Factors affecting the efficiency of air cargo transportation in Russia

Hsu, Chen and Chen, 2013 implemented a study on cargo service strategies. The results show that an airline should use smaller aircraft and offer greater frequency of flights for express service when shipping volume is low. Thus, not only airline operation costs but also shippers' inventory costs can be reduced by increasing flight frequency. The results also suggest that an airline should provide greater flight frequencies for high-value and time-sensitive cargos because shippers of such goods prefer efficient delivery. On the other hand, in the cargo market with mainly low time-value goods, airlines should not provide express shipping service because the shipping volume attracted by express service would be small, which does not justify the extra service cost. The findings imply that the higher the proportion of high time-value cargos to total shipping cargos, the larger the niche for airlines to provide express service, and the more the airline can charge. (Hsu, Chen and Chen, 2013)

In addition, the researchers found out that for perishable goods that need to be stored in a low temperature environment to avoid quality decay, shippers of frozen goods can save much more in decay costs than shippers of fresh or chilled if temperature control service is provided. The findings suggest that the lower the temperature environment in which the cargos need to be stored, the higher the shipping price the airline can charge. The results of different air cargo markets show that, no matter how great the shipping demand for perishable goods, temperature control service always belongs in the optimal shipping service combinations, which conforms to the airline's current operation in practice. (Hsu, Chen and Chen, 2013)

It is rather important to say that the list of empirical studies is not limited by the studies described in this chapter. However, there has not been that many researches in the field of air cargo transportation. There is a room for future studies, especially region-specific. Overview of literature for the Russian market is represented below.

1.3 Russia-specific practices and research gap

According to RBK Research 2014, nowadays in Russia there is no authority, which regulates cargo shipments through governmental transport system. Each type of transportation is regulated separately, so that there is no collaboration between players involved in the process. It is impossible to organize shipment in a way that it is mutually beneficial for all the parties taking part in the business. In 2012, the growth in market volume for air logistical services was estimated to be at the level of 6 %. (RBK Research, 2014)

However, currently the access to markets with regard to provision of complete route and operational rights is decelerated by numerous factors, including airport capacity and insufficient level of infrastructure. Despite certain improvements in the field of regulation of air transportation market in Russia, it should be acknowledged that the problems, related with establishment and operation of federal executive bodies authorized agencies in the field of air transpiration and governmental regulation, are not solved up until now. (Katyshev & Utepov, 2013)

Moreover, it is even the case that Russian air carriers, in general, can successfully compete with foreign ones. If we look at the profit structure, Russian companies have 54 % of profit from cargo shipment, whereas in Western companies it is not more than 30%. RBK Research 2014 claims that in 2012 that total market volume of Russian market was exceeding $ 12.7 billion. In terms of foreign trade, 58 % of all shipments are done by sea, 36 % - by railroad and about 4 % by road. Air transportation is more relevant for shipments inside Russian territory. Also, in maritime transport about 95 % of the Russian market is held by foreign companies. Although Russian market is growing, its potential has not been used to full extent. (RBK Research, 2014)

Despite the fact that freight forwarding is a growing market in Russia it has not been many studies in this area. Fisenko, 2011 discussed the problems and challenges of Russian transport and logistics. In his paper, there is a number of suggestions of how to increase efficiency of logistics operation in Russia. The main issue here is the logistics problem of the delivery of goods by national transport system, especially in organizing and managing the railway, road and pipeline networks, as well as air transport, maritime and river transportation with the necessary infrastructure. In order to achieve that goal author suggests that companies need to use software for integration of their own materials and information and supply chain as a whole. In addition, efficient supply chain management leads to saving resources in various industries, not only 3PL market. (Fisenko, 2011)

The paper also suggests that Russian market has a room for forecasting and prediction activities. Accurate forecasts enable to anticipate and to organize accordingly resource allocation in order to face upcoming challenges instead of implementing expensive changes in capacities boot (redistribution) process and use of reserves. In a more general way, the logistical infrastructure remains the main problem in Russian market. The economy loses more than 1.8 trillion rubles form poor conditions of road infrastructure every year. This amount equals to about 2 % of GDP, which of course affects the cost structure of any business that uses transportation services. “The transport component in the cost of production in Russia has reached 20% or more”, compared to less than 10% in developed countries. Such poor condition of road infrastructure leaves companies no other choice than use air as a type of cargo shipment. (Fisenko, 2011)

“Another problem is irrational development of goods and services distribution systems (the absence of a deliberate strategy of distribution systems in industry and commerce, lack of organized commodity markets at large and medium wholesale), inadequate and unstable rates of modern packaging industry development.” (Fisenko, 2011, 35)

There are almost no empirical studies, specifically to Russian market. The one that has been done, is by Moser, Kuklinski & Weidmann (2014). They made a case study of third party logistics service providers in Russia. Initially authors have identified 15 companies that matched their criteria for research purposes (“country of origin, international business operations, significant local operations and at least ten years of operational experience in Russia”). Eventually, due to different reasons, the list of 3PL providers consisted of four companies. Those companies were Russian subsidiaries of four major 3PLs with Western European backgrounds. “All case companies had more than ten years of business experience in Russia, employed locally several dozens to more than 1.000 workers and provided services in the fields of transportation, contract logistics, value-added services, express deliveries and customs clearance using all modes of transport. “ (Moser et al., 2014, 315)

Moser, Kuklinski & Weidmann used interviews as a data collection method for their case study. After those interviews, they compared the results to existing theoretical background from various articles and newspapers. “All interviewees highlighted human resources as a key resource for their operations in Russia.” (Moser et al. 2014, 317) As a part of that problem, respondents also mentioned lack of transparency and big employee turnover rates. There is a gap in the educational sector, so western companies have invest in training of their employees. In the end of the analysis, researchers obtained the following findings, regarding financial, technological and organization resources:

· “Western companies in Russia can operate independently of the financial markets except for taxation aspects.

· Western companies in Russia adapt their financial resources primarily to the requirements of the political system.

· Western companies in Russia do not experience any major influence on their technological resources from any institutional context in Russia.

· Western companies in Russia can leverage their international organization structure to win international customers in Russia.

· Western companies in Russia have to adapt their international organization standards to attract local Russian customers.” (Moser et al. 2014, 320)

Regarding asset management, it is hard for foreign companies to meet the requirements of both Russian system and their contracts with business throughout the world. In addition, there is a mismatch between the type of relationships between western companies and their customers and local suppliers. Usually, relationships with international clients are long-term and with local suppliers are short-term. In general, since Russia is a transaction economy, the highest influence have human resources and overall misbalance between the situation in Russian and in developed economies.

Research of Moser et al. (2014) was focused on the effect of transaction economy and involved case study of foreign companies that operate in Russia. There is a lack of research in air cargo transportation and especially for Russian market. This gap will be discussed below.

Research gap. Maloni & Carter (2006) have reviewed empirical studies in third-party logistics over 15 years. According to them, “much of the existing 3PL research assessed one geographical region, generally, the United States. Even rapidly developing economies throughout the world, especially in Asia and in China in particular, there is still a need for extended geographical scope in 3PL research, particularly to support practitioners as they expand import and export operations in other countries” (Maloni & Carter 2006). They also suggest that it would be reasonable to implement more theoretical studies, using various methods of data collection. It is hard to do an empirical study in 3PL market, due to its complexity. Moreover, when gathering data researchers face obstacle related to low response rates.

Feng et al. (2015) have also discussed the opportunities for potential research. It mostly relate to capacity management, terminal operations and supply chain coordination. The first topic that authors identify is capacity planning. “The available cargo capacity is uncertain because of many factors, such as aircraft payload, belly space, weather conditions, fuel weight, number of passengers on board, and passengers' luggage. This issue makes the forecasting of air cargo capacity a very complicated problem.” (Feng et al., 2015, 325)

In addition, airlines are inflexible in terms capacities because quite often they use the same aircrafts for both passenger and cargo transportation. It is impossible to cancel the flight if there is a lot of room for cargo because passengers have to be served as well. “Airlines may address the imbalance in cargo demands by tying the capacities of the two types of routes and incentivizing forwarders to act in a desirable way.” (Shiao et al., 2013, 168)

Amaruchkul et al. 2011 have researched pricing and contracting but there still plenty of opportunities for research in this area. Such as flexible and multi-leg contracts. Feng et al. (2015) have identified “three types of flexible contracts that are specific and are assumed to be potentially effective; these are dynamic orders with a high price, fixed orders with punishment, and overall fixed orders.” (Feng et al., 2015, 327)There is a lack of studies on a larger scale, for example, for the entire network. Regarding airport terminal, authors suggest that “key parameters and cost functions for such a simulation can be derived by data mining. This study will be cross-methodological in nature. From another perspective, integrated operations of the cargo terminal can also be modeled as a stochastic programming problem.” (Feng et al., 2015, 328)

Supply chain coordination was discussed in the previous part of the literature review. However, there is still a lot of opportunities for research. Demand forecasting a crucial part of this problem. Hihara (2014) has established that “two most important players in an air cargo supply chain are the airlines and the forwarders. A great challenge that airlines face is demand estimation and capacity planning. An effective approach to improve capacity estimation is to make forwarders share their demand information.” (Hihara, 2014, 89)

However, it is not necessarily good for air carriers. They might get unreasonably larger prices. “What complicates the matter is that in the air cargo industry, an airline usually works with multiple forwarders of a non-negligible size, and conversely, a forwarder collaborates with multiple airlines. This scenario differs from the situation in the goods supply chain literature and makes the mechanism design in the air cargo industry particularly interesting.” (Feng et al., 2015, 328)

Due to complexity of the data collection process and problems that the research in Russia faces when it is needed to implement an empirical study, the focus of this particular paper would be more general. The author acknowledges that it is hard to do an empirical study in 3PL market, due to its complexity. Moreover, when gathering data researchers face obstacle related to low response rates. As Maloni and Carter (2006), Kiso et al. (2009), stated most of the research has been made specifically for USA. Since 2006, there has been a number of studies focusing on Asian countries, however almost nothing related to air cargo transportation in Russia. Therefore, the objective of this master thesis is to bridge this gap, by making a more general market study, using different methods of data collection.

air transportation management russia



Chapter 2. Research design and methodology

The research and study methodology are crucial for the master thesis in terms structure and correct approach to data collection and analysis. The aim of the study is to analyze current problems and trends in air cargo transportation in Russia, identify industry-specific challenges and compare the results with theoretical framework, secondary data and global practices in air freight management. To achieve this goal, firstly, based on secondary data there will be an overview of Russian airfreight market structure, main players, volumes and changes for the last five years. In order to answer research questions, after that, there will be a survey amongst air carriers and freight forwarders in order to identify key challenges and trends.

The survey will contain online questionnaire and two structured interviews. The interviews with freight-forwarding companies is necessary to get a more in-depth understanding of the issue. In the end, there will be a discussion of the results based on comparing them with scientific articles mentioned in the literature review, and with modern practices and trends in the industry. In this chapter, these approaches and stage of empirical study and the mater thesis itself are discussed in more detail, first is secondary data analysis and then primary data collection and analysis.

Secondary data analysis. The research method consists of how the researcher collects, analyzes, and interprets the data in the study. Secondary analysis is a systematic method with procedural and evaluative steps, yet there is a lack of literature to define a specific process. (Creswell, 2009). Innovations in IT have allowed accessing, collecting and storing huge amounts of data and increased its accessibility for research purposes. (Johnston, 2014) In any research, the time when the data is collected must be considered, so the period of data collection is paramount (Boslaugh, 2007). Therefore, only reports and material for the last 3 years will be used in order to get an up-to-date structure of the market.

In order to create an overview of the market structure, in the beginning of the next chapter, it is important to use reports, market analytics and statistical materials that are available online. With much regret, obtaining new data or implementing a more in-depth market analysis is impossible due to various circumstances, such as absence of access to data. Therefore, for triangulation purposes secondary data will be used, not primary. The goal of using secondary data, both theoretical that has been discussed in the previous chapter and practical is to widen the possibility of comparing the results of the study with different sources and more importantly, use it for creating the structure of the survey questionnaire.

Primary data. In terms of primary data further will be discussed a survey amongst air carriers and freight forwarders in order to identify key challenges and trends. The survey will contain online questionnaire and two structured interviews. The interviews with freight-forwarding companies is necessary to get a more in-depth understanding of the issue.

Data collection and questionnaire design. The first stage of the data collection is a survey questionnaire. The survey strategy is usually associated with the deductive approach. It is a usual and logical strategy in business and management research and is quite often used to identify various questions both quantitative and qualitative. Therefore, it is usually used for exploratory and descriptive research. In general, this study could be considered as descriptive, so this particular method fits perfectly. Surveys enable the researcher to collect of big amounts of data from a sizeable population in a most time and cost efficient way. Survey strategy is often implemented by using a questionnaire that is applied to a sample. It allows standardization of the obtained data and provides a lot of room and easiness to future analysis comparison. Moreover, the survey strategy is viewed as trustworthy by the public in general and is both relatively easy to analyze and to understand. (Franklin & Walker, 2014)

The survey strategy allows collecting quantitative data, which can be used in analyzing quantitatively using descriptive and inferential statistics. In addition, the data collected using a survey strategy can be used to suggest possible reasons for particular relationships between variables and to produce models of these relationships. Using a survey strategy gives more control over the research process and, when sampling is used, it is possible to generate findings that are representative of the whole population at a lower cost than collecting the data for the whole population. It is time consuming to ensure that the sample is representative, designing and piloting the data collection instrument and trying to ensure a good response rate. (Franklin & Walker, 2014)

Many researchers complain that their progress is delayed by their dependence on others for information. The data collected by the survey strategy is unlikely to be as wide-ranging as those collected by other research strategies. For example, there is a limit to the number of questions that any questionnaire can contain if the goodwill of the respondent is not to be presumed on too much. The questionnaire, however, is not the only data collection technique that belongs to the survey strategy. Structured observation, of the type most frequently associated with organization and methods (O&M) research, and structured interviews, where standardized questions are asked of all interviewees often fall into this strategy. (Saunders, 2009) Therefore, for this study on-line questionnaire and structured interview will be used for data collection.

The questionnaire design process started with the formulation of survey objectives and information requirements and continued with the following steps: - consult with data users and respondents; - review previous questionnaires; - draft the questionnaire; - review and revise questionnaire; - test and revise questionnaire; - finalize questionnaire. (Franklin & Walker, 2014)

Responding to a question is a complex process. Respondents must first understand the question. They must then search their memories or records to retrieve the requested information. After retrieving the information, they must think about the correct answer to the question and how much of that answer they are willing to reveal. Only then do they communicate an answer to the question. Each of these processes may be a source of error. (Saunders, 2009)

In this particular questionnaire there were used three types of questions: closed, open and two-choice. Closed questions are questions with multiple choice in general and have provided responses. Closed questions are usually answered by choosing one or more answers from provided responses. The possible responses listed for a question are called response categories. Closed or multiple choice questions with the possibility to choose more than one option are the majority of the questions listed. (Franklin & Walker, 2014)

Open questions are those where response categories are not provided to the respondent. The respondent provides an exact numerical figure or answers the question in his or her own words, which is either written down, in the case of self-enumeration, or recorded verbatim by the interviewer. Open questions should be followed by sufficient space to record the response. (Franklin & Walker, 2014) In this questionnaire, only two of the questions were open, in order to speed up the responding process.

The two-choice question is the simplest version of a closed question. Often it is a yes/no question and is used to split the respondents into two distinct groups. (Franklin & Walker, 2014) In this case, two-choice questions were only yes/no and related to the fact that respondents had to agree or disagree with a particular statement.

The questionnaire was designed based on secondary data in a form of a Microsoft word file and tested on two companies. The results showed that it would have been more efficient to use one of the online survey websites in order to increase the speed of the process and create a smoother and easier results analysis. In addition, the number of questions had been reduced from 15 to 10 because according to feedback companies do not want to spend more than 7-10 minutes answering the questionnaire.

The structure of the questionnaire is as follows:

1) What kind of goods are usually transported by air? (open question)

2) What are the main challenges of air cargo transportation market in Russia? (multiple choice, more than one answer possible)

ь Low level of personnel qualification

ь High price of shipment to long distances

ь Cargo flow imbalance ( overloading of Moscow port)

ь Increased fees at airports

ь High cost of ground handling

ь Overall economic conditions ( sanctions, exchange rates etc)

ь Out-of-date aircraft fleet

ь Decrease in number of airports

ь Customs regulations

ь Other (please specify)

3) What is the main strategy of balancing costs versus value and cost versus benefits for air carriers and forwarders? (open question)

4) The growth rates of air cargo transportation are decreasing. Is this tendency temporary? (multiple choice, more than one answer possible)

ь No. Airfreight is losing the competition to other modes.

ь Yes, but the reason is hard to identify

ь Yes. Growth rates are decreasing because of economic crisis

ь Hard to answer

5) What are the main current tendencies in the market? (multiple choice, more than one answer possible)

ь Decrease in volumes of domestic shipment

ь A shift towards international transportation

ь Market is affected by the growth of online sales

ь The main goal for freight forwarder is to keep the position in the market

ь Other (please specify)

6) Do you agree with the following statement: “Due to contra-sanctions, the flow of goods has significantly changed its direction and perishable goods, which used to be transported from Europe by car, are now transported by air “. (Two-choice)

ь Yes

ь No

7) What in your opinion characterizes the multimodal opportunities of Russian transportation system? (multiple choice, more than one answer possible)

ь Price and cost competition with other modes of transportation do not allow the necessary volumes of air cargo for airport infrastructure to develop

ь Lack of logistics operators that are capable to organize cargo transportation with minimal price using multimodalism

ь The lack of airport locations (especially in small towns)

ь Other (please specify)

8) To what degree in your opinion the Air Feeder Service in Russia is developed. (multiple choice, only one answer possible)

ь Well developed

ь Almost not developed

ь Not developed. The flight and delivery are separated.

ь Other (please specify)

9) Do you think it is necessary to introduce international standard e-freight and paperless invoicing of transit cargo? (two-choice)

ь Yes

ь No

10) What do you think it is necessary to do in order to increase the attractiveness of air cargo transportation market in Russia? multiple choice, more than one answer possible

ь To increase the number of spaces for aircrafts inside airports

ь To increase airports' conditions

ь To increase personnel qualification level

ь To optimize the cost of service

ь To develop the network of hub-airports and correlation of rail- and air transport

ь Other (please specify)

In the first phase, a database containing information about Russian 3PLs was used. The selection process included companies offering differing ranges of services and more importantly using different modes of cargo transportation. This information was obtained through a number of secondary sources such as company websites, company reports, and articles in industry magazines. Including companies of differing size. The size of 3PL companies may have an impact on their opportunities to diversify the modes of cargo transportation. Finally, list of 124 companies was selected as output of this phase. In the second phase, an email and (or) enquiry was conducted to secure the acceptance of companies to participate in the questionnaire and to check both the breadth of service provided and the overall approach to decision-making.

The second stage of data collection is cased-based structured interview. Robson (2002) defines case-based study as `a method of collecting data which includes an empirical analysis of a specific modern issue in its day-to-day environment using multiple sources of evidence'. Yin (2003) also mentions the importance of the environment. The debatable thing here is where are the borders of the modern issue itself and the environment in which it is operating on a daily basis. In this master thesis, the author uses more of a survey-based approach then a case study. It is important to highlight the difference between them. Although, the research is implemented within the environment the possibilities of exploration and understanding are more limited.

A single case is often used when it is important to highlight an outstanding issue or a very important one on the context of the research. The objective for having several cases refers to the situation when there is a need to identify whether the results of the first case are the same as others and there is a possibility to generalize the findings. For this reason Yin (2003) argues that multiple case studies are quite often more applicable the single case studies, because when you decide to use a single case study, you will have to justify your choice more strongly. Moreover, a well-implemented case study can allow the researcher to question an existing theory and provide a basis for future research studies. (Yin, 2003)

The terms quantitative and qualitative are used widely in business and management research to differentiate both data collection techniques and data analysis procedures. In order to understand the difference between them it is worth mentioning that on refers to numeric and the other to non-numeric data. Quantitative method most often is described as a form of data collection and analysis that has numerical data as a result. On the other hand, qualitative is used predominantly as a synonym for any data collection technique (such as an interview) or data analysis procedure (such as categorizing data) that generates or use non-numerical data. (Yin, 2003)

However, it is worth noting that some authors, for example Tashakkori and Teddlie (2003), use the more generic term research design when referring to multiple methods. When deciding what research method to use, one can therefore either use a single data collection technique and related analysis procedures (mono method) or use more than one data collection technique and analysis procedures to answer your research question (multiple methods). Such practice is becoming more and more popular amongst management and business studies, when the same research may implement both quantitative and qualitative techniques and procedures in combination as well as use primary and secondary data. (Tashakkori & Teddlie, 2003)

The information-oriented process suggested by Flyvbjerg (2001) has inspired the approach used to select case companies. The author argued that in order to maximize the information potential from small samples, cases need to be selected based on expectations of their information content. This selection process has been organized into two phases: (i) choice of a preliminary set of companies and (ii) phone enquiry to determine willing to participate in the study. (Flyvbjerg, 2001)

The following definition of 3PL, adapted from the definition provided by Berglund et al. 1999, has been used in this study: “Third-party logistics are activities carried out by a logistics service provider on behalf of a shipper and consisting of at least transportation. In addition, other activities can be integrated into the service offering, for example: warehousing and inventory management, information-related activities, such as tracking and tracing, and value added supply chain activities, such as secondary assembly and installation of products” (Evangelista et al., 2013, 978)

To answer the two research questions identified in the previous section, a qualitative approach has been used based in the analysis.

A number of factors motivates the use of qualitative methodology in the context of this research. First, as shown in the previous section, the vast majority of papers published in this area have used quantitative methodologies, leaving the value of qualitative analyses largely untested. Qualitative methods such as case-based questionnaire analysis can generate new insights (Seuring, 2008). Second, the main purpose of this research is explanatory and theory building in nature. Finally, the researcher argued that the survey method is an effective means of collecting in-depth information.

The interview will be carried out mainly to gain insights into main issues of air carriers and forwarders that were identified in the questionnaire. What seems to be the problem, how the company does balances cost against value and cost against benefits. In general, interviews are implemented in order to verify the results of the questionnaire and can be described as a tool of post-hoc analysis.

A multiple method approach was chosen for this research. One of the main benefits associated to the use of multiple methods is that the comparison of two or more data sources supports explorative investigations. The empirical analysis has been divided into the following four steps: company selection, interview protocol, data collection, analysis and interpretation

Company selection. In the first phase, a request to the Career Center of Graduate School of Management, St-Petersburg has been made. The goal was to find a company (companies) that are involved in air cargo industry and willing to participate in the study. The Career Center has contacted Cargo Terminal of Pulkovo International Airport in Saint Petersburg, which has agreed to assist with organizing thee interview. Finally, two companies were selected as output of this phase. Two structured interviews were conducted at the company's offices at the Cargo Terminal facilities. The following paragraph will provide the interview protocol, the text of both interview could be found in the Discussion section of Chapter 3.

Interview protocol. The interviews were conducted using a structured data collection guide that was designed based on the literature review and the results of the survey. This interview tool included open and multiple questions relating to the following:

1) general company information

2) modes competition

3) balancing cost against value

4) balancing cost against benefits

5) multimodality and technology

6) market trends

7) market challenges

Data collection. The data collection guide was sent to the respondents in advance to allow them to familiarize themselves with the topic. The respondents were interviewed in face-to-face meetings at the company's office at the Pulkovo Cargo Terminal. It was agreed that company name would remain anonymous to encourage openness of response. Such information has been integrated with information obtained from other sources (e.g., company reports, article published on industry magazines, logistics website and portals). In this way, information was triangulated across data sources and thus improved the validity of the research.

Data analysis. The information were analyzed using an approach that involves comparing evidence and observing differences and similarities. The information collected from interviews has been recorded and transcribed. The analysis of interview transcripts followed the two approaches suggested by Easterby-Smith, Thorpe, and Jackson (2012): content analysis and grounded analysis. The former involves interrogating the data for constructs and ideas that have been decided in advance. The latter involves letting the data “speak for itself” and letting it guide the researcher towards an understanding of the data.

A combination of both approaches was adopted. The transcript analysis employed involved four main stages (see Fig. 5):

Figure 5. The transcript analysis process

Source: Easterby-Smith, Thorpe, and Jackson (2012)

Stage 1 reflects the advice of Robson (2003) that good transcript analysis has to be aimed squarely at answering the research questions asked or addressing the overall research objectives. Stage 2 recognizes that repeated use of a particular word or phrase by a single respondent does not necessarily imply that the concept in question has particular importance beyond the specific environment in which that respondent is based. Stage 3 is essentially a two-stage process of linguistic filtering. The final stage involves the analysis of data based on and contrasting the main issues set out by respondents.

The final step was to compare the results of the survey with the results of the interview with secondary data in order to have two levels of results and achieve triangulation (see Fig 6).



Figure 6. Data collection and validation.

Source: created by author

In next chapter, a full data analysis will be provided and discussed. The conclusions that can be derived from the findings will also be described subsequently. In addition, there will be an analysis of key themes and patterns in the data in order to identify crucial findings and to develop propositions and suggestions.



Chapter 3. Efficiency factors of air cargo transportation in Russia

3.1 Findings

Market structure. According to International Air Transport Association (IATA), the growth of international airfreight shipment in 2013 in comparison with 2012 was 3.6 %. Such positive dynamics were attributed to the development of Middle Eastern and European regions. In terms of Russian market, the situation was more pessimistic. The growth in 2013 in comparison with 2012 was only 1.6 %. The main players on the market had the following situation: AirBridgeCargo showed 17, 5 % growth rate, Aeroflot had 6, 8 % decrease in comparison with 2012. Such decline of Aeroflot could be explained by decision of company to temporarily stop using freight aircrafts. Top-5 air cargo companies in terms of freight turnover in 2013 are presented in Table 1 below. It is important to say that top-5 carriers account for 88, 2 % of all air cargo in Russia. Market share of Russia in the world's air cargo transportation in 2013 was 2 %. 80% of Aeroflot volumes is general cargo, 10% perishable goods, animals, pharmaceuticals etc., and 10 %- post deliveries. S7 is mainly transporting fast moving consumer goods (FMCG), pharmaceuticals, foods, post deliveries and electronics. Sheremetyevo Cargo has a precise division of all goods transported internally by types: FMCG (32%), equipment (14%), clothes (12%), food (11%), and post (8%). (Russian Direct Investment Fund, 2013)

Table 1. Top-5 air cargo companies 2013

Company	Freight turnover, tkm
AirBridgeCargo	2976
Aeroflot	1093
Transaero	407
Volga-Dnepr	304
S7	85

Source: Russian Direct Investment Fund, 2013

In January-October 2015, according to Rosaviation report, Russian airlines transported around 870 000 tons, which is 3 % than in 2014. Absolute leader of the market AirBridgeCargo (Volga-Dnepr Group) held 58% of the freight and was the only air carrier that showed growth, however most of the cargo flow was transitional. AirBridgeCargo is a unique project for Russia, one of the biggest cargo airlines in the world and the majority of its cargo only gets to Russia during intermediate landing and is in no way related to Russian economy. The market share of the second carrier in international transit is 26 % in 2015 and 21%. Volumes of cargo shipments for the 10 months decreased by 14, 5% to 208 691 tons, international shipments (without transitional) remained at the same level. Market structure for 2015 is represented on Figure7 below. The reason for this in 2015 were increased exchange rate, decline of import, decrease in industrial production and drop in market volumes. Cargo transportation in general reflects the state of events of the economy and in general is affected by a number of macroeconomic factors. (FAVT, 2015)

Figure 7. Top 10 air cargo carriers

Source: FAVT, 2015



The basis of the business of international airlines is still the domestic market, which accounts for more than a half of all cargo volumes and creates unique competitive advantages for an international air carrier. Russian airlines cannot really depend on the domestic market because it is highly imbalanced. The majority of cargo airlines face this problem when opening new flight destinations. For example, in Norilsk for every 15 tons of inbound cargo there is only Ѕ ton of outbound cargo, so exclusively on-sided cargo flow. The map of major Russian airports with percentage of processed of total cargo flow is on Figure 8.

Figure 8. Cargo flow distribution in Russia

Source: Russian Direct Investment Fund, 2013

Questionnaire. The questionnaire was sent to 124 companies by e-mail and there are 31 responses recorded. The response rate is 25 %. The names of the companies that participated in filling in the questionnaire will not be mentioned due to confidentiality reasons, and are unknown to the author of the paper, because the survey was anonymous. Some of the questions had to be deleted from the results due to insufficient number of responses. For example, two open questions did not get enough responses, so it was decided to address them in structured interviews. The rest of the responses are shown below. Firstly, the most important questions on current challenges and trends are shown on Table 2 and 3.

Table 2. Challenges of air cargo transportation in Russia

Response options	%	Absolute number
High cost of ground handling	80,65%	25
Overall economic conditions	80,65%	25
Increased fees at airports	64,52%	20
Cargo flow imbalance	48,39%	15
Customs regulations	29,03%	9
High price of shipment to long distances	25,81%	8
Decrease in number of airports	25,81%	8
Low level of personnel qualification	16,13%	5
Out-of-date aircraft fleet	9,68%	3

Table 3. Trends of the market

Response options	%	Absolute number
The main goal for freight carriers is to keep the position in the market	93,55%	29
Decrease in volumes of domestic shipments	70,97%	22
Market is affected by the growth of online sales	29,03%	9
A shift towards international transportation	19,35%	6
Increasing security measures	19,35%	6

Players in air cargo transportation market in Russia consider high cost of ground handling, overall economic conditions and increased fees at airport as main challenges that they face when operating in the market. It is very important to highlight that at the same time level of personnel qualification, customs regulatory system and high price of shipment to long distance ae not viewed as a constraint to their business. At the same time, the main trends of the market according to results of the survey are to keep the position in the market and an overall decrease in volumes in shipments. The second trend is obvious and is backed by secondary data. The participants of the survey do not consider an increase of online sales as a driver of the market, but it seems be one to the author of the paper. The reasons for this discrepancy will be mentioned in the discussion section.

The topic of intermodality has also been addressed in the questionnaire and the responses are shown on Table 4. Respondents do not view lack of logistics operators with multimodal capabilities as a constraint to multimodalism in Russia, the infrastructural problems are much more important. To support that idea, operators consider price, cost competition with other modes preventing factors for infrastructural development, and increase in volumes. In addition, there is a lack of regional airports. Talking about Air Feeder Service in Russia, almost 75% of respondents view it as almost not developed (see Fig. 9).

Table 4. Multimodal opportunities of Russian transportation system

Response options	%	Absolute number
Price and cost competition with other modes of transportation does not allow the necessary volumes of air cargo for airport infrastructure to develop	96,77%	30
The lack of airport location (especially in small towns)	61,29%	19
Lack of logistics operators that are capable to organize cargo transportation with minimal price using multimodalism	38,71%	12

Figure 9. Air Feeder Service in Russia

Participants of the survey were also asked about the importance of introducing the e-cargo standard in Russia. The vast majority of respondents thinks it is necessary to do it (see Fig. 10)



Figure 10. Importance of introducing e-cargo standard

The question related to ways of improvement and potential development has received the following responses (see Table 5). Freight forwarders and carriers mainly support the idea that improvement can be reached by optimizing the cost of service. This idea is almost the same as the one in Table 3 that companies only worry about cost-cutting opportunities. Improving the conditions of the airport is also viewed as a potential for the market, however these improvement again are not connected with increasing the number of aircraft parking spaces and runways, developing the network of hub-airports and correlation of rail- and air transport, increasing the level of personnel qualification. Just using the results of the questionnaire it is hard to make a conclusion of what do respondents mean by improving the conditions of the airport, therefore that question was addressed during the interviews.

Table 5. Potential for development

Response options	%	Absolute number
optimize the cost of service	93,55%	29
increase airports' conditions	61,29%	19
increase personnel qualification level	32,26%	10
develop the network of hub-airports and correlation of rail- and air transport	19,35%	6
increase the number of aircraft parking spaces and runways	6,45%	2
stop all the operations with foreign carriers	6,45%	2



Apart from ways for improvement, companies were asked to forecast the future of the market and the responses are represented on Figure 11 below. More than a half think that volumes are decreasing because of the economic crisis and this tendency is temporary, however a third thinks that airfreight has completely lost the competition to other modes of transportation

Figure 11. Volumes decrease tendency

Interview 1

The interview was conducted with a representative of a logistics and shipment company at the Pulkovo Cargo Terminal Office. The representative was a manager of that particular office. For confidentiality reasons is it going to be referred to as Company A. The company's head office is located in Saint Petersburg. The interview lasted about 45 minutes and included questions that were described in Chapter 2. The interviewee was to elaborate on the questions asked in the questionnaire with a goal of verifying the results of the survey. Here is the transcript that has been recorded in the written form by the author of the master thesis:

The competition between different modes is sometimes “nominal”. It mostly depends on type of the product and on the urgency of the delivery. If we disregard these conditions, in general in winter it is cheaper to deliver the goods by road for up to 2000 km and in summer for up to 3500 km. It is hard for airlines to compete with other modes in terms of volumes. Currently there is a trend of volumes decrease. In addition, the air cargo market in Russia is highly dependent on passenger market. Most airlines that ship cargo as well prioritize the passengers because they provide much more revenue. Airlines determine the number of flights and destinations and are not “client-oriented” in that sense. A good example here is that in Pulkovo there is only one flight to Yakutsk a week, so logistics companies and agents are forced to adjust accordingly.

The main methods for balancing the costs and benefits are the following:

· to provide discounts for increase/decrease of the delivery time;

· widening the network of destinations ( airports lower the land handling cost for new destinations;

· Switching to other cargo terminals

· Reducing the number of staff to minimum

· For airlines : increasing the tariffs when using wide body crafts and economies of scale

· Reduction the rates of flight service

For 3PLs right now, the main method of balancing cost and value is diversification of their services and entering the market of additional services (i.e. door-to-door). In that sense multimodalism is a growing trend for 3PLs, especially international companies (like DHL, Pony Express) have good market capabilities. Air Feeder Service as it is in other countries does not exist in Russia. Although, there is a demand for it. It is not profitable for terminals to have their own car fleet, so in most cases the air transportation and delivery are separated. It is more beneficial in terms of cost for clients to organize the delivery themselves. In most cases, passenger aircrafts are used for cargo transportation. The terms are that one pallet cannot exceed 4 tons; therefore, for cargo higher in volume wide body crafts are necessary. However, in Pullover Cargo Terminal only Emirates airlines possesses such aircrafts. In Moscow Aeroflot uses them as well. The introduction of e-freight standard and paperless transit goods invoices is good as a concepts but the representative of Company A does not consider this to happen any time soon and, moreover, it is highly unlikely.

The decrease of oil prices does not help to cut costs for logistics companies. The airline (air carrier) determines the tariff that includes fuel charge. Fuel charge almost does not affect the market. The airline sets the tariff due to market demand and capabilities. It changes very often with high volatility and fluctuations. Imbalance of cargo flows. The reason is that Moscow is a hub and has different level of intensity of flights and economies of scale, therefore quite often has lower prices, then say Pulkovo. Company A also considers the main goal for logistic companies is to keep the position in the market. The other trend is reduction of volumes. On average since last year, the weight for one invoice has decreased by 25 %.

The Company A was asked to name the main challenges as well:

· Imbalance of cargo flows. The reason is that Moscow is a hub and has different level of intensity of flights and economies of scale, therefore quite often has lower prices, then say Pulkovo.

· Increase in airport fees

· High cost of ground handling

· Terminal handling

· Overall economic conditions

· Underdevelopment of regional airports. However, this factor has the minor importance.

· The main factor is that all air cargo operations are connected with Cargo Terminals. Except for Moscow other destination have no competition and terminal have a monopoly position and can sets prices at whatever levels, this imposes additional challenges for forwarders and carries.

The overall potential of the market is hard to put into numbers. The market is mainly affected by macroeconomic circumstances and therefore in the nearest future it is hard to anticipate growth. It is extremely unattractive right now and almost all 3PLs that do use air transportation diversify their operations and provide a much wider range of services. Airlines to do not consider cargo as a main source of revenue and attend to passengers much more, leaving cargo as a “side” business.

Interview 2

The interview was conducted with a representative of a freight forwarding company at the Pulkovo Cargo Terminal Office. The representative was a manager of that particular office. For confidentiality reasons is it going to be referred to as Company B. The company's head office is located in Moscow. The interview lasted about 20 minutes and included questions that were described in Chapter 2. The interviewee was to elaborate on the questions asked in the questionnaire with a goal of verifying the results of the survey. Here is the transcript that has been recorded in the written form by the author of the master thesis: