Regulate and rule
Reports on operation of Russian ports and cargo handling have recently settled among the most important news of the business industry. Sea terminals bring a significant share of income to coastal regions. No wonder that privatization of the two ports - Novorossiysk and Makhachkala – have excited the public so much. Although some authorities call on to release stevedores from excessive state regulation, others, namely the Federal Antimonopoly Service, resist this in every possible way, and the reasons for this are not entirely unclear to the market.
In search of reasons
In our opinion, the position of the main stronghold state control in ports - FAS – can hardly be referred as consistent and logical, especially as FAS, established in 2004, primarily to reduce and limit the impact of natural and not very natural monopolies on the market, apparently went in the opposite direction.
Initially, in 2007, FAS was the first to put forward the idea of abolishing the establishment of tariffs for cargo reception in dozens of the largest commercial ports of Russia from the Baltic Sea to the Sea of Japan. At that time, one of the main arguments for such abolition was that because of the need to coordinate prices with the Federal Tariff Service (FTS), the process of reducing them due to the market situation was only slowing down. In 2009, the FAS proposal was supported for the first time by the government. First, according to the decision of the First Deputy Prime Minister of Russia Igor Shuvalov, tariff liberalization spread to all terminals of the Big Port of St. Petersburg, and in 2011 the proposal to stop price regulation in the remaining ports was supported by Vladimir Putin, Prime Minister at that time. The experiment on deregulation in the Big Port of St. Petersburg was recognized as successful. According to the Association of Sea Commercial Ports (AMTP), shippers began to move more actively from terminal to terminal. For example, the Container Terminal St. Petersburg, launched in 2011, managed to increase its share to 30% of the total container turnover in the Russian ports of the Baltic Sea in just five years. The year of 2013 saw the beginning of deregulation in other ports.
But less than three years later FAS sharply changed its position.
"Today we are discussing the issue of reviving tariff regulation in that sphere," FAS head Igor Artemyev told journalists in the middle of 2016.
According to him, deregulation caused a surge in prices for port services, and in 2013 FAS initiated nine antitrust cases against stevedores.
Market participants have a different opinion in this regard. According to Association of Commercial Sea Ports, no complaints have been received from customers of container terminals for pricing.
According to them, rates grew in rubles, but not in foreign currency which is used to avoid the influence of rates fluctuations It seems illogical - why do port operators increase the cost of transshipment, if they work in the market conditions and the shipper, even with synchronous increase in value by all Russian ports in one region, can always use the services of their foreign competitors? The Ministry of Transport stood up to protect the port operators. The rates for stevedoring services in ports are determined precisely by market mechanisms - demand and supply, reminded Viktor Olersky, Deputy Minister of Transport, Head of Rosmorrechflot. Obviously, amid tough competition with European and Asian ports, an unjustified increase in value would lead to a decrease of ports’ turnover, which are hardly loaded by 40-50%.
FAS statement that the tariffs began to "eat half of the entire cost of freight transportation" can hardly stand up to criticism. According to the calculations of Association of Commercial Sea Ports, cargo handling services in the ports accounted for less than 2% of the total costs for delivering of goods to consignees. Taking into account all "buts", the consignor does not spend a lot of money for transshipment of cargo at ports, despite the fact that the capacity utilization is extremely important for stevedores. Thanks to the "liberalization" of the transshipment market and the further non-interference of the state, the cargo turnover of seaports had been steadily growing. From 2006 to 2016 about $ 1.8 billion was invested in marine terminals of St. Petersburg alone, the amounts are quite comparable with the investment portfolios of large oil and gas companies.
During that time, the total capacity of all ports increased by 138%, throughput - by 57%. Due to the large capacity growth and relatively modest growth in cargo turnover, the loading of ports fell from 71% to 47%. But even with the excessive capacity, Russian ports are more efficient than foreign ones: profitability of Russian stevedores remains slightly higher than that of the European ones - 11% versus 10%. The difference seems to be small if we do not to take into account the fact that investments in port infrastructure in Russia are 70% private, while in Europe stevedores have to pay only 40% of the port infrastructure costs.
If the state takes on the management of ports, as it was earlier, it could hardly ensure comparable investments and loading for domestic stevedores. At the same time, the decrease in the load will hit not only the businessmen themselves, but also the state's earnings. For example, one of the largest private stevedores, Global Ports, annually brings more than RUB 2 bln of tax revenues to the state. It is customs payments that account for the largest part (80%) of all shippers’ costs. The stevedore itself gets only 2% of the shipping costs. According to the calculations of the Association, revival of tariff coordination by FAS can potentially deprive the state of RUB 8.5 bln of annual tax revenues while stevedores will have no funds for repayment of loans, which, according to the operators, take up to 70% of the received tariff allocations.
The return of unreasonable regulation to the transshipment business is unlikely to bring any dividends. On the contrary, this may endanger Russian stevedores as the customers can leave for foreign ports. It seems that FAS plays against the market. We remember that Andrei Tsarikovsky, deputy head of FAS, once assured journalists that "the ultimate goal of the return of state control is not to establish total control, but to reduce the port's margin to a level comparable to other participants in the transport chain, primarily RZD." Russian Railways has been experiencing problems with loading for several years, in particular, because of the oil industry's withdrawal to its ever-increasing competitor, Transneft. Taking into account the fact that it is railway that is the main means of transport for cargoes delivered from ports, including from foreign ones, to Russian customers, the beneficiary of the unexpected FAS decision becomes almost obvious.