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DB Schenker in CIS – challenges, prospects

Uwe Leuschner ,

Vicepresident DB Schenker

Logistics, Business Development

CA and CIS

Astana, November 07, 2013

1Åberg June 2012

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2Uwe Leuschner, 21.04.23

Logistics … New ideas, new solutions – new ways for international tradelanes …

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Trends in politics….

Eurasian Union is planned from 1.1. 2015

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Trends in globalization….

Russia is after nearly 20 years WTO – member …, Kazakhstan soon …

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Trends in the markets …

5

Contract Logistics market for 2010 in CIS valued at about EUR 1.9bn – Russia with the largest share

Market concentration is low, the share of its five largest logistics operators do not exceed 12% in total

As CIS countries transform from traditional heavy industries towards more sophisticated industries such as Automotive and High-tech, increased need for more sophisticated supply chain management

1.86

+11%

2016

3.47

2010

Contract Logistics - market size estimates for CIS

in bn EUR

Rest of CIS 1%

Belarus 1%

Ukraine 1%

Kazakhstan 3%

Russia 94%

Source: GSL market model based on InnoZ data; GSL estimates

CAGR

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6DB Mobility Logistics AG, GSL, Jördis Deutschmann, 01/12/2012

The CIS region shows an attractive GDP growth above level of the industrialized countries

1 Commonwealth Independent States 2 North Africa and Middle EastSource: IMF, GSL

Relative growth by region, 2010-2015Real GDP 2010-2015, Index: 2010 = 100

2010 2011 2012 2013 2014 2015

Industrializedcountries

150

135

120

105

100

Sub-Sahara

NME2)

Latin America

DevelopedAsia

CIS1)

Eastern Europe

Macroeconomics

Relative growth by country, 2010-2015Real GDP GAGR 2010-2015, in %

2.8

3.8

4.1

4.2

4.4

5.0

5.4

5.8

6.1

6.6

7.5

Armenia

Ukraine

Kazakhstan

Uzbekistan

Turkmenistan

Moldova

Tajikistan

Kyrgyz Republic

Azerbaijan

Belarus

Russia

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77

CIS contains important industrial areas fundamental for cross-border transports with Europe

Source: GSL analysis, GTAI, Destatis, Bundesanstalt für Geowissenschaften, Asian Development Bank, web search

Commonwealth of Independent StatesMajor cities, industry and raw material clusters

CIS main industrial markets beyond a large raw material source are Russia, Kazakhstan, Ukraine

Russia is equipped with vast reserves of raw materials (e.g. oil, gas, metals)

The main industry clusters and largest cities can be found in the European part of Russia

Major industrial clusters are primarily located at the Western border of Ukraine to Russia as well as at the Northern border of Kazakhstan to Russia

In China, main industry clusters are concentrated on the coastal line

TranssibirischeEisenbahnTranssibirischeEisenbahn

China

Russia

KZ

Belarus

Ukraine

Moldova

Armenia

Azerbaijan

Turkmenistan

Uzbekistan

Tajikistan

Kyrgyzstan

Raw material cluster Industry cluster Major cities

Macroeconomics


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Main trade flows in the region1) - SchematicTotal Import/Export values in bn EUR, 2010

Based on import and export values, trade between Europe, Russia and China significant

Macroeconomics

1 Includes all modes of transport; Europe meaning all European countries except Russia and TurkeySource: GTAI, IMF, GSL estimates

1 2 3Europe China Europe Russia China Russia

TranssibirischeEisenbahnTranssibirischeEisenbahn

99 9

10

130

152

24

18

137

78

3

8

137

25

1

2

3

Europe

China

Russia

Main trade flows are between Europe and Russia, China and Europe as well as Russia and China

Major share from China to Europe is currently transported by ocean freight – not via the Transeurasian land bridge

Most volumes are moving westbound into Europe

Germany as major trade partner of Russia and China in Europe

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For CIS countries rail and road are major transport modes – whereas in China, waterways are by far dominating

1 Excluding Tajikistan and Turkmenistan – no data availableSource: National freight transport volume from National Statistics agencies; GSL analysis

Freight transport volumes by transport mode 2010

in bn tkm

Transport and Logistics

294 266 140

Rest of CIS

Ukraine

Kazakhstan

Russia

2,369

China

13,517

Rail

85%

Road8%

Waterways

7%

Air

0%

Rail72%

Road27%

Waterways

1%

Air

0%

82%

Rail

15%

Road

3%

Waterways Air

0%0%

Air

4%

Waterways

40%Road56%

Rail20%

Rail

32%

Road

48%

Waterways

0%

Air

% % of total share of total tkm in CIS

77% 10% 9% 5%

1)

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Especially the road network in CIS requires immense investments in the future – rail network historically well supported



Rail freight

Road network has its main routes along the important railway routes

In the so called „Stan-countries“ road network seems more dense than rail network

In general road infrastructure is of far lower quality than rail infrastructure in the CIS

Increasing significance for long distance

Road freight Ocean freight Air freight

Rail dominates freight transport

Monopolies of unreformed old-style national rail company for traction – increased privatization of equipment

Imparity of gauge width between Europe (1435 mm) and CIS (1520 mm)

Underdeveloped infrastructure - density rather low

Important ports are connected to the main Asian rail and road network

Maritime transport is one of the most important modes of international trade for Russia

For other CIS countries, ocean freight not a key transport mode (mainly no access to sea)

Currently only minor share in terms of tkm (generally below 4%)

Mainly used for transport of mail, as well as unique or expensive goods

Rising fuel prices reduce cost efficiency of aircraft

Investments are not primarily made into airport infrastructures

Source: GTAI, RBC 2007, AHK 2010, Progtrans 2010/2011, GSL

Key characteristics of freight transport modes in CIS

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The transport and logistics market is subject to challenges resulting from different trends

Source: GSL

Privatization

Growing competition

Market liberalization

Internationalization

e.g. CIS countries shift from heavy industries towards more sophisti-cated high-tech sectors

Key challenges transport and

logisticsmarket

e.g. customs union only easing cross-border trade between Russia, Belarus and Kazakhstan

e.g. limited availability of rail tracks supports shift to road; road with highest growth rates

§

e.g. global cooperation like VW open subsidiaries in CIS countries

e.g. increased privatization of rail equipment by RZD and KTS

e.g. change from the cross-border operations to dom-estic services of internat. 3PL players like DHL

Infrastructure shortage

Industry shift


DB Mobility Logistics AG, GSL, Jördis Deutschmann, 01/12/2012

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Agriculture, Automotive, and Electronics as main industries with future potential – DBS’ strong expertise in these sectors as chance

Major industry trends in major markets

Increased private income invested in status symbols like new, modern cars, but also in the acquisition of white goods and electronics, e.g. TVs

Automotive in Russia already strongly developing – ongoing trend Suitability of former car production facilities for minor assembling with cheap labor costs

will also benefit automotive industry, e.g. in Ukraine Governments of CIS countries actively searching for investors for automotive industry In particular for agricultural modernization and industrial production new machinery is

required – Germany as a main supplier

PRELIMINARY

Agriculture2) Metals and Mining

Automotive

Building materials3)

Chemicals4

)

Oil&Gas

Consumer5

) IndustrialsElectronic

s

Russia

Kazakhstan

Ukraine

Belarus

Strategic implications

1) Main industries also interesting for logistics services 2) includes food and meat base production; 3) related to construction; 4) without Oil and gas; 5 includes prepared food, 5) in particular FMCG 6) Machinery and white goods; excludes high-tech electronicsSource: National Statistics; National Ministries of Economic Development; GTAI; press articles; GTAI, OECD, PWC, Industry reports, Factiva, GSL assumptions 2011

Stagnant trendPositive trend

Current Relative importance of industry in terms of GDP contr.mediu

mhigh

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Manzhouli (CN) - Zabaykalsk (RU) border

Alashankou (CN) – Dostyk (KZ) border

Sea-Rail intermodal transfer

Explanation

Transshipment and transit customs clearance/ Gauge Change

1

1435 mm normal gauge

1520 mm wide gauge

Customs Union

2

Sea

Rail

Rail (block train

only)

RU

KAZ

CN

MN

Shanghai

Moscow

Yingkou

Overview of DB Schenker rail network covering main cities in China and Russia

For shipments to Russia we offer both direct rail service and sea-rail solutions

Irkutsk

NovosibirskYekaterinburg

Vostochny

Shenzhen

St.Petersburg

Omsk

1

Samara

Vladivostok

Khabarovsk

Sovgavan

Taishet

Beijing

Chengdu Chongqing

Guangzhou

2

Chita

Remark:DB Schenker currently focused on the Northern Route connecting China to Russia, while the Southern Route is only applied for company block train

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Rail reaches most cities in Central Asia and Mongolia with competitive prices and lead times

Shanghai-Almaty Beijing-Almaty

Rail Mode Full Rail Full Rail

Lead Time (Door-Terminal) 30 days 29 days

Est. Cost / 40’HC $9,000 $8,700

based on single wagon solution, door-terminal service

KAZ

CN

Shanghai

Shenzhen

Beijing

Chengdu Chongqin

gGuangzhou

Urumqi

Almaty

Lianyungang

Tianjin

Astana

Ashgabat

Tashkent

Dushanbe

Bishkek

MNShanghai-Ulanbator

Rail Mode Truck-Rail

Total Transit Time 10 days

Est. Cost / 40’HC $7,000

Ulanbator

Bonded truck-rail multimodal solution based on single wagon solution, door-terminal service

China to Central Asia Route Example

China to Mongolia Multimodal Route Example

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Russia

KAZ

China

MN

Shanghai

Moscow

Novosibirsk

Case study 1: Shanghai/Shenzhen to Moscow/ Novosibirsk rail transport for a cosmetic brand

Shenzhen

Overview

Customer: a global skin/body care company

Cargo: cosmetics Routing: Shenzhen / Shanghai (CN) –

Moscow / Novosibirsk (RU) Lead Time: 28~32days (door-terminal) Volume: 100 FEUs per year

Potential demand:Ocean-rail solution via Lianyungang to Central Asia (e.g. Kazakhstan)cargo from U.S. and North Asia

Achievement

Consolidation center built in Shanghai & Guangzhoucollecting cargo from local suppliers with small volume shipment

Reduction of transit time by more than 25 days (compared to ocean-rail via Europe), and achieve reduction in transport cost at same time

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Case study 2: Suzhou-Kazakhstan for a leading machine manufacturer (oversized equipment)

KAZ

SuzhouNanjing

AlmatyAktau

Aktobe

MN

RU

CN

Overview

Customer: a leading machine manufacturer Cargo: finished vehicle (Oversized)

Route 1: Suzhou – (bonded truck) – Nanjing – (rail) – Kazakhstan cities (in gauge)

Route 2: Suzhou – (bonded truck) – Alashankou – (rail) – Kazakhstan cities (out gauge)

Lead time: average 31days (door-terminal)

Bonded truckRail

Achievement

Additional protective packing, packing solution designed for customer

Flat wagon lashing for the vehicles

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Case Study 3: Regular block trains from Chongqing to Duisburg for leading electronics customer

RU

KAZPL BY

CN

MN

Chongqing

Duisburg

Overview

Customer: a leading hi-tech producer Goods: electronic goods (notebook) Routing: Chongqing (CN) – Duisburg (DE)

(10,800km) & on-carriage to the Netherlands

Lead Time: 22days (door-door) Volume: 41-50 FEU per train Frequency: regular weekly

Achievement

Door-door lead time reduction by 12-15 days, compared to previous ocean freight

‒ Time to market advantage‒ Cost of capital reduction

DB Schenker as the pioneer of block train runner on southern route

Innovative security concept based on DB Schenkersmartbox enable real-time cargo status monitoring

High flexibility to accommodate additional volume (alternative solution)

‒ Special train‒ Sea-air solution

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We are present on three different key lanes

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Via Almaty (ALA)

International Airport

From Chongqing

From Zhengzhou

From Chengdu

To Amsterdam (AMS)

To Frankfurt/Main (FRA)

1

2

3

Rail-Air-Solution

1

DBSL RLF | JS 11.09.2013

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Product sheet

19

2

Relation: from China via Kazakhstan / Rail-Air mode change / Destination Europe

Product specifics

Services

Product type Combined rail-air container shipments

Based on blocktrain

Container provision (included) Smartbox (included) Audited Supply Chain Security

Product platform DB Schenker Chinatrain

Product offer Single container Optional: Winter solution

Rail-Air transshipment

Bonded and guarded trucking from Almaty-1 rail station to Almaty Airport

Customs transit formalities at mode-change from rail to air

Rail-Air-Solution

DBSL RLF | JS 11.09.2013

Air: 1 day Rail: 9-10 days

Door-Door time: 12-14 days

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The Eurasian Landbridge: One Team, One Mission

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Thank you for your participation!

DBSL RLF | JS 11.09.2013

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