable demand. “It can be transformed intoB2C as some internet shops require time-definite services.”
When asked about business development in Kazakhstan and Ukraine, Suleimanov said Pony Expressregisters similar growth and observes the same trends as in Russia. “It is basically the same forall CIS countries due to a similar mentality.” The difference to Kazakhstan and Ukraine is thatthese countries have fewer ‘online monsters’ that were born in Russia. “What is very good for us isthat they are now expanding from Russia to the CIS countries and we continue our cooperation simplybe implementing the technologies developed in Russia to Ukraine and Kazakhstan.”
Looking ahead, Suleimanov said: “The overall task for all our services remains reducing ourcosts and we will continue pursuing this policy next year. Other priorities are implementation ofnew technologies and expanding our production capacities.”
In terms of the branch network, the company is reinforcing the existing ones with more staff tobe able to provide a comprehensive service portfolio. “In some smaller towns, there were not enoughemployees and not enough demand to offer all of the company’s services. Now, we are expanding ourregional presence not through the number of cities covered but the quality of services offered inthe particular region. This includes employee training, technical equipments etc.”
Founded in 1992, Pony Express operates a network of 59 branches, more than 141 representativeoffices in Russia and branch establishments in Ukraine, Armenia and Kazakhstan serving more than95% of the Customs Union, 9,000 Russian cities and the CIS.
