“No illusions”: where Russian cargo goes
Attempts towards isolation of Russia's trade with western and pro-western countries will not shape any conceptually new trends in Europe-Asia logistics. They will only facilitate the developments of the recent years, namely the increase of the Asian countries’ share in foreign trade turnover, the emerging role of the Far East and Southern Basins as well as the Arctic shipping, the growing demand for Russian railway infrastructure, especially that focused on the Far East.
We are not aware of further geopolitical situation evolution but, obviously, Russia will be striving, on its own initiative rather than under pressure, to redirect its foreign trade to the countries that have not supported any blocking sanctions against it.
“We will get out of this crisis with a revitalized consciousness: we will have no illusions that the West can be a reliable partner... We will do our best to ensure that we never again depend on the West in areas crucial for our people”, Russian Foreign Minister Sergey Lavrov told journalists following a meeting with his Ukrainian and Turkish counterparts held on March 10 in Turkey.
Actually, withdrawal from the trade with western countries is not a new trend. It has been developing for many years with economic reasons behind it: surging economies of some densely-populated countries, first of all, China and India, etc.
Over the recent year and a half of the pandemic period, cargo flows have been shifting from the deep sea routes between China and Europe via the Suez Canal to alternative ones including those via the Far East ports of Russia with further involvement of railways towards the ports of Russia’s Southern Basin or to Europe. Such an adjustment of containerized cargo logistics was primarily caused by surging freight rates which are still high and are growing due to oil prices, and, consequently, bunker prices growth. It is hard to say what happens with this transit now but one thing is sure: with western countries rejecting partnership with Russia, import/export cargo flows between Russia and China as well as other APR countries will grow (even in case of short-term reduction amid the current geopolitical tension).
In view of this situation, it is necessary to accelerate the processes launched earlier including the development of railway approaches to the Far East, expansion of the Transsib and BAM capacity as well as port infrastructure of the Far East Basin which is currently focused on coal exports.
In this context, it stands to mention Vostochny Port’s project on creation of a container hub able to handle over 100,000 TEUs per year. Besides, additional cranes are to be installed at the terminal of Vostochnaya Stevedoring Company and there is a plan to perform modernization at Commercial Port of Vladivostok (VMTP). However, port infrastructure development can slow down due to disruption of foreign equipment supplies. Nevertheless, this delay will not be critical since port infrastructure development in the Far East is anyway ahead of railway infrastructure development as we wrote earlier.
Coal handing in the Far East ports will see further growth. Long before the current situation Europe announced its plans to gradually cut down coal-fired power industry (which are actually questioned in view of gas prices growth and the Nord Stream 2 project future), while the demand for coal is growing in fast developing countries such as India. There is nothing principally new in this issue.
So, it would be hard to face the new challenges without expansion of railway capacity in the Eastern Operating Domain.
According to Irina Olkhovskaya, UMMC Director for Port and Rail Projects, underloading caused by insufficient capacity of railway approaches in the Far East totaled 74 million tonnes in 2021. “Further development of coal industry and ports will depend on implementation of Russian Railways’ investment programme”, emphasized the expert.
The role of ports in the Southern Basin will also grow. First of all, Turkey has not imposed any sanctions against Russian cargoes or ships. Therefore, partnership with this country is essential. Secondly, Turkey has cargo handling and bunkering hubs, ship repair facilities and shipping companies working with Russian ports of the Azov-Black Sea Basin. Thirdly, the Sea of Azov sees a considerable traffic of ships entering it from inland water ways of Russia in summer.
The problems of domestic port infrastructure in this basin are associated with insufficient depth of dry bulk terminals, mainly those handling grain. However, the problem can be resolved. For example, a large bulker placed off the port of Kavkaz gradually accumulates grain delivered by smaller ships. Besides, there are projects on construction of deep-water terminals for grain handling. However, the issue of off-harbour transshipment terminals in Russian ports has been under consideration at the State Duma from 2021 and can be solved negatively for this segment of Russian business.
Designing of deep-water berths for grain exports has started in Novorossiysk. The project foresees the construction of a new pier and modernization of the existing terminals with the total capacity of export infrastructure to be increased by 9 million tonnes per year. Besides, Azov Sea Terminal is going to build a multipurpose facility for handling grain and general cargo with annual capacity of 1.5 million tonnes which can be later increased to 2 million tonnes. An additional cargo base of up to 4 million tonnes per year can appear with implementation of the project on organizing year-round navigation on the Russian inland waterways along the so-called 'Southern Horseshoe’ (the Astrakhan – Rostov-on-Don route).
The situation in the Baltic Basin is more complicated because it depends on hubs on the other side of the Danish Straits and on western shipping lines. Nevertheless, it has prospects for the increase of dry bulk cargo handling since 18 million tonnes of Russia’s foreign trade cargo (mostly mineral fertilizers, ore, grain and coal) was exported in 2021 via the ports of the Baltic states and over 5 million tonnes of dry bulk cargo - via the ports of Finland. Moreover, Belarus is in urgent need of facilities to handle its potash cargo (11 million tonnes per year) and oil products (10 million tonnes per year). Belarus is ready to redirect those cargoes flows to the ports of Russia’s Baltic Basin.
Transportation by the Northern Sea Route is a separate subject. Earlier announced plans on creation of a container line for NSR operation are kept alive. DP World which was looking into creation of transshipment hubs in Murmansk and Vladivostok has joined the project on development of container shipping along the Northern Sea Route. Such a line can be used for imports from China and other APR countries.
While speaking about shipping lines, it should be noted that Russia’s advantage is production of gas and oil. In the situation of oil prices surging worldwide and the ban imposed by the USA on imports of Russian oil, bunker prices are also growing. Perhaps, RF Government should consider supplies of bunker fuel including LNG at reduced prices to shipping companies which continue working with Russia. That could ensure a competitive advantage for them versus companies rejecting partnership with the Russian Federation.
In general, it should be recognized that Russia’s traditional sales markets do not disappear. Oil, coal, mineral fertilizers, grain, metal and ore will be further consumed in the markets including those of Europe. On the other hand, Russia will try to withdraw from the western sales markets which, we would like to emphasize, is not a conceptually new trend.
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