ORGANIZATION OF BRANCHES AS SPECIFIC WAY OF ENTERING THE FAR EASTERN LOGISTICS MARKET FOR TRANSPORT AND FORWARDING COMPANIES

Anton A. Voronenko
Admiral Nevelskoy Maritime State University, Vladivostok

Abstract: The article analyzes the changes in the Far Eastern
logistics market with the entry of large logistics players through the
organization of branches and representative offices. The rise of the
number of subsidiaries and affiliates created by large transport
companies, especially territorially close to seaports and border
crossing points in the Far East of Russia looks logical against the
background of increasing interest of all market participants in cargo
transportation via the Far East. However, depending on the goals,
strategy and capabilities of the parent companies the types of new
structures vary. The author examines the features of the work of such
companies, the possibilities of organizing operational activities,
types of management and development prospects. The material bases
on the practical experience of the author in cooperation activities
with various enterprises in the field of maritime transport,
forwarding, transport logistics and related fields, taking into account
the specifics of the Far Eastern federal district of Russian
Federation.
Keywords: Far East, seaports, container transportation,
commercial work in transport, port of Vladivostok, forwarding,
transport logistics, transport branch

Introduction

Growing demand for transport and logistics services in the
Eastern direction and an increase in operating activities stimulates
demand from large transport companies to perform activities in ports
and border crossing points in the Russian Far East. The specifics of
transport, logistics and forwarding services dictates the need to
monitor the movement of goods and provide additional services other
than “simple” support for cargo transportation by sea or rail. Here
we mean services for changing traffic routes and the emergence of
corresponding obligations of the forwarder to prepare necessary
documents and provide technological connection for intermodal /

multimodal transportation, perform additional work on cargo
placement, fastening, reorganization of goods in a container (this
could be, for example, liquid cargo in barrels, requirements for the
transportation of which by sea and rail is different in Russia and
foreign countries), provide certification services, sampling, tally
counting and much more. Companies located in other regions of the
Russian Federation in such cases are forced to look for local Far
Eastern partners capable of providing such services. With the growth
of container traffic, especially when transporting complex sensitive,
dangerous or oversized cargo, there is a need for a permanent local
representative office, which would either carry out such work itself
or monitor the activities by contractors. Moreover, the increasing
demand for a wide range of Chinese goods requires additional
resources for their customs clearance and the provision of logistics
services for their delivery to the central and western regions of
Russia. This, in turn, spurs the desire of medium-sized forwarding
companies to expand the range of services provided and conquer new
market segments. In this light, the decision to organize a
representative / branch office that would “control” the movement of
containers locally also looks logical. Thus, the goal setting and list of
tasks to solve may differ, and therefore the structure of such branches
may differ.[1]

It is important to note the geographical specifics of the
transport infrastructure in the Far East, which is noticeably different
from most regions of Russia. Thus, there are about a dozen
stevedoring companies operating in Vladivostok at present, servicing
a wide list of container ships of various cargo capacity. This allows
shipowners to rotate ports of call, which has a positive effect on
reducing vessel downtime in the roadstead while awaiting unloading.
In addition, the cost of stevedoring services also differs, which
makes it possible to optimize expenses.
In addition to the variety of stevedoring companies, there are
several railway container terminals located outside the seaports in the
region.
These terminals provide services for the formation and dispatch
of express container trains to various destinations, and provide a
comprehensive service for the movement of loaded containers
between various sea and railway terminals for their subsequent
dispatch.

In practice, this offers dozens of different transport solutions
for logisticians to deliver cargo from Vladivostok to its final
destination. Based on the specified criteria, it is possible to select, for
example, the cheapest or fastest option for sending from Vladivostok.
At the same time, such operations require a decent level of
expertise in dealing with companies involved in these processes, a
knowledge of customs and principles of doing logistics business in
the Far East. This work can hardly be implemented in the absence of
competent local specialists. [2]

Types of branches of logistics companies

The format, goals and objectives for organizing branches by a
transport company (as well as any other company) depend on its
overall strategy. However, it is worth noting that provision of logistic
services has its unique specifics: despite the availability of a variety
of modern communication methods and document exchange formats,
there is a need for a territorial presence in different parts of the
world. For better understanding, we classify branches in two types:
“technical” and “commercial” depending on the goals and objectives
of the parent company, and further characterize them from these two
positions. [3] Although, undoubtedly, there are organizations that
combine these two types.
The “technical” type of branch office implies that priority is
given to servicing the existing cargo flow and customer service. This
means that the parent company has a large customer base, and it is
necessary to improve/control/supplement the existing service by
opening a regional branch. The serious dependence of work on
different time zones is an important precondition and motivating
factor for such a decision. This feature actually does not allow a
company from another region, for example from the Moscow region,
to perform logistic operations normally because the time difference
will be up to seven hours.

A characteristic feature of a “technical” branch is its low
autonomy and high dependence on the main company. The unspoken
goal of creating such branches is to expand the company’s
operational capabilities in a given region, introduce and adapt local
rules and customs to the current standards and business processes of
the company. A “technical” branch cannot have direct commercial
relationships with customers, except in cases when this is expressly
provided for by the regulations of the parent company. A “technical”

branch usually acts as an internal contractor for the parent
organization, providing services within the company, under
unilaterally agreed upon conditions.
The “commercial” type of branch office implies that the
priority is to attract new cargo traffic or conquer market segments.
This means that the parent company has a limited customer base and
opens a local office for attracting new clients/segments. An
important difference between “commercial” and “technical”
branches is that the former has its own budget and operates on the
principle of self-sufficiency. The parent company invests in this type
of branches only at the initial stage, counting on its further selfsufficiency. As a rule, such a branch retains the characteristics of a
“technical” branch – it can still act as an internal contractor for the
parent structure. However, it should be borne in mind that operating
as an internal contractor may be less profitable for such a branch,
since, with comparable labor costs, the profitability of operating as
an internal contractor is usually lower. Therefore, with a significant
share of its own clients, such a branch will pay much less attention to
low-margin operations.
A “mixed” branch implies a combination of these two types in
different proportions. The main difference between the “mixed” and
“commercial” types is the presence of external management,
comparable to a pure “technical” branch. Thus, its management is
not empowered to determine the range of activities and key tasks of
the branch office.

Characteristics and features by type

Below are the characteristic features (not universal) of the two
identified types.

“Technical” branch:

Operates as an internal contractor in relation to other branches
and/or divisions of the parent company;
Maintains strict regulations of the parent organization;
Dependence in financing (inability to manage its own
budget);
Highly specialized functional responsibilities;
Lower requirements for personnel due to the uniformity of
operations.

“Commercial” branch:

Acts as an independent structural unit focused on making a profit;
Performs technological and commercial functions
simultaneously in the process of providing logistics services;
Has relative financial independence;
Gravitates toward a certain type of service characteristic of
the region (in most cases);
Higher requirements for personnel, incl. knowledge of the
peculiarities of commercial practice in the region.

(End of introductory fragment)

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