Back to the future: Russia's waterborne transport - from the market to Gosplan?

Russia's waterborne transportation does not seem to do well in the free market environment. Some propose introducing elements of a kind of the state plan both in the field of shipping and shipbuilding. Some initiatives seem justified, while others are rather dubious.

The waterborne transport segment in modern Russia can be characterized by the following trends. First, the civilian fleet is still in dire need of a large-scale upgrading (although there are already noticeable advances in this direction). Secondly, the inland and river-sea segment is experiencing intense and not always market competition from other modes of transport. Thirdly, the Russian shipbuilding industry is strongly dependent on foreign ship components and domestic shipyards fail to fulfill their contractual obligations and miss deadlines.

In this regard, both shipping companies and the shipbuilding industry suggest referring to the experience of Soviet era State Planning Committee management. What comes of it?

Shipping
The inland shipping in Russia is characterized by competition with rail and road transport. Commonly, the railways give discounts for the carriage of goods right in periods of river navigation season.

In this regard, it is useful to refer to foreign experience. For example, the inland waterway transport of the United States, in the fiercest competition with road and rail transport, has managed to prove its economic efficiency. The American experience was discussed by market participants and industry experts during the PortNews webinar “US River Fleet. What is useful for us or How do people make money? "

According to the main speaker of the webinar, Gennady Yegorov, Professor, head of Marine Engineering Bureau the main achievement of the US inland shipping sector is that for more than 130 years the transportation of goods along the inland waterways has been performed by Articulated Tug and Barge units (ATBs). This mode of inland transportation resembles the operation of the railway, that is, the provision of linear service and with sailings performed according to schedule.

It would seem that this experience can be adopted by Russian inland shipping sector as well. However, by 2030 the number of river push boats in Russia is expected to be reduced by almost three times – to 659 units versus  1899 units in April 2020. According to the forecast of the Marine Engineering Bureau, the number of pushers in Russia will drop to 1291 vessels by 2025.

Gennady Yegorov believes that using ATBs in river transportation has a good economy compared to self-propelled vessels (as opposed to seaborne transport), since they allow flexible use of propulsive force where it is needed at the moment, without operating expensive self-propelled cargo ships.

“River transportation requires optimization, when we can deploy the fleet, propulsive force,” the expert explained.

However, building new tugs may be an ‘unaffordable luxury’. According to Alexander Baranov, COO of SK MORVENNA LLC (specialist of oversize cargo inland transport), the cost of a new river towboat abroad is about 6 million euros while in Russia it may turn out to be more expensive, since foreign components are still used in the construction, which still need to be imported.

“The old fleet is able somehow to satisfy its needs and fulfills its functions, and the cost of the newbuilds may be insanely expensive and it is not known when it will pay off,” summed up Alexander Baranov.

The experts as a solution offer make use of the Soviet Union’s experience in creation of the MTS. Such stations concept meant that business entities could borrow the equipment they needed for temporary use, and then return it back to the station. In market conditions, this can be realized using the mechanism of the so-called operating lease.
“Well, newbuilding is quite possible but if they grant a preferential operating lease so that the owners of (non-self-propelled) barges could use the pushing power provided by ATBs,” said Gennady Yegorov.
The operating leasing is understood as a scheme in accordance with which the lessor acquires the necessary equipment and then lease it out to the end consumer.

Shipbuilding

It is clear that the development of domestic shipping is closely related to the problems of shipbuilding. Today, the United Shipbuilding Corporation (USC) is the largest shipbuilder in the country. Alexei Rakhmanov, General Director of the USC, at the last meeting with Russian President Vladimir Putin, put forward a proposal which gives the second birth to the principles of the USSR’s State Planning Committee.

“Our favorite Customer, the Ministry of Defense, uses the method of estimated prices for the construction,” the head of the USC told the President of the country. - And in this case, my consistent proposal would be as follows. If we had a body, most likely the Ministry of Industry and Trade, which would have the regulatory right to approve pricing for the construction of a single, lead ships, this would help solve all our problems. We could demonstrate to our customer the actual costs of the contract execution, and we ourselves would not be at a loss, which, unfortunately, happens."

Vladimir Putin's reaction to this proposal was not mentioned in the transcript of the meeting, but at the end of July, the Federal draft regulations portal published a bill on amendments to the Federal law "On Industrial Policy in the Russian Federation."




As follows from the explanatory note to the draft regulation, it provides that the Ministry of Industry and Trade will be empowered to determine the approximate cost of newbuildings and the prices of design, engineering, construction, repair, scrapping, labour inputs and labour rating in the design, construction, repair, and scrapping of ships. It is also planned to introduce a form of evaluation based on the results of the verification (examination) of the justifications for the estimated cost of building ships.

Moreover, at the same time, the Ministry of Industry and Trade released a RFPs for the research "Development of labour standards and labour intensity standards to ensure the calculation of prices and technical and economic indicators of ship construction in the production environment of a promising high-tech shipbuilding enterprise."

To fulfill the plan is a duty, to beat the target it is an honour

Certainly, we believe that some elements of a planned economy may well work in market environment. As to the experience of the MTS, this idea can be fully implemented in the market conditions through the mechanism of operating leasing with state support. Market logic will not be destroyed.

A different matter, if we are talking about the state setting prices for a particular complex product.

This raises a natural question: if it comes to the point that a private customer will be imposed a price determined by state bodies on a ship, then the state, as it was in the Gosplan era, must also take care of the financial well-being of the customer, in fact, then there is ultimately the nationalization of shipping activities and the introduction of state pricing along the entire production chain.

Vitaly Chernov