Russian Railways to open very large window to Europe

Russian Railways (RZD) is going to buy 75% of shares of GEFCO, a French logistics company. According to RZD, the share at the European logistics operator may cost up to 945 million euros. The head of the Russian railway monopoly, Vladimir Yakunin, said that it was an "absolutely commercial project with a specific payback term."

It appears that the French company may become RZD's logistics operator in Europe as part of the project to develop the Trans-Eurasian transport corridor for the delivery of cargoes from Asia Pacific Region to Europe via the Trans-Siberian Railway.

GEFCO employs over 10,000 people. The company is engaged in the transportation of PSA's automotive components and finished vehicles. The automotive alliance controls the company. The French company operates services for the interests of the alliance under exclusive five-year contract.

GEFCO's second largest customer is General Motors. The world's largest automaker owns 7% of PSA. In July, as part of a cost-reduction program, the US-based General Motors signed a long-term exclusive agreement with its European partner PSA Peugeot Citroen to transfer nearly all of GM logistics in Europe and Russia to GEFCO. The new agreement will come into force in 2013.

If RZD buys the French operator, the delivery of car parts to the factories of foreign automakers in Russia will be controlled by the state-run railway monopoly. In Russia, GEFCO services are used by such brands as Renault, Gestamp, Michelin, GM, Valeo, VW.

In total, GEFCO has 32 subsidiaries around the world. The company provides logistics services in Italy, Spain, Portugal, Switzerland, the UK, France, Germany, Benelux, Austria, Bulgaria, the Czech Republic, Hungary, Kazakhstan, Latvia, Poland, Romania, Russia, Slovakia, Slovenia, Turkey and Ukraine. The company also has offices in North Africa (Morocco and Tunisia), Asia (China, Hong Kong and India) and South America (Argentina, Brazil and Chile).

The operator conducts basic operations in Western Europe, which accounts for over 75% of revenue. Company revenues in 2011 totaled 3.8 billion euros, the operating profit made up 223 million euros.

PSA sells one of its profitable divisions as part of the strategy to get rid of non-profile assets. The operating losses of the production department of the company reach 200 million euros a month. In the midst of the crisis in 2009, the losses of Peugeot Citroen amounted to 1.16 billion euros. Within the scope of the cost-reduction program, PSA plans to cut personnel. The company also sold its headquarters in Paris for 245 million euros, and stopped a number of projects.

According to Reuters, Gores Group, Platinum Equity, PAI, investment funds CVC Capital Partners and AXA Private Equity expressed their interest in buying GEFCO.

The presentation for the Board of Directors of JSC Russian Railways says that the purchase of "one of Europe's leading providers of integrated logistics services will have a positive influence on the global competitiveness of the Russian economy."

RZD and GEFCO have a joint logistics project. From this year, the two companies take part in the delivery of non-military goods for NATO peacekeeping forces (ISAF - International Security Assistance Force) from the ports of Latvia to Afghanistan. Container trains of goods coming from Britain are formed in Riga, and then transit through the territories of Latvia, Russia, Kazakhstan and Uzbekistan to Afghanistan.

If RZD gets hold of GEFCO, the Russian monopoly will control two logistics operators - TransContainer and GEFCO. The synergy can have a positive effect for the solution of RZD's strategic goal of building the Trans-Eurasian transport corridor from Asia Pacific to Europe. The Russian company also intends to win a share of container shipping by sea from China to the Trans-Siberian Railway.

In 2010, at the St. Petersburg International Economic Forum, JSC TransContainer and GEFCO Group signed a memorandum of intent to establish a joint venture to develop multimodal transportation between Europe and Russia.

On September 11, First Deputy Prime Minister Igor Shuvalov ordered the Ministry for Economic Development, the Ministry for Transport and the Finance Ministry to submit their proposals for the construction of the container Trans-Eurasian Railway. This project to develop container traffic is known as "The Far East - the Western Border of Russia." The project should significantly accelerate the delivery of goods between Europe and Asia, with an extension to Vienna and an opportunity to enter the ports of Ust-Luga, Gdynya, Rotterdam and other logistics centers in Europe.

It is assumed that the speeds of container trains will go up to 140-160 km/h. The implementation of this project is expected to increase the volume of export-import container traffic to 3 million TEU per year, which accounts for about 5% of container traffic of time-sensitive goods from China and South-East Asia to Europe.

Sergei Nikolayev.

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Author`s name Dmitry Sudakov