Initially due to the pandemic and now due to the ‘eastward pivot’, North-West ports and primarily container terminals of Saint-Petersburg started sinking considerably. However, the hype around the Far East ports may give a second wind to the port on the Neva river. Or may not...
Container terminals of Russia’s North-West the majority of which are within Great Port of Saint-Petersburg have been experiencing hard times for the second year in a row. In 9M’22, Great Port of Saint-Petersburg saw a decrease of throughput by almost 50%, year-on-year, to 780 thousand TEUs, the port of Ust-Luga – by almost 40% to 14 thousand TEUs, Kaliningrad – by almost 70% to 105 thousand TEUs, according to the Ministry of Transport.
The ongoing decline was initially explained by the pandemic, which led to a sharp increase of freight rates for container cargo carried by sea, part of the cargo traffic left the traditional deep sea route China – Europe – Saint-Petersburg for the Russian railway network which is used for container transportation either to inland logistics centers or to the ports of the Southern Basin. In 2022, due to a sharp eastward pivot of logistics, cargoes rushed even more intensely to the Far Eastern ports, which proved to be not ready for such an influx of containers.
According to the market players, various ships including container carriers and other vessels have to wait for unloading for over 13-14 days today. Therefore, the route from China to Russia via the Far East takes 40-45 days which is comparable with the Deep Sea route from China to Saint-Petersburg. Another problem is the deficit of fitting platforms and the problem of back loading. It is being partly solved with loading of containers onto open-top railway cars but it does not resolve the problem of the railways capacity.
When speaking at the 31st plenary session of the International Coordinating Council on Trans-Eurasian Transportation (CCTT), Irina Olkhovskaya, UMMC Director for Port and Rail Projects, said that a promising solution could be in the organization of a container line between Shanghai and Saint-Petersburg. It is comparable with the traditional route but requires fewer transshipment operations and border crossings while contributing to unloading of the eastern routes and increasing the loading of the excessive container facilities in Saint-Petersburg.
That is also an opinion of Sergey Shishkarev, Chairman of Delo Group BoD. “Now we need to relocate the fleet to the North-West to unload the Eastern polygon so that both Novorossiysk and the North-West were supplied with ships: either our own ships, operated by us, or those operated by FESCO, by our partners,” said Sergey Shishkarev.
The decrease of container freight rates is to facilitate the organization of such a line. According to Oslo-based Xeneta, backhaul spot rates are now firmly following the fronthaul trend, with significant drops on key trades. This is exemplified by the North Europe to Far East container corridor, where rates are now 6.8% below the pre-pandemic figures of January 2020. The average rate for a standard FEU has now fallen to USD 820. However, the backhaul, despite the decline, remains up by almost 50% against January 2020.
However, in this context, there is a question on what ships are to transport containers by this line. Obviously, those will be container ships of small capacity, which is to result in an increase of transportation costs. The market players speak about container ships with a capacity of 3 thousand TEUs. However, opinions differ on how efficient transportation by ships of this capacity would be. In addition, a backload is also required. There are proposals on the organization of transshipment but they also have certain drawbacks.
According to the calculations provided at the Transport Week 2022 in Moscow by Leonid Shlyakhturov, Executive Director of FESCO Integrated Transport LLC, 6-8 container ships of 3 thousand TEUs in capacity are needed to launch the China – Saint-Petersburg sea line.
“We consider the decline in container handling in the North-West region as a potential for growth, transit time is actually comparable to that of the Transsib, strange as it may sound: 45 days, or it can be 35 days one way if it is a ‘port to port’ route. The difficulties relate to the level of entry – serious investments are needed, at least 6-7, and preferably 8 ships of 3,000 TEU are needed for a weekly service to ensure regular exports of cargo from the Asian region to the North-West,” explained the representative of the transport and logistics company.
According to him, the following ocean services are also promising: China - Novorossiysk (40-45 days) and China - Istanbul (30-35 days).
Besides, there are ideas to organize ports for transshipment, and it was proposed to convert one of the ports in North Africa into it. However, as Dmitry Kutateladze, Development Director of Ruscon, commented during the Beyond Containers conference in October 2022, “this (the use of a transshipment port in North Africa for container transportation to the port of Saint-Petersburg - Ed.) does not "take off" at the moment due to imbalance and quite a long leg.
He emphasized that the company does not exclude the possibility of such transportation in the future by container ships of 2-3 thousand TEUs in capacity. “For the time being, we propose transporting the cargo from here (Saint-Petersburg - Ed.) to the South or to the Far East and then ship it from the ports. For the moment being, this is the most workable idea,” he concluded.
When speaking at the Transport Week 2022 in Moscow, Vladimir Pribysh, Strategy and Development Director of Delo Group, said that Russia’s demand for redirection of container flows from the North-West to the Far East is estimated at 600 thousand TEU per year.
Some experts propose considering the port of Dubai (UAE) as a point for the consolidation of seaborne cargo bound for Saint-Petersburg. Such a proposal was put forward by Cyril Pacary, founder and CEO of CVLOGRUS LLC, at the 31st plenary session of CCTT. According to the expert, the scheme has some advantages: providing a stable and regular service to Great Port of Saint-Petersburg, a developed port infrastructure in Dubai, no idle time for ships as in the Far Eastern ports of Russia. Besides, Dubai has an international airport. At the same time, the use of Dubai has a number of disadvantages. Among them the expert highlighted the difficulties with export cargo loading, the lack of a containers and the need to organize the return of containers.
As Viktor Markov, the Senior Vice-President of TransContainer, told journalists at the Transport Week in Moscow “To solve the problem of cargo redirection, there must be, first of all, a fleet to ensure the movement of these cargoes from the North-West to China and other states. The largest sea lines refused to work in Russia, and their ships were quite efficient due to their large capacity. The ships being considered today are of much lower capacity and higher cost. Moreover, there are still a number of risks that need to be addressed. With the problem of the fleet not solved it is no matter how low the tariff is - the cargo will not go to the North-West since there be no ships to take it out. In this context, the eastern routes have already been developed,” he said.
So, we see the situation as follows: with the overloaded eastern direction, it is necessary to shift part of the cargo to other routes, either to the North-West or to the Southern ports. The economy of such a redirection is not yet obvious, but the state is interested in this since the Far East is essential for coal exports on which entire regions of the country depend. Although the scheme of loading containers into open-top railway cars is being used quite successfully today, this does not fundamentally solve the problem of the port infrastructure congestion. Therefore, if market players get a fleet and develop logistics while the state subsidizes its operation, such a scheme can be quite viable.
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