Master's Thesis

MASTER'S THESIS

Cross-border logistics between EU and Russia The flow of goods between Murmansk-Finland-Sweden with focus on the

logistical interfaces in a supply chain

Johan Wallin 2013

Master of Science in Engineering Technology Industrial and Management Engineering

Luleå University of Technology Department of Business Administration, Technology and Social Sciences

Acknowledgements

First of all, I would like to thank Professor Anders Segerstedt at Luleå University of Technology for supervising my research. Thank you for your support and for enabling this study by entitling me the required means to conduct interviews.

Likewise, I owe my deepest gratitude to Peter Hallner with staff at DHL Freight Sweden AB, Luleå. Thank you for showing great interest in my study, for providing contacts, and for having interesting discussions that have guided me in my work. I am very grateful to have been a part of your team during the period of writing my master’s thesis which was a delight.

Moreover, I owe a great thanks to all interviewees. Thank you very much indeed for your time, consideration and kindness to share your experiences with me. Without your helpfulness and expertise, this study had not been possible to realize.

I also want to direct a special thanks to Viktoria Sorokina for helping me with arranging interviews in Russia and for interpreting. Owing to your support, I was able to obtain valuable data through interviews which I had not been able to arrange totally on my own.

To sum up, I also like to thank the EU project Barents Logistics 2 for funding this research.

Luleå 24th of May 2013

______Johan Wallin

Abstract

The study provides a mapping and description of the flow of goods by road transportation across the two northernmost border crossings of Finland towards Russia, and a unique overall view is presented of the cross-boundary logistics in this region.

Rather than having a focus on grand-scale need for investments in infrastructure, this study aims to highlight the present situation in the Barents region and what is feasible to achieve with existing infrastructure and resources. The study has been executed since the potential for trade and cooperation between the countries in the region is perceived to be far greater than what is currently experienced. It should be noted that the total population of the Barents region is about 5.5 million. Of these, about 788 000 people live in the Murmansk region. This can for instance be compared with the population of the counties of Norrbotten and Västerbotten, amounting to around 248 000 and 260 000 respectively.

The current flow of goods across the northern border stations of Russia towards Finland and Norway must be considered to be very modest and does primarily consist of fish products, potatoes, various supplies to the mining industry on the Kola Peninsula, wild berries, and subcontracted goods. Consequently, trucks do often run without cargo in one direction and the extent to which these transports are coordinated is low. If coordinated and a partnership would be initiated between parties possessing warehouse terminals on both sides of the Finnish-Russian border, it would be possible to improve the services of cross-border logistics without a need for large-scale investments. A suggestion of an alternative logistics solution is therefore presented for general cargo. Today, most transports across these northern border crossings are arranged according to the principle of truckload shipping, but the proposed solution would entail less-than-truckload shipping to be put into wider practice.

Enhanced logistics services would facilitate supply chain solutions across the national borders in the Barents region, and the Murmansk area appears to be relatively unexploited by west European companies. As a result of globalization, the general importance of effective Supply Chain Management is increasing for businesses. Accordingly, global sourcing has become part of the purchasing strategy for many companies. Still, there are challenges connected to global sourcing but these can be mitigated if the geographical distance is reduced between the supplier and the customer. For instance, this would be the case if a Nordic company locates some of its production to the Murmansk region instead of placing it in Asia.

This study has been made during the first half of year 2013 as a part of the Barents Logistics 2 project.

Keywords: Cross-border logistics, global sourcing, international supply chains, road transportation, Barents region, Murmansk, Kola Peninsula

Sammanfattning

Studien ger en kartläggning av det vägburna godsflödet som går över Finlands två nordligaste gränsövergångar mot Ryssland och en unik, övergripande bild presenteras över den gränsöverskridande logistiken i denna region.

Snarare än att fokus ligger på att identifiera omfattande investeringsbehov i infrastruktur så syftar studien till att belysa den nuvarande situationen i Barentsregionen vad gäller logistiken och vad som vore möjligt att åstadkomma med existerande infrastruktur och befintliga resurser. Studien har genomförts eftersom potentialen för handel och samarbete mellan länderna i regionen upplevs vara betydligt större än vad det nuvarande utbytet är. Det bör noteras att den sammanlagda befolkningen i Barentsregionen uppgår till omkring 5,5 miljoner personer. Av dessa människor bor omkring 788 000 i Murmanskregionen vilket exempelvis kan jämföras med befolkningen i Norrbottens och Västerbottens län som utgörs av 248 000 respektive 260 000 invånare.

Det nuvarande godsflödet genom Rysslands nordliga gränspassager mot Finland och Norge måste anses vara mycket begränsat och består till största delen av potatis, fiskprodukter, diverse förnödenheter till gruvindustrin på Kolahalvön, vilda bär samt lego-gods. Som en följd av det blygsamma godsutbytet går långtradare ofta utan last i ena riktningen och den grad till vilken dessa transporter samordnas är låg. Med en större samordning och om partnerskap skulle instiftas mellan åkare och aktörer som besitter lagerlokaler på båda sidorna om den finsk-ryska gränsen så vore det möjligt att förbättra de gränsöverskridande logistiktjänsterna utan att det skulle kräva storskaliga investeringar. Ett förslag till hur en alternativ utformning av logistiken skulle kunna se ut presenteras därför för styckegods. I dagsläget arrangeras mestadelen av transporterna enligt principen för truckload shipping, men den föreslagna lösningen skulle medföra en mer omfattande tillämpning av less-than-truckload shipping, dvs. styckegodshantering.

Förbättrade logistiktjänster skulle underlätta supply chain-lösningar över nationsgränserna i Barentsregionen. Dessutom visar sig Murmanskområdet vara relativt oexploaterat av västeuropeiska företag. Som en följd av globaliseringen så ökar den generella betydelsen av företags Supply Chain Management och således har global sourcing blivit del av inköpsstrategin för många bolag. Det finns emellertid utmaningar kopplade till global sourcing men dessa kan lindras om det geografiska avståndet reduceras mellan leverantör och kund. Detta vore exempelvis fallet om ett nordiskt företag skulle förlägga en del av sin produktion i Murmanskområdet istället för i Asien.

Studien har genomförts under den första halvan av 2013 som en del av projektet Barents Logistics 2.

Nyckelord: Cross-border logistics, global sourcing, international supply chains, road transportation, Barents region, Murmansk, Kola Peninsula

Table of contents 1. Introduction ...... 1 1.1. Background ...... 1 1.2. Research purpose ...... 2 1.3. Research problem...... 2 1.4. Research questions ...... 2 1.5. Research limitations ...... 3 1.6. How to read this report ...... 3 2. Methodology ...... 4 2.1. Research purpose ...... 4 2.2. Research approach ...... 4 2.3. Research strategy ...... 5 2.4. Data collection ...... 6 2.5. Data analysis ...... 7 2.6. Validity and reliability ...... 8 3. Theory ...... 9 3.1. Supply Chain Management ...... 9 3.2. Intermodal freight transport ...... 9 3.3. Logistics services ...... 10 3.4. Truckload and less-than-truckload shipping ...... 10 3.5. Linehaul ...... 11 3.6. Types of trucks and trailers ...... 11 3.7. The TIR Treaty ...... 12 3.8. The CMR Convention ...... 13 3.9. Customs broking ...... 13 3.10. Customs warehouse ...... 13 3.11. Outward processing ...... 13 4. Overview of the current situation ...... 14 4.1. The Barents region ...... 14 4.2. Kolarctic ENPI CBC ...... 16 4.3. Previous studies and investigations ...... 16 4.4. Existing transport routes ...... 18 4.5. Existing traffic volumes ...... 19

4.6. Existing customs stations in Murmansk Oblast ...... 21 4.7. Vehicle regulations ...... 21 4.8. Northern Sea Route ...... 22 4.9. Murmansk Transport Hub ...... 22 4.10. WTO ...... 23 5. Data presentation ...... 24 5.1. The flow of goods ...... 24 5.2. Practices in border crossings and customs stations ...... 28 5.3. Pricing and current buying behavior for transport services ...... 31 5.4. Barriers for trade ...... 32 5.5. Future prospects...... 34 5.6. Case 1 – Mikromakarna ...... 36 5.7. Case 2 – Polarica ...... 38 5.8. Case 3 – Huolintalinja ...... 41 6. Data analysis ...... 45 6.1. The flow of goods ...... 45 6.2. Practices in border crossings and customs stations ...... 46 6.3. Pricing and current buying behavior for transport services ...... 46 6.4. Barriers for trade ...... 46 6.5. Future prospects...... 47 6.6. Within-case analyses ...... 47 6.7. Cross-case analysis ...... 48 7. Conclusions ...... 49 8. Implications and further research ...... 53 References ...... 54 Appendix A ...... 58 Appendix B ...... 59

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH 1. Introduction

In this section, a background to this study is given. The purpose of conducting this research is described as well as its scope. Also, the research problem and the research questions are presented. Moreover, this chapter ends with a guide for how to read this report.

1.1. Background In line with globalization, the general importance of effective Supply Chain Management is increasing for companies in order to remain competitive in their marketplace. Consequently, global sourcing has become a highly topical practice within the area of purchasing for many companies, intending to benefit from international supply chains (Holweg, Reichhart, & Hong, 2011). Despite the potential advantages, there are however obstacles to overcome and companies have started to rethink their LCC1-based sourcing strategies since challenges lie ahead. Some of these challenges relate to long geographical distances and transportation costs. Still, it is concluded that global sourcing is a phenomenon which is here to stay and international supply chains can be part of a firm’s competitive strength (de Juan, Du, Nandgaonkar, Waddell, & Lee, 2010).

The geographical proximity to the Kola Peninsula from the Nordic countries suggests an opportunity for companies in Western Europe to have part of their inbound supply chain in this region. This would reduce lead times remarkably compared to sourcing in Asia, for instance, and the shorter distance would mitigate the emerging challenges of global sourcing identified by de Juan et al. (2010). Nevertheless, there are certain requirements of the logistics services that must be available to allow effective supply chain solutions across these borders. Accordingly, the logistics service provider has an important function in enabling these supply chains and how the logistics system is designed is a crucial factor for a company to consider when sourcing globally.

At present time, a significantly large portion of the goods transported between the Russian Federation and the European Union is handled through St. Petersburg. This implies a long detour for goods intended to be transported between the Murmansk region and the northern parts of Finland, Sweden and Norway. To a certain extent, direct transports are already carried out through the more northern border crossings of Russia towards Finland and Norway. Still, the potential for trade and cooperation between these four countries in the Barents region is perceived to be far greater than what is currently experienced. For this reason, several projects have been initiated in an attempt to develop and strengthen these trans-boundary relations and this effort is partly funded by the European Union through its Kolarctic ENPI CBC program (presented in section 4.2. Kolarctic ENPI CBC) as well as by local authorities. Figure 3 illustrates the area which the Barents region constitutes of. Additionally, Myllylä (2006) concludes that one of the strongest prospective trends for the Murmansk region up to the year 2025 is the development of logistical flows.

1 LCC = Low Cost Country 1

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

1.2. Research purpose This study aims to give a better understanding for how the flow of goods can be increased between Murmansk and the northern parts of Sweden and Finland in both directions. The current procedures of arranging transports on this route were ought to be examined and presented in order to serve as a basis for future development of the logistical services. Additionally, the study intends to map out the types of goods that already are transported across these borders to identify a possible gap between what is sent today and what could be freighted. Since the potential for cross-boundary trade in the Barents region is commonly perceived to be far greater than the extent yet experienced, the relevance of conducting this research is high. This study is also of general interest since globalization drives companies to develop international supply chains in order to stay competitive (Holweg, Reichhart, & Hong, 2011). Moreover, reading this report can be of interest for those considering to initiate cross-boundary trade in the Barents region.

1.3. Research problem Regarding the latitudinal cross-boundary flow of goods within the Barents region, it is plausible to believe that the longer distance which the mainstream transport route via St. Petersburg brings about has a negative influence on the quantities that are requested to be shipped. Increased distances reduce the profitability of carrying out transports which stresses that the available logistics services may be a crucial factor for the extension of trade between the countries in the Barents region. One important aspect of the logistics service to consider is the appearance of the interface between current and potential consignors, logisticians, and consignees. Consequently, the efforts of a logistics service company to maintain a smooth interface is one part of being this vital link in an international supply chain.

Based on these challenges, the research problem has been formulated as:

“How can the current logistics solutions in the Barents region between the European Union and the Russian Federation be developed with moderate efforts in order to facilitate cross-boundary supply chain solutions?”

1.4. Research questions All stated research questions (RQs) are presented in table 1 and refer to the flow of goods between Murmansk and the northern parts of Finland and Sweden. RQ 1-4 describe the present situation while RQ 5 looks into the future. The questions are answered in chapter 5. Data presentation.

RQ1. What parties are currently carrying out an exchange of goods? RQ2. What are the main types of goods transported today? RQ3. How is the existing exchange of goods executed? RQ4. What logistical obstacles and trade barriers exist for transports to be executed? RQ5. What actors are potential to have an exchange of goods in the future and what types of goods are possible to be in demand for transportation?

Table 1. Research questions (RQs).

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

1.5. Research limitations Rather than having a more holistic approach connected to the general purpose of increasing trade and collaboration between the countries in the Barents region, this study has a stronger focus on the more logistical issues. To get a more comprehensive overview of the current outlooks for trade, a PESTEL analysis can be made, taking the following six environmental factors into account; Political, Economic, Socio-cultural, Technological, Environmental, and Legal (Yüksel, 2012). Although each single component mentioned is important to pay attention to when assessing the overall potential for an increased flow of goods across these borders, the area of logistics itself and its capability must be seen as one of the fundamental prerequisites for such an interexchange to take place. Besides logistics, among other key success factors to consider for managing with trade in an international business environment are related to negotiation strategy and the awareness of issues regarding the local culture, business etiquette, and history (Martin & Larsen, 1999).

The mode of transportation which this study primarily focuses on is road transportation. Hence, other modes of transportation such as sea, air, railway, and pipeline will be disregarded although these can be part of an intermodal transport chain. This limitation is made according to the existing infrastructure in the Barents region. For other modes of transportation than road transport to be applicable for goods sent between Murmansk and the northern parts of Sweden and Finland, large- scale investments or long detours would be required.

In accordance with the formulation of RQ 1-4, this study focuses most on describing the current flow of goods across these borders in the north. Moreover, the flow of freight that previously has existed is also accounted for since a mapping of this may give a better understanding for the present situation. Additionally, the issue of potential flow of goods is addressed in RQ5, but this is not the primarily focus of this study. Since it had been outside the scope of this research, no in-depth market analysis has been conducted of the future prospects but nevertheless, this question has been brought up during interviews with persons possessing good knowledge about the Murmansk region.

1.6. How to read this report This paragraph presents a guide to the reader for how to read this report. Although there are connections between the chapters, all of them do not have to be read from cover to cover. While chapter 1, 2, 3, 4 and 8 can be read independently, it is recommended that chapter 5, 6 and 7 are read in the order they appear.

The author likes to stress that the major contribution of this research can be found in chapter 5. Data presentation where the research questions (RQs) are answered by presenting the empirical data obtained from interviews and previous studies. For this reason, chapter 5 is quite extensive and covers twenty pages. Chapter 2. Methodology is foremost in the interest of academia and can be overlooked by most readers. In order to explain basic concepts related to this study, a theoretical framework is presented in chapter 3, and chapter 4 accounts for an overview of the current situation in the Barents region. In chapter 6. Data analysis, the empirical data presented in chapter 5 is analyzed and compared with the theoretical framework as well as with the present situation of the Barents region. This section is followed by chapter 7 where the conclusions of this study are presented and an answer, including recommendations, is suggested to the research problem. Finally in chapter 8, the implications of this study are accounted for and suggestions for further research are brought up.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH 2. Methodology

This chapter describes how the research has been conducted. It accounts for different alternatives for research purpose, research approach, research strategy, and data collection. It also contains motivation for the chosen methods, how the analyses have been accomplished and the validity and reliability of this research is discussed.

This section is foremost in the interest of academia and can be overlooked by most readers.

2.1. Research purpose According to Lundahl & Skärvad (1999), the research purpose can principally be defined as exploratory, descriptive, or explanatory. Moreover, the choice of purpose depends on the aim of the study and how the research questions are formulated. Still, a research project may have more than one purpose and it may change at different stages of the research process. (Saunders, Lewis, & Thornhill, 2009)

The target with an exploratory study is to gain new knowledge within the area of research (Saunders, Lewis, & Thornhill, 2009) and thereby fill the gaps of already existing knowledge (Patel & Davidson, 2003). This purpose is particularly useful if one wishes to clarify the understanding of a problem and there currently is an uncertainty of its precise nature. Primarily, there are three ways of conducting exploratory research and these include a search of the literature, interviewing experts in the subject, and conducting focus group interviews. (Saunders, Lewis, & Thornhill, 2009)

When having a descriptive purpose, knowledge is already available on the research area. Hence, the aim is to further describe the variables within the area of interest in order to create a better understanding of the research problem. (Patel & Davidson, 2003)

With an explanatory purpose on the other hand, the aim is to identify the influencing factors that together cause a phenomenon (Lundahl & Skärvad, 1999). In contrast to the other two research purposes mentioned above, the variables are known and the researcher is trying to explain the relationships between them and how they impact on each other (Patel & Davidson, 2003).

2.1.1. Chosen research purpose Since this research intends to clarify the understanding of a phenomenon, the research purpose of the study is mainly exploratory but it has got a descriptive twist.

2.2. Research approach According to Patel & Davidson (2003), the primary purpose of choosing a research approach is to be able to develop theories explaining the real context as closely as possible. This can be carried out either by using an inductive or a deductive approach. The foremost disparity between the two approaches lies in the usage of theories within the research study. (ibid.)

When an inductive research approach is applied, new theories are being produced after having observed and analyzed real life situations, requiring a comprehensive understanding of the area of research. A deductive approach, on the other hand, implies the use of existing theories in order to make comparisons between theory and reality. This is done with the aim to generate a comprehensive understanding of the relationship between different variables and to validate the credibility of the theories. (Saunders, Lewis, & Thornhill, 2009)

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

Furthermore, whether a qualitative or a quantitative approach shall be practiced must also be taken into consideration when decision is made on which type of research approach to adopt. That is, in what way the data used in the study should be generated and collected. (Patel & Davidson, 2003). The foremost difference between these two approaches is that qualitative data is not based on any statistical or standardized data, thus the information is derived from words rather than from numerical data which is the case with quantitative data. (Saunders, Lewis, & Thornhill, 2009)

2.2.1. Chosen research approach This study has a deductive research approach since the empirical data was compared with existing theories. Moreover, the data which this research is based on is foremost of qualitative nature since it has been obtained through personal interviews.

2.3. Research strategy The three most commonly used research strategies are case study, survey, and experiment (Patel & Davidson, 2003). According to Yin (2003), a case study is an empirical investigation when the study object is being researched in its real context. The study object can be an individual, a group, an event, or something similar (Lundahl & Skärvad, 1999). Though, when the strategy includes the use of a survey, a large amount of data can be collected either by using questionnaires or interviews for instance (Patel & Davidson, 2003). Besides, when using experiment as a research strategy, the objective is to study a number of chosen variables and what is affecting them. This strategy is commonly used within the natural sciences. (Chapman & McNeill, 2005)

According to Yin (2003), the formulation of the research questions may suggest which research strategy that is applicable to use and this reasoning is summarized in table 2.

Strategy Form of research Requires control over Focuses on questions behavioral events? contemporary events? Experiment How, why? Yes Yes Survey Who, what, where, No Yes how many, how much? Archival research Who, what, where, No Yes/No how many, how much? History How, why? No No Case study How, why? No Yes

Table 2. Relevant research strategies for different situations (Yin, 2003).

2.3.1. Chosen research strategy This research is foremost carried out as a case study, although it also has some elements that may resemble a survey. Even if only one of the research questions for this study is formulated in such a way that it begins with the word how (RQ3), this particular question is one of the most central for this study. Moreover, the use of surveys was not considered as a possible approach in order to answer the remaining research questions, all beginning with the word what.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

2.4. Data collection In terms of data collection, there is often a classification made into either primary or secondary data (Larsen, 2009). Primary data is obtained specifically for the purpose of the research study and is often collected by using methods such as questionnaires, interviews, or observation (Chapman & McNeill, 2005). On the contrary, secondary data is initially collected for another purpose than the actual study. In other words, using secondary data implies the use of already existing data that has been generated in another context, often in other research studies. In the academic world, this type of data can often be found in reports, theses and literature. (Larsen, 2009)

According to Dahmström (2011), the sample selection can be defined as either probability sampling or non-probability sampling. In a probability sampling the selection of the respondents has been made on statistical grounds in order to ensure a representative result. Non-probability sampling on the other hand is when the selection has been made on non-statistical grounds and can therefore not necessarily be seen as a representation of the population. (ibid.)

2.4.1. Questionnaires One way of collecting primary data is by using questionnaires. As the term questionnaire suggests, the method states the use of asking a number of questions to a selected respondent group. The most common way of doing so is by sending out these questionnaires by mail which the respondents later will return. This method is favorable in situations requiring a great number of respondents and when the budget is limited. However, the attained percentage of answers may be uncertain and to some extent, restrictions may also exist regarding how questions are formulated and what questions that are suitable to be included in a questionnaire. (Chapman & McNeill, 2005)

2.4.2. Observations Another method for collecting primary data is observation. That is when the characteristics and/or the behavior of the respondents are being observed. Observations can either be direct or indirect, depending on whether the respondent is aware of the observation or not. Indeed, this method is most favorable when the incentive is to study episodes in everyday life situations. However, one disadvantage is that the level of quality can differ depending on who is doing the observations. (Dahmström, 2011)

2.4.3. Interviews Interview is a data collection method primarily based on the idea of asking questions. This can either be done in a more personal way by conducting interviews face-to-face, or by the use of telephone. (Patel & Davidson, 2003). The foremost advantage of conducting face-to-face interviews is the ability of asking a great number of detailed questions in order to generate a more qualitative understanding of the topic. Also, the fact that the interviewer can solve any concerns regarding the questions right away reduces the risk for misunderstandings compared with the use of questionnaires. The aspects not in favor of the use of face-to-face interviews are the time and cost. Additionally, the risk of interviewer bias argues against choosing interview as method. (Dahmström, 2011)

Telephone interviews on the other hand, is a more time effective alternative and can also solve any ambiguities right away. However, this method does not allow the interviewer to ask as detailed questions and may require that a great number of telephone numbers and respondents are available. (ibid.)

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

According to Saunders et al. (2009), an interview can be conducted in three different ways and can either be structured, semi-structured, or in-depth. A structured interview is applicable when quantitative data is to be collected and it means that the interviewer has got a standardized schedule of questions from which the questioner is not ought to deviate. When the researcher intends to obtain qualitative data though, semi-structured or in-depth interviews should instead be applied. In semi-structured interviews, the interviewer has got an agenda with questions but deviations from it are allowed and other topics may be brought up for further examination. An in-depth interview on the other hand is unstructured, meaning that no real agenda has been prepared and the respondents are asked to talk freely about areas related to the topic. (Saunders, Lewis, & Thornhill, 2009)

Moreover, the chosen research purpose of a study suggests what method that is most suitable to be used for conducting interviews. Structured interviews are often appropriate when the research purpose is descriptive, while semi-structured interviews rather can be used for exploratory research. Additionally, in-depth interviews are applicable when the research purpose is explanatory. (Saunders, Lewis, & Thornhill, 2009)

2.4.4. Chosen method for data collection The method used for collecting the primary data was by conducting interviews and this choice of method was made because it was supposed to be hard to obtain the required information in another way. Thorough interviews were held with key respondents, while more brief phone calls were made to others. In order to generate highly qualitative data, face-to-face interviews were preferred, but a few telephone interviews were also conducted. For every interview, an agenda had been prepared with open questions and thus, all interviews were semi-structured. At each interview, the respondents were asked whether they could advise the interviewer of other persons with knowledge related to the research topic that possibly could be interviewed. Hence, this method can be likened with the so called snowball effect. In some cases, the interviewees could even provide contact details which made the process of contacting potential interviewees easier. Since most of the data for this study has been collected through personal interviews in which the respondents were chosen as a result of a convenience sampling, the selection can be classified as a non-probability sample. As for the required secondary data, previous studies and online sources were used.

2.5. Data analysis According to Yin (2003), the two most commonly used analyzing methods for a case study are within- case analysis and cross-case analysis. When using within-case analysis, the empirical data is compared with the theoretical framework which is the set of theories on which the study is based on. Cross-case analysis, on the other hand, is used when the research project consists of two or more cases and these are compared. (ibid.)

2.5.1. Chosen method for data analysis In this study, three within-case analyses and one cross-case analysis were conducted. Initially, all cases were compared separately with the theoretical framework in order to identify similarities and dissimilarities. Thereafter, all three cases were compared to each other in order to support the conclusion. Moreover, the general empirical data, i.e. the data that was presented as not belonging to a certain case, was divided into five main topics and these subjects were all analyzed separately.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

2.6. Validity and reliability The terms of validity and reliability are critical audits used in order to secure the trustworthiness and quality of a research project (Holme, Solvang, Fløistad, Kjeldstadli, & O'Gorman, 1997). Validity ensures that the study is measuring what it was intended to measure (Lundahl & Skärvad, 1999). Then, the aim of measuring reliability is to reduce errors and biases and a study can be classified as reliable when the chosen research method can be used by an independent researcher and, at least hypothetically, still reach the same result (Yin, 2003).

2.6.1 The reliability of this study Since this research is based on interviews, a possible method problem having a negative impact on the reliability of this study can be addressed to interview bias. This is the risk of the interviewee withholding information as well as the risk for misinterpretations by both the interviewer and the interviewee (Yin, 2003). Also, one of the interviews was conducted in Russian with help from an interpreter and such a language barrier may give rise to misunderstandings.

With the aim of increasing the reliability of the empirical data that is presented, statements were always triangulated if possible. In this case, triangulation meant that several interviewees with different background were asked the same questions with the intention of getting facts confirmed by more than a single party and to reduce the risks for misunderstandings. Furthermore, the interviews were held in a semi-structured way and this allowed probing, implying that supplementary questions could be asked in order to clarify statements and to mitigate the risk of interviewee bias. Though, since it proved to be relatively hard to get to talk to persons possessing knowledge about the cross- boundary flow of goods in the Barents region, it is plausible that an independent researcher could not obtain all facts that are presented in this thesis. Consequently, the selection of respondents was made according to the method of non-probability sampling. It had been desirable by the researcher to conduct at least two more interviews with persons identified as knowledgeable in this area. Of them, one is a Russian hauler and another one is a Russian customs official. Yet, multiple viewpoints are included in this study since the respondents are holding various positions and represent three different countries.

The research problem has been formulated in such a way that it is supposed to be possible to execute a similar study for other border crossings between EU and Russia than the ones in northern Finland. Although the empirical data is strongly linked to the region of the Kola Peninsula and the northern areas of Sweden and Finland, the theoretical framework is generally applicable and the results can to a certain extent be transferred to another context. Moreover, the applied method would be suitable to be used for a comparable study in another region.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH 3. Theory

In this section, a theoretical framework is presented in order to explain basic concepts related to this study.

3.1. Supply Chain Management According to Benton (2010), Supply Chain Management can be defined as “the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer”.

As summarized by Hitachi Consulting (2009), there are six key trends changing Supply Chain Management of today. These trends regard demand planning, globalization, increased competition and price pressures, outsourcing, shortened and more complex product life cycles, and closer integration and collaboration with suppliers. The first-mentioned trend implies smaller but more frequent lot sizes in order to reduce average inventory levels and the tied up capital. This requires good delivery precision and consequently, the service level of operations in the supply chain must be consistent for them to be predictable. Also, a more demand-driven approach to manufacturing is increasing in prevalence. (Hitachi Consulting, 2009)

Moreover, the business landscape is rapidly becoming more global due to improvements in information and communications technology (ICT). As a result, companies are grasping the opportunities of global sourcing and are developing international supply chains, both in order to increase their competitiveness and to reach new markets. Metaphorically speaking, the world is shrinking and this increased closeness between markets does both lead to new opportunities for outsourcing as well as tougher competition and greater price pressure. Hence, companies must often work on being cost competitive to remain in their marketplace and this stresses the importance of effective Supply Chain Management. (ibid.)

Traditionally, corporations have acted and competed as separate entities on the market. However, as a means of competition, the entire supply chain is becoming increasingly important for companies to stay competitive and gain market share. Therefore, a move toward more intense collaboration has occurred between customers and suppliers which together form a supply chain. By aligning the strategies of the entire supply chain and sharing information such as forecasts, competitive advantages are achievable and these can be hard for a firm’s competitors to match. (ibid.)

3.2. Intermodal freight transport Intermodal freight transport involves the carriage of cargo in an intermodal container or vehicle, using multiple modes of transportation such as rail, ship, and truck. When switching between modes of conveyance, the freight itself is not handled. This allows freight to be transported without interruption and the risk for damage and loss of the goods is reduced. The key benefit of an intermodal transport chain is that lower costs can be achieved compared with only using road trucking. Also, the emissions of greenhouse gases can be reduced. However, the drawback of such a solution for logistics may be reduced timings for road transport over shorter distances. When an intermodal transport is arranged under a single contract, this is referred to as a multimodal transport. Although the multimodal transport operator does not have to possess all the means of transportation, this party is liable for the entire carriage. (Lowe, 2005)

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

3.3. Logistics services There are several alternatives for how to manage the movement of goods. Depending on the number of parties that are involved and their respective area of responsibility, a logistics provider can either be classified as a 1PL, 2PL, 3PL, or a 4PL. These terms are further described below and logistical activities can for instance consist of forwarding, customs clearance, storage, packing, reloading and consolidation of goods. However, it is possible for a logistics provider to belong to more than one of the mentioned types. Also, if a transporter is part of a larger network of logistics companies, this enables forwarding to a wider geographical area as well as an intermodal transport chain. (Lumsden, 2006)

3.3.1. 1PL A first-party logistics provider (1PL) can be either the consignor or consignee of a shipment, i.e. the parties having a need of freighting goods between two locations. It means that either the supplier or the customer is responsible for managing all logistical functions. (Lumsden, 2006)

3.3.2. 2PL A second-party logistics provider (2PL) concerns the carriers that are providing a transport service over a specific segment of a transport chain. This can involve trucking companies, maritime shipping companies, airline carriers, and railway operators that are hired to move cargo between two locations. These places do not need to coincide with the origin of the goods and its final destination. Instead, these sites can for instance be logistics terminals, seaports or airports. The transport vehicles used for this haulage are either owned, leased or chartered by the 2PLs. (Rodrigue, Comtois, & Slack, 2012)

3.3.3. 3PL In addition to offering the forwarding services of a 2PL, a third-party logistics provider (3PL) offers its customers a broader range of logistics services which can involve warehousing, transloading, and terminal operations. Hence, a 3PL may be responsible for storage, packaging, labeling and distribution of finished goods. Also, the 3PL might even undertake assembly works for its clients. In other words, 3PLs try to organize tasks related to physical distribution so that items can be carried from their origin to their destination. Furthermore, 3PLs may or may not own the assets they coordinate, such as transport vehicles or warehouses. (Rodrigue, Comtois, & Slack, 2012)

3.3.4. 4PL A fourth-party logistics provider (4PL) does usually concern an independent and neutral actor, often a consulting firm. On behalf of their customers, the 4PLs can organize and manage complete supply chain strategies and they can be involved in outsourcing decisions, supplier selection, and the routing of cargo. Moreover, it is common that 4PLs have got agreements with 3PLs and 2PLs. (Rodrigue, Comtois, & Slack, 2012)

3.4. Truckload and less-than-truckload shipping Transports of general cargo can be arranged in several ways, either by forming full truckloads (FTL) or less-than-truckloads (LTL). A truckload carrier is a transport company that generally contracts an entire trailer-load to one single customer and this arrangement is common when large amounts of homogenous cargo are to be moved between two places. On the other hand, a less-than-truckload (LTL) carrier is consolidating freight from several customers into each transport vehicle. The advantage of sending FTLs is that the cargo does not have to be reloaded on the way but can instead

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH be sent more or less directly from the consignor to the consignee, hence saving time and this also reduces the risk for damaging the goods. On the contrary, LTL carriers either have to run a loop and visit several addresses to pick up and deliver goods, or they must pass through a logistics terminal for transshipment. One example of LTL shipping is linehaul, further described in section 3.5. Linehaul. The main advantage of using an LTL carrier is that a smaller shipment may be transported for a fraction of the cost of hiring an entire truck for an exclusive shipment. A third alternative is parcel carrier operations, following the same principle of LTL deliveries but it involves handling of shipments that are smaller in size. (Coyle, Bardi, & Langley, 2000)

3.5. Linehaul Linehaul is the movement of freight by road between distant locations. Usually, these transports are arranged by large trucks running express between two major logistics terminals. At these terminals, goods are picked up locally and are consolidated from several consignors into one truck in order to be forwarded to another, remotely located terminal. From there, the cargo is either forwarded to a third terminal or distributed to a various number of consignees by local haulers, using smaller transport vehicles. This solution for logistics makes it possible to increase the fill rate of trucks going between these major sites. Besides, a high degree of utilization of the transport capacity between distant places is often necessary for these operations to be profitable. (Taniguchi, Noritake, Yamada, & Izumitani, 1999)

Moreover, a concept of public logistics terminals has been proposed in Japan. By gathering the distribution functions of several companies under one roof, it would allow more efficient logistics systems to be established and if the collaboration is successful, it is argued that it would help to alleviate traffic congestion, environment, energy and labor costs. (ibid.)

3.6. Types of trucks and trailers Here, a selection of various types of trucks and trailers are presented which can be used for road transportation of general cargo. The main principle of various vehicle combinations is presented in figure 1. Naturally, trucks can also run without an additional trailer connected to it.

Figure 1. Different types of heavy trucks used for transporting general cargo (Wikipedia, 2006).

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

According to figure 1, picture A and B show examples of semi-trailer trucks while C– G show rigid trucks. The main difference is that semi-trailer trucks are articulated vehicles while rigid trucks are not and in figure 1, the additional trailers that are connected vary from being semi-trailers and rigid trailers. Moreover, the bodywork of a heavy vehicle can be customized for the use which the truck is primarily intended for. For an enclosed cargo space, the truck or trailer body can be equipped with either a cargo box or with tilt (tarpaulin). Tilt is the cheapest alternative and does allow goods to be loaded both from the long and the rear side. Cargo boxes are available in a large variety of designs, with dimensions and properties that can be tailored for the intended use. Some of these solutions allow the long sides to be opened so that loading can take place not only from the behind, but this varies. Among these alternatives are refrigerated and freezer trucks and trailers, enabling transports of perishables and frozen goods. Furthermore, general cargo can likewise be carried in containers, as well as in smaller vehicles such as delivery vans. Containers can be loaded on an open semi-trailer (figure 2), for instance on a container trailer especially intended for this task but also on a low loader trailer, sometimes denoted as a lowboy trailer, if it is equipped with the required fastening device. If a cargo box is detachable, it is called a swap body and can be used in an intermodal transport chain just like semi-trailers and containers. Also, refrigerated and freezer trucks can to a certain extent be used to carry other cargo than heat-sensitive goods, as long as it is compatible with food and this increases the flexibility in use. (Wikipedia, 2006)

Figure 2. Selection of open semi-trailers (Wikipedia, 2006).

3.7. The TIR Treaty In order to simplify and harmonize the administrative formalities of international road transports, the TIR Treaty was signed in 1975. Its formal denomination is Convention on International Transport of Goods Under Cover of TIR Carnets and it was adopted by the United Nations Economic Commission for Europe (UNECE). Moreover, TIR is the acronym for the French term “Transports Internationaux Routiers”, meaning International Road Transports in English. (UNECE, 2013a)

The TIR convention provides an international customs transit system which facilitates the movement of goods in sealed vehicles or containers between a customs office in the country of departure and another customs office in the destination country. For this, a so called TIR Carnet is used as transit document. Generally, the use of TIR Carnets reduces the need for inspections to take place when crossing national borders and it provides customs authorities with the required security and guarantees. Hence, it is required to set up a guarantee fund for those who want to use TIR Carnet. So far, the TIR convention provides the only universal customs transit system in existence. The alternative to using TIR Carnet as transit document is to have a bank guarantee and to pay the deposit direct at the border. As long as at least one part of the total transport is made by road, TIR Carnets can be used as transit document for an intermodal transport chain. (UNECE, 2013a)

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

3.8. The CMR Convention The CMR Convention was initiated in 1956 by the United Nations. Its full title is Convention on the Contract for the International Carriage of Goods by Road. Thus, it relates to various legal issues concerning transportation of cargo by road and is ratified by the majority of European states, including Russia. For this reason, the convention has a great impact on the allocation of responsibilities in the case of damaged goods carried by road. Based on the CMR Convention, a standard CMR waybill has been developed. (UNECE, 2013b)

3.9. Customs broking In order to assist with customs clearance of import and export goods, a customs broker can be hired. Customs broking involves the preparation of required documents and/or electronic submissions, as well as the calculation and payment of taxes, duties and excises. Also, a customs broker can facilitate the communication between government authorities and importers and exporters. (Wikipedia, 2013)

3.10. Customs warehouse A customs warehouse is a facility where undeclared goods can be stored indefinitely, if approved by the customs authority. It means that customs duties will not have to be paid until the goods are taken out from this storage. Hence, there is no need to pay duties and taxes in advance in case imported goods are not to be used immediately. However, some items may not be stored in a customs warehouse. This includes animal products covered by veterinary import regulations, unless they have been checked by the border veterinary and then been approved for storage in the warehouse. (Tullverket, 2013)

3.11. Outward processing Outward processing allows domestic goods to be processed outside the customs territory and when the goods come back, the duty has to be paid only on the value added abroad. Without a system like this, it had been necessary to pay duty for the full value of the goods upon return. Though, a constraint according to this customs regulation is that more goods cannot be sent into the country of processing than is later taken out of it. The opposite would be inward processing, which means that imported raw materials or semi-manufactured goods are processed within the customs territory for re-export by domestic manufactures. (European Commision, 2013)

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH 4. Overview of the current situation

In this section, an overview is presented of the current situation in the Barents region.

4.1. The Barents region The Barents region is constituted by the northern parts of Norway, Sweden, Finland and the northwestern parts of Russia. Formally, this area is denoted as the Barents Euro-Arctic Region and was instituted in 1993, short after the fall of the Soviet Union by the political ambition to enhance the international cooperation between the member regions. The political work is led by the Barents Euro-Arctic Council (BEAC) in which the thirteen territories comprising the region are members. Every second year, the presidency is rotating between the four member states and in 2008, the International Barents Secretariat was established in Kirkenes, Norway. The Barents region is characterized by a harsh climate and long distances and has got about 5.5 million inhabitants altogether. It is an area unusually rich in natural resources such as forests, minerals, fish, oil and gas. (Norwegian Barents Secretariat, 2013)

Figure 3 displays the area defined by BEAC as the Barents region. Moreover, figure 4 shows an enlarged map of the parts of the Barents region which this study primarily takes into consideration. Furthermore, a detailed map of the urban population of Murmansk Oblast is presented in figure 5. Around 788 000 people live in the Murmansk region and this can be compared with the population of the counties of Norrbotten and Västerbotten, amounting to about 248 000 and 260 000 respectively (Barents Euro-Arctic Council, 2013a). Ordered by country, the member regions are the following:

Norway: Finnmark, Troms and Nordland Sweden: Norrbotten and Västerbotten Finland: Lapland, Oulu and Kainuu Russia: Murmansk, Arkhangelsk, Nenets, Komi and Karelia

Figure 3. The Barents region (Barents Euro-Arctic Council, 2013b). 14

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

Figure 4. The area of the Barents region primarily focused on in this study (GRID-Arendal, 2005).

Figure 5. Map of Murmansk Oblast and distribution of urban population (Myllylä, 2006).

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

4.2. Kolarctic ENPI CBC The European Neighbourhood and Partnership Instrument (ENPI) is a set of programs funded by the European Union that are being implemented on the external borders of the EU. One of these ENPI financing instruments is the Kolarctic ENPI CBC program, intended to strengthen the cross border cooperation (CBC) between the northern parts of Sweden, Finland and Norway and the northwestern parts of Russia. The program grants financing to various projects involving at least one partner in the European Union and one in Russia. Eligible regions for receiving funding from the Kolarctic ENPI CPC program does to a certain extent coincide with the territories forming the Barents region (figure 3), although the defined territories do not completely overlap and main focus is on the more northern parts of the Barents area. Examples of projects funded by Kolarctic ENPI CBC in the field of logistics are Barents Logistics 2 and Barents Freeway. The intention of the first-mentioned project is to advance the knowledge about logistics in the Barents region while the latter project serves to integrate current transport strategies, plans and projects of each participating country into one common Barents Region Transport Strategy. (Kolarctic ENPI CBC, 2013)

4.3. Previous studies and investigations With the aim of strengthening the cooperation and sustainable development in the Barents region, a comprehensive study was conducted in two phases between the years 2003-2007 with the name Sustainable Transport in the Barents Region (STBR). The project was partially financed by the European Union and the lead partner for the process was the County Administrative Board of Norrbotten, Sweden. Large focus was on issues related to infrastructure and how to formulate strategies for transportation. The second phase of the project consisted of four work packages, each dealing with one mode of transportation, i.e. aviation, maritime, rail, and road. In the STBR II study (2007) it is concluded that little is known about route choices for transports in the Barents region. For this reason, there were plans of conducting a third study, aiming to find good examples of existing supply chain solutions across these borders in order to give a better understanding for what concretely could be done to stimulate an increased flow of goods. However, these intentions of a STBR III study were never realized. Subsequently, this master’s thesis can be seen as a continuation of the STBR projects since it is based on thorough interviews and presents detailed cases of existing supply chain solutions.

The challenges and opportunities of developing a logistics center in Murmansk and Arkhangelsk have been investigated as a part of the StratMos project. It was part-financed by the European Union and the idea of the project was to promote and facilitate a shift of cargo from road to sea based intermodal transport. To enable such a transition, there are certain requirements of the level of infrastructure. (FDT – Association of Danish Transport and Logistics Centres, 2010)

A feasibility study has been carried out of a railway connection linking Salla in Finland with Kandalaksha in Russia. The study was conducted on behalf of the Salla Centre for Border Cooperation with funding from the European Union and the proposed railway is displayed in figure 6. (JP- Transplan OY, 2003)

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

Figure 6. Proposed railway connection between Finland and Russia (JP-Transplan OY, 2003).

Figure 7. Border crossings open for international traffic between Finland and Russia (thisisFINLAND, 2008). 17

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

4.4. Existing transport routes All border crossings open for international traffic between Finland and Russia are presented in figure 7. The checkpoint marked as Kelloselkä refer to the border station of Salla which is the name solely used for denoting this crossing in this report. Moreover, to cross the border at Uukuniemi requires a special permit, why this station is not mentioned in the list below. In addition, one passageway exists between Norway and Russia, connecting Kirkenes with Murmansk through the Storskog – Borisoglebsk border crossing. This checkpoint is illustrated in figure 8.

According to existing regulations in the European Union as well as in the Russian Federation, there must be one border control on each side of the border. Ordered from north to south and from west to east, the border crossings between Norway and Finland towards Russia are the following:

Storskog – Borisoglebsk Raja Jooseppi – Lotta Salla (Kelloselkä) – Salla Vartius – Lyttä Niirala – Värtsilä Imatra – Svetogorsk Nuijamaa – Brushnitshnoje Vainikkala – Lutzhaika (rail only) Vaalimaa – Torfjanovka

The border crossings of major consideration for this study are the two northernmost checkpoints of Finland towards Russia, Salla and Raja Jooseppi – Lotta. Though, due to the geographical proximity as well as the veterinary services offered which allow transports of food from animals, the Storskog – Borisoglebsk checkpoint between Norway and Russia is also taken into consideration. The second nearest border-station where this service of veterinary inspection is offered is in Vaalimaa, in the very south of Finland. As of 2013, political discussions have been ongoing for a few years to also have a border veterinary station at the crossing of Salla, but Finland and Russia are not yet ready for this.

An assessment of the current network of road corridors was made in the STBR II study (2007) and is displayed in figure 8. Regarding the road sections indicated to be in poor shape, some measures have been taken to improve the standard as of 2013 but deficiencies are still apparent. Among recent investments in road infrastructure, the federal highway between St. Petersburg and Murmansk has been upgraded in some places. Much of the infrastructure in the Barents region is built in a north- south direction, causing logistical barriers for a latitudinal flow of goods.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

Figure 8. The main road corridors in the Barents region (STBR II, 2007).

4.5. Existing traffic volumes The raw data for the graphs presented in this section was obtained from the Finnish Transport Agency (2013) and the Norwegian Police at the Storskog border crossing, police district of Østfinnmark (2013).

The number of trucks passing each month through the border crossings of Salla, Raja Jooseppi – Lotta and Storskog – Borisoglebsk are displayed in figure 9. The volumes refer to the combined number of passages in both directions and a more detailed graph is presented in Appendix A.

Figure 9. Number of trucks passing each month through the three northernmost border crossings of Russia (Finnish Transport Agency, 2013; Østfinnmark Police District, 2013).

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

With no respect taken to the direction, the total number of monthly truck passages between Finland and Russia is displayed in figure 10. The flow of trucks between Storskog – Borisoglebsk presented in figure 9 does equal the total number of passages between Norway and Russia since this is the only border crossing between these countries open for international traffic.

Figure 10. The total number of truck passages per month between Finland and Russia (Finnish Transport Agency, 2013).

According to figure 11, the aggregated number of passages through the two northernmost border crossings of Finland towards Russia is very modest and has never exceeded one percent of the total traffic of trucks between Finland and Russia.

Figure 11. Average share of the total goods flow between Finland and Russia that passes either Salla or Raja Jooseppi (Finnish Transport Agency, 2013).

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

4.6. Existing customs stations in Murmansk Oblast The terms “customs station” and “customs terminal” are used interchangeably throughout this report but do refer to the same kind of establishment. At present, three customs stations are active in the Murmansk region. One is situated in Murmashi near the Murmansk airport, another is located in the harbor of Murmansk, and a third station exists in Kirovsk. These are mapped in figure 12, together with the international border crossings of the county. The first-mentioned terminal is public and is operated by the state-controlled company of Rostek, while the latter two stations are private. Previously, one more private customs terminal did exist by the name Koltak but it has been wound up. More information about Koltak is presented in section 5.7.1. Koltak.

Figure 12. Existing customs stations and international border crossings in Murmansk Oblast. (Federal Customs Service of Russia, 2011)

4.7. Vehicle regulations In the four countries of the Barents region, heavy duty vehicles have got different limitations regarding their dimensions and the load that can be carried. A table of this has been compiled in the STBR II study (2007) and is reproduced in table 3. The figures for Norway primarily relate to the three northernmost counties and no actual height restrictions do exist in Norway, although free height less than 4.5 m normally will be marked with road signs. Also, an exception for the maximum length of a truck in Norway applies for semi-trailers which truck plus trailer all in all can be 17.5 m at a maximum. (STBR II, 2007)

Country Maximum Maximum Maximum Maximum Maximum height (m) width (m) length (m) weight axle weight (tons) (tons) Finland 4.2 2.55 25.25 60 11.5 Norway 4.5 2.55 (2.60) 19.5 50 10 Russia 4.0 18 38 (varies) Sweden 4.5 2.6 25.25 60 11.5

Table 3. Vehicle regulations in the Barents area (STBR II, 2007).

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

As a consequence of different limitations of transport vehicles in the four countries, the mobility of trucks to cross these national borders is to a certain degree limited. For instance, a Swedish truck of standard size is not allowed to enter Finland without special permission due to its dimensions, but a Russian truck on the other hand is permitted to cross the border to Finland.

4.8. Northern Sea Route The Northern Sea Route is a shipping lane running along the Arctic coast of Russia, from Murmansk along Siberia to the Bering Strait. Hence, the route connects the Atlantic Ocean with the Pacific Ocean and has previously been called the Northeast Passage. As a result of decreasing ice coverage in the Arctic region due to rising temperatures caused by global warming, this route has become an alternative choice for commercial shipping between Asia and Europe. In 2009 with assistance from a nuclear icebreaker, two German ships became the first merchant vessels to use the Northern Sea Route as a transit way from Asia to Europe. (Deutsche Welle, 2009). Compared to going through the Suez Canal, the voyage time can be cut by one third if the Northern Sea Route is chosen instead and the distance can be reduced with up to 40 %, resulting in large savings in fuel costs. Furthermore, for shipments between Murmansk and China, the travelling time can even be halved. (Pettersen, 2012a). By the year 2020, it is predicted that as much as 15 % of China’s international trade can be shipped through the Arctic and this increase would foremost be comprised by container traffic. From have been 4 and 34 merchant vessels sailing the Northern Sea Route in 2010 and 2011, respectively, the number of cargo ships completing this route increased to 46 in 2012. (Pettersen, 2013). The navigation season for transit passages between Europe and Asia varies from year to year due to the ice conditions, but starts approximately at the beginning of July and lasts until the second half of November (Arctic Logistics Information Office, 2013).

4.9. Murmansk Transport Hub The creation of a transport hub in Murmansk has been on the political agenda in Russia and is part of the federal strategy for transportation. For the most part, the port of Murmansk has historically been used to ship out bulk goods rather than to receive cargo. Owing to the prospective expansion of commercial shipping to use the Northern Sea Route as a transit between Europe and Asia as well as the potential exploitation of the Shtokman gas field, it is possible that the flow of transports will increase also in the southbound direction. The project of the Murmansk Transport Hub includes expansion of railway tracks to the Murmansk harbor along the western shore of the Kola Bay. Subsequently, several industrial objects are intended to be built and the construction of a container terminal is included in these plans. In 2008, a decree on implementation of the Murmansk Transport Hub project was signed by the then Russian Prime Minister Vladimir Putin. (Pettersen, 2012b). Since it is a project associated with large-scale investments though, it has been postponed and construction of the first stage can as earliest be started in year 2015 (Mikhailov, 2012).

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

4.10. WTO The Russian Federation became a member in the World Trade Organization (WTO) in August 2012, after 18 years of negotiations. In the coming years, the decision to join WTO opens up for lower customs duties and more liberal rules for foreign investments. Over six years from the entry in 2012, the Russian average tariffs for import goods will drop from 10 to 7.8 %. This may however be considered to be a modest reduction compared to when China entered WTO in 2001. The Chinese average tariffs were lowered from 14.1 to 6.5 % within two years of membership and as of 2012, the tariffs averaged 3.5 %. (Waiboer, 2012)

WTO is the only global organization dealing with the rules of trade between nations and before its entry, Russia was the largest economy outside the union. The intention of WTO is to facilitate imports and exports of goods and services as well as working for equal rights for pursuing trade in terms of custom taxes, subsidies and transparency. Russia’s membership in the WTO is likely to stimulate a simplification of customs procedures, making them more harmonized and to comply with international standards for trade. (Nilsen, 2012)

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH 5. Data presentation

Here, the RQs (in table 1) are answered by presenting the empirical data obtained from interviews and previous studies. Also, this chapter forms a basis for further analyses in section 6. Data analysis.

Three phone interviews and seven face-to-face interviews were conducted. Of these, eight persons have got experience from arranging transports between the Kola Peninsula and the northern parts of Sweden, Finland and Norway. Appendix B shows two versions of the semi-structured agenda.

Since very few companies have been identified to have an exchange of goods between Murmansk and the northern parts of Sweden and Finland, this makes it even more interesting to look closer to those actors that actually have got an exchange. In order to illustrate how the exchange of goods currently is and previously has been executed, three cases are therefore presented with companies in northern Sweden and Finland having trade across the Finnish-Russian border. These are Mikromakarna and Polarica who have got part of their inbound supply chain in Russia and the transport company of Huolintalinja.

The following persons have been interviewed:

 Bo-Erik Ekblom, project coordinator, County Administrative Board of Norrbotten, Sweden.  Nikita Florovsky, general director and customs broker, KMT Service, Russia.  Lars-Erik Grenevall, involved in Koltak and previous financial manager, Polarica, Sweden.  Kari Huotari, consultant, Företagarna Norrbotten, Sweden.  Lage Niska, manager for production and quality, Mikromakarna, Sweden.  Brynolf Persson, CEO, Barents Tour Center, Sweden.  Matti Sarala, responsible for trade with Russia, Polarica, Sweden.  Hannele Schroderus, CEO, Huolintalinja, Finland.  Sergey Shchukin, president, Kola Union of Carriers and previous CEO of Kolatrans, Russia.  Hannu Tikkala, financial and marketing manager, Port of Kemi, Finland.

5.1. The flow of goods As indicated in figure 11, the flow of goods across the more northerly border crossings between Finland and Russia is modest compared to how the situation is further south. One reason for this is that nearly all of the service traffic to the Murmansk region runs domestically via St. Petersburg, in the south-north direction. As of today, almost all general cargo to and from the Kola Peninsula is carried by trucks. A certain capacity exists in the harbor of Murmansk to transport containers, but so far no real container terminal exists which reduces this flow since the equipment required to handle containers in an effective manner is missing.

At present time, Russian transport companies stand for the vast majority of shipments across the northern border crossings of Finland and Norway towards Russia. No Swedish and only a single few Finnish forwarders have been identified to currently carry out transports on this route. The foremost reason why Russian haulers are overrepresented is because of their ability to offer similar logistics services at a lower cost, but it is also argued that Nordic drivers tend to be unwilling to drive to the Kola Peninsula due to bad roads and defective cellphone coverage. During the financial crisis of 2008 though, there were even some Norwegian haulers who dumped their prices in order to have some cargo at all to carry. Furthermore, some Russian haulers register the company in Finland since this allows them to carry a heavier axle load.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

In the Kola Union of Carriers which is an association of road transport companies in the Murmansk region, there are currently 18 private firms of which about one third are estimated to work directly with foreign countries. Historically, there have never existed any large-scale logistics service providers in this district. Instead, the general size of the transport companies in the Murmansk Oblast is between two and twenty trucks and the firms involved in the international traffic are relatively small. Conversely, large corporations possessing between 50-100 trucks are on the other hand found in the area of Moscow and St. Petersburg. Approximately five transport companies in Murmansk have got their own warehouses, enabling them to provide terminal services but none of these are used to serve the international traffic to and from Scandinavia. For the most part, these terminals are instead used for the service traffic from St. Petersburg. Among them, one is operated by a large chain of food stores and smaller haulage firms do not possess own terminals. As for road transports of general cargo in Russia, trucks and semi-trailers with tilt bodies are common.

Since the very beginning of the 2010’s, the far largest proportion of imports to the Kola Peninsula from northern Finland has been comprised by potatoes. Occasionally, cabbage is also sent this way from Finland to Russia in wintertime but these volumes are quite low, perhaps two or three trucks per year. Due to rich natural resources, there are several mining industries established in the region of Murmansk. In addition to food-stuffs, the second largest flow of imported goods to the Kola Peninsula is therefore addressed to companies related to the mining industry and this supply is for instance made up of machineries and spare parts. However, most of these companies have their head offices in Moscow and consequently, a large extent of the supply to these facilities is sourced within Russia and comes via St. Petersburg in a south-north bound direction. Also, a large portion of the goods sent to these mining related industries which originate from the southern parts of Sweden and Europe, is transported by Russian transport companies based in the St. Petersburg area. These haulage companies pick up the goods in Europe and transport it to the Murmansk region. On the contrary, transport companies from the Murmansk area seldom do these international transports on behalf of the mining industry. Instead, a Finnish transport company (further described in section 5.8. Case 3 – Huolintalinja) does execute transports across the northern border crossings of Finland towards Russia on behalf of the mining industry. Moreover, concrete is transported to the Murmansk area from Ivalo across the Raja Jooseppi – Lotta border crossing by another Finnish company. On these northern routes, transports do also occur of various chemicals produced in the region of Gothenburg.

Large quantities of consumer goods and food-stuffs from countries in the European Union enter Russia through the checkpoint in Vaalimaa, and the border station of Nuijamaa is likewise used extensively as a passage for the first-mentioned category of goods. Also cargo intended for the Murmansk region is taken this way, since the service traffic from St. Petersburg is intense. The majority of these transports are taken care of by Russian transport companies and the trucks are often fully loaded on the way towards Russia, while they in many cases go empty in the other direction towards Finland.

Attempts are currently made to establish an intermodal logistics network in which containers are brought by vessels from various locations in Europe to the Finnish ports of Kemi and Oulu, from where they are forwarded to Murmansk by truck. So far there have only been temporary shipments coming this way from countries such as Germany and the Netherlands, but this solution would also allow goods to be sent in the reverse direction. Until now, most of the goods transported this way

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH have been made up of project cargo to the mining industry and the transport of a container from Germany to Murmansk can typically be carried out in five days. In the work of establishing this connection, the port authorities of Kemi and Oulu have been the major driving forces.

Traditionally, the flow of goods from Russia across the northern border crossings towards Finland has to a large extent consisted of berries and reindeer meat, but these volumes have however decreased remarkably. Pulpwood and timber is also transported to a certain extent from Russia to Finland, for instance by road across the border crossing of Salla but this flow has declined noticeably as well since the export tariff on timber was raised in 2011. The far greatest export from the Murmansk region is raw materials from the mines, but these are mostly freighted by sea and rail. With respect taken only to the volumes of goods carried by road, which this study focuses on, the imports to the Kola Peninsula do exceed the exports from this region. Anyhow, the flow of goods between Russia and the northern parts of Sweden and Finland has decreased gradually during the last 10-15 years and generally, the trade relations across these borders are modest. Between the years of 1999 and 2002 there was an economic downturn when several transport companies in Sweden and Finland went down because they did not have enough cargo to transport. Furthermore, none of the persons interviewed know about any transports between the northern parts of the Nordic countries and Murmansk that would go via St. Petersburg and the two main border crossings between Finland and Russia in the south, instead of going directly across the more northerly passageways.

Throughout the 1990’s and during the first decade of the 21st century, several attempts were made by companies in the northern parts of Sweden and Finland to establish on the Russian market. Due to the geographical proximity, largest focus was on the Kola Peninsula. By being part of a cluster of firms, about twenty manufacturing companies from the county of Norrbotten were assisted by a coordinator to search business opportunities in the Murmansk region. For the most part this trade concerned subcontracting works, meaning that raw material was transported from Sweden to Murmansk to be processed and the finished products were later brought back in return. This flow of goods could for instance regard electronic components and products of wood, textile, leather and plastic. Of these companies, there is however only one that still remains active in Murmansk (further described in section 5.6. Case 1 – Mikromakarna). Some firms had a continuous flow of goods while others only made trial deliveries. Since there was a cluster of companies involved, the transports of general cargo could be coordinated from several consignors to a number of consignees. Collaboration existed between the coordinator and a customs terminal in Luleå where the goods were consolidated, but goods were also collected along the way. A delivery van registered in Sweden was used for these transports and one round-trip was arranged every week with two drivers coming mostly from Sweden and Finland, but also from Norway and Russia. The flow of goods was more or less equal in both directions but as a rule of thumb, the vehicle was only half-filled with cargo. Which route that was chosen varied, but the border crossings of Storskog, Raja Jooseppi and Salla were all used. Most of the paperwork including the customs handling was taken care of by the coordinator, thus facilitating the cross-boundary trade for the involved parties. Together with this fact and the impacts of the great financial crisis of 2008, the trade diminished when the coordinator ceased the work with arranging these shipments. The local presence in Russia which the coordinator contributed with by having contact persons in Murmansk proved to be an important aspect for sustaining business.

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Moreover, there are a single few mechanical workshops in Murmansk controlled by Norwegian interests, used for subcontracting work. Some goods are therefore sent on pallets between Murmansk and the northern parts of Norway and from time to time, there can be two or three deliveries consolidated in one truck. Perhaps one truck per week is hired for executing these transports and in Norway, the goods are either picked up at the sender’s facility or at a terminal in Kirkenes. Generally speaking, the presence of Norwegian businesses is stronger in Murmansk than it is for Swedish and Finnish companies.

In 2008, work commenced of transforming an old kolkhoz in Murmashi near the Murmansk airport to become a logistics and industrial center. Norwegian interests have accounted for this investment and the facility is known as Technopark-NOR. By offering the services of a business incubator including rent of office premises, the intention is to help potential investors, foremost coming from Norway, to establish in the region. The only public customs operator in Murmansk Oblast, Rostek, became the first tenant in the center and has operated there since 2012. However, the collaboration between companies in the cluster of Technopark-NOR and Rostek has so far been modest and the member companies have not yet had any continuous flow of goods with foreign countries. Although in small scale, there are a single few companies ready to start production in the park in 2013.

In Monchegorsk, there is a plant for mineral processing which exports by road to Finland and Sweden. From the Republic of Karelia, there is also paper transported to Sweden. Moreover, a Finnish company producing items for the automotive industry has got a production site in Kostamuksha to which goods are sent for subcontract work. From there, some goods have for instance been sent by truck to Luleå in the north of Sweden. Through a subsidiary company, IKEA has also got a facility in Kostamuksha used to produce wood based furniture. Additionally, just outside Murmansk there is a factory of windows. Much of the production is intended for the local, Russian market but exports have also been ongoing to Finland, although these now have ceased. Furthermore, iron pellets are loaded in Kostamuksha to be transported by train via Vartius to the port of Kokkola which is the port in Finland mostly used for shipping out Russian bulk cargo. One significant reason for why bulk cargo is shipped out this way through Finland is that the railway between St. Petersburg and Murmansk is congested.

Most of the international transports carried out by haulers based in the Murmansk region deal with transportation of salmon and other fish products from Norway to Moscow. As a rule, these trucks go empty from Murmansk to Norway to load salmon after which the journey continues through Sweden and Finland to the border station of Vaalimaa, sometimes via ferry from Stockholm to Finland. After the trucks have entered Russia through Vaalimaa, they proceed to St. Petersburg and Moscow to unload. Although seldom, the trucks can carry supplies and equipment from Murmansk to Russian vessels moored in the Norwegian ports of Kirkenes, Hammerfest and Tromsø before seafood is loaded. Still, there are perhaps only two or three trips arranged per month when goods are carried in both directions. Salmon transports are typically planned every Friday on a weekly basis by the transport companies to arrange with trucks to cover the need for the next week. When supply is sent from Murmansk to vessels in Norway, the transporters know about this about two weeks ahead so they can pick a date and reserve the customs terminal. Sometimes there is also an urgent need for a transport to run with supplies already the next day, but this is also very seldom as most transports are planned more in advance.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

In Murmansk there are five or six companies working with these salmon transports, having some refrigerated trucks that are fully occupied with transporting fish products only. These Murmansk companies are estimated to stand for about 25-30 % of the fish transports between Norway and Russia, but there are also road carriers from Moscow, St. Petersburg, and the Baltic States involved in these transports. As of 2013, the price of salmon has recently gone up quite much and since the Russian consumers are not prepared to pay for this rise, the number of transports of seafood from Norway has decreased. As a result, many freezer trailers are now idle. Although most of the fish products from Norway pass through the Vaalimaa border crossing when brought into Russia, deliveries to the Murmansk area do instead pass through the Storskog – Borisoglebsk crossing. Accordingly, very few fish transports to the St. Petersburg and Moscow area cross the border to Russia from Norway in the north. This is highlighted in the STBR II study (2007) which also suggests this northerly stretch as an alternative route for transports of fish products to the metropolitan area.

Usually the trucks in traffic between the Murmansk region and the Nordic countries contain goods only from one consignor to one consignee. Hence, goods are seldom consolidated in a terminal from several senders to be taken in the same truck across the border to more than one receiver. The main reason stated for this is simply because the explicit need for transports is modest and it is not argued to be because the customs procedure would necessarily become too complicated when various goods from different senders are sent in the same truck to several receivers.

Except when there is a need for extra transport capacity, there is no real cooperation between logistics companies in the Murmansk region in order to increase the fill rate of existing transports and to make sure goods can be carried in both directions. According to four of the interviewees though, it would be possible to initiate cooperation between a logistics service company having a terminal in Finland and another logistics company with terminal in Russia. The barrier is said to be lack of goods to transport due to low demand.

5.2. Practices in border crossings and customs stations After a truck has passed the border to Russia, the general procedure is that it has to go straight to a customs terminal for clearance of the imported goods before the load can be forwarded to its final destination. For cargo sent from Russia to the Nordic countries though, the truck can go directly to the final destination to unload after the national border has been crossed, without passing through an external customs terminal neither in Russia nor in the country of the recipient. This is possible since either the consignee or the forwarder can take care of the customs clearance for the imports. As a rule, the receiver has filled in the import declaration in advance before the truck crosses the border. Except when spot checks are made, the Swedish and Finnish customs authorities will not inspect each truck and its cargo upon arrival in the country.

When importing goods to Russia, some companies however try to find a way to avoid passing through a customs terminal since it imposes additional costs. For instance when importing salmon, liver of cod, potatoes and cabbage to the Murmansk region, the truck is loaded at the sender’s facility in Scandinavia. Thereafter the truck drives to cross the border at a designated checkpoint, usually Storskog –Borisoglebsk for fish products and Vartius near Kostamuksha for potatoes and cabbage. Upon arrival in Russia, the truck drives immediately to the customs house where it can stay up to three hours. Usually this procedure takes about two or two and a half hours and if the paperwork can be carried through in less than three hours, the truck with this type of goods does not

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH have to go to the customs terminal to unload and wait. Instead the truck can continue directly to the final destination to unload. This does however require a good knowledge of how the system works and preparations.

For import to Russia of other types of goods though, such as equipment and consumer goods it is necessary to go to the customs terminal where the goods must be inspected. Depending on the type of goods, the cargo can sometimes be inspected without unloading the vehicle but it may also have to be unloaded into the terminal for inspection. The procedure at the terminal may usually take from one to three days, depending on whether all customs documents have been filled in correctly at first or if they have to be revised. Also, the required time depends on whether the cargo has to be unloaded for inspection or not. In some cases it is optional to unload, but due to the fees of unloading and storing the goods at the customs terminal, it is usually cheaper to let the truck stand next to the terminal for inspection onboard the vehicle. When unloading, there is also a risk that some goods are damaged and this must also be taken into consideration when the decision is made. Sometimes it is the same truck that has brought the cargo to the customs terminal that will also bring it from there to the final destination, but the goods may as well be forwarded to the receiver by another truck.

In order to import goods to Russia, five documents must be presented. These include the contract, the invoice, certificates of the goods, an insurance certificate, and a CMR document. All these documents must be in Russian and the hauler needs the papers only to know what is transported and its weight and dimensions. In case the actual weight and volume is not in accordance with the information stated in the documents, the road carrier risks being fined for this. It is perceived by five respondents to be easier to export goods from Russia than it is to introduce goods to Russia. Also, there is a perception that is used to be easier to declare goods into Russia than it currently is. One reason brought up for this has to do with the comprehensive documentation that is necessary to meet the requirements of the certificates for imported goods.

Although no customs clearance is carried out for commercial goods in the Russian border stations at present time, all papers are controlled to confirm that the cargo in the truck is in accordance with the documents, both with respect to type of goods and quantities. Also, the vehicle is searched to prevent illegal items from being introduced into the country and the tachographs are controlled too. Earlier in the Borisoglebsk border station, customs clearance was offered for goods with a final destination in Nikel, Zapolyarny and Liinakhamari. Though, this service has been removed since a decision was made in Moscow that all goods for these cities must be declared at a customs terminal either in Murmansk or Kirovsk.

Among the persons interviewed which somehow have got experience from arranging transports between Finland and Russia, it is commonly perceived to be much easier and quicker to cross the border in Vaalimaa and Nuijamaa where the volumes of traffic are significantly larger than in the more northerly Salla and Raja Jooseppi. Foremost, this is argued to be because of the fact itself that the flow of goods is larger there. With hundreds of trucks sometimes waiting to cross these southerly border crossings, there is simply not enough time to conduct as rigorous controls as in the north. Since there is more time to carry out inspections in the north though, this is done and that is partly because errors made by officials on the Russian side of the border may result in reprimands. Typically

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH it can take one hour for a truck to cross the border in Vaalimaa while it can take three hours further up north.

Also, the extent of corruption in border crossings and customs terminals is claimed to be lesser in the Murmansk region than in the more southern area of St. Petersburg, next to the Vaalimaa and Nuijamaa crossings. This is another circumstance that has an effect on how efficient goods can move across the border and be declared. An implication of less corruption is that all rules and regulations are more carefully followed to the letter and thus, the bureaucracy becomes more noticeable and more time is required to complete these procedures. Moreover, the population is far larger on both sides of the border in the cosmopolitan area of Helsinki and St. Petersburg than it is in the Finnish Lapland and Murmansk Oblast, providing more opportunities for business. Together with this fact, there is a common perception among the interviewees that trade generally works better across the more southerly border crossings between Finland and Russia than the case is for the two northernmost. Besides, nearly all of the service traffic to Murmansk runs via St. Petersburg in the south-north direction.

The practice by officials in Russian border stations and customs terminals can differ between various border crossings. All units operate under the same set of rules and regulations, but the manner in how the directions are applied can be very arbitrary. In practice, two regulations can be in force simultaneously, creating an uncertainty of what rule that shall be followed. Among the interviewees with experience from arranging transports to and from Russia, it is perceived to be hard to obtain a clear picture of what regulations that are currently valid. Also, incomplete formulations of rules may give room for interpretation and inconsistency in practices. For instance, it is plausible that the same load of cargo can enter Russia if the route through Vaalimaa is chosen while it may be denied entry in Salla or Raja Jooseppi, partly due to practices of more rigorous controls in the north. If a customs officer is uncertain of what customs code that is correct to use for declaring a certain type of goods, there is a risk that a customs code is chosen which makes the clearance more expensive since there may be a fear of making mistakes. According to the report of STBR II (2007), different practice by customs authorities in Murmansk and Moscow do for instance cause the customs duty for a truckload of salmon to be more than one thousand euros higher if declared in Murmansk than in Moscow. However, one step of Russia’s entry in the WTO is to work with a harmonization of customs procedures and more consistent practices are therefore to be expected in border crossings and customs stations. According to a customs broker that was interviewed, the clearance of goods from vessels calling the port of Murmansk is perceived to be carried out in a more flexible and efficient manner than what currently is the case for goods carried by road.

Generally for goods imported to the Kola Peninsula, it is the owner of the cargo that is responsible for arranging with the customs clearance, either on one’s own or by contracting a customs broker. In most cases, the consignee is the owner. Similarly when exporting goods, the consignor is ought to take care of the customs formalities in the country of dispatch. According to Russian law, haulers are not readily allowed to offer services of customs handling since one separate license is required to be a customs broker and another license is needed to run a transport company. If a logistics company wants to offer services of both forwarding and customs clearance, two different companies are usually registered. These two businesses can still operate under one roof, but this arrangement reduces the risk for losing assets in case one of the licenses is withdrawn. If both licenses are registered in the same company, there is a risk that all business activities will cease if one license is

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH confiscated. Some transport companies may claim they are licensed to do customs brokerage although they are not. As a client, this is possible to verify by visiting the website of the Federal Customs Service of Russia where a complete list of certified companies is available. Among the transport companies in the Murmansk region, most are not licensed to assist its clients with declaring goods for import and export. Besides, electronic declaration will in the near future be the only way to declare goods in Russia.

About 50-60 % of the trucks from the Murmansk region in traffic to the Nordic countries are currently believed to use TIR Carnet as transit document. By some haulers though, this TIR Carnet service is considered to be expensive why all transportation companies do not use this system. Also, using TIR Carnet is perceived by some haulers to be a bureaucratic process and economy of scale is argued to be needed for TIR Carnet to result in a lower total cost. Since a guarantee fund is required for the use of TIR Carnet, it is sometimes cheaper to take a direct deposit in the border and custom brokers can assist with clearing the customs declaration.

5.3. Pricing and current buying behavior for transport services When buying the freight service of truckload shipping to and from Russia, the client usually has to pay for the full round trip even if cargo is only carried in one direction. Also, when transports are arranged between the Kola Peninsula and the Nordic countries, the customers often want the truck to be fully loaded. Occasionally a half-filled truck may be sent from one sender to one receiver but this is believed to occur very seldom. Although not so common, some Russian haulers can quote a price for a one-way journey. This is possible if the driver can wait at the place of delivery to get a new mission. For instance, a transport can be charged one way from Finland to Murmansk where the hauler can wait until hired for another assignment, either domestically within Russia or elsewhere. However, this is rare due to the fact that there is not so much cargo to load in the Murmansk area to be transported towards Scandinavia. Consequently, the margins of transporting goods from Russia to Finland are argued to be smaller than for carrying cargo in the reverse direction, towards Russia. Moreover, it is commonly considered to be cheap to buy transport services from Russian haulers compared to the average price level for transports in Europe. Yet, dual pricing may be practiced by some Russian transport companies also when it is possible to collect goods to be transported in the other direction as well.

Earlier when general cargo was jointly transported from the county of Norrbotten for subcontracting works in the Murmansk region, some customers had a fixed price agreement irrespective of the amount of goods that were sent in each shipment. The alternative to this was to have a fixed price for each pallet sent, but the first-mentioned arrangement is argued by the coordinator of these consignments to be the only way to achieve profitability for carrying out these transports. Serving as a guarantee for the goods to actually arrive, a premium price could be charged for transports on this route in the 1990’s. This opportunity has however disappeared due to the increased stability in Russia and the competitiveness of Russian haulers.

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5.4. Barriers for trade The absence of a flight connection linking Murmansk with the northern parts of Sweden and Finland is commonly perceived to be a barrier for trade across the borders. For a Nordic company to have part of its supply chain in Russia, it must be easy to arrange customer and supplier visits unless one of the parties has a strong local presence at both locations.

The STBR II study (2007) highlighted the poor road infrastructure in the Barents region. It is obviously a barrier for trade, but according to the interviews, the modest flow of goods can rather be derived from low actual need. In line with globalization, transports over long distances are no longer perceived to be a problem but are instead becoming more and more customary. Hence, the cost for transportation is not a deciding factor for a Nordic company to establish in the Murmansk region.

Instead, a considerable barrier for trade that is brought up is related to the procedures in border crossings and customs stations. The cost for customs handling is argued to be too large for many small and medium-sized companies to bear. In the second half of the 1990’s, there was an optimism among some companies from Finland to locate subcontracting works to the Republic of Karelia. Several of these attempts were however not very successful with the consequence that these plans were given up. Instead, many of these companies have searched other markets. It was perceived to be too difficult to introduce the goods to Russia in order to later take it back and the cost for this administration was simply too extensive to be economically justified.

It is important to know about the correct routines for the customs procedures. With this knowledge, it is likely to be no major problems when declaring the goods. As mentioned in section 5.2. Practices in border crossings and customs stations, it is however hard to get information on the existing rules and regulations in Russia. If potential actors for trade are not aware of these, they may therefore face severe difficulties. For a Nordic company to succeed in entering the Russian market, it is thus highly recommended to consult persons with experience from such trade. Though, the number of business persons from the northern parts of Sweden and Finland having experience from trade in the Murmansk region is relatively low. In addition, many business owners tend to be reluctant to share their experiences for competitive reasons. This may also be considered to be a barrier for increased trade since it may leave potential actors with only one method of entering the Russian market, namely the trial and error method. Unfortunately, this is an approach that may become costly for the company. In the south of Finland on the other hand, the number of companies having trade across the border to Russia is much more extensive.

One reason brought up by a customs broker for why certain goods, such as dairy products, are brought in large quantities from Finland to the St. Petersburg area has to do with a comprehensive requirement for documentation when introducing these goods to the country. To mitigate the effects of the administration, large amounts are imported to a terminal from where the products are later distributed to cover a large area.

The taxation of import and export goods depends on the type of goods. As for export from Russia of refined goods, such as paper and fish fillets there are no extra charges added. For unprocessed goods though, such as timber, pulpwood and ungutted fish, extra customs duties are applied. The duty for export of Russian timber was greatly increased in 2011, having a drastic impact on the amount of timber exported to Finland. Previously, large quantities of pulp wood and timber were sent this way since this input material used to be strategically important for pulp and paper mills in Finland. A

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH consequence of the increased tariffs and shortage of material to be sourced elsewhere forced several of these units to shut down. Moreover, there have been far-reaching plans of transporting Russian timber by train to a paper mill in the north of Sweden, but these plans were never realized before these customs duties were increased.

Since the early 1990’s, much attention has been given to the potential of exploiting the Shtokman gas field. From this, large economic growth was expected in the Murmansk region but as of 2013, not much has happened. Generally, the failure of this establishment has become a big disappointment and it has also had a negative effect on the willingness of Nordic companies to invest in the Murmansk region.

The interviewees were asked to what degree they believe the industries in the northern parts of Sweden and Finland are adapted to take advantage of the potential for trade in the Murmansk region. On the whole, the counties of northern Sweden and Finland form a region with a large share of small and medium-sized enterprises (SMEs) and the economic structure is quite similar on both sides of the border, with a strong focus on exploiting natural resources. The similarities are said to be both an opportunity and a challenge. Nevertheless, SMEs might not have the financial resources that are required to enter the Russian market and consequently, the numbers of business opportunities that are grasped by these companies in Murmansk Oblast are very likely to be held back. Additionally, a barrier is also that many decisions on Russian trade are centralized to be made in Moscow, also for business in the Murmansk region. It is not until recently that the various regions in Russia have started to carry on trade more independently. For a Nordic company to do business in Murmansk, this may imply a need to establish contacts not only in Murmansk where the actual business takes place but also in the capital.

In itself, the geographical position of Murmansk must be considered to be a barrier for an increased flow of goods between the Kola Peninsula and the northern parts of Sweden and Finland. Since no container terminal currently exists in the port, Murmansk is today more or less the end of the line for goods carried by road towards this region and is not a transit point.

Although poor road infrastructure, unclear rules and extensive paperwork can be argued to be some of the barriers having most influence on the proportions of the current flow of goods, one more fundamental factor is suggested to be even more important to take into account when considering business opportunities between Scandinavia and Russia. Rather than bureaucracy, the largest barrier for trade which one of the interviewees brought up as a reason for why the exchange of goods is so modest today does instead have to do with cultural differences and lack of knowledge about local conditions in the neighboring countries. Without mutual interest and good knowledge in this area, the risks for misunderstandings become larger, and the vulnerability to economic losses increases. Thus, the risk for communication failures may be one of the largest barriers to overcome in order to make trade successful across these national borders. Moreover, based on their experience, a few of the interviewees perceive Russian business persons to be interested in collaboration as long as they feel they can get something out of it in terms of transfer of knowledge to later manage the business all on their own.

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5.5. Future prospects The interviewees were asked whether they have any idea of which industries that may be potential to have an exchange of goods across these northern border crossings in the future. While four of the persons interviewed believe there will only be modest changes in the future compared with today, another four were more optimistic and claim that the need in Russia is enormous. Besides, the two remaining respondents said they had no opinion about future needs. Overall, protectionism is argued by the interviewees to be large in Russia and this makes it harder to predict what the forthcoming needs will be like. Moreover, it should be stressed that no in-depth market analysis has been conducted in this study of the future prospects since it was outside the scope of this research. Still, since the persons interviewed possess broad knowledge about trade with Russia, they were asked about their thoughts on the future.

As of 2013, a small percentage of the Russian population lives in private houses. The majority does instead live in apartment complexes. The condition of these apartments is deteriorating and some blocks are in such a poor condition that they are not worth renovating. For this reason, the need for qualified builders is large in Russia, suggesting a potential for Nordic construction companies to enter the Russian market. Also, the upper and middle-class is growing in Russia and among many Russians, it is highly desirable to have a home of one’s own. In Murmansk, one of the Swedish interviewees has been involved in the planning phase of constructing 135 private houses. However, this project was discarded due to the great financial crisis of 2008 since the economic risks were perceived to be too large. Both in Sweden and Finland there are well-established companies producing turnkey modular houses and these could possibly search a new market in Russia. Nevertheless, Russian building regulations are argued by four of the interviewees to be far too complicated and prevent foreign builders to work in the country.

Beside house building companies, the interviewees could only list a small number of producers in northern Sweden and Finland that could have direct sales to the Murmansk region. It should be recalled that perhaps 90 % of the money in Russia is allocated to the metropolitan areas of St. Petersburg and Moscow. The remaining assets are then distributed over the additional 90 % of areas and population, including the Murmansk region. Accordingly, what previously has attracted companies from the Nordics to search business opportunities in Murmansk is largely due to the geographical proximity rather than concentration of money. Also, another detail limiting the direct trade across the northern border crossings is the fact that the service traffic to Murmansk almost exclusively goes via St. Petersburg.

According to the interviews, one of the largest emerging needs in Russia is related to products and services for improving energy efficiency and reducing the environmental impacts. In order to save energy, a program for increasing energy efficiency has been introduced in Russia and this is a field in which companies located in Sweden have got world-class expertise. Other products brought up which are possible to be in greater demand on the Russian market include spare parts for cars, plumbing products, food-stuffs such as dairies, and consumer goods. In the field of mining, it seems like Swedish companies rather than Finnish are strengthening their position on the Russian market. Moreover, it is possible that the volumes of timber exported from Russia will increase again after the significant decrease that was the result of the higher tariffs introduced in 2011.

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There might also be potential for Nordic companies to locate subcontracting works to the Murmansk area. Although the inflation rate may exceed 10 % per annum in Russia, salaries are still predicted to remain competitive in the distant future and it was not because of increasing cost of labor that the Swedish companies, previously having production in the area, chose to pull back.

In the Russian sector of the Barents Sea, there are considerable deposits of oil and gas. If work proceeds with exploiting these and oil and gas becomes a key industry in the Murmansk region, this will have a large impact on the amount of goods that is required to be transported to the area and might also lead to business opportunities for Nordic companies. Facilities and infrastructure for managing such an industry would first of all have to be built up, including housing and roads. Then during operation, there would be a continuous need for various supplies, such as spare parts. The positive effects on a society in terms of economic growth from exploiting the gas fields of the Barents Sea are evident in the town of Hammerfest in the county of Finnmark, Norway. It was previously a depopulated town but is now thriving since the Snøhvit gas field is being exploited.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

5.6. Case 1 – Mikromakarna Mikromakarna is an electronics company with a production facility located in Pajala, northern Sweden. The company was established in 1987 and employs about 35 persons. All since 1995, when collaboration was initiated with a local electronics company in Murmansk, direct transports have been ongoing between Pajala and Murmansk.

Goods are sent from the production unit in Pajala to the partner in Murmansk for subcontract work. After processing, the items are sent in return to Pajala before the products are finally forwarded to the customer. Hence, no input material for production originates in Russia and the amount of goods is equal in both directions. This procedure is called outward processing and is further described in section 3.11. Outward processing.

The ability to produce in Russia is seen as a competitive strength in the supply chain of Mikromakarna and is also said to increase the flexibility in production capacity. Products that are technically more complex are produced in-house in the factory in Pajala while the components that require more man-hours are located to the Russian partner due to the lower level of wages. Compared to having a subcontractor in Asia, the lead times are shorter when producing in Murmansk. Hence, this partnership makes up a strategically important part of the supply chain.

Ever since this trade started, direct transports have been arranged through the border crossing of Raja Jooseppi – Lotta. Since the partner in Murmansk is owned by a Norwegian company, there have been discussions to rather drive via Norway through the Storskog – Borisoglebsk checkpoint but this solution has not been suitable for Mikromakarna. Within the company there have also been discussions of building a warehouse in Russia, but the current solution of the logistics is perceived to be more cost effective since a warehouse in Russia would require other routines and practices.

Transports are taken care of by a Russian transport company based in Murmansk and are scheduled every second week. That is, there are continuous transports irrespective of freight volumes and at least in the short run, the current demand does not decide the interval of shipments. To solve the requirements of continuous deliveries, Mikromakarna has reserved a certain freight capacity on a permanent basis from the transport company which is hired. Though, the transporter has got vehicles of various sizes and can in that way adapt to shifting volumes by choosing the most suitable truck for each departure and this reduces the overall costs for transportation. When transports commenced in the 1990’s however, they were arranged by a Swedish partner who also helped the company to establish in Russia.

For goods sent from Pajala to Murmansk, all customs documents are prepared in Pajala. This is possible since Mikromakarna is licensed to have an own customs warehouse in Pajala. After the goods have been loaded on the truck in Sweden, it drives to cross the Finnish-Russian border and is thereafter transited to a customs terminal in Murmansk where customs clearance is carried out before the cargo is ready to be forwarded to the partner’s factory. A similar procedure exists for the goods sent in return from Murmansk to Sweden. The Russian partner administrates the required customs documents, goods are sent to the customs office in Murmansk and upon arrival in Pajala, Mikromakarna takes care of the customs clearance in their own customs storage on behalf of the Swedish Customs. TIR Carnet is used as transit document.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

The usual lead time for goods to leave Pajala, to be processed in Murmansk and return to Pajala is four weeks. Goods are normally picked up in Pajala during weekends, so all required documents must be ready on the Thursday before departure. To drive one way between Pajala and Murmansk typically takes about 9-10 hours and there are usually two drivers in the truck to meet regulations on driving time and rest periods. Delivery times are perceived to be very reliable and there have seldom been any problems with these transports. The number of stops in border and customs controls are said to have been few and when there have been any obstacles, it has mostly been because Mikromakarna has forgotten to fill in some information. Since the delivery precision is trusted, Mikromakarna does not carry an extra safety stock as a cushion for fluctuating delivery times and the calculated lead time of four weeks is trusted to hold true. It is however stated that some inventory must be held for the current logistics solution to work, but since the goods mostly consist of low value items, stock-keeping is not perceived to be a critical measure.

It is said to be hard to estimate the usual fill rate of the transports since no statistics is kept of this, but 70 % is perhaps a reasonable average. In the very most cases, the arranged transports between Mikromakarna and the Russian subcontractor only contain goods from these two parties. Although it is general cargo that is sent, goods are not consolidated elsewhere to coordinate transports. Regarding seasonality, the transported volumes are not exactly the same all around the year but are still on a quite consistent level. Usually the volumes are a little smaller during the summer and also during the fall, partly due to time for vacation.

According to existing import and export regulations, all components that are sent into Russia to be processed must return in the next transport back to Sweden since outward processing is practiced. If the number of outgoing articles does not correspond to the quantities that are sent into Russia, this may delay the transports or imply an extra fee. Hence, problems may incur if some components are lost during transportation and also damaged goods must be forwarded in return to Sweden. The ability to send a slightly different quantity without having to pay an extra fee for this is therefore asked for by Mikromakarna in order to increase flexibility. Besides that, existing rules and regulations are not seen as a barrier for trade between EU and Russia. To make a supply chain solution like this work is said to be all about planning.

At the time when the partnership with the local electronics company in Murmansk was initiated in 1995, some experience of this kind of manufacturing did exist among the Russian workers but they have also had to be trained by Mikromakarna. In order to get the required knowledge and experience, many Russian workers have been trained in the Pajala factory.

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5.7. Case 2 – Polarica Polarica is a company in the food industry founded in 1972, with head office in Haparanda in the north of Sweden. Systematic transports and trade with Russia was initiated in 1993 as part of the company’s sourcing strategy, with the primary intention of securing the supply of wild berries and reindeer meat.

In Kandalaksha, Polarica possesses a cold storage facility where berries are received and frozen. Capacity is also leased in another cold storage in Petrozavodsk where berries are kept as well. Previously, also a slaughterhouse for reindeer meat was owned by Polarica in the village of Lovozero on the Kola Peninsula. This unit has now been sold and transports of meat occurred between 1993- 2007. As of 2013, transports of berries are still ongoing but these volumes have decreased considerably due to changes in the market place. Lately, the price of berries has increased on the Russian market since the domestic consumption has boosted. This has reduced the margins of importing berries from Russia to the Nordic countries and as a consequence, the berries are now rather chosen to be sourced more locally when this supply is enough. Onwards, the supply of berries from Russia will serve more as a back-up when there are not enough berries available in the vicinity. Nevertheless, the flow of goods from Russia has been an important part of Polarica’s inbound supply chain.

When extensive trade started in 1993, all transports were arranged with own trucks from Finland and Sweden. This was because the necessary equipment for managing this kind of haulage was not available in Russia at this time. Nowadays, the Russian transport companies have extended their fleets of vehicles and also possess modern freezer trailers. This enables the Russian transporters to offer the same services as the Nordic transport companies do but at a lower cost. Meat was always carried in own trucks, but since the very beginning of the 2000s, the service of transporting berries has been purchased from Russian haulers. How to solve the logistics has always been perceived as an important issue to take into consideration when trading with Russia, as well as having local presence.

Initially, all of Polarica’s transports to and from Russia were passing through the border crossing of Raja Jooseppi – Lotta. Though, since the border crossing of Salla was opened to international traffic in 2002, berries have instead been taken through this checkpoint. The service of veterinary border control, which is required for meat to be introduced to the EU from Russia, was previously offered at the border station of Raja Jooseppi but this service has later been abolished. The withdrawal of this service forced all transports of meat to take a detour through the Storskog – Borisoglebsk checkpoint where this service is still offered. Compared to the transport route across Salla via Kandalaksha where the linear distance to Haparanda is the shortest, this detour led to an extra driving distance of about 700km as well as one extra national border had to be crossed. One reason mentioned why the transports of reindeer meat ended was because the existing solution for logistics was not perceived to be durable.

At the request of Polarica, there is currently only goods transported in the direction from Russia towards Sweden and Finland and no goods are sent in return. Polarica is licensed to have its own customs warehouse in Russia. When frozen berries are to be exported from Russia, they are first transferred from the cold storage to their customs warehouse for clearance. Thereafter, a truck carries the load of berries across the border to Finland. TIR Carnet has never been used as transit document so when the consignment is addressed to a cold storage in Finland, the import declaration

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH is made directly on the Finnish-Russian border where deposit also is paid. On the contrary when the shipment has got a cold storage in Sweden as its final destination, the load is passed in transfer from the Russian border to a customs warehouse in Haparanda where clearance later is carried out for the imported goods on behalf of the Swedish customs authority. After the truck has been unloaded, it returns empty to Russia in most cases. Still, one of the Russian transport companies hired for transporting berries from Kandalaksha loads potatoes in Finland to take in return to Murmansk. The potatoes are usually loaded in the area of Vaasa, Kokkola and Kalajoki and pass through Kostamuksha via the Finnish border station of Vartius.

Before the actual transport can be executed, Polarica has got one administrator within the company who prepares all the required documents, including invoices and CMR documents. A local customs broker is hired to take care of the customs handling in Russia. This broker gets the required documents from Polarica by email, prints the customs declaration and registers it in the customs house where all required stamps are collected. Documents are typically handed over by the broker to the customs authority in the evening and in the afternoon the day afterwards, all documents are ready. Usually the transport company will fetch the documents from the customs broker and as soon as the papers have been handed over to the truck assigned to carry out the transport, it can set off to the cold storage where the goods are collected. Delivery times of the current transports are perceived to be very reliable and the required paperwork for managing the existing flow of goods from Russia is not seen as a barrier for trade. Though, a simplifying detail is that each truck generally carries only one type of goods at a time. When transports are arranged, Polarica strives to always form full truckloads (FTL).

The volumes of berries brought from Russia to the Nordic countries both depend on the season and the actual need and can thus fluctuate a lot. Though, since the berries are frozen in the cold storages the flow can be harmonized to a certain extent. During the peak season for berries, extra trucks are sometimes chartered to be fully occupied serving as a shuttle, for instance between the cold storages in Petrozavodsk and Sotkamo, Finland. These trucks are usually able to complete between two and three trips per week. As a rule of thumb, the shuttle trucks always go empty on the way back to Russia since it is regarded to be too time-consuming to carry goods in return. Not so much because of the time it would actually take to collect the goods physically, but because of the required formalities with customs when importing goods into Russia.

Since the freezer trailers are suitable also for transporting other types of goods than food, attempts have earlier been done to get a flow of goods in both directions. Both in order to increase the average fill rate of the trucks but also to have something to send off-season. Among goods sent in return to Russia have been building material and various necessities. However, this appeared to be unbearable for Polarica to deal with in the long run when considering the low value of the goods sent in relation to the rigorous formalities of importing goods to Russia. Consequently, a decision was made to focus on the core business and maintain the supply of berries and meat from Russia. Moreover, to have access to timely transports which can be adapted to Polarica’s actual need for freight is expressed to be an important aspect in the supply chain. This gives rise to a challenge when trying to co-ordinate the transports of Polarica with goods from an external actor since the need does not necessarily coincide.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

For the flow of goods from Russia, attempts have also been made to manage reverse logistics in an efficient manner. Instead of buying new packing material for each shipment, the pallets and steel containers used to convey berries were previously sent back for re-use with the returning transports. Although, this procedure became long-winded since all the material sent in return was classified as import goods to Russia. As for other goods imported to Russia, the empty pallets and containers had to be taken to a customs terminal for clearance. Also, a health inspection was required for these items since they previously had been used to convey berries. A customs arrangement similar to outward processing was tried as well, but this appeared to be very complicated in practice since it always had to be proven that it was exactly the same units of packing material that were brought back into Russia. This forced all returning material to be unloaded in the customs terminal where inspection typically would take between two and three days and the extra cost caused by storage was charged according to tariff. The requirement for documentation was rigorous in order to certify the identity of each item and photographs had to be taken. This bureaucratic process has implied that packing material is no longer sent in return for re-use, leading to increased costs for material handling. New material is instead purchased for all deliveries from Russia. To a certain extent, these pallets and containers are re-used in Sweden and Finland but the excess material is being scrapped.

5.7.1. Koltak In 1998, Polarica opened a customs terminal under the name of Koltak in the town of Kola, situated just outside Murmansk. Besides the actual customs handling, Koltak offered services of renting and warehousing. A freezer storage is part of the facility, which also allowed rental of office premises and garage space. Although it was a privately owned customs terminal, it acted as a public one on the market. Despite the fact that Polarica previously shipped quite large volumes of goods from Russia in the direction towards Finland and Sweden, the absolute majority of the cargo handled at Koltak came from external exchangers of goods.

At this point, Polarica has sold all of its ownership in Koltak. The license for carrying out customs clearance was held for three years until a decision was made to terminate these business activities. Yet, this decision was not made because the amount of goods to handle would have been too scarce, but because a lack of a win-win attitude existed among Polarica’s Russian partners for how to cooperate and create mutual benefits. Consequently, the terminal was not utilized in the way first intended by Polarica. As a result, revenues were suffering and the situation was not perceived to be sustainable. Overall, Koltak was used only to a small extent for clearance of import and export goods. Similarly, the volumes of goods sent across the Finnish-Russian border passing through the terminal were modest. Currently, the facility is used for warehousing services and is no longer involved in serving the international traffic.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

5.8. Case 3 – Huolintalinja Huolintalinja is a transport company with four employees located in Rovaniemi, Finnish Lapland. The company was established in 1994 with the primary intention of starting traffic between the northern parts of Finland and Russia and has worked across this border ever since.

Huolintalinja possesses four heavy trucks of which two are crane trucks and two are semi-trailer trucks. The two last-mentioned vehicles are used regularly in the international traffic for which the company also has got one delivery van. To be connected to the two semi-trailer trucks, Huolintalinja has got four semi-trailers made up by two tilt trailers, one low loader trailer, and one container trailer. All vehicles are registered in Finland and the drivers are Finnish. Additionally, the company possesses a customs terminal at the facility in Rovaniemi. This enables a broader range of services to be offered to the freight customers. Besides forwarding, other logistics services offered are customs clearance, storage, packing, reloading and consolidation of goods. Carriage of hazardous goods, so called ADR transports are also arranged just like transportation of oversized cargo, including the assistance from a traffic leader in an accompanying vehicle. Furthermore, translation services are offered and if desired, the clients can also be advised of what the alternatives are of insuring the cargo through an external insurance company. The terminal services of storage, packing, reloading and consolidation of goods are currently used by some customers but not so extensively. On the contrary, far more customers use the service of customs clearance. The ownership of the customs terminal and its geographically strategic location in Rovaniemi is seen as competitive strength. Huolintalinja is also part of larger network of logistics companies which enables forwarding to a wider geographical area as well as an intermodal transport chain.

In the very most cases, Huolintalinja carries goods only in the direction from Finland towards Russia and goods are seldom loaded in Russia to be taken in return why trucks often go empty on the way back. Low demand for goods to be transported westwards from the Murmansk region is stated as a major reason for this, but also the price level for transports is argued to be too low to make it profitable for a Finnish carrier to load goods in Russia. Moreover, a prerequisite for cargo to be taken in return is that it must be ready for collection shortly after the goods brought to Russia have been unloaded, since the truck cannot be idle and wait for this.

At the time when Huolintalinja started its business in Russia, the Russian haulers did not yet have the required transport equipment to manage with the same kind of forwarding that was undertaken. Also, the company could serve as a guarantee for the goods to actually arrive. Under those circumstances, a premium price could be charged for the transport services to and from Russia, but this is no longer possible since the Russian transport companies have advanced and now are able to offer similar services to a lower cost. In addition to this fact, the flow of goods has decreased step by step over the last 10-15 years. While revenues have gone down, the costs for operations have increased and altogether this leaves a smaller operating margin.

Of the goods transported by Huolintalinja, very small quantities originate from consignors in the northern parts of Finland. Instead, most of the goods come from the southern parts of Finland, Sweden and Europe and Huolintalinja serves as an intermediary forwarder in this larger network of logistics companies.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

General cargo is for the most part forwarded by cooperating carriers to the terminal in Rovaniemi where goods from several consignors are consolidated to form a load. In the past, there was a departure of general cargo leaving for Russia each week, but now the frequency has decreased to only one or two departures per month. In case the current demand for carrying goods is not sufficient, a planned departure will be postponed until more units have been accumulated since the loss of executing that transport would be too great if the fill rate is too low. To reduce the transportation costs, the delivery van is sometimes used to convey general cargo instead of using a heavy truck. Since the Haparanda railway line (Swedish: Haparandabanan) was reopened for goods traffic in 2012, containers have been picked up by Huolintalinja in Haparanda for onward journey to Russia. These containers are loaded on a train at an intermodal terminal located in Hallsberg in the central parts of Sweden and were formerly transported by truck on this stretch of road. A considerably large portion of the goods carried to the Kola Peninsula is received by companies related to the mining industry and does for instance consist of heavy machineries and spare parts. Special transports of oversized cargo are arranged on a low loader trailer but containers are also suitable to use for transporting some of the smaller machines. Some of the containers brought to the harbor in Murmansk are later forwarded by ship to remote destinations in Siberia. Still, the number of transports arranged with tilt trailers does exceed the number of containers transported. Unlike the flow of general cargo which usually consists of several less-than-truckload shipments that are coordinated, containers do in the very most cases comprise full truckloads from one consignor to one consignee.

During the nearly 20 years the company has carried out transports to and from Russia, there has never been a continuous flow of cargo with scheduled departures between two parties. Instead, the flow of goods has always consisted of irregular shipments, organized when the need arises. The planning horizon is quite long for most consignments and a contributing factor for this is because a large share of the goods sent is linked to projects, so-called project cargo, and this gives more time to plan. For urgent deliveries of goods though, such as meeting unforeseen needs for spare parts, the delivery van is occasionally used for courier services.

Regarding the volumes transported, there is some fluctuation during the year. Normally there is a large flow of goods in November and December just before the end of the year. Also February, March and perhaps also April are intense months, but the flow decreases between May and September until it increases again in October. Two reasons are stated for this significant difference in volumes throughout the year. Firstly, the usual time for vacation does vary between the countries which goods are sent between and becomes extensive since these periods do not fully overlap. Secondly, the season of bad roads (Russian: rasputitsa) coincides with the time of declining freight volumes and is brought up as a reason for this decrease. Since the roads connecting Finland and Russia are partly unsealed on some routes, the roads get muddy in the spring when the frost has broken up and all snow melts. The same problem occurs during the fall with more rainfalls and paved roads are also damaged by frost. A consequence of this is reduced accessibility during this time and the trucks cannot carry the usual load on the axles why the freight capacity is reduced. The latter cause would usually not have an influence on the international traffic but due to the poor infrastructure, this must be taken into consideration when planning transports in this region. Altogether, the seasonality of freight volumes does not have so much to do with the properties of the cargo.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

Before a truck leaves Rovaniemi for Russia, a pre-declaration is made electronically to advise the Russian customs authority of what vehicle is intending to enter the country and information is also provided of the cargo. This pre-declaration saves plenty of time for the truck to enter Russia. Previously, it is said that it could take up to eight hours for a truck to merely cross the border but with this procedure, the time is now reduced to about two hours. When all documents have been controlled at the border station, the goods are passed in transit to a customs terminal for clearance and a customs broker is sometimes hired to assist with this process. TIR Carnet is used as transit document and the truck drives either to a customs terminal in Murmansk or Kirovsk, depending on where the final destination is. Supposing that all documents are in accordance with the actual type of goods in the consignment and its weight and quantity, it is possible that the cargo can continue to the final destination already during the next couple of days. Yet, this assumes that the consignee has filled in the import declaration in advance. However, sometimes the cargo cannot be inspected on the truck why it has to be unloaded in the customs terminal and this alternative procedure may take a few days. Whether the necessary equipment to unload is currently available when needed, such as forklifts, also has an effect on the expenditure of time. Moreover, transports are planned so it is enough to have one driver in the truck to meet regulations on driving time and rest periods.

Though, a change in practices by customs officials has been noticed since Russia became a member of WTO in 2012. For instance when a container is sent from Finland to Russia and TIR Carnet is used as transit document, the container is sealed by the Finnish Customs. Upon arrival at the customs terminal in Russia, this seal was previously broken in order to inspect the contents. Nowadays, the Finnish seal is generally not removed but is instead supplemented with a Russian seal. This new practice saves time and is perceived by Huolintalinja to be a considerable improvement in the cross- boundary flow of goods. More rigorous spot checks are still carried out though, just like the customs authorities in Sweden and Finland do.

Which border crossing that is used depends for the most part on where the final destination is. However, also the point of time when the truck departs has an influence on what route that is chosen since the border stations are not open all around the clock and the driver has to make sure there is enough time to cross the border before the checkpoint is closing in the evening. When the final destination is in the area of Kandalaksha, Apatity, Kirovsk, Kovdor, Monchegorsk or Olenegorsk, the border crossing of Salla is always chosen since this alternative gives the shortest distance. Though, if the cargo is addressed to a consignee in Murmansk or nearby, the border crossing of Raja Jooseppi – Lotta is instead chosen on the assumption that there is enough time to reach the border station before closure. Still, the journey back to Finland from Murmansk usually goes through Salla. The total distance to Murmansk from Rovaniemi is nearly the same no matter if the trip is planned via Raja Jooseppi or Salla, but the first-mentioned alternative is preferred since it entails a longer driving distance in Finland where the road standard is better. When comparing these two passageways, another advantage mentioned of choosing the more northerly route is that there is more space in Lotta than in Salla, making it easier to pass with oversize loads. Nevertheless, the passage most frequently used by Huolintalinja is Salla. Moreover, transports are also arranged to Kostamuksha through the more southerly checkpoint of Vartius.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

Additionally, Huolintalinja did also use to drive to the area of Zapolyarny. For cargo to this destination, the Norwegian border crossing towards Russia was chosen since it was possible to declare the goods in Borisoglebsk. This service has however been suspended and instead, goods for this area are nowadays taken to the customs station in Kirovsk to be declared. After the customs clearance has been carried out, the cargo is forwarded to a warehouse in Monchegorsk from where the consignee collects the goods.

The two owners of the company intend to stay in the business until their retirement. Still, within a period of a decade from year 2013 the CEO of Huolintalinja predicts the company to be winded up, either by closure or by disposal. If the firm is sold, the buyer will probably be Russian since the interest is believed to be modest among Finnish entrepreneurs to continue with this business.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH 6. Data analysis

In this chapter, the empirical data presented in section 5. Data presentation is analyzed. Comparison is made with logistics theories and the current situation of the Barents region, accounted for in section 3 and 4, respectively. Additionally, the presented cases are analyzed in two steps.

6.1. The flow of goods Currently, very few transports are arranged repeatedly and temporary shipments are instead organized when the need arises. While potatoes make up the largest quantity of goods shipped, the only scheduled flow of goods that has been identified in this study consists of seafood and various subcontracted goods. However, the continuous flow of goods, including berries, used to be larger 10- 15 years ago and more cargo is sent in the direction from Finland to Russia than is sent the other way around. Since the balance of trade is quite unilateral, it becomes an issue to consider when managing with logistics. Traditionally, this is how the situation has been across the southern border crossings between Finland and Russia as large amounts of consumer goods are being sent eastwards, but the trade balance used to be the opposite in the north before the extensive transports of timber from Russia ceased. Anyway, special transport equipment is needed to transport timber and for this reason, it is hard to find freight to carry in both directions with the use of these vehicles.

As a result of modest coordination of transports, truckload shipping is currently the most common way of arranging road transports between Murmansk Oblast and the northern parts of Finland and Sweden. Hence, it is very rare that general cargo is consolidated in a terminal from several consignors on one side of the border to be jointly transported to several consignees in the Murmansk region. Consolidation of goods does almost not exist today and across the Finnish-Russian border, Huolintalinja is the only provider that has been identified to offer this service of less-than-truckload shipping. However, this service is no longer widely used and for goods sent in the reverse direction towards Finland from Russia, no logistics company has been identified to consolidate general cargo. Thus, there are currently no transports arranged according to the principle of linehaul although the long distances. As a consequence of little cooperation between logistics companies, trucks often go empty one way. A contributory cause for this is that the haulers simply do not have so much cargo to carry from the Murmansk region, but coordination of shipments could improve the situation. Moreover, there are seasonal variations in the flow of goods, both as a consequence of poor road infrastructure and due to the actual properties of the goods. Taking all these facts into consideration, many departures of trucks are arranged on an irregular basis.

At present, most of the transports across the northern checkpoints along the Finnish-Russian border are taken care of by second-party logistics providers (2PLs) but third-party logistics providers (3PLs) do also operate in the region although they are much fewer in number. Earlier though, the share of transports arranged by first-party logistics providers (1PLs) was greater.

Since a large portion of the goods sent to the Murmansk region across the northern border crossings of Finland does not originate in the north, this should suggest that more of the freight today passing through the more southerly passageways possibly could take another way and be sent directly via the more northern border stations. For instance, goods addressed to the mining industries on the Kola Peninsula are transported on this northern route although this merchandise may originate in the southern parts of Sweden and Europe.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

6.2. Practices in border crossings and customs stations If the flow of goods increases across the northerly checkpoints between Finland and Russia, it is plausible to believe that also the procedures in border crossings and customs stations will become more efficient. Together with Russia’s entry in WTO, this would help to reduce the gap of differences in practice between the various border stations and customs officials.

6.3. Pricing and current buying behavior for transport services In practice, there is no problem if trucks run empty in one direction as long as the customer is prepared to pay for it. However, there are environmental concerns to take into account and the potential of current transports to carry more cargo is large if coordinated. At present, it seems like truckload shipping is asked for rather than less-than-truckload shipping. This buying behavior may to some extent be a result of an inadequate range of logistics services available on the market, hence leaving truckload shipping as the only alternative. Altogether, this has an effect on how the pricing strategy is formulated and prices for shipments are set. Although the margins of transporting goods in the direction from Russia to Finland is argued to be less profitable than it is to arrange shipments in the opposite direction, having something to transport instead of going empty would still have a positive effect on the contribution margin. Moreover, timely transports are stated as a requirement by most of the interviewees currently buying or executing transports across the Finnish-Russian border.

6.4. Barriers for trade Regarding the rules and regulations for procedures in border crossings and customs stations, it is plausible to believe that Russia’s entry in the WTO both will simplify and make them more transparent. Hence, this could make it easier for potential actors to enter the Russian market and also make the flow of goods smoother. Thus, if the process of cross-border logistics is simplified and customs duties are lowered, an implication of the membership in WTO may be an increase in goods imported to Russia. Also, the previously so extensive export of timber from Russia may take off again.

According to the trends of Supply Chain Management accounted for in section 3.1. Supply Chain Management, companies tend to avoid building large inventories to reduce the tied up capital. Regarding the logistics services offered, continuous transports of high delivery precision is therefore a must in order to facilitate supply chain solutions across these northern border stations. If these requirements are not fulfilled, it is plausible that only outsourcing of low value items can be expected. Accordingly, if only a limited range of transport services is offered, it is reasonable to believe that the expressed demand for transports on the route is negatively affected. For truckload shipping (FTL) to be an alternative, more or less full truckloads are required to make the cost for transportation acceptable. Since this way of arranging transports currently is the most common in the region, it is a threshold for shipments of smaller amounts of goods. To facilitate frequent movements of small lot sizes, less-than-truckload (LTL) shipping is instead a more flexible alternative. Hence, a barrier for trade exists if LTL shipments cannot be easily arranged. If frequent transports like this are possible to bring about, lead times would be reduced and the Murmansk region would have a large competitive advantage, in comparison with Asian countries for instance, as a place for west European companies to locate parts of their inbound supply chain. When setting up a manufacturing business in the Murmansk area, the local staff often needs extensive training in order to manage with required level of performance in terms of efficiency and quality, but this is the same situation as in many of the emerging countries in Asia.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

The three existing customs terminals in the Murmansk region are monopolists. In order to open a new customs terminal though, large investments are required as well as a lot of paperwork including bank guarantees. Currently, only one public customs terminal exists in the region. Since others are private, this may imply limited access to these services. According to Russian regulations it would be possible also for a foreign company to open a customs terminal in Russia, but due to the large investments that would be required and the low demand for cross-boundary transports which currently exists does not make it very interesting to set up another terminal. Also, it is likely to be hard to compete with the only public customs terminal and the high barriers of entry are confirmed by the establishment of Koltak. It failed in spite of the fact that the involved parties have great experience of doing business in this region.

When doing business in Russia, the perception of some of the interviewees has been that their Russian partners have been interested in collaborating as long as they have felt they can get something out of it in terms of knowledge transfer. Hence it is plausible that Scandinavian companies are reluctant to initiate such collaboration with Russian partners since a key success factor for managing is that mutual trust exists between the parties. The sense of vulnerability simply becomes too strong if one party is perceived to only be interested in the transfer of knowledge.

6.5. Future prospects Since Murmansk is currently not widely used as a transit point, this has a negative influence on the volumes of goods transported from Sweden and Finland in the direction towards the region of Murmansk Oblast. However, the establishment of the Northern Sea Route and a Murmansk Transport Hub including a container terminal would allow an intermodal logistics network and increase the volumes of cargo handled through the port of Murmansk. If seaborne container lines are established and Murmansk becomes part of a transit route, this may also have a positive impact on the amount of goods sent across the northern border crossings of Russia towards Finland and Norway. The full potential of such a container terminal could be utilized if an independent operator would manage it in order to not exclude any potential exchanger of goods. Although, the interviewees found it hard to pinpoint what types of goods there may be a rising demand for in the Murmansk region and this may suggest only modest changes in the flow of goods in the near future.

6.6. Within-case analyses In the following section, each three of the cases are analyzed and compared with logistics theories presented in chapter 3.

6.6.1. Case 1 – Mikromakarna The service of truckload shipping is purchased by Mikromakarna from one Russian second-party logistics provider (2PL) and it is merely the service of forwarding that is bought. Hence, customs clearance is taken care of in-house by Mikromakarna and not by the logistics service company. Through its Norwegian partner, the company has got local presence in Murmansk and transports are perceived by Mikromakarna to be easy to conduct. Yet, the company has had much time to learn about the required procedures and possesses great experience of trade with Russia. In general, the arranged transports between Mikromakarna and the subcontractor in Murmansk only contain goods from these two parties. Additionally, the case of Mikromakarna stresses the importance of the logistics provider to be flexible, since this flexibility reduces the total cost of transports.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

6.6.2. Case 2 – Polarica Polarica purchases truckload shipping services from a few Russian second-party logistics providers (2PLs), but used to be a first-party logistics provider (1PL). Moreover, the company has got local presence in Russia and transports do currently only occur between Polarica’s own facilities. This may be seen as a simplifying circumstance for trade since payment is guaranteed between the different parts of the company. Previous attempts have been made by Polarica to increase the fill rate of transports by having other goods to transport off-season. Nowadays however, the trucks do in the very most cases only carry the cargo for which the transports are primarily intended for. Regarding the current business activities, these are perceived by the company to be uncomplicated to conduct. Furthermore, the customs clearance is partially made in-house but customs brokers are also hired in Russia.

6.6.3. Case 3 – Huolintalinja Huolintalinja is a Finnish third-party logistics provider (3PL) and assists with the customs clearance on behalf of their clients. Truckload shipping stands for the largest share of transports that are organized. Also less-than-truckload (LTL) shipments are arranged but this activity cannot really be compared with the definition of linehaul shipping since a terminal only is used on the Finnish side of the border and not on the Russian side.

6.7. Cross-case analysis In this paragraph, a brief cross-case analysis is presented of the three cases.

6.7.1. Case 1, 2 and 3, Mikromakarna – Polarica – Huolintalinja Both Polarica and Mikromakarna purchase certain freight capacity from Russian haulers. If they do not have enough goods to fill the trucks in both directions, the remaining cargo space will be unused since usually no party is present who could coordinate these transports. Polarica did previously try to include other goods in their shipments but are rarely doing this anymore. Except the modest demand for goods to be transported across the Finnish-Russian border in the north, another challenge mentioned during interviews when trying to co-ordinate goods from an external actor is that timely transports are required. This may suggest that a third-party logistics provider (3PL) might have to be the coordinator of transports since this is not a core activity for the freight buyer. Consequently, this sideline would perhaps be a too time-consuming task for a freight customer in relation to the earnings, unless it regards quite large quantities of goods shipped at once. The competitive strength of an external party could thus be to more actively search for additional freight, as well as being the one responsible for assisting with customs clearance since the supplementary cargo would result in more paperwork. In Russia though, a customs broker can be hired to facilitate the import of shipments.

Generally, the respondents of the three cases do not perceive the bureaucracy itself as a barrier for their existing trade. Though, large quantities shipped each time and long experience from executing these shipments makes their work easier. Moreover, all three companies take care of customs clearance to some extent. While Mikromakarna and Huolintalinja use TIR Carnet as transit document, Polarica does not. As for seasonality, the transport volumes of Mikromakarna are quite stable all through the year while those of Polarica are more seasonal, although leveled to some extent since the berries are frozen. The fluctuation in freight volumes handled by Huolintalinja is considerable but has generally got nothing to do with the properties of the cargo.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH 7. Conclusions

In this section, the conclusions of this study are presented and an answer, including recommendations, is suggested to the research problem. For answers to the research questions (RQs) accounted for in table 1, please see chapter 5. Data presentation.

The research problem was formulated as:

Although apparent, the administration itself does not have to be a crucial barrier for logistics across the border between EU and Russia. The modest exchange of goods across the three northernmost border crossings between the Nordics and Russia can rather be derived from other factors, among them deficient demand for transports on this route and a general underestimation of the importance of understanding cultural and social differences in an international business environment. Poor road infrastructure has got an impact too, but since it is the haulers and not the freight customers that are primarily facing the effects of this, it does not necessarily have a decisive influence on the demand for goods to be sent. Nevertheless, good knowledge about rules and regulations are necessary in order to manage with this cross-border logistics today. For incentives to exist of building up knowledge in-house of how it works, it is likely that large volumes of goods are required. Hence, for smaller and more spontaneous, irregular shipments of general cargo, it is plausible that the demand for documentation and know-how can be a barrier. Accordingly, the realization of potential freight customers to send goods may be prevented, and a logistics service company could for this reason facilitate smaller quantities of general cargo to be sent.

Regarding the current situation, it is clear that the fleet of transport vehicles serving across the northern border stations between Finland, Norway and Russia has got excess capacity. Trucks do often carry goods only in one direction and are not coordinated to prevent vehicles from running without carrying cargo. Hence, with the use of the existing trucks on the route, the flow of goods could be largely increased if departures are only coordinated in some way. On both sides of the Finnish-Russian border there are warehouse terminals and cooperation between two of these would make it possible to use the existing capacity in a more effective manner. Currently, truckload shipping is the most common way of arranging transports between the Murmansk region and Finland. A consequence of this is that it can be difficult to send general cargo across this border since large volumes is both a requirement and a threshold to initiate continuous shipments.

By aggregating the capacity of more than one transport company, it would be possible to offer the freight customers a greater continuity of departures in each direction. Additionally, transport prices can be held at a more competitive level if trucks are prevented from running empty and it is always the end customer who has to pay for this unused capacity. A positive outcome of a more efficient logistics solution is that it may become justifiable to transport goods that currently have got too small profit margins to be transported on this northern route, thus having a positive effect on the amount of goods requested to be sent this way.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

The low demand for freight on this route today does not justify large investments. To find a better solution for logistics with no major need for further investments is therefore more motivated. Figure 13 illustrates a possible logistics solution for general cargo sent from Finland to Russia that would be possible with the current regulations of the European Union and the Russian Federation. Goods sent in the reverse direction, from Russia to Finland follows the same principle except that the goods does not always have to pass a customs terminal but can go straight to the warehouse in the country of destination, provided that it is licensed to execute customs clearance. The idea of the proposed logistical solution is not very complicated. Still, the value of this study is that it gives support to its feasibility.

Goods sent from EU towards Russia

2. One truck is loaded 4. The truck is transited Consignor A with goods from to a customs terminal Consignee A several consignors. for clearance.

Consignor B Loading Transport Transit Transport Unloading Consignee B

Consignor C Consignee C

1. Goods are consolidated 3. The truck crosses the 5. The truck continues 6. Goods are distributed in a customs terminal or national border. Electronic to a warehouse where it to several consignees. warehouse from several pre-declaration of the goods is unloaded. consignors. is done in order to save time in the border crossing.

Figure 13. Proposed logistics solution for general cargo.

For this logistics system to work, a partnership must be initiated between a warehouse in northern Finland (or Sweden) and another warehouse in the Murmansk region. If these warehouses are part of a larger logistics network, a greater geographical area can be served on both sides of the border. The unloading and reloading in the local warehouse does take a little extra time and it may as well imply detours for transports to some destinations, but according to the theory of linehaul, this solution with less-than-truckload (LTL) shipments would facilitate more frequent transports with smaller quantities from each consignor. Consequently, there would still be more flexibility compared to the current transport solutions in use, characterized by little collaboration across the borders. Also, this kind of partnership would make it possible to use trucks both from Finland and Russia to serve on the same route. Hence, such a system would improve the logistics service offered to existing and potential clients on both sides of the national borders, without having to imply large-scale investments and thereby minimizing the need to tie-up capital and the risk of losing assets. Also, it would increase the utilization rate of trucks as general cargo can be jointly transported and thus, the number of trucks going empty could be fewer compared with the present situation. From the current trends of Supply Chain Management presented in section 3.1. Supply Chain Management, it can be concluded that there are certain requirements of the logistics services offered across the Finnish- Russian border in the north in order to facilitate trans-boundary supply chain solutions in the area. At least in theory, the inventory management of a firm can become smoother if less-than-truckload (LTL) shipments are set up instead of using truckload shipping.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH

An already existing customs terminal would be used for declaring the goods in Russia since previous attempts have proven it to be hard to establish a new customs terminal, which also would have to compete with the existing ones. A criterion for this system to work is however that all receivers of goods have a contract with the same customs terminal. In order to accept all import goods for customs handling, the terminal must be public and currently, this leaves only one alternative in the Murmansk Oblast. In case the customs terminal and the warehouse in Russia would be physically located under the same roof or in close vicinity, it would be even more efficient. Then, since TIR Carnet can be used as transit document, a truck from Finland would only have to cross the border to Russia and pass on the goods in transit to the shared facility. After that, the truck could return instantly or be loaded with goods to be taken in return in the direction towards Finland. However, it should be recalled that some types of goods cannot be carried in the same truck and there is also a seasonality of transport volumes to take into consideration. Of course, this has a certain impact on the possibilities to set up scheduled and regular departures.

Furthermore, it is possible that the actors possessing the required warehouse terminals are not involved in the international traffic. To prevent further need for major investments, collaboration might therefore have to involve more than two parties. There could for instance be one partner possessing a terminal in Russia, a second party having a terminal in the Nordics and at least one more actor that takes care of the haulage. Moreover, customs brokers can be hired to assist with the declaration of goods in Russia. For one single company to invest in warehouse terminals on both sides of the national borders, there is a high investment barrier. This barrier may not be feasible to overcome since the current demand for transports across these borders must be seen as quite modest. Therefore, it is hard to motivate such an investment and instead, it is safer to spread the economic risks by involving more stakeholders. In order to increase the volumes of cargo handled in the Russian warehouse terminal, this facility could be used also for coordinating shipments to and from Norway.

In the event that a full container is sent across the border from one sender to one single receiver, the cargo does of course not need to be sent via the local warehouse but can be forwarded directly to the final destination. This also makes it possible for the receiver to decide what customs terminal shall be used and allows the usage of a customs terminal other than the one primarily chosen for handling the mainstream flow of general cargo. However, if the warehouse in the Murmansk region is part of a larger logistics network, the container can be forwarded through it which also opens up to offering a far greater geographical coverage. Forwarding of goods coming via northern Finland to Murmansk does already exist by ship to remote destinations in Siberia. Moreover, from this warehouse it would also be possible for the receiver of goods to pick up the cargo themselves if desired.

By far, the biggest challenge in managing with the proposed solution for logistics has to do with the establishment and maintenance of a long-term partnership. A prerequisite is that there is a mutual understanding among the involved parties for how to create a win-win situation, and they also have to be motivated to create one. Moreover, a partnership like this builds on trust and the ability to see the holistic view is fundamental in order to apprehend the main advantages of collaborating. Both generally in the branch of transportation and in the mindset of many Russian business persons, it could be a major challenge to bring about such cooperation. Therefore, a fresh mindset is required to

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH ensure that the strategies of the involved parties are aligned and that everyone strives in the same direction.

With increasing the utilization rate of trucks, there are also environmental benefits that should be taken into consideration, and how to promote sustainable transports is on the political agenda in the European Union. This was highlighted in the two STBR studies which investigated sustainable alternatives for transportation in the Barents region. (STBR II, 2007) Though, due to the large investments in infrastructure that are required for other means of transportation than road to be applicable in this region, it would foremost be worthwhile to increase the fill rate of existing road transports.

INTRODUCTION – METHODOLOGY – THEORY – CURRENT SITUATION – DATA PRESENTATION DATA ANALYSIS – CONCLUSIONS – IMPLICATIONS AND FURTHER RESEARCH 8. Implications and further research

In the final paragraph, implications of this study are accounted for and suggestions for further research are brought up.

This study has mapped the flow of goods between the Murmansk region and the northernmost parts of Sweden, Finland and Norway. Since a suggestion is presented for how the current situation for logistics possibly could be improved without a large need for investments, it is conceivable that this study could inspire improvements in one way or another. Nevertheless, further research may be required before major changes are made. Therefore, suggestions for further research are presented in this section.

How the arrangement of transports compare and contrast between the northern and southern border crossings of Finland towards Russia could be examined in a study. Especially a more in-detail study of how transports are executed across the Vaalimaa – Torfjanovka border crossing could serve as a benchmark for what could be done in order to improve the flow of goods in the north. Since the traffic volumes are remarkably larger in the south, it is likely that the logistics services are more developed there. Consequently, it is plausible to believe that the best practices of today can be found where the trade is most intense.

Moreover, a detailed study can be conducted with the aim of mapping the existing capabilities of logistics service companies in the Murmansk region. Also, the attitudes for cross-boundary collaboration in the region can be assessed by interviewing the parties currently possessing warehouse terminals and transport vehicles.

Similarly, it would be possible to investigate the perspective of current and potential consignors and consignees of goods to assess their requirements for logistics services. This could be done both with the intention of getting a better understanding for how a logistics system must be designed in order to increase the flow of goods as well as to facilitate supply chain solutions for companies across these northern borders.

Likewise, a more thorough study can be conducted in order to investigate what the potential types of goods are which may be in demand to be transported. This is relevant since the type of goods that is transported may have certain requirements for what logistics services that preferably should be available to enable this flow.

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Appendix A

(Finnish Transport Agency, 2013; Østfinnmark Police District, 2013) District, Police 2013; Østfinnmark Transport Agency, (Finnish

crossings of Russia of crossings

Number of trucks passing each month through border three the passing northernmost month trucks of each Number

. .

14 Figure Figure

Appendix B

Here, two versions are presented of the open agenda that was used during the semi-structured interviews. The agenda was slightly modified for each interview but it follows the same principle.

Example 1: Transporters

Present situation: 1. What type of transports do you offer? Types of transport vehicles and number. Size of the company.

2. If you carry out transports across the Finnish-Russian border today, please describe how they are arranged:

 Freight routes/border crossings, transport times.  Are some of your transports continuous or are many of them special transports (occurring only a single time)? Goods in both directions? Seasonality?  What is usually the fill rate? Do your customers buy FTL or also LTL? If LTL, where is the goods consolidated on both sides of the border? Is the truck visiting all customers to pick up the goods on the way or have you got a terminal where this is done?

3. Who are your customers? (Branches of business and types of goods, if names are not to be disclosed).

4. For how long have you carried out these transports across the border?

5. What do you know about your competitors in the international traffic?

 Who are they, what do they transport and who are they working for?  Are there mostly Russian (but also Finnish) companies that take care of the transports across the border?

6. Do you know if goods are sent today between Murmansk and the northern parts of Sweden/Finland via St. Petersburg? If so, in what proportions?

7. What logistics services do you offer?

 Forwarding  Customs clearance  Cargo insurance  Warehouse and terminal services o Storage o Packing o Reloading and consolidation of goods  (Payment solutions)  Translation services  Being part of a larger network o To enable forwarding to a larger, geographical area o To enable an intermodal transport chain (sea, air, rail)

 Have you thought of offering some more services to your customers? For example, have any payment solutions been asked for? Do you think it would be possible for you or other logistics companies in Russia to offer such a service to handle invoices?

8. How does the customs procedure compare and contrast in terms of effectiveness for goods handled through St. Petersburg in comparison with the more northerly border crossings of Salla and Lotta?

9. Do you see any particular barriers for trade with the customs regulations between Russia and the EU?

10. To what degree do you perceive the transports to be easy or complicated to carry out today? Would it be desirable to change something? (Both logistically and regulatory).

Future: 11. What wishes do you hear from your customers about continuity of transports and types of goods?

 Those who are not buying transports from you today, are there any logistical barriers which prevent them from having a demand for this? Due to economic reasons (long distances), delivery times, or the actual need?

12. What do you think it would take to increase the flow of goods?

 Is the infrastructure the bottleneck or is the flow of goods rather limited because of low actual demand?  (Continuity and flexibility?)  Hard to get goods in both directions so trucks do not have to run empty one way?  How does the freight exchange look like, a lot of goods from the south to the north?

13. Who do you think are potential, future freight customers? (branches of business and types of goods, if names are not to be disclosed). The cluster of Murmanshelf?

 What would be required for these transports to start? (in both directions)  Is the Murmansk Transport Hub necessary?  What companies (branches of business) in the Murmansk region do you think would be interested in receiving goods from Sweden/Finland?

Example 2: Freight buyers

1. If you carry out transports across the Finnish-Russian border today, please describe how they are arranged:

 What is transported?  Freight routes/border crossings, transport times.  Are some of your transports continuous or are many of them special transports (occurring only a single time)? Goods in both directions? Seasonality?  What is usually the fill rate? Do your buy FTL or also LTL? If LTL, where is the goods consolidated on both sides of the border? Is the truck visiting all customers to pick up the goods on the way or is there a terminal where this is done?  Transportation by own trucks or transport company?  For how long have you carried out these transports across the border?

2. What is the main reason why this flow of goods exists?

 Import: Due to strategically important input materials/raw materials for own production?  Export: Because similar products are hard to find in the area of destination?

3. What logistics services do you currently use for these transports?

 What services would you like to see that your logistics partner would offer? Would you for instance be interested in a payment solution for handling of invoices?

4. Today, do you know if there are mostly Russian and Finnish companies that take care of the transports across the border?

5. Do you see any particular barriers for trade with the customs regulations between Russia and the EU?

6. To what degree do you perceive the transports to be easy or complicated to carry out today?

 Would it be desirable to change something? (Both logistically and regulatory).  Are delivery times reliable?  Stock levels required? Value of goods? Large safety stocks?  What continuity and flexibility would be desirable for this logistics?

7. If the transports exist only in one direction, do you think it would be possible to increase the flow of goods to both directions? (Import of raw material and export of refined products for instance).

 Is the ability to easily visit customers and suppliers perceived as important?  What companies (branches of business) in the Murmansk region do you think would be interested in receiving goods from Sweden/Finland?

8. Do you know about other companies that have or have had transports on the route?

9. Have you got any idea of which industries that may be potential to have transports on the route? (Branches of business and geographical location)

10. Have you got any statistics or other background information about the transports/cross-border logistics which you may want to share with me?