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 .............................................................................................................................................