Neither more nor less

While container flow through Russian terminals falls steeply, foreign ports of the Baltic Sea continue handling almost 25% of containers bound for Russia. The market players blame it primarily on imperfect customs administration in Russia, insufficient free storage time at domestic terminals and high rates of storage services.

‘Bitten’ cargo flow

According to the data collected by IAA PortNews, some 94,500 TEUs of containerized cargo imported by Russia in HI’2015 were transshipped in the foreign ports of the Baltic Sea. Since container terminals of Saint-Petersburg and Ust-Luga handled some 410,000 TEUs over the same period, foreign ports have got almost a quarter of Russian ‘pie’. It is quite an amount taking into consideration that domestic container terminals have lost about one third of their throughput due to economic crisis and ‘sanctions war’ involving the Baltic states among others.

The prime ‘biters’ are the ports of Latvia, Finland and Estonia. For example, container imports at the port of Riga (Latvia) in HI’2015 totaled 55,500 TEUs including some 35,000 TEUs of cargo transit to Russia. Container throughput of the Port of Tallinn (Estonia) consisted of some 33,000 TEUs of imported cargo including 26,000 TEUs intended for Russian customers. Port HaminaKotka (Finland) handled about 111,000 TEUs of import cargo including 33,000 TEUs bound for Russia.

So, Russian containers account for over 60% of the incoming container flow of port Riga, almost 80% of port Tallinn and nearly one third of port HaminaKotka, which means that foreigners live off the Russians with the latter having nothing from this.

Meanwhile, Russian terminals are quite competitive. They enjoy state-of-the-art infrastructure and Panamax class vessels carrying some 3,000 TEUs of loaded containers can enter the port of Saint-Petersburg considering the draught limits of 10.5 m. The port of Riga accepts boxships loaded with 1,300-2,000 TEUs. When outer port Bronka with its shortest approach canal and the ability to accept 5,000-TEU PostPanamax ships becomes operational, infrastructure advantages of Saint-Petersburg will multiply its competitiveness. Provided that bunker fuel in Russia is much cheaper as compared with foreign countries, our terminals seem to be a clear choice but there is a number of catches here.

Who is to blame? and What is to be done?

In relation to these vital Russian issues, market players questioned by IAA PortNews share the same opinion – foreign ports are chosen for the delivery of container cargoes bound for Russia  due to imperfection of customs administration in our country, insufficient free storage time at domestic terminals and high rates of storage services.

According to Aleksei Shukletsov, Executive Director of Fenix LLC (Bronka project investor and developer), the reason of favoring the Baltic states’ ports over the Russian ones to a great extent lies in the customs sphere. “As for infrastructure, the situation will change as soon as MSCC Bronka is put into operation in September 2015 and gradually achieves the designed performance in 2016. We expect that the launch of the complex will let partly shift a container flow from foreign terminals to Saint-Petersburg,” Aleksei Shukletsov comments.

According to Aleksei Podchufarov, Head of Intermodal Department at Itella, Russia, traffic via the Baltic state have always existed though many Russian importers start using this way less frequently today.

He says Russian importers try to escape port Saint-Petersburg primarily due to customs procedures. The Baltic Customs’ requirements applied to documents, especially those confirming the customs commodity cost, are much tougher as compared with other countries’ customs. Therefore, cargoes spend much time in the port, Aleksei Podchufarov says. He notes that storage services in Saint-Petersburg are very costly (the highest rates in Europe) and importers try to escape the risks. Many of them find other routes – via Kotka, Tallinn, Riga or Klaipeda. If a container should be delivered to Moscow Region for customs clearance, it will most probably go via Finland. If customs clearance is supposed in Smolensk or Sebezh, the cargo will be delivered via the Baltic states. “If Saint-Petersburg customs handled cargo promptly, this port would be the most attractive one for Russian imports as costs for transportation to the Moscow Region (the majority of cargo goes there) via the port of Saint-Petersburg is the lowest,” Aleksei Podchufarov believes.

Aleksei Misailov, Commercial Director of FM Logistic Customs, is also sure that the main problem is in excessive bureaucratic administration at the North-West Customs’ points. “Business selects easier ways”, he says. Aleksei Misailov notes that economic factor is also essential for selection of logistic routes. According to him, freight costs to Kotka are lower than those to Saint-Petersburg or Ust-Luga. Besides, free storage time for containers is too short in Russia.

“A dialogue between stevedoring companies, shipping companies and customs is required to attract direct container flows to Russia. As of today, everybody hogs the covers,” the expert says.

Biting the hand that feeds?

Having analyzed the opinions of the questioned market players, we can make the following conclusions:

First of all, Saint-Petersburg needs 7 free storage days for dry imports to be comparable with the ports of the Baltic states. The rates for post free storage should be reduced as they are too high as compared with the foreign ports today. 

As for the customs, the current situation is as follows: one idle week and two inspections at Saint-Petersburg customs means extra costs of $1,000 per container. And you cannot foresee that - logistics turns into a sort of ‘Russian roulette’. This situation is excluded in Russian ports. 

Besides, handling costs at Russian terminals are much higher than in foreign ports. Yet, it is less of a problem as customers should just claim FILO rates including terminal handling charges. The difference with foreign terminals will make $150-200 per container while part of it can be taken by a shipping line, part – by a client, especially if political means are applied against the transit via foreign ports.

A significant factor aggravating the situation in domestic ports is the internal customs transit procedure which is much easier for cargoes delivered to hinterland customs by railway from the Baltic states as compared with the practices at the port of Saint-Petersburg. In fact, crossing the Border of the Russian Federation is more complicated for freight delivered from the Baltic states and Finland by motor transport as compared with the railways. However, if we don’t count inspections, the procedures are smooth and require no extra expenses. As for the port of Saint-Petersburg, ICT procedure can take 3-7 days.

One more factor is the difference of customs value index for certain goods at border and hinterland customs. Market players say that clearance procedure at Moscow Region customs may sometimes cost $500 to several thousand dollars less than at border customs. In such cases, ICT procedure is more profitable for cargo delivered from the ports of the Baltic states while domestic terminals loose profit and budget revenues decrease.

At last, foreign ports enjoy storage infrastructure in close vicinity or within the port limits providing for cheap storage of decontainerized or containerized cargo. So many retailers practice the following scheme: cargo coming to Riga is delivered to a depot near the terminal where it is stored for a week or two in containers at very low rates, then a retailer pays for the cargo and gets it in Moscow in a week. There are depots and warehouses in Saint-Petersburg but the delivery and storage costs much more than in foreign countries.

Thus, market players agree that Russian customs and owners of the terminals and storage facilities should make strategic decisions to attract container flows from the foreign ports to Russia instead of pursuit of here-and-now profit. In the near term it will bring more profit to both budget and operator which is important amid the protracted economic crisis.

Vitaly Chernov