Aleksey Tarazanov: “Our segment features the most transparent and fair competition”
Azov-Black Sea region plays a significant role in Russia’s foreign trade. In his interview with IAA PortNews, Aleksey Tarazanov, head of Turkish shipping company Marlin Shipmanagement, tells about operation of river/sea going ships in the region, the impact of the COVID-19 pandemic and toughening of environmental requirements on ship fuel as well as the prospects of fleet renovation and autonomization.
- Mr Tarazanov, could you please tell about your company’s fleet and routes?
- We have a little over 20 ships of mixed river/sea navigation. We have no Russian-flagged ships or ships going merely on rivers. We do not go further than Rostov-on-Don. We transport cargo to Turkey, Europe and the Mediterranean with the recent time seeing the bulk of cargo flow going to Turkey, Algeria and Italy.
We are mostly focused on transportation of coal. If we were primarily engaged in transportation of grain, we would have a wider geographic footprint including Israel, Greece, and Egypt. Neither Israel nor Egypt purchase coal.
- Which cargoes ensure the highest margin when transported in the Azov-Black Sea region?
- Perhaps, project cargoes intended for the oil industry in the Caspian Sea are of the highest yield but that is the segment of the Russian flag with its specialized ships able to carry such cargoes.
As for our market, coal, metal scrap and grain are almost the same with a slight freight rate difference. For instance, coal transportation on the Azov – Samsun (Turkey) route will cost $2 less as compared with grain but coal handling is faster. Coal handling cannot be delayed due to weather conditions (it can be handled while it is raining), the process of loading/unloading is faster and you do not have to spend time for sampling in Turkey that needs one, two or even more days. In the result, the profit from these two cargoes is not much different.
- All ship owners seem to choose between conversion or new fleet. What is your opinion about that?
- It is a pressing issue, indeed. A ship owner is always for having newer vessels. It is a sort of a psychological market driver. As for conversion, its level in the Black Sea region is below 10%. The fleet built over the recent 20 years numbers 150 units including 15 converted ships with the rest built from scratch.
Conversion is actually a more complicated process as compared with the construction of a new ship. The extent of wear is individual for all ships and each conversion project should take that into consideration. That means no serial approach is possible here. It is necessary to find a good donor ship for which numerous vessels should be examined to select a proper one. Each conversion project should be approved by the Register. Thus, all that is more challenging than the purchase of an existing design and having it contracted and built by a shipyard.
On the other hand, conversion is always cheaper than a newbuilding project: it can be half the cost depending on the donor. The result will almost look like a new ship but it will actually have old components that will have to be repaired or replaced earlier than those of a new ship. Thus, it should be taken into account that the service life of such a ship is not 25-35 years but, let’s say 15, or no more than 20 years.
Therefore, the issue depends on those financing a conversion. Ship owners have been not very sound financially for the recent two-three years and few of them could accumulate sufficient resources for such projects. For banks, conversion projects are quite doubtful and construction of new ships with pay-back periods of many year is not attractive either. Hence, no enthusiasm from investors is seen in our segment of fleet modernization.
Yes, there is STLC in Russia and it mainly finances construction of new river/sea going ships but it is a specific project developed in the country to encourage its own market. Turkish or European banks do not offer money for that. So fleet modernization is very sluggish.
- Why have you opted for Turkey instead of Russia where the state provides the above-mentioned measures of support to fleet modernization?
- In fact, our company is not confined to operation within inland water ways of Russia and we selected the closest sea routes. It is well known that Istanbul is a large sea hub and all sea related activities are well developed: ship repair, supplies, procurement, dealing with commercial and bank issues... Of high importance is taxation and it is absolutely adequate for our sector.
If we were focused on inland water ways of Russia and the flag of Russian we would have our headquarters in Russia, in case of the Far East it would be in Singapore, in case of Europe – in Greece. Here in the Black Sea region we opted for Istanbul. All ships operating here on our routes call at Istanbul, that is reasonable.
- Ship repair is crucial when it comes to quite an aged fleet. Where do you have your ships repaired?
- Indeed, repair expenses dominate in the maintenance budget. We never stop striving to facilitate the process of ship repair and to minimize the related expenses. Within Istanbul, ship repair services are provided by more than 40 shipyards. Such a number is not available anywhere else in the region. So, it is easy for us to choose a location for repairs and to perform the works on our own. We have established our own teams and shore-based workshops. We take berths, slipways and docks on lease and conduct the works ourselves. That is cheaper. We assess how many specialists we need and how to arrange the works. Thus, we perform all the repairs on our own.
For a company with a small fleet it is not reasonable to invest in in-house repair. For our fleet, which is quite large, it is viable.
- One more area of shipping company’s expenditure is bunkering. Where do you have your ships bunkered and do you see prospects of using alternative fuels in the Azov-Black Sea region?
- We are mostly bunkered in the Azov region. Comparing fuel prices in Rostov-on-Don, Kerch, Novorossiysk and Istanbul we see that light grades we use are generally lower in Russia. It is the fuel bought in Russia so its price will be higher in Turkey, at least slightly.
As for environmental restrictions on high-sulphur fuel, they have not affected us as we operate on light fuel anyway. In our segment, there are almost no ships running on heavy fuel oil grades. Heavy fuel was used for engines installed on ships of Volga, Omsk and, it seems to me, Amur designs but the difference between running on light and heavy fuels has never been critical for us due to low fuel consumption. It's one thing if a large bulk cargo carrier needs 20 tonnes per day. The difference between light and heavy fuels will be substantial. Our ships consume 3 to 5 tonnes per day, hence there was no need to use heavy fuel.
When speaking about alternative fuels, two factor are essential. The first one is humanistic since all of us depend on the ecology. The second one is commercial and it is a driver of our life which says that there is no urgent need for such a transition. Now that fuel prices have decreased, transition to alternative fuels does not look commercially attractive. And I believe everything will finally bump into commercial issues regardless of our call for clean air.
Yes, we would like to switch over to gas and it would be especially interesting to try electricity. We operate a small tonnage in it seems to be easier for us to replace our engines with something new. It's remains to be seen. There are projects organizations focused on it like Marine Engineering Bureau. Their research, even without specific requests help us see the prospects, the future that we begin to consider.
As regards liquefied natural gas, an LNG container can be installed onto a ship with respect of all conventional requirements. That is quite easy for implementation and that would be very interesting. But there should be an economic impetus and minimization of the human factor in operations with LNG.
- We are all going through a crisis caused by the COVID-19 pandemic. How has it affected your segment?
- I would distinguish two aspects of that impact: commercial and operational ones. We see the fall of freight rates which can partially be attributed to seasonal changes. Of course, the scope of purchases and supplies is decreasing which affects the freight rates.
Operationally, our segment is less exposed to the crisis as much as the global shipping market. For example, let’s take the crew rotation. It is a hot issue globally as all the airports are closed, while the crews operating on cross-ocean routes move between different parts of the world. Therefore, nobody can change the crews today with few exceptions.
All our ships operate within one region and they are manned by crewmembers mostly from this region. Nobody employs let’s say Philippine nationals for operation on river/sea ships running between Rostov-on-Don and Istanbul. It is not a common practice since it is not reasonable. Everybody opts for the easiest and the best way – crews consist of nationals from countries of our region: Russia, Ukraine, Turkey, Georgia, Azerbaijan. These are five counties involved.
For ships sailing under the state flag of Russia the crews should not include nationals from other countries, they should be completely Russian. Everything is simple with such ships: they operate in the same region, call at Russian ports where the crews are changed.
Meanwhile, Turkish shipping companies employ mixed crews. Among crew members are Ukraine and Russia nationals with a couple of Turkey or Azerbaijan nationals who perfectly communicate with Turkish ship owners as their languages are very much alike. Still, while sailing within the region it is anyway always possible to enter the country for crew rotation purposes.
Let’s take Georgia. A ship is loaded in Rostov-on-Don with grain bound for Batumi. While in Batumi, two or three seafarers can be easily changed and continue the work. Upon calling in Russia, the Russian part of the crew can be changed. If it is time to change the crewmembers from Ukraine - there is no proble either. A batch of cargo can be found for transportation from Kherson to Turkey – the ship calls at Kherson, has its crewmembers changed, takes cargo and leaves for Bandirma where Turkish crewmembers can be changed. We haven’t faced a problem yet.
The rest of the issues are supplies, repairs and bunkering. Everything is underway.
- What about the volume of traffic. Is it decreasing?
- It is a normally low season when previous year grain is over and the new crop has not arrived yet. So it is difficult to assess if it is a seasonal decline or a global impact. We are going to see now the sales and shipment of the new grain from Russia to the countries of our region. Then the volume we are going to get this year will become clear.
- How tough is the competition in this region and what are your competitive advantages?
- You know, our segment features the most transparent and fair competition, perhaps. We have no advantages over Russian ship owners. We operate the fleets of identical ships, only the flags are different. Today, as the market is low, the competition is certainly tough. It is also warmed up by numerous concerns over the lack of cargo versus the previous year. That will lead to ship owners’ reduction of freight rates in attempt to take over this or that cargo.
Some companies will probably deem it necessary to lay up some vessels to avoid losses. Yes, the competition is strong now and we have no advantages. Everybody is playing under the same scenario, the time is tough.
We hope for improvements with the appearance of the new crop. When the market is stable, cargo supply generally corresponds to the number of ships with required tonnage available in the market and we do not face any hot competition wars. At the same time, everybody understands that we are in the same boat closed in the same basin with no opportunity to shift our vessels to India, Persian Gulf or Australia depending on the demand for our types of ships. We strive to behave decently.
Interviewed by Vitaly Chernov