Can Kaliningrad compete with Gdansk?

The Kaliningrad Region is long on plans to accumulate container flows at its terminals. Two alternative projects are under consideration today: construction of a deep-water terminal and dredging of a seaway canal. The negotiations to resume a ferry link with Sassnitz are also underway. Experts are skeptical about those plans.

There are plans but no cargo

Container throughput of Russia's Baltic ports, thousand TEUs

In January-August 2019, throughput of the port of Kaliningrad decreased by 21% year-on-year, to 7.6 million tonnes. The fall should be attributed to reduction of bulk cargo turnover – coal and grain – amid the current situation in the market.

Meanwhile, container turnover showed a considerable growth, by 29%, year-on-year, to 227,0300 TEUs. However, container throughput has just recovered after a plunge in 2014.

When speaking at the Baltic Transport Forum held recently in Kaliningrad, Andrey Krainiy, Deputy Chairman of the Management Board of the Eurasian Development Bank, said that annual container throughput of 1 million TEUs per year the maximum for the Kaliningrad Region. In its best years, the region never reached 400,000 TEUs per year). To achieve higher results, it needs some breakthrough projects like construction of a deep-water terminal competitive with those of Gdansk, Klaipeda and other neighboring ports.

“Yes, we are ready to consider participation in the deep-water terminal project. Such a project is interesting for us but calculations are to be done”, said EDB representative.

According to Leonid Stepanyuk, head of the Kaliningrad Region's Chamber of Industry and Commerce, a deep-water port could compete with European terminals. “Half of transit in Gdansk is of Russian origin”, emphasized Leonid Stepanyuk. He said the first step towards the construction of a deep-water port could be dredging for the Sodrugestvo terminal which handles loose and packaged cargoes.

As estimated by Rosmorport, the project on dredging of a seaway canal of Kaliningrad foresees excavation of about 30 million cubic meters of material.

The project supporters believe that more attractive bunker prices as compared with the European ports are among the competitive advantages of a deep-water port in Kaliningrad. Indeed, increasingly large vessels call the port of Kaliningrad for bunkering.

Meanwhile, MGO prices at the port of Rotterdam are lower as compared with those at the port of Kaliningrad, says Bunker Price Bulletin of IAA PortNews. The latter is more attractive when it comes to high-sulfur fuel oil. However, the demand for heavy fuel oil is likely to decrease amid the restrictions on sulfur content in bunker fuel. Many ship owners will opt for diesel fuel, or, in the longer term, for liquefied gas.

Actually, the recent years’ trend has been showing the increase of diesel fuel prices in Russian ports and this product is often cheaper at the port of Rotterdam than in Saint-Petersburg or Kaliningrad. Besides, Russian ports are less responsive to volatility of the oil market that lets European hubs compete successfully playing on sinking of oil prices.

So, the stake on mere attractiveness of bunkering is hardly reliable or sufficient for justification of essential capital expenses required for construction of a deep-water terminal.

Moreover, European hubs have been in the market for many years with their up and running logistics, developed infrastructure and clear customs administration. Container lines are quite reluctant to change their call patterns since few are willing to embark on experiments amid high competition.

As Aleksandr Goloviznin, Director Analytics and Logistics, Morstroytechnology, told IAA PortNews, it is not reasonable to build a deep-water port in the Kaliningrad Region.

“There is no cargo base and there are no signs of its appearance. It is several years late for construction of a container hub on the southern coast of the Baltic Sea. That place has long been occupied by DCT Gdansk. Taking into consideration the ‘wonders’ of our port customs there have never been a chance for an international hub”, says the expert.

One more project is the revival of Ust-Luga – Baltijsk – Sassnitz ferry line. That used to transport primarily chemicals in barrels. Negotiations on its revival are underway. As Nikolay Tsydenov, Director for Shipping, Novotrans LLC (operator of Ust-Luga ferry service facility via its subsidiary, Global-Service LLC), commented at the Baltic Transport Forum, the negotiations have not brought any results yet since there are no prospects for the back loading of the ferry amid the sanctions and counter sanctions.

However, as the market participants told IAA PortNews, deployment of a ferry from the Black Sea region is under consideration.

Aleksandr Goloviznin believes there is no cargo base for successful functioning of this line either.

According to the analytical department of IAA PortNews, Russia’s Baltic Basin already features excessive container handling facilities which is to aggravate in the future possibly reaching as high as 6 million TEUs per year by 2025 if all projects announced for the area are implemented. Meanwhile, most of container terminals of Big Port St. Petersburg, to say nothing of Ust-Luga, are underloaded. Consequently, internal competition will just grow and the appearance of deep-water container facilities in Kaliningrad will aggravate the situation. In these circumstances, a container line between Kaliningrad and MSCC Bronka is a more realistic project as we consider Bronka to be the most promising container terminal of Russia’s Baltic area due to its geographic location and access to transport and logistic infrastructure.

Also, if production develops in the Kaliningrad Region the cargo base will increase as well. However, the development of the existing port facilities will be sufficient to service it.

Moreover, as for bunkering, the Kaliningrad Region should think about infrastructure for LNG bunkering. This sphere is in the very beginning of development and it is essential not to be late like it was with the container hub project. The more so, there are prerequisites for organizing LNG bunkering in the region with its regasification terminal and a plan of Cryogas-Kaliningrad to launch an LNG production facility in the Kaliningrad Region by the end of 2019.

Vitaly Chernov