Transneft’s recent announcement on the coming complete redirection of its freight flows from the foreign ports of the Baltic Sea to Russia’s seaports has caused a stir. However, this process has been going on for a long time and is nearing its completion. Yet, the redirection of raw cargo with its low margin doesn’t matter all that much for the economics. It would be much more significant to struggle for containers and Ro-Ro cargo.
Struggle for Soviet heritage
After the USSR collapse the bulk of the port facilities in the Baltic Sea was outside Russia. The task of redirecting Russia’s foreign trade cargo from the ports of the neighboring states (Baltic States and Ukraine) was set up long time ago. As early as in 1993 a programme was launched on “Revival of Russia’s merchant fleet by 2000” and transshipment of Russia’s foreign trade cargo via domestic terminals surged 56% to 275.1 mln t by 2001. This process continued in 2002 with introduction of the dedicated federal programmes. Completion of export terminals in Ust-Luga (Nevskaya Pipeline Company, Rosneftbunker, Rosterminalugol) and other facilities were the milestones of the process.
In compliance with the targets of the Strategy for the Development of Russia’s Port Infrastructure by 2030 launched in 2012, the share of Baltic and Ukrainian ports in transshipment of Russia’s foreign trade cargo is to reduce to 5% and less. According to the data available to IAA PortNews, transshipment of Russian cargoes via the ports of the Baltic states and Ukraine handled reduced by 30.6% to 23.62 mln t in HI’2016 (Baltic states – 20.95 mln t, Ukraine – 2.67 mln t). Transshipment of dry bulk cargo totaled 17.28 mln t (Baltic states – 15 mln t, Ukraine – 2.28 mln t), a reduction by 21.5%. Transshipment of liquid bulk cargo fell by 47.5% to 6.33 mln t (Baltic states – 5.94 mln t, Ukraine – 0.39 mln t).
In the first half of 2016, Russian cargoes going to the ports of the Baltic states and Ukraine decreased to 6.94% of all Russia cargo transshipment. However, transportation of mineral fertilizers towards the seaports of the Baltic states is still high, staying at 30.3% amid absence of sufficient transshipment facilities in Russia. In general, the 5-pct target is quite close today.
The sharpest decrease was registered in the sector of oil and coal transshipment with the launch of the dedicated terminals at the Baltic ports of Russia - Nevskaya Pipeline Company (oil), Ust-Luga Oil (oil products), Rosterminalugol (coal) and expansion of port Vysotsk capacity (coal and oil products). Transshipment of Russian cargo via Baltic Coal Terminal in Ventspils has ceased. As for oil products, Transneft is implementing earlier announced plans under Sever (North) and Yug (South) projects to boost diesel fuel transshipment via he ports of Primorsk and Novorossiysk as we covered earlier >>>>.
Not by oil alone
It should be taken into consideration that transshipment of dry loose and liquid bulk cargo is a low margin business for stevedoring companies. Transshipment of oil products at Russian ports costs about $4 pmt on the average and even less at the ports of the Baltic states. The profit of redirecting the announced 5 mln t per year will not exceed $20 mln per year. On a national scale, it’s not that much even for Baltic states though it is significant for ports and terminals.
Economically, it is much more interesting to set sights on containers and Ro-Ro cargo with their high-margin. For example, handling of a refrigerated container including its storage and transportation can cost several hundreds of dollars.
The competition has always been very tough here. Amid specific customs administration in Russia and competition between the stevedoring companies, part of container flows has been traditionally handled at the Baltic ports, as we covered earlier >>>>
It should be noted that container market of the Baltic Sea has seen considerable changes recently. First of all, Russia has launched additional facilities – Ust-Luga Container Terminal and Port Bronka. Also, the structure of container flow has changed. Russia used to primarily import containerized cargo while the share of container exports is growing now. In HI’2016, the exports of loaded containers increased by 12.3% to 529,980 TEUs while imports of loaded containers declined by 3.1% to 756,820 TEUs. Of course, all the best should be done to keep Russia’s container exports and transit going via domestic terminals. For example, there is a project on delivery of containers from Sviyazhsk multimodal logistic hub to Bronka.
In our opinion, principle struggle between the Baltic ports will focus on the Chinese transit. Both Russia and the Baltic states have their projects in this respect while China is interested in diversification of supply routes.
Another way to boost container flows via Russian terminals is to arrange a container line from Kaliningrad to Bronka as well as containerization of cargoes. For example, Phosagro could stop its activities at the port of Kotka (Finland) and the port of Riga (Latvia) with opening of its Smart Bulk Terminal in Ust-Luga in 2015. The terminal transships mineral fertilizers in containers. As we mentioned before, transshipment of mineral fertilizers via foreign ports is still quite high while such projects can shift this cargo flow to the ports of Russia and to ensure higher transshipment of containers at domestic ports.
In general, it can be acknowledged that the Baltic Basin of Russia now has the infrastructure required for competitive stevedoring business and for almost complete independence from the ports of the Baltic states. Domestic terminals are ready for a head-to-head struggle with foreign ports for a transit cargo flow. Yet, there are still regulatory risks in view of the recent proposal of the Federal Antimonopoly Service to return to a policy of regulation of tariffs / in RUB for stevedoring services in ports. In this case, competitiveness of Russian terminals in the mid-term future will decrease with less investments into modernization and development as we wrote earlier >>>>