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Цель исследования- оценить текущее состояние логистического бизнеса в компании ОАО РЖД и на основе успешного опытаб накопленного в DB AG предложить направления для его совершенствования
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Graduate School of Management
St. Petersburg State University
Development of logistics business in railway companies: comparative study of JSC Russian
Railways and Deutsche Bahn AG
by 2nd year MIM student Melnikova Anna
Scientific advisor – Associate Professor Yuri. V. Fedotov
ЗАЯВЛЕНИЕ О САМОСТОЯТЕЛЬНОМ ХАРАКТЕРЕ ВЫПОЛНЕНИЯ
ВЫПУСКНОЙ КВАЛИФИКАЦИОННОЙ РАБОТЫ
Я , Мельникова Анна Владимировна, студентка второго курса магистратуры
направления «Менеджмент», заявляю, что в моей магистерской диссертации на тему
«Развитие логистического бизнеса в железнодорожных компаниях: сравнительный анализ
ОАО РЖД и Deutsche Bahn AG », представленной в службу обеспечения программ
магистратуры для последующей передачи в государственную аттестационную комиссию
для публичной защиты, не содержится элементов плагиата.
Все прямые заимствования из печатных и электронных источников, а также из
защищенных ранее выпускных квалификационных работ, кандидатских и докторских
диссертаций имеют соответствующие ссылки.
Мне известно содержание п. 9.7.1 Правил обучения по основным образовательным
программам высшего и среднего профессионального образования в СПбГУ о том, что
«ВКР выполняется индивидуально каждым студентом под руководством назначенного ему
научного руководителя», и п. 51 Устава федерального государственного бюджетного
образовательного учреждения высшего образования «Санкт-Петербургский
государственный университет» о том, что «студент подлежит отчислению из СанктПетербургского университета за представление курсовой или выпускной
квалификационной работы, выполненной другим лицом (лицами)».
STATEMENT ABOUT THE INDEPENDENT CHARACTER OF
THE MASTER THESIS
I, Melnikova Anna, second year master student, program «Management», state that my
master thesis on the topic « Development of logistics business in railway companies:
comparative study of JSC Russian Railways and Deutsche Bahn AG », which is presented to the
Master Office to be submitted to the Official Defense Committee for the public defense, does not
contain any elements of plagiarism.
All direct borrowings from printed and electronic sources, as well as from master theses,
PhD and doctorate theses which were defended earlier, have appropriate references.
I am aware that according to paragraph 9.7.1. of Guidelines for instruction in major
curriculum programs of higher and secondary professional education at St. Petersburg University
«A master thesis must be completed by each of the degree candidates individually under the
supervision of his or her advisor», and according to paragraph 51 of Charter of the Federal State
Institution of Higher Education Saint-Petersburg State University «a student can be expelled
from St. Petersburg University for submitting of the course or graduation qualification work
developed by other person (persons)».
Описание цели, задач и
Мельникова Анна Владимировна
Развитие логистического бизнеса в железнодорожных
компаниях: сравнительный анализ ОАО РЖД и Deutsche
Высшая Школа Менеджмента
Международная логистика и управление цепями поставок
Юрий Васильевич Федотов, PhD, доцент
Цель исследования состоит в том, чтобы оценить текущее
состояние логистического бизнеса в компании ОАО
Российские железные дороги и на основе успешного опыта
накопленного в Deutsche Bahn AG предложить направления
для его совершенствования.
Объектом исследования является железнодорожные
компании - ОАО Российские железные дороги и Deutsche
Предметом исследования является особенности развития
В ходе исследования были выявлены основные проблемы,
препятствующие развитию логистического бизнеса в ОАО
Российские железные дороги, и главные факторы, которые
способствовали Deutsche Bahn AG добиться успеха в
логстиеском бизнесе. Затем на основе полученных
ре зульт атов , бы ли ра з ра бот а н ы п редложе н и я п о
совершенствованию логистического бизнеса в ОАО РЖД.
Логистический бизнес, железнодорожные компании, ОАО
Российские железные дороги, Deutsche Bahn AG
Master Student's Name
Master Thesis Title
Anna V. Melnikova
Development of logistics business in railway companies:
Main field of study
Academic Advisor's Name
Description of the goal, tasks
and main results
comparative study of JSC Russian Railways and Deutsche
Graduate School of Management
International Logistics and Supply Chain Management
Yuri. V. Fedotov, Dr./PhD, Associate Professor
The goal of the study is to the current state of logistics
business in JSC Russian Railways, identify the main problems
and based on successful experience of Deutsche Bahn AG
suggest the directions for its improvement.
The object of study is railway companies - JSC Russian
Railways and Deutsche Bahn AG.
The subject of the study is peculiarities of logistics business
During the study were identified the main problems with the
setting up of logistics business in JSC Russian Railways and
main factors allowing Deutsche Bahn AG to achieve a success
in logistics business. Then based on these result, there were
developed proposals for the improvement of logistics business
in JSC Russian Railways.
Logistics business, railway companies, JSC Russian
Railways, Deutsche Bahn AG
Table of contents
Research problem................................................................................................................................... 6
Research methods................................................................................................................................... 7
Theoretical bases of logistic approach to the organization activity............................................... 8
1.1.1 Evolution of logistics concept......................................................................................................... 8
1.1.2 Supply Chain Management concept............................................................................................. 11
1.1.3 Main interrelated layers of logistics services............................................................................ 13
1.2 Reformation of railway transport................................................................................................ 18
1.3 New institutional economics principles........................................................................................... 23
Strategic approach to the realization of company goals............................................................ 26
Strategic human resource management................................................................................................27
2. Methodology.................................................................................................................................... 32
2.1 Research philosophy...................................................................................................................... 32
2.2 Research approach........................................................................................................................ 33
2.3 Research strategy........................................................................................................................... 33
2.4 Method choices.............................................................................................................................. 36
2.5 Time Horizon................................................................................................................................. 37
2.6 Data collection techniques and procedures.................................................................................. 37
Empirical Part..................................................................................................................................... 41
3. Setting up of logistics business in JSC Russian Railways..................................................................... 41
3.1. JSC Russian Railways external environment............................................................................. 41
3.1.1 The market of logistics services................................................................................................. 41
Competition between rail and road transport................................................................... 42
3.2. JSC Russian Railways internal environment............................................................................. 44
3.2.2. Reforming process..................................................................................................................... 44
3.2.3 Company results after reforming.............................................................................................. 44
3.2.4 Strategy....................................................................................................................................... 45
3.2.5 Operational model of Transportation and logistics business unit........................................... 47
3.2.6 The main sub-units of Transportation and logistics business unit.................................................48
3.2.7 Interview analysis......................................................................................................................... 55
3.2.8 Personnel structure...................................................................................................................... 59
3.2.9 Client-oriented approach.............................................................................................................. 62
3.2.10 Infrastructure.............................................................................................................................. 62
Analysis of business models of global leader DB Schenker...................................................... 66
3.3.1 Reforming process........................................................................................................................ 66
3.3.2 Steps of development of the DB Group business model and structure........................................ 67
3.3.3 Business Model description........................................................................................................ 69
3.3.4 Transport and logistics division..................................................................................................... 70
3.3.5 Client focus, infrastructure and IT systems.............................................................................. 71
3.6 Key issues and directions for their solutions of Logistics business at in JSC “Russian
JSC Russian Railways is of extremely high strategic importance to the Russian
Federation and its economic development This company is one of the largest consumers of goods
and services in the country, one of the biggest employers and performs state-forming and social
functions, linking vast territory of Russia. It plays a crucial role in transportation of the essential
goods, ensuring uninterrupted functioning of the industrial complex and has a significant share
of turnover in the country transport system.
About 90% of JSC Russian Railways revenue is generated by the provision of basic
transportation services (infrastructure and locomotive traction), which is regulated by the
government and experiences, according to recent estimates, a gradual decline on the market of
transportation and logistics services. While the value-added services (freight forwarding,
warehousing services, contract and integrated logistics) are expected to grow significantly due to
the economy growth, the increasing complexity of supply chains and the increasing demand for
complex logistics products by 2030. Moreover, today JSC Russian Railways faced with
significantly increased competitive pressure from road transport, able to provide door-to door
During last several years in order to secure its long-term development, JSC Russian
Railways was forced to make a transition from the old business model, where the company acts
only as a carrier to a new model, where JSC Russian Railways should become a transportation
and logistics company.
Realization of this significant change, especially in such large company as JSC Russian
Railways having complex structure and processes is not a trivial task, requiring analysis of
current situation and successful experience. Company already has implemented several steps
towards the development of logistics business, however, the overall progress is hard to estimate
and rather slow due to different reasons that are not obvious in most of the cases and require
The goal of this study is to investigate the current state of logistics business in JSC
Russian Railways and based on successful experience of Deutsche Bahn AG suggest the
directions for its improvement.
The object of study is railway companies - JSC Russian Railways and Deutsche Bahn
The subject of the study is peculiarities of logistics business development
In this regard, the main research question of the master's thesis is “How to improve the
development of logistics business in JSC Russian Railways?”
In order to answer to the main research question and gradually show how theoretical
background can be used to support the answer, the following sub-questions were developed:
Why Russian Railways experience difficulties with setting up logistics business?
How logistic business was developed in Deutsche Bahn AG?
What practices used by Deutsche Bahn AG may be implemented in JSC Russian
Railways in order to improve the development of logistics business?
In order to answer on these questions it will be necessary to conduct a thorough analysis
of the literature related to the main topic, such as logistics concept, supply chain managment
concept, levels of logistics providers, reforming of railway sector, new institutional economics,
strategic management and strategic human resource management.
The next step will be the analysis of the current stage of JSC Russian Railways
Transportation and logistics business unit, created for development of logistics business, in order
to identify the main problems.
Then the Transportation and logistics division of Deutsche Bahn AG will be analyzed. In
particular, its business unit - DB Schenker, which is one of the world's largest providers of
integrated logistics services with the global logistics experience and significant railway base,
offering land operations, air and sea freight as well as logistics solutions and global supply chain
management from a single source in order to understand how it has achieved such successful
Comparative analyses of both companies will help to identify the main trends and
patterns in development of logistics business in railway companies and define proposals for the
improvement of logistics business in JSC Russian Railways.
A comparative case-study approach will be adopted as the main guidance for the study.
Under the principle of case studies, multiple instruments will be used in the data
collection in selected case study companies. Data will be collected by means of theoretical and
Primary data (interview);
Secondary data (databases, reports, etc.)
The results of the study are supposed to the scientific, practical and social value, since the
undertaken research devoted to the actual problem, which is not examined on decent level, and
aims to investigate the general patterns and propose possible solutions for improvements.
1. Theoretical bases of logistic approach to the organization activity
Transportation plays a key role for any country at both on national and global level of
operations, stimulating or hindering the economic development (Krugman, 1979).
As a rule, there are the following transportation modes functioning in parallel in each
country: road, maritime, air, pipeline, railway. In order to choose the transportation mode the
following set of constraints should be taken into the account such as transportation time,
transportation cost, transportation distance, cargo peculiarities, as well as environmental factors
including geographic, weather conditions and navigation (in case of river and sea transport).
According to (Mesut Kumru, Pınar Yıldız Kumru, 2013) the main criteria for selection of
transportation mode for a logistics are the transportation cost, speed, safety, accessibility,
reliability, environmental friendliness, and the flexibility of transportation . However, it is not the
only tasks in the field of planning of the transportation process, which also includes the
determination of vehicle type, the specification of the route and the tracking of the planned
Modern transport market requirements identified new challenges to be met by the
participants, organizing the movement of cargo and passenger flows in the system. The
formation of customer-oriented market requires the creation of delivery schemes to meet
customer demands on the highest level to gain competitive advantage . While market becomes
more competitive and less predictable, customers become more experienced and demanding
(Yakunin, 2012). In the field of transportation services, in order to attract, satisfy, and retain
customers there should be placed an increased attention to expansion of the logistics services
range, customer information, long-term relations on a contract basis and ability to support
complex transportation projects that will increase customer value (Bowersox et al., 2000).
First of all, we should investigate the concept of logistics and its role in the development
of transport sector.
1.1.1 Evolution of logistics concept
The concept of logistics is not new, and historically there are references to it in ancient
Greece and then in Rome. Nowadays, there can be defined at least three its directions:
mathematics, military area and economics.
Semantic roots of logistics come from ancient Greece language (logo- to think), laying
the foundation of its mathematics development, where logistics is using for designation of
mathematical logic systems. The logistics concepts found in sources until the middle of the last
century for the military area, where still has not lost its relevance. In 1958, as per Webster’s New
World Dictionary of American Language, logistics was used purely as a word to describe
military strategy. The development of the term in the field of the national economy was
especially noticed in the period after the Second World War.
Table 1.1 - Evolution of the term "logistics"
The art of managing of the troops movements
both far and near from the enemy, the
organization of their rearward support
M i l i t a ry E nc yc l ope di c L e xi c on. S t .
Dictionary of modern Russian literary
language. MA: LA: USSR Academy of
Sciences, the Institute of Russian Language T.
Staff service technology, rears calculations, Mueller V.K., English-Russian dictionary.
transportation and supply
Moscow: Gos. Publishing House Foreign
and national dictionaries 1963
Rear and supply, rear work
Mueller V.K., English-Russian dictionary.
Moscow: Russian language, 1990
Military science associated with the supply, Webster’s Desk Dictionary. N. Y. : Portland
support and movement of materials and House, 1990
Control of motion and logistics of the armed The Encyclopedia Americana. International
forces. Along with the tactics, strategy and Edition. Danbury : Grolier Inc., 1991
exploring logistics is one of the four major
elements of military science. The term
"logistics" can also be referred to supply and
sales activities of civil enterprises
Organization, planning, control and execution Terminology in Logistics. ANNEX
of the flow from design and procurement Dictionary. European Logistics Association,
through production and distribution to the end 1994
user in order to meet market requirements
with minimal operational and capital costs
The process of planning, implementing and The Counsel of Logistics Management, 1998
controlling the efficient, effective flow and
storage of goods, services and related
information from the point of origin to the
point of consumption for the purpose of
confirming to customer requirements
Planning, monitoring and transportation Rodnokov A.N. Logistics: Glossary. MA:
management, warehousing and other tangible Economics, 1995 (2nd ed M.:. INFRA-M,
and intangible transactions occurring in the 2000)
process of bringing raw materials to the
manufacturing facility, in-plant processing of
raw materials and semi-finished products and
bringing the finished product to the consumer
in accordance with the interests and
requirements of the latter, as well as transfer,
storage and processing of relevant
Despite the fact that there are different perceptions of logistics, it is possible to define the
two main streams:
Logistics as an integrated management tool, which involves the integration of logistics
functions, such as transportation, warehousing, distribution of material resources,
inventory management in supply chains, information and service support, material flows,
planning, management and control of logistics activities in compliance with rules 7R - "to
ensure the right product in the desired quantity and quality specified in the right place at
the scheduled time for a particular customer with the best cost" (Sergeev, 2006)
Logistics as scientific direction involves optimization of economic flows by the
overcoming of the links isolation of the logistics chain with the aim of coordinated
management of material flow (Kovalev, 2014).
Moreover, the main trend in the evolution of logistics is integration, which may be traced
from 1960s, when all functions were highly fragmented . In this period, the focus of business
development shifted from production to sales, determined by demand, which pushed
companies to increase product range and inventories and, as result, pay more attention to
physical distribution in order to reduce costs.
Figure 1.1 - Evolution of Supply chain management concept
Source: The Geography of Transport Systems. (n.d.). Retrieved May 26, 2016, from https://people.hofstra.edu/geotrans/
By the 1980s logistics systems was developing in the direction of more close
coordination and integration of material, information and financial lows, resulting in
development of two isolated functions - materials management and physical distribution.
Transportation sector started to perform more and more specialized services. Moreover,
requirements to the transportation increased due to the development of quick response logistics
strategy (Salmon, 1993), basing on continuous analysis of market demand and production of
minimal needed amount of goods. That trend pushed transport companies to work on just-in-time
principle, when shipment volumes changes according to market conditions and timeliness of
delivery becomes important factor of service quality. Moreover, on the market appeared new
players – 3PL providers (Croucher et al., 2000), which will be described in detail further. In
general, such changes added complexity to the transportation organization and inventory
management, triggering processes of business restructuration and consolidation, creation of
diversified holding structures in transportation industry.
In 1990s globalization caused a functional integration and, as result, the development of
logistics, which with further complete integration based on modern information and
communication technologies led to emergence of supply chain management experiencing
continuous developments during 2000s in order to increase value capture and will undergo
radical transformations by 2025 due to new technologies, competition, and customer demands. In
1998, Council of Supply Chain Management Professionals, determined logistics management, as
a subset of SCM that will be investigated in the following chapter.
1.1.2 Supply Chain Management concept
Porter (1985) developed a concept of business management based on “value chain”,
showing that single management of processes such as design, procurement, production,
distribution, sales, services allows to obtain total added value greater than that resulting from
different processes. As result, competitiveness of such integrated network becomes higher than
competitiveness of isolated organizations, which interacts in production and distribution process,
but lacks the single management.
The development of such idea led to emergence of Supply Chain Management concept,
which becomes fundamental at modern logistics. The concept of the supply chain in the
scientific literature often revealed as a linearly ordered set of individuals and/or entities
(suppliers, intermediaries, transporters), directly involved in bringing the particular batch of
products to the consumer in order to add value to customers and stakeholders (Lambert, 1998) .
The overall performance of the enterprise largely depends on chain to which it belongs. The
achieving of effective inter-institutional coordination in the supply chain increases the
effectiveness of the supply chain and its individual units (Mentzer, 2001).
However, at traditional supply chain inevitably occurs "the conflict of interest" between
links-companies that focus on profit from their activities and are not always ready to possible
concessions, as management is decentralized. Moreover, the traditional supply chain mostly
applies undifferentiated “one size fits all” principle to supply lines, service offerings and
customers, while modern time require more customer-driven and risk-aware approach
At modern supply chain, the first priority is system integration of all chain characteristics
and negotiation of occurring processes. The total cost of development, procurement, production,
storage, transportation, marketing and other functions implemented in different parts of the
chain, as well as the associated risks are recorded and intelligently distributed so that the
interests of individual participants of the chain were agreed and coordinated. The leading role to
resolve such task should be assigned to the focus company, which will define supply chain
structure and take management and strategical decisions.
To sum up, the transition from traditional supply chain to modern is, first of all, transition
from local solutions, provided by individual participants in order to achieve their own interests to
unified management in order to increase the competitiveness of the whole supply chain.
Nowadays the real competition is not between companies, but between different supply chains
Transportation companies, participating in supply chains started to provide services
beyond the basic transportation function: warehousing, packaging, pre-sale preparation of goods,
information processing, and even the simplest forms of production services, such as
To conclude with, we can observe the deepening of the logistics theory with the
simultaneous expansion of the practical application of the logistics tools. It is marked by the
appearance and active use of the new logistics concept - Supply Chain Management,
transformation of logistic services market, formation and accelerated development of production,
commercial and retail networks structures, the emergence of a new type of logistics
intermediaries, so-called 3PL and 4PL providers, which nature will be described further.
1.1.3 Main interrelated layers of logistics services
In recent years, third-party logistics (3 PL), also called logistics outsourcing has received
considerable attention from different researchers, investigating this field (Knemeyer et al., 2003;
Maltz and Ellram, 1997; Razzaque and Sheng, 1998; Marasco, 2008).
3PL-operator market is developing, as a result, of the growing requirements for more
complex logistics services due to such changes as globalization, reduction of lead times,
customer orientation and outsourcing. The integration of the supply chain has become an
important process for companies on their way to gain a competitive advantage ( Sanders et al.
2007; Anderson et al., 2011).
It should be noted that there is quite a significant difference in the interpretation of the
key terms of logistics in the Western and Russian literature. Russian literature defines 1PL, 2PL,
3PL, 4PL, 5PL operators, while in the Western literature terms 1PL, 2PL does not exist
(Saglietto, 2013). 1 PL-"first party" of logistics is the shipper, the "second party" - the consignee,
and the term third-party logistics is associated with the appearance of the third player (third-party
of the contract), but not with the "generation" of the operator (PL). Therefore, under the «PL»
should be understood not a single logistics operator, and the model of strategic relations between
the players in the logistics market. Most likely, these differences are born as a result of an
incorrect interpretation of the term «logistics», which in English means the process, rather than a
function, and is part of the supply chain management (Christopher, 2011).
The development of logistics providers from Western literature perspective
To begin with, there will be considered the Western literature devoted to the classification
of logistics providers. Chronologically, development of the logistics services market originates
from the logistics performed by the company «in-house», passes through an appeal to the thirdparty company - provider of a logistics services - "insourcing” and reaches 3PL level - the
emergence of an intermediary between the supplier and the consumer, who, on behalf of the
supplier carries out logistics processes. It is hard to find only one definition of 3PL as it includes
many different aspects (Lieb, 1996). Terms such as “logistics outsourcing”, “logistics alliances”,
“third party logistics”, “contract logistics” and “contract distribution” are frequently blurred.
The main drivers for companies to outsource their logistics functions is ability of 3PL
provides to create value (Stauss, 2008) trough cost cutting, quality improvements, more flexible
processes, innovation and service provider's know‐how.
However, according to Stauss (2008) there are three paradoxes: core‐competencies vs
innovation, cost vs innovation and standardization vs innovation. There is a goal conflict
between developing and reduction of cost, quality deficits, and/or complexity, especially in terms
Further, there is an expansion of services package provided by the operator. So, 4PLoperators integrate the actions of several 3PL company level. The participation of 4PL service
provider, resulting in sustainable competitive advantage throughout the supply chain
(Büyüközkan et al, 2009).
According to the Council of Supply Chain Management Professionals the main
differences of 4PL from 3 PL are:
4 PL-provider - a private company, founded as a joint venture or resulting from
long-term contract between the main client and one or more partners;
4 PL- provider - the only one mediator between the client and multi-functional
logistics services providers;
4 PL- provider, ideally, manages all the aspects of the client's supply chain;
4PL – provider may be created from the large 3PL - company based on its current
All of the above types of outsourcing in logistics are shown schematically on Figure 1.2
Figure 1.2 - Types of outsourcing in logistics (Büyüközkan et al., 2009)
The chronological order of outsourcing in logistics is reflected in Figure 1.3
Figure 1.3 - Evolution of outsourcing in logistics (Gattorna, 1998)
Relatively new is the concept of 5PL, bringing together the key elements of all functions
in one entity on the basis of an electronic platform (Screeton, 2009). However, now this type of
integration is rather a commercial project than a new stage in the supply chain management
development, as outsourcing level of 5 PL is the same as that of 4PL.
The development of logistics providers from Russian literature perspective
As it was mentioned before Russian literature in comparison with Western one identifies
not only 3 PL, 4 PL and 5 PL, but also the 1 PL and 2 PL providers. Summarizing the papers
(Yakunina, 2014; Glazkova, 2013, Dementyev, 2013) there can be provided the following
1PL operator is represented by cargo owner and is usually perceived as an autonomous
logistics, when all the necessary operations (warehousing, transportation, etc.) are carried out by
the cargo owner using its own infrastructure and staff.
2PL - the simplest form of outsourcing of logistics services and relates to the carriers (rail
operator, trucking company or a maritime shipping company), which provide a transport service
inside the particular stage of a transport chain, such as: transportation, warehousing,
transshipment, operating their own assets or the assets of other business units included in the
overall holding company. The main driver for firms to work with 2PL operators is to decrease
logistic system operational cost and avoid high capital investment. The work of 2PL operators
does not require advanced IT systems to control and coordinate their activities.
3 P L is a more elaborate form of outsourcing and represented by qualified logistics
providers, which may obtain physical assets and share in particular transport segment, with a
broad range of services. A complete range of logistics services, from the delivery and storage to
orders management and goods tracking is given to the transport and logistics organization,
which, however, has not been integrated into the client's business and does not work with the
entire supply chain. The 3PL services: transportation, warehousing, crossdocking, inventory
management, packaging, tagging services etc. that are outsourced by the customer and confirmed
by the signed long-term contract. 3PL needs advanced IT solutions for coordinating and
managing of logistics activities within the supply chain.
The fact that 3 PL operators focus mostly on tasks implementation, but not on the whole
process as the SCM concept requires it, triggers the appearance of the next outsourcing level–
4PL in the 1990s. 4PL provides not only services of complex transportation logistics, but also
takes responsibility of client supply chain management and development as well as client
business processes management.
Nowadays 4PL operator perceived as the integrator of the supply chain and accumulator
of its and other organizations (usually 3 PL) resources, opportunities and technologies. In
comparison with 3 PL provider, which services actually have tactical nature, 4 PL focuses on
strategic tasks such as analysis and reengineering of clients business processes and new
technologies implementation. To the main characteristics of 4PL firms may be attributed:
•“virtual coordinator” of all 3PL providers activities operating within the supply chain;
• “non-asset based logistics providers”, supported by advanced IT and software solutions.
and based on “real-time” information)
5PLprovider - logistics operator, which offers a full range of services by the use of hightech IT-products, allowing to collect all information about logistic capabilities of market
participants and to build the most optimal logistics chains. 5PL similar to 4PL has no tangible
assets and focuses on strategic supply chain management, but simultaneously more oriented on
“virtual enterprise" model. Some experts suppose that 5PL does not significantly differ from 4PL
and only improves the previous level by the optimization of searching for logistics solutions.
In order to summarize the main findings based on the analysis of (Yakunina, 2014;
Glazkova, 2013; Dementyev, 2013), different types of logistics providers are represented in
Table 1.2- Comparison analysis of different types of logistics providers
stage of a
Several or all
A l l l o g i s t i c s Convert client supply
functions within c h a i n i n t o s y s t e m
s u p p l y c h a i n managed by IT
with the stress
of all supply
Possess tangible Can possess or not
tangible assets, the
main of which is
no resources or
a Long-term contract
Partnership, a joint
assets, the mainknowledge and
Almost doesn’t have
tangible assets, the
main- knowledge and
Companies with no Companies with Huge companies with
r e s o u r c e s o r sophisticated
k n o w l e d g e t o supply chains
Optimization of Integrated
the individual o p t i m i z a t i o n o f business
business processes processes
the supply chain
A significant reduction
in the cost of logistics
services through the use
o f a d v a n c e d I Tsolutions
To conclude with, the development of logistics outsourcing passed through a number of
stages accompanied by the emergence of different types of logistics providers, each of which is
represented by a number of characteristics. However, in some cases the boundaries between
logistics layers is blurred, moreover, even between the theorists there is no only one precise
classification of logistics services providers that may also cause misunderstanding in practice
and the erroneous assignment of any company to the one or another level of logistics operators.
1.2 Reformation of railway transport
According to the analysis of structural changes carried out in the last century in different
countries, the reformation of railway sector was a strategic goal supported by the State. The
change in the interaction mechanisms between participants, the allotment of new players, change
of the State role as the regulator of a new relationship are carried for a long time with
considerable financial and legal support from the first industry investor –State.
The traditional organizational structure for most of the world’s railways in the post-war
period was that of a vertically-integrated monopoly owned by the public sector. According to the
retrospective analysis, many developed countries at different times faced the problem of low
sector profitability or even its losses. This problem is solved by a variety of different algorithms,
however, there is a general trend - the reforming of the existing relations within the system. The
fundamental change in the structure, management of logistics and the allocation of competitive
market segments identified opportunities to address the problems of low economic performance
of the railway (Dyubanov, 2009).
As a rule, when the government face the problem of infrastructure and rolling stock
depreciation, inefficient system of industry management and the lack of the necessary
investments it takes a decision to restructure the industry.
As there are significant differences between the rail systems (transportation structure and
length) and large number of targets in different countries there can not be a single model and
reforming scheme (Thompson, 2013).
Experience shows that railways structure formed of three basic structural elements:
Business organization - the extent to which its executive units should be formed
by commercial principles, including the option of private property or the
implementation of core functions of the railway;
Market competition- extent to which rail transportation services should be
competitive, such as competition between rail operators;
Separability- the extent to which its monolithic structure must be broken down
with the separation and decentralization of some of its units.
Naturally, these three elements are interrelated and their combinations determine the
specifics of the industry structure.
Figure 1.4-The main building blocks of rail industry structure
Source: Railway Reform: Toolkit For Improving Rail Sector Performance. (n.d.). Retrieved May
Despite the apparent diversity, all regulatory models tend to the following three forms
1. Unitary model - railways are a state monopoly converted during the reforming
into one of the above models;
2. American model –no single economic entity, the presence of a few vertically
integrated companies competing in overlapping networks (the high level of
monopoly power, a high probability of discrimination in terms of infrastructure
access, but higher incentives to invest into infrastructure);
European model - the infrastructure, belonging to a single owner (state or
private, receiving state subsidies), is separated from carriers who, in turn, compete
with each other for the right to infrastructure access (easier to regulate, lower
level of carriers monopoly power, low probability of discrimination in terms of
infrastructure access, but low incentives to invest into infrastructure).
Low incentives for investment is not a minor factor. It should be noted that the
infrastructure consists of the network of various types of transport, informational channels and
systems, means of communication and locomotion, storage facilities, external provision of
energy resources, financial supply systems for logistic processes, service companies for citizens,
So, the investment process into logistics infrastructure ensures the productivity of
logistics systems and sectors of production and services. Finally investment causes the country’
competitiveness and economic growth (Masiulis et al., 2009).
Figure 1.5 - The impact of investment into logistics infrastructure (Masiulis et al., 2009)
At the moment, the period of reforming the railways is insufficient in order to draw
conclusions about the success of the industry reform. Below is brief analysis of reforms in
different countries in table form in order to identify the main tendencies
Experience in a number of successful reforms allows us to formulate four main points
the separation of the existing railway system from government regulation (isolation of
operational and commercial functions from the social and political implemented by
the introduction of a management system by type of transportation (freight and
passenger transportation in suburban and long-distance communications have
particular characteristics of demand, competition, regulation, subsidies);
the introduction of vertical separation system (division of exploitation and
management of infrastructure);
the creation of private partnerships (the private sector has a huge potential for
implementation of projects for the construction and commissioning of new railway
lines, but the privatization can not give the expected results in case of incurred
significant preliminary expenses under not properly evaluated premises).
Analysis of the reform of the railway sector allows to identify the most promising areas
of the transformation processes and relationships, identify potential problems that the domestic
structure may face not only during the restructuring, but also in subsequent periods, as not all
changes in existing relationships had positive results and can be considered as successful. 1
1.3 New institutional economics principles.
As the logistic theory, rail transportation systems as well is under continuous
development and sometimes significant transformation, therefore it is reasonable to turn to the
new institutional economics (NIE), which “is an interdisciplinary enterprise combining
economics, law, organization theory, political science, sociology and anthropology to understand
the institutions of social, political and commercial life”. The primary aim of NIE is to show
“what institutions are, how they arise, what purposes they serve, how they change and how - if at
all - they should be reformed” (Peter G. Klein 1999).
To begin with, it is important to determine the four levels of social analysis that are
distinguished in Figure 1.6 (Williamson, 2000).
1 17. Варианты неизбежных реформ // Железные дороги мира. – 2005. – № 9. – С. 9–13.
Figure 1.6 -Economics of Institutions
Level 1- is the social embeddedness level (informal constrains: norms, customs, mores,
traditions, etc.). There may be differentiated several types of embeddedness—cognitive, cultural,
structural, and political (Smelser, 1994). The most important factor to consider at this level is a
very slow speed of institutions changes (centuries or millennia), because here institutions are
functional, having symbolic value to true believers or linked with other formal and informal
Level 2- is called as the institutional environment (formal rules: executive, legislative,
judicial, and bureaucratic functions of government, power distribution between government
Level 3- the institutions of governance. Here the focus is on management of contractual
relations. Based on transaction cost economics, the transaction and governance is creating an
order to mitigate conflict and receive mutual benefits.
Level 4 is the level connected with neoclassical analysis. Here the firm is usually shown
as a production function. Agency theory suggesting ex ante incentive alignment and risk
management instead of ex post governance creates provision for nonneoclassical complications
such as multi-tasking (Holmstrom, 1991).
Further there will be investigated several ideas and theories connected with NIE.
Theory of the firm
The theory of the firm from the economist point of view is theory of production, where
firm just is a ‘black box’ converting inputs into outputs, while the NIE describes “the firm as a
set of arrangements - as an organization” (Klein, 1999), where its internal structure provides as
Moreover, it was shown that besides the production technology the organization
boundaries related to costs of transacting business (Coase’s 1937). In the further development of
this framework, the ‘make or buy decision’ (transactions organization within the firm or on the
open market) should be based on the comparison of internal and external exchange costs
(Williamson, 1985), which then determine the nature of the firm.
This new economist thinking perceived the firm as a management structure, which
succeed in case if managers will be able to effectively coordinate firm activities and “match
people and inputs to current technologies and markets” (Roe, 1994, p. 7).
Another important approach that should be taken into consideration is the moral-hazard
or agency-theoretic approach, which is connected with ‘separation of ownership and control’ in
the large companies that are governed by managers, which may have different goals in
comparison with stakeholders (Berle, 1932).
Transaction cost economics
Transaction cost economics (TCE) -occasionally called as the NIE ‘governance’ branch
-is an approach to investigate the institutional arrangements focusing on management of
transaction that require governance structure, depending on transaction characteristics
(Williamson, 1985), to escape from different hazards caused by exchange. This approach states
that costs appear at economic organization due to the unavoidable incompleteness of complex
contracts caused, according to Williamson, by ‘bounded rationality’.
In general, the main factors causing transactional difficulties are asset specificity,
uncertainty, arrangement complexity and the transaction frequency, where the asset specificity
represent different relationship-specific investments, such as physical and human capital as well
as intangibles. Moreover, the higher such factors the higher the probability to observe the more
integrated governance structure.
Governance structures, as it shown on the Figure 1.7 varies from market to hierarchy,
where on the one end is pure anonymous spot market with simple transactions, where prices
provide not only incentives for taking advantage of profit opportunities, but also information
helping participants to adapt quickly to changing environment. While on the other end fully
integrated firm lies, implying the single ownership and control over all trading parties, which
means greater protection for specific investments and coordinated adaptation allowing to
effectively respond to change, however there are weaker incentives for managers to maximize
profits and bureaucratic costs.
Figure 1.7 - Governance structures (Klein, 1999)
As result, there are a lot of different ‘hybrid’ structures between these two extreme side.
In order to choose the most appropriate one it is important to consider “a tradeoff between the
high-powered incentives and adaptive properties of the market and the safeguards and central
coordinating properties of the firm” (Klein, 1999, p.469).
Eventually market forces identify more and less efficient transactions and governance
structures, especially if their particular results are observable over five and ten years, but it dies
not happen automatically. In case of vertical integration - ‘backward integration that lacks a
transaction cost rationale or serves no strategic purposes will presumably be recognized and will
be undone’ (Williamson 1985, p 119-20), especially when the firm faced increased competition.
1.4 Strategic approach to the realization of company goals
The field of strategy was investigated significantly in the last twenty-five years. In
general, strategy defines the business model to compete on market, while business model
firm works in order to create value for its stakeholders (Casadesus-Masanell,
In Literature as usual the three levels of strategy are defined (Figure 1.8) called as
corporate, strategy strategy, business strategy and functional/operational strategy (Salimian,
Figure 1.8 – Levels of strategy
Corporate level strategy defines the businesses, which are included into the company,
and their relationships. The business level strategy is responsible for definition of company
competitive advantage, that should differentiate it from competitors. Operational or functional
level strategy explains the specific actions of each operational unit should implement in order to
achieve competitive advantage. .
Business Model: Business model is the structure on which the business is grounded,
determining what the business does in order to generate profit without deep explanation of
operating systems (Casadesus-Masanell, 2010). Margeretta, (2002). The reasons for the strategy
fail are the setting of unrealistic goals, performance targets and lack for clear direction ( Madu,
1.5 Strategic human resource management
Human resources are the subject of a number of management disciplines (organization
theory, theory of organizational change, organizational behavior, human resources management)
and labor sciences (labor economics, economics, personnel, labor psychology), developing some
methods and technologies of work with the staff to improve the social and economic efficiency
of the organization, however, sometimes overlooking long-term goals of the organization. While
the strategic human resource management (SHRM) is trying to integrate the business strategy of
the organization with the final results of its activities through the human resource management
The resource-based view of the company has become the base for the theoretically
grounded interpretation of the potential role of human resources as a strategic asset of the
company. (Wright & McMahan, 1992).
, defines resources according R. Daft - "all assets,
capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by
the company that enable the firm to conceive of and implement strategies that improve its
efficiency and effectiveness.". (Daft, R. 1983)
According to J. Barni, one of the founders of the resource-based view concept,
organizational resources have four specific characteristics: value, rarity, inability to be imitated,
lack of substitutes - and can be divided into three groups: physical, human and organizational
capital. J. Barney argues that a competitive advantage is the result of the acquisition and effective
use of the distinctive resources that competitors can not copy. For human capital, he considers
education, professional experience, views, intelligence, relationships, understanding of
organizational processes by managers and employees.(J. Barni, 1991 ).
While G.Hamela and K.Prahalada noted that a competitive advantage can be achieved if
the company will receive and develop human resources that will enable it to quickly learn and
efficient to use their knowledge than its competitors (Prahalad, Hamel, 1994)
Armstrong's states that states that SHRM determines the intentions and plans of the
organization to achieve its business objectives through people that should be based on the
Human capital is the main source of competitive advantage;
There are people that implement the strategic plan;
Systematic approach should support the direction of the organization development
One of the most controversial issues in the literature on SHRM is the question about how
to connect HR function with the business strategy (Kucherov, 2014) . There are the following
1) Situational ("best fit") states that there is no ideal HR strategy, which will be more
effective if it is properly integrated with specific external context. (Wright, Snell, 1998, p. 756)
2) Universal ("best practice solutions") based on the belief that there is an perfect HRM
system.. (Brewster, 1999, p. 45);
3) Configurational ( "one binding site") based on horizontal or internal integration of
individual HRM practices, which contribute to achieving the best business results and change
under the influence of organizational context » (Richardson, Thompson, 1999, p. xi).
SHRM requires a systematic approach not only to the development and to
implementation of HR strategy, but also to personnel policies and HRM practices in order to
establish long-term relationships with each employee. Moreover, according to Guest (1987)
there are three levels of integration:
HRM policies into business strategy-there is little practical guidance, organizational
politics and culture are important factors;
Between HRM policies – difficult to achieve especially in organizational structures central
and line departments divide their responsibilities;
HRM into the line management function – line managers should have decent training,
reward and appreciation by senior management.
S. Fleming suggested the following framework for developing of HR Strategy presented
on Figure 1.9 in order to achieve integration on all levels:
Figure 1.9 - Process for developing HR Strategy
Source: From Personnel Management to HRM Key Issues and Challenges
According to (Humphreys and Worth-Butler, 1999) the successful implementation and
effect of the HR strategy strongly depend on the senior and line managers involvement as well as
personnel, that should be actively engaged sometimes even through reconfiguration of their
relationships and roles.
As result, in order to achieve the sustainable competitive advantage the organization
should identify and analyze comprehensively its internal resources. Special attention should be
devoted to human resources that can significantly contribute to achieving long-term
competitiveness of the organization.
Theoretical background for this particular research, provided in the literature review and
based on the different related to the main topic fields, such as logistics concept, SCM concept,
levels of logistics providers, reforming of railway sector, NIE, Strategic management and
SHRM, is aimed to show their development and current state to identify the main implications
that should be taken into account.
The development of logistics and SCM concept leads to the transition from traditional
supply chain to modern one, where the real competition is not between companies, but between
different supply chains that in order to increase their competitiveness should implement unified
management ensuring and prioritizing the profitability of the whole supply over interests of
Examination of the reforming of railway sector based on the experience of several
countries revealed the main models, problems and trends of railway transport development as
well as importance of development of logistics infrastructure.
NIE covered a lot of topics, where main are levels of social analysis ( social
embeddedness, institutional environment, institutions of governance and neoclassical economics),
theory of the firm, presenting the organization as a management structure, which success
depends on effective coordination of firm activities by the managers and fit between people and
markets, and TCE investigating the governance structures and main tade-off on the way to
choose the most appropriate one for a particular company.
Finally, exploration of the strategy levels, business model and SHRM showed which role
each of them play in or order to realize the goals set by the company to achieve its competitive
advantage and create value for the stakeholders.
However, there is no clear explanation of how vertically integrated railway companies
should implement the transition from traditional supply chain to modern one as well as transition
from the provision of basic transportation function to more complex ones, such as: warehousing,
packaging, pre-sale preparation of goods, information processing, customization. And, what is
more important how they should organize their internal structure in order to realize the synergies.
This chapter is devoted to the description of methods chosen to receive results and how
they should be interpreted and analyzed. Moreover, there are provided procedures used in data
collection and analysis. Today a lot of different research methods exist and in order to choose the
decent one it is important to assure that it is suitable for the main problem and research
According to research ‘onion’ (Saunders, 2011) before reaching the central point (data
collection and data analysis) we need to consider the outer layers, which are essential to the
building of an justiﬁed and explained research design.
First of all, we need to start with research philosophy and research approach, then we
proceed to research strategy, approaches and time horizons in order to ultimately describe data
collection and analysis procedures.
2.1 Research philosophy
The researcher world perception (taken-for-granted assumptions) of the human
knowledge and existing realities, affects the statement of the research question and the research
design as a whole. In general, there are several ways of thinking about research philosophy,
which defines what knowledge is acceptable and which process should be used to develop it.
Positivism mostly related to scientific method, where theories tested with large samples
of highly structured and measurable data and statistical hypothesis testing. In case theory is not
confirmed by findings, it should be revised (Remenyi, 1998).
Realism as well related to scientific research, stating that the real world exist
independently from human mind and information provided by senses is the truth. Moreover,
researcher is affected by its own experience and word views. Realism may be divided into two
categories: direct (senses provide accurate information) and critical (information perceived by
senses is subjectively handled by the mind, therefore, there is a need to take into account
underlying complexity). Hence, data collection and analyzing procedures may be as quantitative
as qualitative (Bhaskar, 2010).
Interpretivism is mostly connected with the social phenomena research in natural
environment and, therefore, focuses not on objects, but on the people investigation. Data
collection and analysis techniques include qualitative data received from small samples by indepth investigations.
For the current research, the most intuitively appealing philosophy is pragmatism, which
focuses on finding of practical results and states that in the world exist multiple realities and
entire picture cannot be perceived from a single point of view. Pragmatist researcher may use
different data collection techniques and analysis procedures in order to create appropriate
research design allowing obtain credible, reliable and relevant data to support following actions
2.2 Research approach
The nature of research topic is rather new and debatable, moreover, there is no so much
literature exactly focusing on core problem. Moreover, research is highly concerned with the
background, in which events are taking place. Therefore, it is reasonable to use inductive
approach and work mostly with qualitative data, collected by a variety of methods in order to
have views from different perspectives on investigated phenomena (Easterby-Smith, 1999).
However, it is important to notice that time becomes an issue for conducting inductive
research, as for example, deductive method is much more quickly to complete, due to the fact
that all data is collected in same time, while for inductive research it takes a longer period.
Moreover, inductive research is riskier, as there is a threat to generate no any theory or
patterns and managers usually trust more to the conclusions brought by deductive research.
Due to the fact that it is very important to have understanding of the problem nature on a
high level it is worth effort to dedicate some time to the exploratory research (Robson 2002):
As initial focus is quite broad and needs to be narrowed. Then it will be possible to
conduct a descriptive research to determine the accurate and precise picture of the situation
before proceeding to data collection.
2.3 Research strategy
The choice of the research strategy should be driven by the stated research question and
objectives as well as by available resources (time, knowledge and so on). In general, there is no
only one best strategy. Some of them pertain to deductive approach, others to inductive. The
main of them are presented below:
Experiment (classical form aimed to investigate casual links taking into account the size
of influence between variables and their relative importance; used in exploratory and
explanatory research to answer ‘how’ and ‘why’ questions; however, can be not suitable
for many business research problems and it is hard to obtain decent sample (Hakim
Survey (in general, linked to deductive approach; used in exploratory and descriptive
research to answer who, what, where, how much and how many questions; let to obtain
economically a huge standardized amount of quantitative data to find out relationships
between variables, possible reasons for them, build models based on them and provide
conclusions for the whole population; however, it is time consuming process to ensure
that sample is representative and to make result analysis)
Case study (empirical investigation of particular problem in its real environment through
multiple perspectives using different sources; there is no clear boundaries between
phenomenon and context , in which it is investigated; used in exploratory and
explanatory research to answer ‘why’, ‘how’ and ‘what’ questions (Robson, 2002);
Action research (research focused on resolving of organizational problems involving
directly those who actually is affected by these problems, while a researcher integrates
into the organization and face the problems from within using iterative process;
Grounded theory (usually linked to the inductive approach; used in prediction and
explanation of behavior with stress on theory, which is built from data gained from
multiple observations to generate predictions tested further (Glaser 1967);
Ethnography (related to the inductive approach; used to describe society from the subject
perspective; needs a lot of time to be completed, high level of flexibility from researcher
and trust from participants)
However, for this particular research a case study approach will be adopted as the main
strategy and guidance. As (Yin, 2013) states that case study should be used to answer how and
why questions, when researcher is trying to explain a particular features of the organization.
Moreover, case studies is often used for investigation of the companies implementing changes,
allowing us to look on the situation as retrospectively as in real –time.
Depending on this, there can be the following types of case study(Yin 2013).:
Holistic case study;
Embedded case study.
Holistic case study is used when researcher focuses on organization as a whole. However,
when there is a need to investigate a number of different units inside the company, as in this
particular case (for example, Russian Railways logistics business unit includes 12 subsidiaries
and affiliates, 2 branches and 1 structural unit) it will be an embedded case study.
Case-study research strategy may be also split into two groups, depending on number of
Case-study, assuming research of the one case;
Case-study, assuming research of two and more cases.
Unfortunately, it is not easy question to determine how many cases should be
investigated. Sometimes one case is enough due to the reasons such as this case allows test
important and wide theory, organization was not investigated before in research purposes or it
can be stated that this organization is a unique case. The possible explanations for using several
cases may be the need to test and prove results as evidence from more than one case may look
The major insight to consider multiple cases is to follow “replication logic”. Each case
must be selected to: a) predicts similar results (a literal replication- a few cases: 2 or 3) or b)
predicts contrasting results but for predictable reasons (a theoretical replication- 4 or 6). An
important step of all replication procedures is the development of a rich theoretical framework,
which needs to state the conditions under which a particular phenomenon is likely to be found ( a
literal replication) as well as when it is not likely to be found ( a theoretical replication).
For this particular research, it is needed to conduct comparative case studies. The
methodology is based on the investigation of each individual case in the chronological sequence
of emerging developments with further deeper analysis of the most important ones and
conduction of their cross-analysis, based on the goals and objectives of the research project.
(Goodrick 2014) states that comparative case-studies provide “more generalizable
knowledge about causal questions” and comparison conducted over time within and across
context in order to analyze and synthesize similarities, differences and main patterns in several
cases that have a similar focus or aim.
In order to it, first of all, it is important to develop a clear understanding of peculiarities
of each case and develop evaluation questions about overall performance to establish an analytic
framework for the cross-case comparison.
Based on (Yin 2003) the actual comparative case study should be conducted in the order
shown on Figure 2.1.
Figure 2. 1- The logic of comparative case studies
The main difference of comparative case studies from multiple cases is the focus on
investigation of causality - the extent to which the interference induce the results. For current
research, the following case companies will be investigated:
JSC Russian Railways, which is going to implement a change and develop a logistics, in
order to determine the current stage and problems;
Deutsche Bahn AG, which managed to develop a successful logistics business in order to
identify the best practices and suggest possible solutions for improvements.
Every type of empirical research has an implicit, if not explicit research design. In the
most elementary sense, the design is the logical sequence that connects the empirical data to a
study’s initial questions and, ultimately to its conclusions. A research design is a logical plan for
getting from here to there, where here may be defined as initial set of questions to be answered,
and there is some set of conclusions (answers) about this questions. Between “here” and “there”
may be found a number of major steps, including the collection and analysis of relevant data
Another way of thinking about a research design is a ”blueprint” of research, with at least
four problems: what questions to study, what data are relevant, what data to collect, and how to
analyze the results (Philliber, 1980).
For case studies five components of a research design are especially important:
1. a study’s questions (“how” and “why” questions);
2. its propositions, if any (specification);
3. its units of analysis (fundamental problem);
4. the logic linking the data to the propositions;
5. the criteria for interpreting the findings.
2.4 Method choices
It is well known, that there are two types of data collection and analysis procedures in
business and management research:
Quantitative data (generate numbers);
Qualitative (non-numerical data).
According to (Goodrick 2014) comparative case studies usually include both qualitative
and quantitative data.
In order to answer on the main research question it is important to determine the research
method, which can be mono method (single data collection and analysis procedure) or multiple
Multi-method (combination of data collection techniques used with corresponding
analyzing procedures completed in itself only within one word view- quantitative or
Mixed method (mix of quantitative or qualitative data collection strategies within one
project at the same time or sequentially).
From the (Morse, 2003) point of view the fact that in multimethod all projects are
completed in themselves is the main distinction of the multimethod from the mixed method.
In this particular study will be used a multi-method. The other important consideration
connected with the fact that all methods have their own advantages and disadvantages, so the
implementation of different types may decrease the risks and increase the possibility to obtain
the reliable results.
2.5 Time Horizon
Determination of the time horizon is very important consideration (Bryman, 2006) as
well and based on it there are two types of studies, which are both observational:
Cross-sectional (provides investigation of the phenomena in particular point of time; easier to
complete, but doesn’t determine cause-and-effect relationships);
Longitudinal (provides investigation of the phenomena over a period of time, allowing to
determine changes, developments and sequences of events).
For this particular research longitudinal study according to characteristics described
above can be much superior, however, due to the time constrains it is rather hard to complete.
2.6 Data collection techniques and procedures
Under the principle of case studies in order to develop a deep understanding of the cases
and their context, multiple instruments (observations, interviews and archive searching) will be
used for the data collection in selected case study companies.
Comparative case studies need more extensive conceptual, analytic and synthesizing
work than a single case study, despite the similarities between them in data collection strategies
Data will be collected by means of theoretical and empirical methods. There are two
types of data:
Secondary data should be collected before primary as it allows to formulate assumption
for the further testing and provide some benchmarking techniques and measures that could be
used further for comparison with study results.
To collect secondary data we need to consider two categories - internal companies
documents and external. It is reasonable to search for information inside the company by the
analysis of annual, committee and internal reports. However, it should be noticed that it can be
difficult to get access to some of these materials due to the security and privacy reasons or
internal policy that, as result may affect perception of the situation.
The other place to obtain the information is publically available literature, which is easy
to find out on the web and in specialized newspapers and journals. However, it should be taken
into account that very often such source of information can be not completely accurate as
company may change some information before placing it on the web, also reporters may distort
or bias the information to some extent. Moreover, secondary data usually collected for other
purposes may be not suitable for current research (Coakes, 2014).
Usually there are different ways to collect primary data: experiment, observation, survey
or interview, while the last two may be performed by mail, by phone and personally. In the
current research the primary data will be collected mostly through the interview conducted in the
personal way. The general process of data collection is shown on Figure 2.2.
the firm setting the
about the firm
Figure 2.2 - Process of data collection
Interview is important tool to collect valid and reliable data relevant to the research with
the possibility to obtain an insight view from persons that work directly with the investigated
sphere. There are several interview types:
Structured interviews (in this case questionnaires include standardized set of questions
read by the interviewer who then records all respondent answers; mostly used for
collection of quantitative data);
Semi-structured (non-standardized interview including the list of interesting for
interviewer questions, which may be reformulated, skipped or changed during the
interview, moreover, their order may be changed as well and there is a possibility of
emergence of new questions);
Unstructured or in-depth (non-standardized informal interview similar to conversation;
there is no list of prepared questions, however it is important to have a clear topic
In our research in-depth interviews will be helpful to “ find out what is happening and to
seek new insights” (Robson, 2002) on the first stages. However, the most appropriate method
that should be used is semi-structured interview, as for the case studies, in general, qualitative
data are necessary in order to understand the nature of services, company performance and
personal perception of company development.
Therefore, semi-structured interview allows us to collect this information, as it is possible
to change and adapt some aspects of the initial questions list in order to direct interview into
necessary way and, as result, to obtain more relevant and accurate information. The interview
should be design in a such way to allow us to cover investigated topic as a whole and obtain the
comprehensive responders viewpoint. Hence, there should be a mix of questions, where some of
them will be strictly formulated and some will be stated in more free way allowing responder to
show positon and elaborate on the topic.
In general, there should be involved middle level managers as they fully integrated in to
the main processes and usually aware of the main problems and trends. Top managers are also
very interesting to be interviewed as they responsible for the general company strategy and
responsible for important decision-making. However, it is quite difficult to reach them.
Table- Data collection
JSC Russian Railways Dmitry
Director of the 12.04.2016
branch in St.
D e p a r t m e n t o f Pavel
Management of the
Transport and Logistics
Central Directorate for Artem
Management of the
Terminal & Warehouse
Deputy Head of 10.05.2016
Manager of the 17.05.2016
Special Projects in
3. Setting up of logistics business in JSC Russian Railways
JSC Russian Railways is a vertically integrated company that is one of the one of the
largest Russian enterprises and largest transportation companies in the world with headquarters
Obtains world's third-longest rail network- Natural monopoly;
World’s third largest railway in terms of freight turnover - dominant position in freight
The main owner and operator of locomotives, as well as operator and lessor of freight rolling
stock in Russia;
One of Russia's largest companies in terms of assets (company value was estimated at about
RUB 4.4 trillion (about USD 79.2 billion) in 2014;
One of the largest single contributors to Russian GDP (about 1.4% of the GDP in 2014);
The largest commercial employer in Russia (835.8 thousand employees in Holding as of the
end of 2014).
A responsible corporate citizen (RUB 104.8 billion investment into social development
projects in 2014).
3.1. JSC Russian Railways external environment
3.1.1 The market of logistics services
The competitive environment in the Russian market of transport and logistics services in
general can be defined by the activities of Russian companies - transport companies and freight
The key players in the segment of 3PL services is considered to be the western logistics
providers, with extensive experience in solving problems of maintenance of large industrial and
commercial companies with which they are working around the world. As a rule, the scale of the
western logistics providers on the Russian market are directly linked to the activity of their
regular clients in Russia (Simonova, 2014).
Source: RBK, Global insight
Figure 3.1 -Russian market of transportation and logistics services
Source: The Concept of transportation and logistics business development of JSC Russian Railways, 2013
The volume of Russian market of transportation and logistics services was estimated at
2.5 trillion. rub in 2012. The basic transportation remains the main service with a share of 88%,
while the shares of other services provided in the segment of value-added services are the
following: forwarding (6%), warehousing (3%), and integrated and contract logistics 3PL / 4PL
3.1.2 Competition between rail and road transport
The problem of "outflow" of goods from rail to road transport is actively discussed
among industry experts, participants of the transport market, JSC Russian Railways specialists
I general, railway transport characterized by the following main advantages over the road
High capacity of railways;
Traffic regularity, regardless of the time of year, time day and weather conditions;
Possibility for transportation of various goods and in bulk quantities;
Possibility to establish a direct link between large industrial enterprises by the
Relatively low cost of transportation in bulk over long distances.
This factors explain current dominance of
railway transport on the transport market
despite the relatively low quality of the transport services due to the fact that the railways
transported mainly bulk goods, which have not sufficient demand elasticity to transfer these
freight traffic to other transport modes. Indeed, according to the analysis raw goods currently
dominate in the JSC Russian Railways turnover structure.
However, in the segment of high-margin cargos, which has a higher growth rate than the
segment of raw goods, railroads are losing their position to road transportation. The main
reasons for it are:
1. The different government approaches to the infrastructure development and to the tariffs
regulation prevent the development of full-fledged market relations in the transport
2. Higher flexibility and quality of service of road transport compared with the rail due to
Simplicity of transportation handling;
High-speed delivery and safety of goods;
Compliance with the principles of "door to door" and "just in time";
Flexible pricing approach to the client.
The delivery speed is an essential factor. The analysis shows that at a distance of 200 km
freight can be delivered by road transport 12 times faster than by the rail - road intermodal
traffic, and 5 times faster than by only rail transport; at a distance of 500 km - delivery is 7 and 3
times faster, respectively.
The price of transportation over short distances is also an important factor of
competitiveness, as rail transport tariff (in terms of 1 tonne-km) is higher there due to the fact
that cost price increases by 4-5 times .
Moreover, the high competitiveness of road transport is strongly connected with the
rejection of excessive requirements for positioning and securing cargo. According to world
experience the shipper, who is financially responsible for the correct positioning and securing
cargo, much more accurate than the carrier will assess risks arising from the transportation and
find a balance between safety and economic efficiency.
The experts of the rail freight market state these trends of JSC Russian Railways will
continue. According to estimates of "Center of Strategic Research" market segment of the freight
transportation, where railway and road transport compete, is estimated at 130-140 mln. tons.
Some of these volumes could potentially switch to the railways. Therefore, should focus the
marketing efforts on this segment to improve the quality and the competitiveness of
3.2. JSC Russian Railways internal environment
3.2.2. Reforming process
The reason for reforms in the mid-1990s became the profitability decrease to negative values,
President Putin adopted the Railway Reform Program that incorporated the transition of all
railway business functions to the joint-stock company with 100 per cent state involvement:
October 2003- Establishment of JSC Russian Railways received more than 95% of the
assets under the Ministry of Transport and Communications of the Russian Federation.
On October 28, 2011, a subsidiary of Russian Railways- The Joint Stock Company Freight
One- sold to Independent Transport Company (75% minus two shares)
On October 16, 2012, remaining 25% plus 1 share stake of JSC Freight One was sold. To
Independent Transport Company LLC.
The main aim of the reform is a transition from “monolithic” monopoly state railway to
market-oriented system with elements of competition with private business involvement. As
result, by 2010 there was developed a model of freight railway transportation market having no
analogues at world practice. State-owned company JSC “Russian Railways” is a single
monopoly carrier, possessing the all public infrastructure, freight stations and locomotives. JSC
“Russian Railways” issue invoices and performs transportation, guided by state regulated
Freight car fleet (1, 4 million units) is possessed by operators including more than 1, 8
thousands companies: JSC “Russian Railways” subsidiaries, companies created by the huge
shippers and independent investors.
Creation of rolling stock operators and attraction of private capital allows to resolve
problem of investments and rolling stock deficit, but in same time create a set of problems.
3.2.3 Company results after reforming
According to the Concept of transportation and logistics business development of JSC
Russian Railways, 2013 rail transport provided 44.5% of turnover of the transport system in
2012. The revenues from cargo transportation and logistics services (excluding GEFCO),
occupied about 44% market share in terms of value.
The share of international sales of the Holding is not more than 3% (around 11% with
GEFCO), which indicates a significant business dependence on the Russian economy and on the
volume of commodity exports, restricting the comprehensive understanding of international
markets and international customers by the Holding.
An negative contribution to the reduction of the income from freight traffic was brought
by the withdrawal from the JSC "Russian Railways' freight car fleet and subsequent sale of
shares of subsidiary operating companies. During the period 2004-2012, the proportion of
companies included in the holding company "Russian Railways" decreased by more than 3 times
(from 74% to 22%) in terms of cargo turnover on the market of operating freight cars.
As result, company experienced an income reduction by 26% compared to 2004 with an
increase in turnover of 27%. Consequently, operating income from freight transportation
decreased from 17% in 2008 to around 7% in 2012. Moreover, due to structural reforms Holding
dramatically reduced its presence on and income from high-margin market. The revenue base
(revenue) of transport services for the period from 2003 to 2012 decreased by 13% and the
EBITDA by 22%.
In 2011 there was officially published corporate Strategy for Developing Rail Transport
in the Russian Federation up to 2030 (the Strategy) (JSC Russian Railways, 2016), basing on the
purposes set by the Russian Federation Government in the forecast of socio-economic
development of Russia until 2030 (Overview. (n.d.). Retrieved May 26, 2016).
According to JSC Russian Railways annual report 2014, in order to achieve stable
company development there was adopted target business model, which consists of the following
Transportation and logistics business unit;
Rail transportation and infrastructure;
The international engineering and transport construction;
The main focus of this particular master thesis is the transportation and logistics business
unit, as it was created for the realization of the particular JSC Russian Railways priority-“to
establish a diversified product basket with a transition from providing mostly transportation
services to providing freight owners with complex integrated door-to-door services with a
subsequent expansion in the spectrum from 2PL to 3PL and 4PL services and the formation of
global logistics chains”( Annual report. (n.d.). Retrieved May 26, 2016)
In order to determine the main directions of the practical implementation of the Strategy for
Developing Rail Transport in the Russian Federation up to 2030 in terms of transportation and
logistics business, there was adopted the Concept of transportation and logistics business
development of JSC Russian Railways (the Concept). The Concept is the first attempt to
determine the goals and objectives of the creation of the transport and logistics business unit as
well as time frames, within which they should be achieved as it shown on Figure 3.2. Moreover,
the Concept set up the target model of business unit, suggesting distribution of functions between
the parts of business units and organization of management. Besides, the Concept determines the
organization principles of services sales system, pricing policy and income distribution system in
business unit and suggests the measures for the further development of transportation and
Figure 3.2 - The main directions for the development of the transportation and logistics
Source: The Concept of transportation and logistics business development of JSC Russian Railways, 2013
The Concept states that during the 2013-2020 period, company should focus on the first
three directions, while the ultimate goal- to establish the international multimodal logistics
company - will be the main priority for JSC Russian Railways after 2020. At the same time until
2020 is necessary to ensure the GEFCO business stability (JSC Russian Railways subsidiary that
will be described further) throughout the territory of JSC Russian Railways operations and its
successful integration into the company.
To conclude with, it should be highlighted that despite the developed strategy on corporate
level- the Strategy, company lacks updated business and operational strategy, which are now
represented only by the Concept. As even if the Concept covers the main problem spheres for
transportation and logistics business unit, basing on the conducted interviews during this
particular study it was found that not all of the suggested in 2013 initiatives now can be
considered as effective and feasible. The subsequent chapter are supposed to prove this
3.2.5 Operational model of Transportation and logistics business unit
As it was stated in the Concept, the changes connected with the strategic development of
transportation and logistics business in such huge company as JSC Russian Railways require an
adequate reflection in the management system and the creation of a new operating model in
order to allow to organize a clear and effective interaction between all parts of business unit and
achieve the strategic objectives and target parameters.
It was planned that target architecture of transportation and logistics business unit would
consist of the control body and a set of business sub-units. Each business sub-unit was supposed
to implement through its own assets and/or the competences certain functions in the field of
freight transportation and the transportation and logistics activities in order to create a certain
value portion of the value chain of the products and services provided by the transportation and
logistics business unit. While the main task of the control body - to ensure the maximization of
synergies from joint activities of business sub-units through their coordination at all stages from
the planning and allocation of resources to the direct implementation of technological operations
and development activities.
Initially, it was asumed that the Department of Management of the Transport and
Logistics Business Unit would take the role of control body. However, accoding to the interviews
this department in general was dealing with statictics collection, reports preparationand and has
never performed fucnctions described in the Concept, as it had no required authority, budget and
resources. As it can be seen from Figure 3.3 - the business sub-units (12 subsidaries and
affiliates, 2 branshes ans 1 structural sub-division) directly report not to the Department of
Management of the Transport and Logistics Business Unit, but to Vice President. Finally, this
department was recently abolished, in accordance with order of new company President - Oleg
Belozerov, with transfering of department functions to t h e Centre for Corporate Transport
Service (CCTS), a branch of Russian Railways, as it is shown on Figure 3.3.
Figure 3.3– The perimeter of the transportation and logistics business unit
Source: Adopted from the Concept of transportation and logistics business development of JSC Russian
However, for the current moment the CCTS as well is unable to function as control body for
the same reasons as in case of Department of Management of the Transport and Logistics
Business Unit and maintain effective coordination between all sub-units that will be investigated
3.2.6 The main sub-units of Transportation and logistics business unit.
As result of the implementation of the Russian Railways structural reform and the isolation
of different business directions into the separate companies with their partial sale to private
investors, now Transportation and logistics business unit consists of:
12 subsidaries and affiliates (GEFCO, JSC Russian Railways Logistics, PJCS
TransContainer, JSC Refservice, JSC «Federal Freight» JSC RailTransAuto, TLC
Bely Rast and others);
2 branshes (the Centre for Corporate Transport Service and the Central Directorate
for Management of the Terminal & Warehouse Complex);
1 structural sub-division (the Centre for Customs Activity).
Figure 3.4 shows the structure of Transportation and logistics business unit, which is rather
complex, providing only hierarchical subordination, but not clear understanding of the horizontal
links and relationships between sub-units. Moreover, the Concept states that there is
intercompany competition and function duplication as between the subsidiaries, as between the
branches of JSC Russian Railways and subsidiaries.
Figure 3.4 – The segment fixation and roles allocation between business units.
Source: Adopted from the Concept of transportation and logistics business development of JSC Russian
In order to provide a solution for these problems, in the Concept was developed the
segment fixation and roles allocation between business sub-units that are shown on Figure 3.4,
basing on the following principles:
1. The clear separation of responsibility areas between 2PL operators. Operator companies
provide the rolling stock and perform freight transportation for customers, not interested
in the 3PL service, as well as for third-party logistics companies.
2. The limitation of 2PL operators ability to provide contract logistics (the elimination of
competition in the provision of value added services between 2PL operators and
GEFCO / JSC Russian Railways Logistics).
3. The distinction between customer segments of GEFCO and JSC Russian Railways
Logistics (GEFCO focuses on industrial goods and the finished products, JSC Russian
Railways Logistics- raw materials, in the same time achieving the companies’
specialization on different types of rolling stock with involving operators - affiliates of
OAO "Russian Railways").
4. Organization of sales of basic transport services and value-added services basing on the
principle of "one window". Attraction of new customers and cargos to the railways
should be done by CCTS client managers, interacting with client managers in
subsidiaries. The principle of their interaction should be realized as follows:
CCTS client managers are working with their existing customers, offering them
new products (services), and search for new clients, according to the segmentation
If the CCTS client manager finds a new client, who needs a service of 3PL/4PL
level (other value-added services), or reveals in the existing customer demand for
services provided by other subsidiaries, CCTS client manager should bring to
negotiations client manager from the corresponding subsidiary and lead the client
with this client manager, remaining for the client the main contact point from JSC
5. Sale of warehouse and terminal services, as separate service, is carried out by the Central
Directorate for Management of the Terminal & Warehouse Complex (CDMT)
(responsible for the management, maintenance, modernization and development of
terminal and logistics centers and freight yards, implements the "last mile" service).
Terminal and logistics services are provided by GEFCO and JSC Russian Railways
Logistics within the 3PL / 4PL services (mainly involving the CDMT, the terminals of
JSC TransContainer, TLC Bely Rast).
In order, to understand are there, indeed, any intercompany competition and functional
duplication, as well as do described above principles of segmentation and interaction as between
the subsidiaries, as between the branches and subsidiaries exist, further will be provided analysis
of the main of them based on their annual reports, official web-sites and interviews with
From the large number of subsidiaries for analysis there were chosen, first of all- JSC
Russian Railways Logistics and Gefco, because they should play the main role in the
development of logistics business on JSC Russian Railways and the question about
intercompany completion mostly related to them. PJSC TransContainer also was taken as one of
the brightest representatives of rolling stock operators owned by JSC Russian Railways. With
regard to branches of JSC Russian Railways both of them (CCTS and CDMT) were taken as
they also have significant importance for development of logistics business.
First of all, there will be given a description of each mentioned above business sub-units
in order to describe how their activities officially introduced, then there will be provided analysis
of interviews conducted with chiefs and deputy chiefs of Saint-Petersburg offices of chosen
subsidiaries and branches.
1) JSC Russian Railways Logistics
JSC Russian Railways Logistics – subsidiary of JSC Russian Railways, established in
November 19, 2010 in order to develop the logistics business direction of JSC Russian Railways
(Transportation and logistics services. (N.d.). Retrieved May 26, 2016).
According to the official JSC Russian Railways web-site, the company provides
integrated transportation and logistics services for industrial enterprises (such as scheduling,
provision of raw materials delivery, dispatching control, development of schemes of loading,
cargo handling, intralogistics, provision of finished products export -rail and road transport,
consulting services). Company should provide the integration of all services of the JSC Russian
Railways and third-party suppliers into a single supply chain on multimodal transportation
market.2 JSC "Russian Railways Logistics" specializes in transportation of bulk, general cargo,
oversized and heavy cargoes and small consignments.
JSC Russian Railways Logistics Annual report 2014 states that as the base model of the
company's development was set a model of the evolutionary development from the freight
forwarding company to operator of the 3PL/4PL level - «light assets» (operator without assets).
The main activities:
1. Freight logistics is the most important one, including forwarding services in the
transportation by various types of transport in Russia, CIS and international traffic,
and a set of complementary and integrated services with multimodal transportation,
bulk shipping, oversized and other kinds of cargoes, requiring specific conditions of
2. Intermodal transit traffic on route China-Europe-China. Transit rail transportation
through the “space 1520" from Asia to Europe and back. The company participates
jointly with its affiliates and subsidiaries, Far East Land Bridge Ltd. and YuXinOu
(Chongqing) in organizing regular transit container trains in Europe from six cities in
China with "door to door" services and guarantees of minimum terms of delivery and
its complete safety
3. Logistics outsourcing- a segment, referring to the transport and logistics services and
integrated services, requiring for their provision information related to technology,
production, internal customer processes (production plans, delivery schedules,
warehouse management system, the interaction of c IT client system, etc.). Logistics
offers customers unique services to coordinate their technology with railway
4. Integrated transportation and logistics service – a segment of the market related to
the services of the optimal supply chains organization of products exported by the
holdings to the borders of the Russian Federation (seaports and land border crossings)
with the main aim - to establish a system linking customer, railway and port needs,
having its own unique technology.
5. JSC Russian Railways Express Services for the transportation of small and partial
consignments (Less than Truck Load and Less than Container Load), based on the set
of operations: including cargo acceptance from the client, documents execution,
consolidation of cargo at warehouse, sorting by directions, packing and delivery
organization the at the destination by the most suitable transportation mode.
6. Transportation for the needs of JSC Russian Railways - provide quality services to
the JSC Russian Railways in order to increase the internal efficiency of the holding
company and its capitalization.
GEFCO was founded in 1949 as a logistics subdivision of automaker Peugeot. Today,
GEFCO is a leading international logistics operator, 75% owned by JSC Russian Railways and
25% by concern Peugeot Citroen (Transportation and logistics services. (N.d.). Retrieved May
GEFCO Group, a leading provider of logistics solutions and services for industrial
companies, has integrated infrastructure in several key areas. The company provides global
services based on innovative solutions for a wide range of sectors of the economy, transportation
of finished vehicles, machinery, parts and components, equipment (including
oversized);consumer goods. GEFCO develops and uses logistic solutions that are designed for
specific client needs and combine the reliability and competitiveness throughout the supply chain
to solve any business problems.
A wide network of offices around the world and many years of experience allows
GEFCO to provide logistics solutions that are designed for specific client needs and combine the
reliability and competitiveness throughout the supply chain to solve any business problems
(GEFCO Solutions. (N.d.). Retrieved May 26, 2016):
Basic Logistics: comprehensive support to customers from the organization and the
choice of route, storage and customs clearance to full information provision and
control at every stage of transportation in the different areas, such as air, rail
transportation, shipping, road transport, warehousing, customs clearance and
7. Integrated logistics: unique offerings for the customers from industrial enterprises
and transporting finished vehicles.
8. Project Logistics: solution of operational tasks and organization of emergency
transportation; organization of the transportation of non-standard products and
samples, heavy and oversized cargos.
9. Industry Logistics: international solutions on the organization of logistics chains,
designed in accordance with the specifics of the client's industry (automotive,
aerospace, electronics and home appliances, FMCG and retail trade) starting from the
supply from manufacturers to distribution of finished products with continuous
evaluation the solutions effectiveness and processes improvement.
10. Expert Logistics: management and control between all participants of the supply
chain, using specialized center of Business Management (Control tower). Solutions in
integrated logistics (4PL) serve as the basis for the optimization of transportation,
financial and information flows of customers.
3) PJSC TransContainer
PJSC TransContainer is a leading Russian company, providing a full range of services
related to container transportation and terminal handling of bulk and packaged cargoes for
different industries (timber, woodworking and pulp and paper industry; mechanical engineering,
instrumentation and metal industry; chemical industry; products of the food, dairy and meat and
fish industry) on the territory of Russia, the CIS, Asia and Europe (Transportation and logistics
services. (N.d.). Retrieved May 26, 2016).
The main services of the Company:
Railway container transportation;
Container transportation of by road;
Sea / river container transportations;
Terminal handling of cargo;
Forwarding and logistics services;
Services in customs warehouses of temporary storage.
PJSC TransContainer obtains a unique asset base: 26,923 flatcars, 64,212-tonnage
containers, 742 units of motor vehicles, 233 units of loading equipment, 46 terminals in Russia,
19 terminals in Kazakhstan, 1 terminal in Slovakia. Moreover, PJSC TransContainer has 130
sales offices connected by the unified information system, providing an individual approach to
each client and management of the supply chain of container cargo of any size and complexity
(Company. (N.d.). Retrieved May 26, 2016).
4) Centre for Corporate Transport Service
Centre for Corporate Transport Service (CCTS) was established in 1996 for the formation
of a marketing policy and the realization of rail transport services in the field of freight
transportation. In the process of reforming CCTS was joined to the JSC Russian Railways as
a marketing and sales structure (Structure. (N.d.). Retrieved May 26, 2016).
According to the official web site, CCTS should work as a "one window", providing a
full cycle of interaction with clients in the formation and execution of orders for freight
transportation, and also carry out contract work with forwarding companies, owners of railway
rolling stock and other participants of the transport market. As result, CCTS should act on behalf
of the client as a single customer for all involved departments of JSC Russian Railways and on
behalf of JSC Russian Railways as a guarantor of the quality and timeliness of order execution to
Services for the organization and implementation of freight transportation;
Services for the infrastructure use of public railway transport, owned by JSC
Information provision and other additional services;
Organization and management of contractual work with forwarding companies.
5) Central directorate for Management of the Terminal & Warehouse
Central Directorate for Management of Terminal and Warehouse Complex (CDMT)
began its activity on October 1, 2010. As a branch of JSC Russian Railways it obtains freight
yards on the entire network of Russian railways, offering its customers a full range of cargo
handling and terminal and warehouse services, including temporary storage for traders, rolling
stock washing services and offers rent for warehouse and office space (Structure. (N.d.).
Retrieved May 26, 2016).
3.2.7 Interview analysis
Perception of logistics layers
To begin with, as the main focus of this particular research paper is logistics business, it
is important to investigate how the JSC Russian railways Logistics and Gefco, which are
expected to become the main driving forces, perceive and differentiate the levels of logistics
providers and where they place themselves. In the table below summarized their answers
accompanied by the official JSC Russian Railways perspective represented at Annual report
Table 3.1- Comparison of perceptions
JSC Russian Railways
Annual report 2014 of
JSC Russian Railways
Owner of material resources Freight owners
involved in the process
loading and unloading
equipment), which can be
considered as a “party”
Rent these resources in order to P r o v i d e s l o g i s t i c s
services to customers
using its own assets
various types of
r a i l wa y, r o a d ) ,
warehouse services and
Creates a chain (collects, C r e a t e s c o m p l e x
consolidates, customs export solutions by integrating
component)- an integrator of 2 v a r i o u s t y p e s o f
PL. Door-to-door services.
Tariff component +
payment for transit
Additional services, not
related to the tariff
(everything that used to
be done by forwarder).
Ensuring of delivery to
the final destination by
3 PL + warehouse Has no infrastructure, on behalf of
logistics (warehouse customer deals with the logic of
classes A, B).
the cargo movement, designs and
suggests guaranteed options,
Develops, builds and
solutions for the entire
supply chain and also
identifying their pluses and manages and oversees
minuses and allowing customer to the logistics process
choose the most suitable one in
exchange on percentage of
operations (agency fee).
Both JSC Russian railways Logistics and Gefco provide their vision from the practical
experience, using their own professional slang that makes it difficult to provide an objective
comparison between their classifications. However, it is possible to determine the most obvious
between descriptions of 1 PL and 2 PL levels, provided by Gefco representative and in
Annual report 2014;
Perception of 4 PL provider by JSC Russian Railways Logistic representative.
In Gefco representative perception, JSC Russian Railways is 1 PL (infrastructure owner)
and 2 PL (uses locomotives to transport goods), and cannot be 3 PL as it provides its services
only within railways. Even if JSC Russian Railways bought 75 % of Gefco, it is still
independent, “not JSC Russian Railways”, but it is “ 4PL provider using services of 2 PL”.
JSC Russian Railways Logistic representative states that its company may be called as
3PL provider, according to the providing services, while interviewee from Cefco mention that
JSC Russian Railways Logistic work “not to the full extent”.
In terms of intercompany competition between Gefco and JSC Russian Railways
Logistics the representative of JSC Russian Railways Logistics stated that they are not
competitors as they are divided by type of cargo and activities. Each company is strong in its
JSC Russian Railways Logistics – transportation of bulk cargoes and a strong
presence in Russia,
Gefco- transportation of vehicles and spare part, warehouse logistics and a strong
While representative of Gefco identifies that in some cases the situation with competition
between these two companies may appear. He personally tries to escape from it by making calls
to JSC Russian Railways Logistics office in order to identify whether it works with this
particular client and whether particular services are provided already by JSC Russian Railways
Logistics, but without going into details, as Gefco by itself is reluctant to reveal its clients and
contracts. The interviewee called such main principle of work with JSC Russian Railways
Logistics - “not to interfere”. In terms of segmentation and limitation of subsidiaries movement
from one segment to another (from 2PL to 3Pl and vise versa) Gefco interviewee (as well as
from CCTS) believe that it will hinder companies to provide full and effective services to clients.
Interaction between business sub-units
While interaction with other subsidiaries, for example with PJSC TransContainer, is
organized on market principles, which means that JSC Russian Railways Logistics or Gefco are
trying to work firstly with PJSC TransContainer, but are not obliged to. If PJSC TransContainer
suggest rates higher than other rolling stock operators, both companies will not work with PJSC
TransContainer. Companies representatives explained such situation by the fact that as each
subsidiary is commercial and autonomous enterprise focused on maximization of their own
profit and not motivated to search for synergies.
Deputy chief of CDMT suggested that such first scheme based on market relations is not
effective as it does not allow profit maximization for JSC Russian Railways as a whole,
especially when there is a decline in railway freight transportations. That is why he stated that
second possible scheme is when CCTS coordinates the interaction between subsidiaries (for
example, CCTS gives to JSC Russian Railways Logistics a task to sell N % of PJSC
TransContainer services). The third scheme of interaction may be realized through creation of an
information platform, which “allows evaluating the profitability of the request from the client”
for JSC Russian Railways as a whole, while for several subsidiaries it is unprofitable and then
should be compensated. According to CDMT representative, some steps at this direction have
been already done, but still such system will be implemented in rather long-term perspective.
Ultimately, “there should be a mix of all these three schemes”.
To talk about the second scheme of interaction described above, currently CCTS does not
have the necessary powers and budget, as such issues are resolved by the Vice-President.
Moreover, deputy chief of CCTS confirmed that after abolishment of Department of
Management of the Transport and Logistics Business Unit there was not any transferring of its
functions to CCTC and CCTC didn’t receive any instructions about expansion of its powers.
CCTC currently may interact with other subsidiaries basing on agency or contractor agreement.
While CCTC may sale warehouse and terminal services of CDMT and JSC Federal Freight
services of rolling stock, as there is package deal between them, when client sign a contract with
CCTC and pay for all services, and then after service provision CCTC pays to CDMT and JSC
Federal Freight. According to JSC Russian Railways Logistics representative, it is an example of
functional duplication as they did the same as JSC Russian Railways Logistics, but “when client
come to them by itself” and need the service only within railroad. Moreover, forwarding can be
offered at different prices by operators of rolling stock, JSC Russian Railways Logistics and
According to the view of JSC Russian Railways Logistics representative in order to
realize synergies all subsidiaries, indeed, should be run by one company, which would organize a
single process. However, it should be not CCTC as its staff mostly represented by the people
having not decent mentality and attitude to perform this function. According to this interviewee,
historically interaction with client was based on the principle –“if the customer wants to carry the
goods by rail, he will come by himself”, meaning that they are not ready “run for the client”.
That is why interviewee suggested that the role of focus company should be assigned to Gefco or
JSC Russian Railways Logistics, which is more preferable as it has not only mentality “oriented
to the client”, but also understanding of the work specifics on Russian Railways.
Gefco representative vise versa believes that there is no need for any focus company and
search for synergies, in such situation “it is better to follow portfolio diversification strategy in
order to reduce risks”. However, he also confirmed the idea that specific mentality make it
difficult to work with JSC Russian Railways, where Gefco should be integrated. He elaborated
that statement by explaining that if Gefco and JSC Russian Railways Logistics organize their
work basing on the customer needs and satisfaction “in order to earn money”, CCTS and CDMT
as branches of JSC Russian Railways put the first priority on the infrastructure capabilities
without any customization as they “do not earn, but allocate money”. For example, there will be
firstly organized some "finished product" (container trains with particular schedule) and only
then CCTS will sell it to interested clients, or if there is some warehouse that should be to be
loaded, despite its inconvenience, JSC Russian Railways may use administrative or force
methods to push Gefco use exactly this warehouse.
Quality of services and client orientation
Moreover, company representative expressed his concerns about Gefco integration into
JSC Russian Railways, which expects that Gefco will attracts new cargoes to the railways.
However, JSC Russian Railways do not provide suitable conditions for it in terms of :
Tariffs that are altered too often, while Gefco needs them fixed for longer period;
Safety, which means that JSC Russian Railways from the personal interviewee
experience may not take responsibility for cargo damage if it was transported into
the right destination in the right quantity.
Transit time, as JSC Russian Railways cannot guarantee it to the clients, except
for piggyback trains that have allocated train path, while some clients due to
specificity of their production process require that cargo has to be delivered
exactly on time.
Such case shows that JSC Russian Railways may provide their services not in full
compliance with rules 7R and “just in time” principle that not allow Gefco include railways in
the supply chain that it creates for its clients.
Representative of CCTS agreed that branch, indeed, build its work with clients basing on
infrastructure capabilities and is blamed frequently for its mentality and, as result, low level of
customer focus. However, he believes that it comes mostly from the misunderstanding who are
CCTS customers. In general, he defined two types of JSC Russian Railways customers:
Customers that are focused on the work with JSC Russian Railways - Large industrial
companies, for example, PJSC Severstal, Company EuroChem and other companies dealing
with coal and gravel. For such companies railway transportation is the part of their process
cycle. Interaction with railway transport is laid in the design of companies production
(building of house tracks), which huge volumes may be carried only by railways. Such
companies in its composition as a rule have special transportation departments and units
that are responsible for interaction with JSC Russian Railways.
Customers that are not focused on the work with JSC Russian Railways. For such type of
clients it is doesn’t matter by which transportation mode their cargo will be transported (in
some cases there is a need for intermodal transportation) and they require higher level of
As result, the first type of clients are key for CCTS and their satisfaction is the first
priority for CCTS that provides them scheduled transportation and standard delivery time. While
the second type of clients CCTS directs to Gefco or JSC Russian Railways Logistics, which in
comparison to CCTS are able to satisfy such clients requirements and organize transportation by
different transportation modes. However, there is no special system or procedure that allow
tracing if these clients, indeed, appealed at any of these companies.
CCTS representative explained such approach that CCTS is not “oriented on the market”,
when there is a search for the new clients in order to suggest them company services, but
“oriented on the client”, when the main focus is on existing key clients. That is why CCTS
cannot let itself to switch to new clients and deteriorate the service quality for old key ones.
3.2.8 Personnel structure
Before the coming to the conclusion of the situation analysis in JSC Russian Railways,
there is need to investigate several topics that appeared during the provided above analysis of the
interviews with representatives of different sub-units of Transportation and logistics business
unit of JSC Russian Railways, such as mentality of people working in JSC Russian Railways and
their customer focus.
First of all, one of the strategic goals of JSC Russian Railways set up in the Strategy is to
become one of the top 5 most attractive large employers in Russia, attracting the best
professionals, ensuring competitive salaries, increasing productivity, improving working
conditions and offering modern social package. This means that the company understands the
significance of the development of an employer brand and consider staff as its most important
asset in order to develop a competitive transportation business in domestic and international
However, according to the SHRM concept described in the literature review, such
company goal has to be formulated not only on corporate level, but also systematically integrated
with HR strategy on business, functional and operational levels.
Secondly, the consideration of the personnel structure of JSC Russian Railways will
allow us to understand the one of the sources for such specific behavior of JSC Russian Railways
staff that may become a significant constraint on the way to development of logistics business.
As it can be seen on Figure 3.5 the number of employees is decreasing every year. Due
to the economic situation and the government's decision to freeze tariffs for 2014 the company
had two options: to reduce the huge number of employees or to find another solution. As a result,
after consultation with staff and trade unions, it was decided to switch about 133 000 employees
to part-time. In November of 2015 the company withdrew from underemployment two-thirds of
employees - about 89 thousand people and announced that it does not plan reductions, as well as
increase of underemployment regime (The number of employees of Russian Railways fell by
5.9% in the I half-year. (N.d.). Retrieved May 26, 2016)
Figure 3.5 - Personnel portrait of Russian Railways
Sourse: V. Stepov., Vice-President of JSC Russian Railways, Presentation on Conference “Management of the Future
From historical perspective the company implements promotion from within policy,
where 95% of the top and middle managers started their work from the lowest positions that was
confirmed by the phone interview with Vice-President of JSC Russian Railways.
In the company exists so called a “closed caste” of railwaymen. There are even several
hereditary dynasties with a total work period of all members about 786 years and a lot of with
400 years. Besides, there is a system of continuous training - "kindergarten - school - university a structural division of the company". The percentage of graduates accepted from non-railway
universities and other educational institutions to work in JSC Russian Railways is no more than
From the presentation of V. Stepov., Vice-President of JSC Russian Railways, on
Conference “Management of the Future 2015” it is possible to conclude that development of
human resources in terms of additional education in non-railway universities, Corporate
University of JSC Russian Railways, foreign business schools is provided only for top-managers.
From the one hand promotion from within policy allows companies to use to full extent
valuable firm-specific skills accumulated by internal workers in order to achieve better
performance, while external new workers lacking such firm-specific skills do not always achieve
the best results in a new company culture, even if they are more educated and experienced.
However, in case of JSC Russian Railways, which are going to change their business model,
such long lasting internal promotion policy becomes a significant obstacle, as there is a lack of
staff having decent skills to deliver more wide range of transportation and logistics services.
According to SHRM concept in order to achieve competitive advantage the company
should receive and develop human resources that will enable it to quickly learn and to use
efficiently their knowledge than its competitors. Due to this fact achievement of JSC Russian
Railways goal in terms of development of logistics business is strongly dependent on how it will
be able to get and develop people with right competences. It requires the integration of the
business strategy of the organization and HR strategy with continuous involvement of top,
middle, line managers and personnel on all company levels.
The situation becomes even worse, if we take into account the fact that there is a more
significant need for change of mentality, norms, customs, mores, and traditions of JSC Russian
Railways staff that were shaped over long period of time. It is not trivial task as according to four
levels of social analysis provided at NIE, all these factors are attributed to the fist level- social
embeddedness, where period of changes takes centuries or millennia.
3.2.9 Client-oriented approach
Issues of the development of client-oriented approach in JSC Russian Railways are raised
during several years. In 2010, the concept of "Customer focus" was provided in the Corporate
Competency Model of JSC Russian Railways (Competence, Corporate responsibility, Creativity
and innovation, Customer focus, Quality and safety, Leadership) as one of the core values of the
company's brand (Brochure: what is the model of corporate competencies?).
The Strategy also specifies that one of the key values of the Company is a customeroriented and mutually beneficial long-term partnership with customers, the continuous
development of products and services portfolio in the interest of consumers.
However, for such huge company as JSC Russian Railways, for which the State defines
regulatory conditions, social responsibility and the special role in the economy, cardinal turn of
all resources and processes in the client side is a unique challenge, covering all processes from
planning to direct the implementation of transportation and its resource provision.
According to the World Bank's Logistics Performance Index Russia (based on customs
performance, infrastructure quality, and timeliness of shipments) occupies 90th place among 160
countries of the world (Logistics Performance Index. (n.d.). Retrieved May 26, 2016). Russia is
among the countries with a high level of logistic costs, which reach about 19% of Russian gross
domestic product and significantly reduce the efficiency of production and trade, adversely
affects the competitiveness of companies and the country as a whole.
The great expectations associated with the building of terminal and logistics center (TLC)
"Bely Rast" (area of 100 hectares; capacity of 290 000 TEU per year; universal terminal, customs
clearance center administrative and business center) near the Moscow with direct involvement of
JSC Russian Railways strategic partner Deutsche Bahn AG. However, it starts to operate only
recently, which makes it hard to estimate the results.
In 2012 JSC Russian Railways approved the Concept for the Establishment of Terminal
and Logistics Centers in the Russian Federation with the aim to ensure the fast delivery of goods
by the various modes of transport, the processing and the preservation and reduce logistics costs
and reduce the cost of transportation. There was set the task to create TLC support intermodal
network across the country through the building of 50 TLC, complex reconstruction of about 60
large freight yards, facilities modernization of a technological complex, the reconstruction of
tracks leading to the terminals.
However, so far it was not systematically realized as sites suitable for the TLCs creation
are often occupied by the commercial structures and the possible to buy out their land is rather
questionable (Prokofiev, 2016). At the same time, according to the representative of the JSC
Russian Railways, the current macroeconomic situation, difficulty in attracting investment, and
the limited company investment budget naturally leaded to review of the timing and projects
prioritization. The total investment required for the implementation of the first stage of the
concept of 560.8 billion rubles, including the railway infrastructure -. 100 billion rubles 3.
In general, for a long period of time (about 20 years) transport system of the Russian
Federation as a whole and some of its key segments were chronically underfunded. The volume
of investments in fixed assets in 2011 amounted to about 2.1% of GDP (Klimenko, 2016).
Today The President and the Russian government are aware of the importance of
increasing investment in infrastructure, as it is one of the key factors stimulating economic
growth in the country The level of investment in transport infrastructure in Russia now is close to
the developed countries - around 3% of GDP. This is enough for moderate development, but not
for quality improvement (Gazprombank, 2014).
To sum up, basing on all discussed above it is possible now to come up with the
following conclusions, which explains why Russian Railways experience difficulties with setting
up logistics business:
JSC Russian Railways lacks, despite the developed strategy on corporate level (the
Strategy), updated business and operational strategy. The Concept covers the main
problem spheres for transportation and logistics business unit and provide possible
principles how they may be improved. However, in this particular study it was found
that not all of the suggested in 2013 initiatives now can be considered as effective and
feasible. There are no other documents of lower layer, for example, regulations of
The organizational structure of TLBU provides only hierarchical subordination, but not
clear horizontal links and relationships between sub-units. T h e Department of
Management of the Transport and Logistics Business Unit, that had to take the role of
control body (focus company) was not performing this assigned to it in the Concept
function due to the lack of resouces and authority in practise. Ultimately, it was
abolished with transferenig of its real funtions (statistics, reports etc.) to the CCTS,
which according to its representative didn’t receive any official order about its
functions and authority expansion.
Between the representatives of sub-units of TLBU, established for subsequent
expansion in the spectrum from 2PL to 3PL and 4PL and the formation of global
logistics chains, there is no unified understanding of levels of logistics providers;
The limitation of movement for companies from one segment to another was described
by the interviewees as meaningless and hindering the services provision;
Intercompany competition in some cases, indeed, exist. At least between JSC Russian
Railways Logistics and Gefco, as they both have capabilities to provide the same
services to the clients. They have an unofficial agreement to not conflict and interfere
with each other, but no clear official procedure how to regulate it. Functional
duplication is represented by services realized within package deal (CCTS,CDMT and
JSC Federal Freight) and JSC Russian Railways Logistics. Also forwarding can be
offered at different prices by operators of rolling stock, JSC Russian Railways
Logistics and "GEFCO";
Interaction as between subsidiaries as between subsidiaries and branches is based on
market principles. Currently each subsidiary works as commercial and autonomous
enterprise focused on maximization of their own profit and not motivated to search for
synergies in order to achieve the profit maximization for JSC Russian Railways as a
Sub-units representatives expressed different views on how these interactions and
synergies realization may be organized (proceed with market relationships, create a
focus company, implement high level IT system);
Quality of services provided by JSC Russian Railways not allow Gefco to integrate
railways into their supply chain and, as result, attract new cargoes on them.
Different approaches for work: Gefco and JSC Russian Railways Logistics is basing on
the customer needs and satisfaction, CCTS and CDMT as branches of JSC Russian
Railways put the first priority on the infrastructure capabilities, as they work mostly
with big industrial clients and, fist of all, satisfy their needs.
CCTS does not search for new clients, moreover, while new small customers come to
them by themselves they are seen rather as noise or extra load for infrastructure; they
tell such client to apply into JSC Russian Railways Logistics or Gefco, but do not trace
whether such application was indeed done or client was lost;
Mentality of staff, formed during significant period of time, its structure, type of
education and development is strongly focused on the railways;
Underdeveloped transport and logistics infrastructure, requiring significant
3.3 Analysis of business models of global leader DB Schenker
In the context of Russian railways reforming and development of logistics business,
investigation of Germany experience may provide useful insights
3.3.1 Reforming process
From 1950 to 1990s both railways of Western and Eastern Germany (Bundesbahn and
Reichsbahn, respectively) experienced a steady economic decline. Continuously increasing
competition from road transport and decades of political neglect of the railways as a mode of
transport led to long-term loss of market share in passenger and freight traffic and significant
financial burden caused by the repair of the war damage. As result, such factors put pressure on
politicians to reach cross-party consensus to implement a rail reform, which converted
Bundesbahn and Reichsbahn into “joint stock company with strict entrepreneurial approach to
business” Shwilling, A. (2014) in order to reduce government influence.
The first phase of railway reform began in 1994 with the creation of Deutsche
Bundesbahn AG, where were allocated operational and infrastructure sector.
The second phase (since 1998.) was marked by the appearance independent economic
entities. Separation of five joint stock companies was made on the basis of specialization - DB
Regio (regional transportation), DB Cargo (freight transportation), DB Netz (infrastructure
management), DB Station & Service (maintenance). The infrastructure of the railways became
available for private companies and created joint-stock companies became able to provide their
own transport services.
The regulatory and supervisory powers in the transportation sphere were transferred to
the administrations of local and regional authorities. A special cover funds have been created to
cover the operating costs and expenses for the modernization of infrastructure.
From the one hand, railways reforms led to a significant increase in passenger traffic
volumes, solution of the problem of technical re-equipment and payment of credit obligations, as
well as reduction in overall costs. From the other hand, transport companies were interested only
in providing cost-effective services (passenger traffic) (Railway industry. Problems and
3.3.2 Steps of development of the DB Group business model and structure
In terms of diversification of cargo business through the development of logistics,
Deutsche Bahn AG accumulated an appropriate successful experience, when significant part of
its revenues accounted for logistics services.
In general, the evolution of DB Group business model may be separated into the provided
on the Figure 3.6 phases :
Focus on passenger transportations;
Increase of competition due to Bahnreform triggering the appearance of new players on
the rolling stock market;
Understanding of growth limits of carriage business model;
Change of focus on diversified logistics services:
The development of logistics business, the withdrawal of non-core assets.
Awareness of growth limits of
carriage business model
DB focused on passenger
competition due to
New focus - diversified logistics services
The development of logistics business,
the withdrawal of non-core assets
Until 1991 DB owned Shenker
growth in infrastructure investment needs
DB sold Shenker to
Raillog-JV of Shenker and DB at
Foundation of DB
DB bought Shenker
Absorption of logistics operators
The end of restructuring DB
Figure 3.6 - The evolution of the DB Group business model
Source: Adopted from the Concept of transportation and logistics business development of JSC
Russian Railways, 2013
The organization structure of Deutsche Bahn AG was gradually improved in accordance
with reform steps and phases of development of diversified company portfolio that is shown on
Figure 3. 7- Organisational development at DB Group
Source: Shwilling, A. (2014). 20 years of German rail reform: Achievements and challenges
Today Deutsche Bahn Group (DB Group), headquartered in Berlin, is a provider of
logistics services on international level with presence in more than 130 countries. Within DB
Group there are two operational management holding companies run by board divisions
consisting mostly of same people:
Deutsche Bahn AG (DB AG) is responsible for Infrastructure division including
three business units such as DB Netze Track, DB Netze Stations and DB Netze
DB Mobility Logistics AG (DB ML AG) runs the other six business units.
Figure 3.8 – Organizational structure of DB Group
Source: Deutsche Bahn. (2014) Integrated Report
In general, all nine business are distributed to the three operating divisions of Passenger
Transport, Transport and Logistics and Infrastructure and Services, which are managed on an
integrated basis and have the single common brand.
In order to regulate strong operational dependencies and interconnections existing
between DB AG, DB ML AG and the individual business units, as well as between business
units, there were developed in detail service and financial relationships, described verbally,
schematic and in tabular form.
3.3.3 Business Model description
The effectiveness of DB Group business model is based on the interconnection of the
Passenger Transport, Transport and Logistics and Infrastructure divisions, allowing DB Group to
provide services from one single source in all transportation segments with its national and
The successful development of DB Group is grounded on the main key success factors of
Entrepreneurial approach: during reformation process DB Group is, first of all, become a
Integrated Group: The integrated structure allows DB Group to optimize the wheel-rail
system and achieve positive synergies.
International direction: DB Group has a high position in passenger transport on European
market and in transportation and logistics market in Europe and globally.
Intermodal transport solutions: due to the smart linkage of different modes of transport DB
Group is able to provide customers door-to-door mobility and logistics solutions from a
single source as well as additional services in the transport and logistics area.
3.3.4 Transport and logistics division
Both of the business units DB schenker rail and DB schenker logistics, which yields
about 40 % of DB Group revenue are managed in the Transport and Logistics division with
dense networks in European rail freight and land transport, global air and ocean freight transport,
as well as industry-specific expertise in global contract logistics.
Table 3.2- Main characteristics of DB Schenker Rail and DB Schenker Logistics
DB Schenker Rail
3,000 locomotives, 92,000
wagons and freight cars
sites in 15 european countries,
4,200 customer sidings, ten
marshaling yards and 21
business customers with a focus
on automotive, construction
materials, chemical, industrial
goods, intermodal, consumer
goods and iron, coal and steel
> industrial sales and
distribution with key account
> Regional sales and distribution
> telephone sales and
> Customer service center
> operating trains
>Design european transport
>provide and maintain vehicles
> plan and operate networks
> provide additional logistics
> freight carried: 329 million
>volume sold: 103 billion tkm
DB Schenker Logistics
around 29,000 trucks (includes external)
more than 2,000 offices in more than 130
countries, thereof 720 offices in european
land transport and 800 offices worldwide
in air/ocean freight,7 million m² of
warehouse surface area in contract
business customers with focus on
automotive, chemicals , cons umer,
electronics, healthcare, industrials, retail
>Key account management
>plan and operate global networks
>implement/organize transport and
> purchase freight capacity
>provide additional logistics services
> shipments in European land transport: 99
> air freight volume (export): 1.1 million t
> ocean freight volume (export): 2.0
Such an impressive position was achieved due to the fact that processes is based on the
principle of "one window": transportation and logistics services are accomplished by a single
provider, ensuring security, controlling the whole process of transportation and regular lines
(daily delivery of cargoes), and finally, the use of modern terminals - multifunctional transport
and logistics centers and logistics centers.
For DB Schenker Rail business unit the transportation of goods by rail is the most
important source of revenue. DB Schenker Rail customizes for its clients transport and logistics
solutions and also links the transport modes (rail, truck and ocean freight).
While DB Schenker Logistics is expert in the planning and handling of complex global
supply chains, as it is provides an integrated transport and logistics services having a global
network with the focus on established markets and emerging national economies:
3.3.5 Client focus, infrastructure and IT systems.
In Germany, the share of railways in the freight segment accounts for only about 17%,
while automobile transportation- about 70% (BUNDESNETZAGENTUR, 2014). Railway
Market Analysis. In such a situation each client for railway company is important and in order to
retain him Deutche Bahn AG has to implement a lot of significant changes.
First of all, according to the interview 4 with the Head of the board of directors, Chairman
of the DB Schenker Rail Automotive Axel Marshall, company understood that the willingness to
meet and satisfy the client needs - a significant competitive advantage, especially when customer
expectations are increasing and forcing the service provider to be more flexible. To the
traditional demands of compliance with timetables and price stability was added the
requirements to maintain the entire supply chain and provide the integrated transport
organization on the principle of "one window".
Secondly, the important role is attributed to the information component. Digital
revolution change the work of all DB Group business units. It becomes highly important to
digitalize the company products in compliance with customer needs in order to get their longterm loyalty.(Deutsche Bahn, 2014). As Axel Marshall said clients do not want to know where is
a train or car, they want to know where is their particular cargo. According to customer needs
company started to track the information not about trains and specific cars, but about particular
cargo for particular client. For these purposes company developed a mobile application simple
enough that client can work with it, providing the information about the location of the goods at
the moment, vehicle condition, etc.
In DB AG were developed highly useful for logistic purposes eServices, or Webbased
services, that previously were based on different standards. Since January 2015 they were unified
and joined into one eSchenker platform providing small and large customers as with common
services (booking and tracking), as with more specialized ones 24 hours per day in 130
countries.The next step was done towards the creation of global portal for all DB Schenker
business units, expanding eServicies, automating processes and ensuring transparency. As result,
it creates a significant value for DB AG customers through the possibility to plan online services,
place orders, track and pay for them.
The other important factor for the development of profitable business is continuous
financial inflows into existing infrastructure. In case of DB Group they are ensured by the
performance and financing agreement between the German Federal Government and DB Group
(Leistungs- und Finanzierungsvereinbarung; L u FV ), according to which for the period 20152019 around € 28 billion will be funded into network, stations and power supply facilities
DB Group is continuously develop and cost-effectively operates the transport networks,
which require huge and long-term capital investments, basing on optimal capacity and resources
usage in order to ensure its economic development. It allows company to increase traffic
volumes leading to economies of scale in terms of costs and improvement of the service quality
for the customers (increased frequency of services and shorter transport times) in order to
increase customer satisfaction and profitability.
In conclusion, for over two decades, Deutsche Bahn carried out large-scale changes. The
main challenge for DB AG was to completely rethink their business and put the main priority not
on the railway transport, but on the mobility as a fundamental ability to move. 5 Company
actually protected the future of German rail freight transport through its integration into
international and effective logistics networks, which ensure its growth opportunities Deutsche
Bahn. (2014) Integrated Report
After the analysis of the development of logistics business in DB AG it is possible to
identify the main features that allow company to become effective in this sphere:
The clearly defined business model based on the interconnection of the Passenger
Transport, Transport and Logistics and Infrastructure divisions, allowing to provide
services from one single source in all transportation segments with its national and
Service and financial relationships between business units are developed in detail:
described verbally, in schematic and tabular form, allowing effective regulation of strong
operational dependencies and interconnections between them.
Transport and Logistics business division consists of only two units DB schenker rail and
DB schenker logistics with clearly defined main roles. DB schenker rail, obtaining 3 ,000
locomotives, 92,000 wagons and freight cars, has the first priority- to transport goods by
rail, while for DB schenker logistics - planning and handling of complex global supply
Development of customer focus was set by company as the main source of competitive
advantage, especially when customer expectations are increasing and forcing the service
provider to be more flexible;
Developed of adding value eServices, such as eSchenker platform, providing small and
large customers with possibility to plan online services, place orders, track and pay for
them, and global portal for all DB Schenker business units, expanding eServicies,
automating processes and ensuring transparency;
Continuous financial inflows into existing infrastructure, supported by the German
Federal Government, usage of modern terminals - multifunctional transport and logistics
centers and logistics centers;
Ability to move the first priority from transportation by railways to the provision of
complex transportation and logistics services for clients, covering the whole supply
chain, with subsequent integration of railway transport into this international and
effective logistics networks.
3.6 Key issues and directions for their solutions of Logistics business at in JSC
In order to determine which positive practices of by DB AG in setting up of logistics
business may be used by JSC Russian Railways to improve the development of logistics business
it necessary to conduct cross-case analysis of both companies based on the previous results,
which will be discussed gradually below.
Both joint stock companies appeared from state monopolies pressed by external
environment to implement changes in order to improve their profitability. In general, reforms of
Russian railways in main principles - phasing, objectives and methods - correspond to German.
The results of railway reform in Germany are considered generally as succefull, while in Russia,
not all intended phases were completed and current results are rather questionable.
The initial reasons and aims for reforms in both countries do not coincide fully. In
Germany, they were to eliminate cross-subsidization, increase productivity, develop of
competition in the transport market and overcome competition from alternative modes of
transport, which were the first priority (the share of railways in the freight segment accounts for
only about 17%, while automobile transportation- about 70%). While in Russia, it was more
important to increase the investment attractiveness, change tariff mechanism and also develop
Such challenge to attract cargos from competing modes of transport has appeared only
recently. As in Russia, railroads historically carried the primary traffic load (railway transport in
Russia accounts for more than 85% of turnover, excluding pipeline). On long distances railways
are still wining the competition for goods. However, in the last years on the middle and short
distances cargos began to shift to other modes of transport and especially on railroad transport,
which also gradually increases its transportation distance, forcing railways to become more
flexible and increase their service range and, as result, development of logistic business.
DB AG came up with understanding of limits of carriage business model and change the
focus on diversified logistics services earlier than JSC Russian Railways.Today DB AG managed
to develop a clear business model based on three effectively interconnected business divisions
such as Passenger Transport, Infrastructure and Transport and Logistics divisions, where the last
one generates about 40% of total revenue and consists of only two business units DB Schenker
rail and DB Schenker Logistics. While JSC Russian Railways lacks not only well defined
business model for new established Transport and Logistics business unit, consisting of 12
subsidiaries, 2 branches and 1 structural division, but also updated business and operational
The overall organizational structure of DB AG was gradually changed and refined. There
were developed detailed service and financial relationships between business units described
verbally, in schematic and tabular form, allowing effective regulation of strong operational
dependencies and interconnections between them. While the structure of Transportation and
Logistics business unit provides only hierarchical subordination, but not clear horizontal links
and relationships between its parts.
DB Schenker Rail and DB Schenker Logistics have clearly defined main roles inside the
Transport and Logistics business division, while in Transportation and Logistics business unit
there are intercompany completion and functional duplication. In DB AG customer focus as the
main source of competitive advantage was implemented in the work processes, while in JSC
Russian Railways it is only at the level of need awareness and require a well developed plan for
its realization. It also connected with lack
Also DB AG succeeded in the development eSchenker platform, where small and large
customers may plan online services, place orders, track and pay for them, and global portal for
all DB Schenker business units, automating processes and ensuring transparency, while in JSC
Russian Railways such high level IT solutions only at the planning stage. DB AG infrastructure
is supported by the German Federal Government with continuous financial inflows. JSC Russian
Railways infrastructure vice versa is underdeveloped due to the lack of sufficient investments.
The final aspect that should be considered is DB AG ability to move the first priority from
transportation by railways to the provision of complex transportation and logistics services for
clients. JSC Russian Railways still is strongly focused on provision of basic transportation trying
to bundle all other services to it, without increasing its level and quality. Moreover, the mentality
of staff, formed during significant period of time, its structure, type of education and
development is highly focused on the railways as well, implying a significant barrier for
The investigation of both cases, which reveal the problems in JSC Russian Railways and
positive practices in DB AG of logistics business development, it is possible now to suggest the
following direction for improvement:
Development of updated business and operational strategy as well as regulations of
interaction between the parts of Transportation and Logistics business, which allow company
to identify clearly its sustainable completive advantage, how it will be achieved, and what
specific actions each operational unit should perform to support it.
Development of detailed service and financial relationships between sub-units of
Transportation and Logistics business unit that should be described verbally, in schematic
and tabular form in order to provide effective regulation;
The development of an effective scheme of coordination and interaction of transportation and
logistics business unit. Currently, all the parts of business unit are working on market
conditions, focusing on achieving their own profitability, but not for the whole holding,
which means that in such situation the synergies are not realized to the whole extent. The
possibility of coordination carried by the Centre for Corporate Transport Service is not the
best option due to the fact that people working there do not have necessary competences and
client- oriented mentality. Therefore, it seems like it will be much more effective if all
subsidiaries were organized under one truly logistic company as Gefco or JSC Russian
Railways Logistics (it is more preferable than Gefco, as has higher understanding of
specificity of working on JSC Russian Railways).
In order to implement client-oriented principles in JSC Russian Railways there should be
developed a special model of corporate culture of customer focus, taking into account the
specifics of the industry and covering three levels: customers (passengers, shippers, etc.),
employees who directly interact with customers ("front-line"), top-managers. In this regard
there also should be implemented systematic development of Client Managers Institute and
the implementation of the "one window" and single contract principle, as well as call center
with special feature allowing calls made to one number to be forwarded to another specified
In order to deal with mentality of staff, JSC Russian Railways should also hire more people
for work in sub-units of Transportation and Logistics business unit not only from railway
universities and provide training for all levels of staff.
JSC Russian Railways should speed up the creation single of CRM-system connected to a
single database of customer data that must be installed in all business units of the
transportation and logistics business unit. Also there should be put into active use the special
lock and seal devices allowing remote tracking of goods movements based on the equipment
of satellite navigation systems GLONASS / GPS;
JSC Russian Railways, as once DB AG managed to do, should move the first priority from
transportation by railways and stop to bundle all services around it. It should firstly come
from the real clients needs, which require the provision of complex transportation and
logistics services. JSC Russian Railways should improve the services provided on railways
and bring them in tight compliance with 7R and “just in time” principles in order to be
integrated in complex supply chains and insure it sustainable future.
As result, in the conducted study there were compared the processes of logistics business
development in two railway companies- JSC Russian Railways and Deutsche Bahn AG.
The investigation of JSC Russian Railways reveals what problems and obstacles hinder the
setting up of logistics business. Between them the most important are the lack of updated
business and operational strategy, the confusing organizational structure, lack of effective
scheme of interaction between all subsidiaries and branches, focused on maximization of their
own profit and not on of JSC Russian Railways as a whole. Moreover, analysis showed different
approaches for work with clients between subsidiaries and branches of JSC Russian Railways
due to different mentalities and lack of clear definition who is client for each particular side.
Also, it is possible to conclude that JSC Russian Railways is too focused on transportation by
rail, attraction of new cargos on railways and usage of existing infrastructure. Sometimes it uses
administrative forces to make Gefco to organize complex service through particular routes and
infrastructure facilities even if they are not the most convenient. While the low quality of
services provided by JSC Russian Railways often not allow Gefco to integrate railways into their
supply chain and, as result, attract new cargoes on them. Underdeveloped transport and logistics
infrastructure of JSC Russian Railways, requiring significant investments is also significant
The analysis of Deutsche Bahn AG case showed that company managed to overcome such
problems and currently have successful business model, effective organizational structure with
clearly defined service and financial relationships between business units, while each of them
has clearly defined main roles. Customer focus is implemented in all company activities, based
on advanced eServices and platforms and infrastructure receive sufficient investments. And what
is more important Deutsche Bahn AG managed to shift its focus from railways to the
effectiveness of whole supply chain in order to increase customer satisfaction.
Both these analysis together with main implications provided from the literature review on
logistics concept, SCM concept, levels of logistics providers, reforming of railway sector, NIE,
Strategic management and SHRM concepts allow to suggest the direction for improvement of
logistics business in JSC Russian Railways.
However, as the main limitation of this study is poor access to the primary data from
Deutsche Bahn AG due to the fact the company is very closed, there is a need for further
research that will be intended to reveal particular steps, implemented by the company in order to
shift the mentality of people to client oriented view and focus on railroads to the whole supply
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