Russia’s latest customs ruling results in disagreement with international express providers

Despite current economic upheavals, Russia is viewed as a country of great opportunity. However, the need for infrastructure improvements and deregulation is great, without such reforms Russia will not be able to achieve its economic potential. The difficulties faced by the country’s growing e-commerce sector stand as testament to this.

According to the Russian Post, in 2012, the number of international parcels it handled doubled to an estimated 21m parcels. The Russian Post estimates that 70% of parcels it receives are e-commerce related. However, in April 2012, processing the packages came to a halt due to the increased backlog at Moscow’s airport.

Another issue is that Russia covers one-sixth of the Earth’s land surface and is in nine time zones. Thus, making it difficult to connect the entire country in a proper road or rail network In fact, Norilsk, a large city in Siberia, has no year-round road or railroad connections, and sometimes is reachable only by air or ice-breaker.

A cumbersome customs clearance system is also viewed as a serious hurdle. In fact, recently, customs authorities announced plans to levy a 30% duty on all purchases from foreign e-commerce companies valued at more than €150 ($200). Previously, customs duties were only applied to shipments worth more than €1,000 or weighing in at more than 31 kg.

According to some Russian government officials, the increase in revenues from the new customs requirement, estimated at 20bn and 40bn rubles ($580m and $1.2bn), was earmarked for funding infrastructure projects. Many commentators have suggested that the new customs rules are instead motivated by a desire to protect Russian domestic e-commerce providers.

As a result of this latest customs requirement along with all the extra paperwork the ruling entails, last week, DHL, DPD and FedEx suspended express deliveries from abroad to customers in Russia.

“This impacts mostly shipments for business-to-consumer e-commerce for customers such as Amazon and Net-A-Porter,” said Daniel McGrath, spokesman for DHL Express. “That is a minor part of our business, but it is a fast-growing market.”

Just how big is Russia’s e-commerce market? Morgan Stanley estimates that e-commerce sales in Russia are expected to grow 35% CAGR to $36bn in 2015. Amazon, Ebay, AliExpress and Net-a-Porter have all established Russian websites. However, the domestic e-commerce players such as Ozon dominate the market. Still, according to some estimates, in 2012, overseas web purchases accounted for 16% of Russia’s total e-commerce transactions.

An interesting twist occurred this week when Russian Internet group Yandex announced that it had invested in MultiShip, a logistics service provider for online stores. According to Yandex, the investment will help make it easier for online retailers to deliver goods to customers in Russia’s regions by connecting them with logistics providers.

Yandex’s investment in MultiShip is ironic given the current situation with international express providers. However, an agreement appears to have now been reached with Russia’s customs service and DHL noted it was working on implementing the agreement with the goal of reinstating package delivery services for individuals. Although a time period for when shipments to Russia were set to begin was not specified.

As Russia grapples with its infrastructure problems, cross-border e-commerce is on the increase throughout much of the world. How should this phenomenon be treated in regards to today’s customs and trade regulations? Is a change of thought needed or should e-commerce be kept to just within the boundaries of a single country?