Are rival foreign terminals doomed to loose Russian exports flow?

Several new port development projects have been announced recently in Russia. The projects successful implementation will likely help shift Russian exports flow, primarily bulk cargo, currently transshipped at foreign ports, to Russia’s harbours. This half-year results showed a 20-percent drop in Russian cargo transshipment through foreign ports, to 21.35 million tonnes.

The Russian Transport Ministry’s statistics, obtained by PortNews IAA, showed the total volume of Russian exports handled at the ports of neighboring states (the Baltic countries, Finland and Ukraine) shrank by nearly 20% in the first half of 2019 compared with the corresponding period in 2018 to 21.35 million tonnes.

That volume largely account for the ports of the Baltic states (mainly Latvia): 16.76 million tonnes (-12.4%).

Coal (10.2 million tonnes), mineral fertilizers (4.88 million tonnes) and ore (4.3 million tonnes) make up the bulk of the cargo flow exported through foreign ports. Container flow via the ports of the Baltic states, estimated at about 100 000 TEUs a year, remains stable.

At the same time, coal exported through the foreign ports in the first half of 2019 fell 14%, while shipment of mineral fertilizers, on the contrary, increased by 3%, and ore — by 11.3%.

The decline in coal volume is attributed to the political move regarding Ukraine, and to the reduction in export flow through Riga (though with a simultaneous increase via Ventspils).

But the decline in volumes passing through the ports of neighboring states should not deceive us: Russia continues to accept dependency in certain types of cargo (mainly mineral fertilizers, ore) from foreign ports. The First of all, the problem is the lack of dedicated deep-sea terminals with convenient logistics.

Baltic Sea

This year, some new expansion projects of stevedoring companies have been unveiled. Upon successful completion these projects will be able to shift most of the freight flow are currently shipped through foreign ports.

For example, Ultramar has signed agreements with UCC URALCHEM at the St. Petersburg Economic Forum, for its export cargo handling and lease of warehouses at a new terminal in the Port of Ust-Luga. Once the terminal construction is completed with all the required approvals and permits at hand by the end of 2021, the domestic ports will be able to handle annually 2 million tonnes more of URALCHEM's cargo.

Recently, Rosmorrechflot gave the green light for land reclamation project to create an artificial territory for the Lugaport complex in the Port of Ust-Luga. The project of Ust-Luga Company and Novotrans involves the construction on the site of a hub for various types of cargo, including 7 million tonnes per year of bulk and break bulk cargo (cast iron, pellets, iron ore concentrate, ore, high-quality metal products), 7 million tonnes per year of grain, 2 million tonnes of food cargo. It is stated that the complex will be able to receive vessels with draft up to 15.5 meters.

Yet another project that if it turns out a success may hit hard the Baltic and Finnish terminals now handling Russian exports. The project involves the construction of a complex for handling a broad range of cargo in the Port of Primorsk (Primorsky UTC). The port will be able to accommodate 200dwt vessels with draft of 16 meters. The facility’s estimated annual capacity will be 25 million tonnes of coal, 7 million tonnes of mineral fertilizers, 3 million TEUs, 2 million tonnes of general cargo and 6 million tonnes of grain.

So, the implementation of all these projects will help Russia stop depending on services provided by foreign ports. Obviously, this does not mean that those Russian shippers who are owners of the terminals based abroad will completely stop unitizing them, unless, of course, certain political decisions are made in this regard.

In the case of containers, the current handling capacities of terminals in Russian ports of the Baltic basin far exceed the demand for services, as we have written previously. The problem here is that further expansion of container capacities in the central part of St. Petersburg is constrained by the area boundaries, while Ust-Luga location is not quite convenient in terms of logistics. In this regard, the creation of outer harbours is seen a good solution. The successful example of this concept is the commissioned Bronka port and the project of construction of Primorsky Universal Transshipment Complex. The advantage of these projects is a shorter access canals for ships arriving from the Baltic Sea, convenient location outside of densely build-up areas and direct links to road and rail infrastructure. The Bronka port is adjacent to the St. Petersburg Ring Road (KAD) and the branch railway. With regards to Primorsky Universal Transshipment Complex project its development will be facilitated by Losevo-Kamennogorsk, Primorsk-Ermilovo branch railways and the project of a highway with access to the Scandinavia highway.

If all the projects announced for the Russian Baltic are completed successfully, eventually internal rivalry will likely begin between these Russian ports. And we believe that those outer harbours with good access to the railway and road infrastructure will be winners in this competition. In addition, thanks to its location outside the dense urban area, industrial and logistic zones can be created that generate additional cargo flows. So, in June 2019, an agreement was signed on the creation of the Bronka transport and logistics hub, which includes for the construction of a main railway infrastructure (seven tracks with a total length of more than 7 km), including auxiliary facilities, access roads, warehouses, service points on an area of ​​more than 310,000 m2.

Of course, in addition to handling capacities, it is necessary to ensure competitive conditions related to the facilitation of customs procedures, tariffs, etc. An urgent solution is required to the problem of the anchorage at the ports of Ust-Luga and Primorsk, which happened to be outside the border crossing points, which we have covered in our two stories earlier.

South

This year, coal export via ports of Ukraine has generally stopped, statistics showed, with Russian coal export ban effective as from June 1, 2019. Although, according to market participants, coal supply to Ukraine can be made through Belarus. The withdrawal of Russian coal export from Ukrainian ports does not mean a solution to the problem of a shortage of corresponding handling capacities. In our opinion, only the construction of the Port of Taman dry cargo area can help solve this problem.

According to recent Rosmorrechflot’s information the project investors – RZD, SUEK, Kuzbassrazrezugol and Metalloinvest have confirmed their interest in participating in the Taman project. Earlier, the head of Rosmorport Andrey Lavrishchev has announced that the total value of federal property in this project is estimated at RUB 81 billion. Investors will have to finance them in proportion to their share in the project (it is assumed that RZD will have a share of 10%, and the three partners - 22.5% each).

In addition to coal, the dry cargo area project could also solve the problem of ore shipment through Ukraine, whose ports (mainly Port Yuzhny and some volume – Port Reni) in the first half of the year handled 1.75 million tonnes of the commodity exported from Russia, which is more than double the figure of the first half of 2018.

In general, we can state the fact that the volume of Russian foreign trade cargo that is currently exported through the ports of neighboring countries has approximately reached 5% of the total volume of freight handled at Russian ports, which corresponds to the previously set goal. However, it does not mean that Russian terminals should not compete for the remaining freight volumes and remain dependent on foreign port facilities for a separate cargo type.

Vitaly Chernov.