Russia steps out of the cold15 February 2007
The demand for cranes is high in the biggest country in the world - but domestic and western manufacturers see things differently. Richard Howes reports
There are four key areas:
• Technology (for example, remote controls)
• The growth of the steel market
• After-sale service
Russia's largest industrial centres are St. Petersburg, Yekaterinburg, Chelyabinsk, Nizhni Novgorod and Samara (two cities on the Volga river), Ufa and Krasnoyarsk.
Kaliningrad (the ancient region of Königsberg)-based Baltkran was established shortly after World War Two in October 1945 - on the base of three former German armoured shops with foundry. In difficult conditions, the plant started to fabricate winches, pumps and derricks. Then, the country was in need of cranes and other lifting equipment to restore the national economy.
Since 1949, the company has been fabricating new models and types of cranes and other complex and
Baltkran supplies 50 to 180 cranes per year with order backlogs stretching as far as 18 months for some models. "Others," says Sergey Beklemeshez, who heads up the marketing department, "can be supplied within as little as three months."
Big crane makers include Baltkran (based in Kaliningrad, formerly Koenigsberg - Russia's enclave on the Baltics between Lithuanua and Poland); Sibtyashmash (Krasnoyarsk); and OMZ-Kran (Uralmash) - Yekaterinburg.
There are also smaller hoist and industrial crane producers such as AO Kran (based in Uzlovaya, Tula region), Ufakran (based in Ufa, Bashkortostan) and Podma (which resides in Komsomolsk-on-Amur). Another company, Bureya-Kran, can be found in the Novobureiskiy, Amur region.
Also, there is St Petersburg's Podyomtransmash and Sibtyazhmash. The latter traditionally specialises in manufacturing super-heavy cranes (up to 1,000t) for power plants and metallurgical mills.
Besides heavy construction cranes, Sibtyazhmash, for example, produces bridge cranes for metallurgical plants (anode stacking etc). They have sold "several dozens" over the past two years.
"The Russian market is competitive," Konstantin Volykhin, marketing director of Mocow-based OMZ Cranes, says. He says there are more than 25 native producers, six strong companies from Ukraine and several big global companies (KCI Konecranes, Stahl, Demag, Noell and Kalmar - among others).
OMZ identifies Sibtyazhmash, Krasnoyarsk; KCI Konecranes, Finland; Kharkiv Lifting and Transportation Equipment Plant, Kharkiv, Ukraine; and Demag, Germany, as its main rivals.
OMZ receives business for bridge cranes from four main areas:
• ï„·The metallurgical industry, ferrous and non-ferrous (reconstruction and construction of new plants)
• Power and nuclear power plants
• Mining plants
• Machine-building plants (shipbuilding, aircraft building)
"It [Russia] is attractive because it's a dynamic market," says Volykhin, "with a growth rate of more than 10% per year." That percentage is as high as 30% growth rate for some types of equipment, such as special and metallurgical cranes.
Volykhin estimates: "The volume of the market for heavy and special cranes is worth around $250 to $300m per year." He says the market demands 400 to 500 new units every year, with the installed base of cranes somewhere between the 200,000 and 300,000 mark. It's hard, most confess, to be more specific (or even accurate) in this sprawling, developing country. Volykhin adds that the potential for manufacturing alone in Russia could generate annual profits of around Euros 180 to 250m.
Beklemeshez says the biggest competition comes from neighbouring Finland. "Foreign imports are popular where electric cranes and remote controls are concerned," he says.
Volykhin reckons that the import of bridge cranes last year represented around 20% of the market - around $54m-worth of lifting equipment.
Finland-based KCI Konecranes president and chief executive officer Pekka Lundmark speaks of his plans to increase the company's presence in the Russian crane market with great excitement. As we sat in his office in the centre of Helsinki, Finland recently, he showed me a map of Russia as if he were about to embark on a quest for hidden treasure.
On Lundmark's map, though, X doesn't mark the spot, but more a series of colour-coded symbols, each of which indicates an area of Russia where Konecranes have installed lifting gear.
"This is Magnitorsk," he says, raising a finger towards the left side of the country, the area closest to the Finnish borders. It's a huge steel mill, which has poured millions of Euros into its cranes, he boasts.
KCI Konecranes director of cranes and services (in Russia) Seppo Hoppu says the steel industry has sparked a resurgence in the domestic market for cranes. Previously, he says, oil and gas were the main driving forces behind business.
"The potential is huge," says Lundmark. "Russia represents not more than 5% of our business but it will soon become one of the top five markets [in its business]."
Dynamic growth fuelled by the power, mining, oil and gas industries has seen order backlogs for lifting equipment stretch into 2008.
Steel is now big business where oil and gas once stood alone. Russia’s steelmakers are increasingly making their presence felt on the global stage.
The performance of Russian steel mills has been resilient to the cyclicality of the industry due to a competitive cost structure. Access to raw materials and energy is providing an edge to Russian steel producers.
Where ISO (International Organisation for Standardisation) standards are concerned, Russia is a battleground of the domestic companies versus the foreigners.
Foreign manufacturers are now taking note of a market formerly dominated by local, traditional companies. It's true that these companies still fly the flag for traditional methods and standards in a market moving closer, some say day by day (others disagree), to ISO regulations and western ways. The extent to which this might happen depends on who you speak to, which makes the battle between the old and the new so interesting.
Hoppu says the market is growing and adapting all the time - especially where ISO standards are concerned. In fact, according to Hoppu, Russians are moving "day by day" closer to them. This has happened over the past 15 or 20 years, he explains.
"The problem," Hoppu admits, "is that Russians like to speak their own language so there are many local manufacturers which don't have ISO standards." The Russian government is trying to change this, he adds.
Volykhin says the desire to adopt ISO standards is actually not widespread. Russian customers "currently" require hoisting and handling equipment to domestic standards only, he says.
Where technology is concerned, Hoppu, again, takes a different stance to Volykhin. He says, "yes, if units are supplied as separate cranes, clients prefer traditional technology." Newer plants, though, are equipped with modern technology.
Russia is a traditional country still learning its independence in the post-Soviet era.
One of the normative documents in the country is entitled “rules arrangement and safe operation hoisting cranes” or 10-382-00, as it is known in Russia. Another document regulates these requirements for cranes used in the atomic industry, entitled “requirements to arrangement and safe operation hoisting cranes for nuclear power plants” or 043.
Volykhin says these standards already have "rigid" requirements and there's no need to embrace ISO.
He adds that other standards are taken into account when working abroad. Volykhin explains that, where standards are concerned, discussions take place at the time of tender. Sometimes, the specifications required are outlined in the initial tender for work.
Beklemeshez says standards are flexible. In fact, he says, it makes "no difference" which standards it adheres to when fulfilling an order.
Leningrad Cranes Producing Plant (ASK Co. Ltd), of Saint-Petersburg, says that the nation is increasingly adopting remote control systems - but found its introduction into the market "difficult".
Russia stretches over a vast expanse of Europe and Asia. With an area of over 17 million sq km, it is the largest country in the world by land mass.
Where others are more modest, Baltkran claims to provide customers with an after-sale service that stretches throughout Russia - including all of the countries of the former Soviet Union.
Volykhin says "the replacement and upgrade of cranes is difficult," as the installed base of cranes is so large compared to the relatively non-existent service network. Volykhin believes that more than 50% of general-purpose overhead traveling cranes, 60 to 70% of gantry cranes, and about 95% of portal cranes have completed the life-cycle and need replacing.
Lundmark reckons the local market will embrace the hands-on approach to after-sales. "Most in-house factory maintenance is reactive," he said. By this he means that factories wait until a crane cannot operate before setting about its repair.
Lundmark has another map, showing (this time in yellow dots) all the Konecranes service centres across the globe. There are not many yellow dots in Russia.
"We currently have three service centres in Russia, which are close to our existing customers," Lundmark says. But, as he readily accepts, in a country the size of Russia this could result in costly downtime. "Two hours in a plane doesn't get you far in Russia, let alone in a service van," says Lundmark.
Konecranes acquired a company in nearby Ukraine in 2005, which generates most of the supplies for its Russian market. I asked Lundmark if Konecranes was still hungry. By that I meant were more acquisitions on the cards. After all, the latest wave of acquisitions has been relentless.
The most recent saw it increase its acquisition of shares in MMH Holdings, Inc., the owner of US-based Morris Materials Handling, Inc. for the third time - taking its total acquisition to 100%.
"We've made some big acquisitions recently and the job now is integrating them into the company," says Lundmark. However, he will not rule out more takeovers of "local Russian service centres". He sees this as a way to spread the service facilities across the country.
Lundmark has targeted 10% organic and 5% acquisitional growth in the service sector. Actually, Konecranes has started to put an increasing emphasis on after-sale service. "Your observation is right," Lundmark says to me when I point out that this hasn't always been the case. "You need to bring the company to a certain position before you can prioritise service," he adds. Russia is no different to the rest of the world in this respect.
Only the extreme north of Siberia is true tundra, where temperatures can hit -68 degrees C in winter. It serves as a reminder of the harsh conditions this part of the world endures. It also serves as a stark contrast to a crane market that is hotting up with growth rates as large as anywhere in the world.