TBY talks to Saken Toilybayev, CEO of DAMU Logistics Group, on the important role that transport and logistics will play in Kazakhstan’s future.
TBY What role does the transport sector play in Kazakhstan’s economy?
SAKEN TOILYBAYEV This year marks Kazakhstan’s 20th year of independence; we are a young country. Many things were introduced to this country not so long ago, and the same is true for the logistics business. Kazakhstan has one of the lowest population density ratios in the world; however, due to its favorable geographical location, transport and logistics is expected to become a significant source of the country’s earnings in the years to come. The Western Europe-Western China transit highway re-introduces the concept of the ancient Silk Road. In light of this, Kazakhstan will become a major transit player for goods produced in Southeast Asia on their way to the Russian and European markets. The recent financial turmoil has slowed the growth of this segment in Kazakhstan; however, thanks to correct and timely business decisions, DAMU Logistics has been able to survive the crisis, and now we see the potential for growth.
What strategies were applied to dampen the effects of the global financial crisis?
One of the strategic decisions made long before the recession started was keeping construction costs at reasonably low levels. Feeling that something was amiss beforehand, we tried hard to deliver the lowest costs possible across the industry. As a result, we managed to build our warehousing facilities three times cheaper per square meter compared to some of our peers in Kazakhstan. Generally, this allowed us to provide favorable commercial terms to our tenants when the markets turned south. As a result, even during the bottom of the crisis our occupancy ratio never fell below 50%. We are always looking to build long-term relationships with our tenants. When the crisis struck, we didn’t consider ourselves a standalone player. We got together with our customers to survive the crisis, and we survived it as a team. Our mission is to free our commercial partners of the burden of dealing with logistics “in house”, and so they outsource their logistics to us. We aim to reduce the logistics costs of our customers as much as possible. As our partners concentrate on the development of their businesses, they can rely on us to take care of their customs and transport operations. That is why there is such a huge amount of trust in DAMU Logistics, especially in dealing with customer solutions.
How does DAMU seek to differentiate itself in the market from its main competitors?
The logistics market in Kazakhstan is very clearly structured and there are relatively few players in each segment. Kazakhstan is a landlocked country, and that is why the bulk of cargo is carried by rail. For example, most of the country’s mineral resources, except for the majority of oil and gas, are transported by rail. As regards the road transportation segment, it is mostly composed of individual truck owners. Customer orders are collected and handled by freight forwarding companies and intermediaries that act like booking agencies. The freight forwarding companies do not have their own fleet of trucks and cannot be considered as fully fledged logistics companies. When cargo moves from point A to point B, this is only the beginning of a long and complex process called logistics. The lion’s share of work takes place at logistics terminals, including cross docking, customs clearance, storage, handling, distribution, and delivery. DAMU Logistics’ business is to invest in such logistics terminals and to provide a unique combination of services, including customs, container, warehousing, and transport logistics. This creates synergies and produces a multiplier effect.
Kazakhstan is a large country. How do you look to provide services over such a vast area?
Kazakhstan inherited most of its current transport infrastructure, such as roads, rail, and airports from the Soviet Union. Once being an integral part of a centralized system, in the 1990s this infrastructure was privatized into the hands of hundreds of companies. DAMU Logistics has built a presence in three key regions of Kazakhstan: Almaty in the southeast, Astana in the north, and Aktobe in the west. Large distribution hubs in these areas will allow us to effectively cover the entire country. In addition, Kazakhstan, Belarus, and Russia formed a Customs Union in 2010. DAMU Logistics has acquired a land plot in Moscow, and from there we will have better access to the entire Customs Union and to the EU as well. On the other hand, we also have land at Khorgos on the Kazakhstani-Chinese border, from where we can serve the Chinese market. By doing this we are building a land bridge between the EU and Southeast Asia.
Who are your clients and what products do you work with the most?
Each market, whether be it FMCG, beauty products, pharmaceuticals, or clothing, has its own major players. We are proud to say that our customer portfolio includes major players from each of those sectors. Back in 2005, Procter & Gamble became our first large-scale customer. It wasn’t just our client, but also a mentor. Thanks to P&G we have adopted the latest technologies.
How does this logistics network complement the idea of industrial parks?
The history of our company goes back to 2004, when we built our first logistics terminal. Based on its success we built our first industrial and logistics park in 2008. The concept of combining an industrial and logistics park does not exist—even in Russia. However, we can find similar models in Finland, China, Vietnam, and Singapore. There are advantages of working with DAMU for local and foreign companies, particularly when they plan to enter Kazakhstan.
When you look at our customer portfolio, you will find that some of our clients need customs clearance, transportation, and warehousing services. Others like Scania established their first truck-service center in Central Asia. Danone, for example, completed the construction of its dairy products plant in just six months. This was only partly due to fast construction; we facilitated the entire process, especially on the bureaucratic side.
What future do you see for DAMU’s industrial and logistics parks?
In a newly built economy, every new project will be in demand. However, the introduction of our first industrial and logistics park was a timely decision, and when we entered the market with our services the idea was well received. The concept of DAMU is originally older than the government’s industrialization program. However, once this program was launched, DAMU automatically became a part of it since the authorities aim to promote and support the manufacturing and services sectors in Kazakhstan. I spent time studying industrial and logistic parks in a number of countries. For example, Hungary built some 170 industrial parks and I believe Kazakhstan will need 170 of such parks, too.
© The Business Year