• 2015 December 4

    Anti-Turkey sanctions

    Russia has so far responded to Turkey’s act of hostility with the ban on imports of Turkish goods. In fact, imports from Turkey make a quarter of container flow via the port of Novorossiysk. The implications can affect Arkas, Admiral and CMA lines. Meanwhile, market players are concerned about possible problems for ships flying the flag of Russia or carrying Russian goods to pass the Bosphorus.

    Tomato throwing

    An asymmetric response to Turkey’s downing of Russia’s warplane results in not allowing any cargo originating from Turkey enter the territory of the Russian Federation. Most of those cargoes have been paid, fully or partly, by Russian customers.

    Prepaid Turkish cargoes are stuck at the customs today. Some companies have managed to secure their release, but it is an exception. For example, car assembly sets for Sollers have been released while similar cargo for Mercedes plant in Tatarstan has stuck.

    The main problems are associated with food, citruses and mostly tomatoes. Their shelf life is only about a couple of weeks and they should be transported in costly refrigerated containers. Russia’s customers (retail networks) pay 30% of tomatoes cost in advance. Their delay means the loss of up and running supply chains which entails deficit and rise in prices.

    Prompt replacement of Turkish tomatoes with alternatives is not easy. They can also we delivered from Morocco, Iran, China… Yet, Morocco products will be more expensive, Iran is still under sanctions while China products can mean a lower quality. A long-term outlook suggests the hope for import substitution, but it will cost much.

    Most cargo flows from Turkey enter Russia via the Azov-Black Sea Basin, the port of Novorossiysk. Some cargoes are delivered via the North-West region (Saint-Petersburg) where no Turkish cargoes are allowed to enter today.

    Meanwhile, RF Government resolution issued on December 1, 2015 approved a list of agricultural produce, raw materials and food products originating from the Republic of Turkey, the import of which is banned from 1 January 2016. The list includes tomatoes, citruses, some vegetables and fruits. Besides, the resolution approves certain measures in respect of permits provided to Turkish road transport carriers for 2016 and other anti-Turkey sanctions.

    In his Annual Presidential Address to the Federal Assembly, Vladimir Putin said that measures against Turkey will not be limited by a “ban on tomato imports”.

    Shipping lines connected with Turkey also face the risks. These are Arkas (15.3% of Novorossiysk market), Admiral (4.7%) and perhaps CMA CGM (2.8%, Turkish citizen is one of its largest shareholders). In terms of refrigerated containers coming from Turkey, Arkas accounts for 65% of the market, Admiral – for 33%.

    In October 2015, imports of containerized cargo via Novorossiysk totaled 17,800 TEUs including 4,400 TEUs from Turkey. Exports totaled 12,600 TEUs including 1,700 TEUs to Turkey.

    Turkish imports in Saint-Petersburg is quite low, exports make 30,000 TEUs per year (some 5% of total exports from Saint-Petersburg). The share of CMA CGM in Saint-Petersburg is about 10%.

    Paper and sawn timber make the bulk of Russia’s exports to Turkey.

    On the other hand, Turkey can response with imposing barriers for Russian ships passing the Black Sea straits. Though under the Montreux Convention Turkey cannot prevent vessels from passing the straits without war declaration it can actually think of many excuses to inspect vessels flying Russian flag and make their voyages unviable. This threatens sea and river going ships under the flag of Russia. In case of further escalation between the two countries, Turkish countermeasures can be extended to vessels carrying Russian cargoes.

    Russia deliberately opted for fruit and vegetables as reduction of their exports can entail social strain in some Turkish regions depending economically on such exports. However, to prevent ‘self-punishment’ Russia should have thought of postponed sanctions so that Russian businesses could get adjusted to new situation and escape loss of money paid for non-delivered goods.  

    Vitaly Chernov