Lagging behind in ship tonnage and what it cost
The share of the Russian flagged fleet in the transportation of domestic export cargo accounts for only about two percent. Now, amid the severe sanctions and withdrawal of several large shipping lines from the Russian market, there is much concern about the existing own ship tonnage which fall far behind and the greatest shortage is seen in the segment of bulk carriers and containerships.
The main volume of Russia’s foreign trade is transported by ships flying foreign flags, primarily the so called flag of convenience. The share of seaborne cargo transported by Russian flagged ships is estimated at only about 2% of the overall foreign trade export cargo traffic. The total deadweight of the sea-going vessels used by Russian shipping companies is estimated at 23-24 million tonnes, and those flying Russian flag - about 8-9 million tonnes.
The risk of such a situation and the necessity to have own fleet have long been discussed. Now, after the largest sea lines operators refuse to work with Russia, hardly anyone has any doubts about the urgent need to beef up the fleet tonnage.
There is a huge demand in bulk carriers fleet. After all, apart from crude oil, gas and oil products, bulk cargoes such as coal, fertilizers, ore constitute the basis of Russian exports.
“Russia completely lacks its own bulk carriers fleet,” Anna Tsivileva, Chairman of the Kolmar Group Board of Directors said speaking at St. Petersburg International Economic Forum (SPIEF). “And if now, for one reason or another, the ship-owning countries introduce some restrictions on the entry of ships, then all export companies will completely lose their only access to the markets.”
There were practically no competencies remained in Russia for the construction of a merchant large-tonnage fleet. In order to change this situation, the country has built Zvezda Shipbuilding Complex, which, however, is already heavily loaded with newbuilding orders to be operated on the Northern Sea Route. According to the governor of Primorsky Krai Oleg Kozhemyako who took part in the discussion “The Far East in the New Economy” at the Far East Media Summit, there are a total of 35 ships under construction at the shipbuilding complex.
“We have created a whole construction agglomeration, which made it possible to provide related enterprises with newbuilding orders. We manufacture rudder propellers and assemble gas carriers. I am sure that within five years there will be no fall in this industry,” said Oleg Kozhemyako.
It is obvious for everyone that the capacity of Zvezda alone is not enough in the current environment. State-owned United Shipbuilding Corporation (USC) will lead a project of construction of a second large-tonnage shipbuilding centre in St. Petersburg. USC plans to complete overhaul of Severnaya Verf (Northern Shipyard) in the first quarter of 2023. Alexei Rakhmanov, head of USC, said at on the sidelines of SPIEF-2022: “We will complete, God willing, the reconstruction, as the second contractor has already gone bankrupt, and in the first quarter of 2023 the shipyard will be able to build large-tonnage vessels, at least in a range of Aframax vessels.
He acknowledged speaking at the forum that large-tonnage shipbuilding is a challenge for USC. “We are well aware that Zvezda shipbuilding complex has been and remains the key centre. But at the same time, I agree with the Ministry of Industry and Trade, which believes that we cannot concentrate on only one Far Eastern facility, and it is necessary to have a similar asset in the North-West.”
Speaking of the North-West, it is worth mentioning another challenge related to the restriction of overland transit to the Kaliningrad region, which will require the deployment of additional ships on the Ust-Luga-Baltiysk ferry line. For example, a few years ago the management of Multipurpose Sea Cargo Complex Bronka proposed organizing a container line with the Kaliningrad region, building for the route appropriate container ships. However, this was never done.
Meanwhile, in recent months the price of ships acquired on the world market has risen several times. The cost of container ships in 2022 increased by 6-7 times, according to Andrey Severilov, Chairman of the Board of Directors, FESCO who also took part in SPIEF-2022.
“Just a year ago we purchased a mid-tonnage container ship for $7-8 million, and today it costs $50 million,” Andrey Severilov said. He noted that despite this FESCO plans to add several large container ships to its fleet. Another thing is that such prices for ships will also lead to an increase in freight rates.
Thanks to Sovcomflot the situation with the tanker fleet looks better. “The restructuring made it possible to reduce the debt burden by $1.3 billion, as well as maintain a fleet of 111 vessels that can be involved in Russian trade,” Igor Tonkovidov, CEO and Chairman of PAO Sovcomflot was quoted as saying on the sidelines of SPIEF-2022,
The company maintains its shipbuilding program in full. “As of the beginning of this year, our shipbuilding program included 32 ships. Two vessels have already entered service and started to operate with the rest of the vessels under construction. We understand that if this or that energy project postpones due to the current situation, we will also adjust our shipbuilding program accordingly,” Tonkovidov noted.
Speaking about the construction of ships in Russia, however, one should not forget about the problem of import substitution: for some items of ship component equipment, it is still almost impossible to find a replacement on the Russian market, and it takes time, money, large-scale orders, and also export prospects to create the appropriate industries. Find out more details on import substitution here
