Will Leningrad Region take over Baltic states’ bread?

The Port of Ust-Luga in the Leningrad Region has seen the completion of the project’s first phase, reclamation of 47 hectares, which is a symbolic figure for the region. The new territory intended for a multi-profile sea terminal of Novotrans has recently hosted a closed meeting involving Yevgeny Ditrikh, the Minister of Transport of the Russian Federation, Leningrad Region Governor Aleksandr Drozdenko, authorities of Rosmorrechflot, Rosmorport and Russian Railways as well as representatives of other terminals operating in the port.

As Yevgeny Ditrikh said after the meeting, implementation of the projects on construction of new dry bulk cargo terminals in Ust-Luga will increase the port’s capacity by 42 million tonnes per year. Apart from Lugaport, underway is the construction of Ultramar terminal for handling of mineral fertilizers. According to the Minister, the port’s current capacity is 133 million tonnes per year.

The figure of 42 million tonnes comes from the following calculations: according to IAA PortNews, throughput capacity of railway approaches to the port is 118 million tonnes per year while Russian Railways President Oleg Belozerov said at the meeting that in 2019 railways delivered 76 million tonnes of cargo to the port. Thus, the capacity margin is 42 million tonnes per year. However, it should be noted that railway logistics in the port is the responsibility of PULtrans dealing with online-requests (a principle of taxi aggregators) while down-time periods can be reduced thanks to loop-type railway lines within the port. The head of Russian Railways says unmanned technologies are to be introduced into railway logistics in the future.

So, unlike other port projects of Russia, this one has no problems with railway approaches to the port.

According to Leningrad Region Governor Aleksandr Drozdenko, Leningrad Region ports will be able to take over all the remaining foreign trade cargoes of Russia from neighboring states by 2025.

In fact, there is no doubt in terms of the capacity as the volume of Russian cargoes still being handled in foreign ports is not that big. That will raise a problem of internal competition.

According to the data of IAA PortNews’ Analytical Department for the first half of 2020, the ports of Finland and the Baltic states handled only 220,000 tonnes of Russian grain, slightly over 3 million tonnes of ore, about 2 million tonnes of coal and less than 5 million tonnes of mineral fertilizers. Thus, the capacity demand for the above mentioned cargo is about 500,000 tonnes for grain, 6-7 million tonnes for ore, up to 5 million tonnes for coal and about 10 million tonnes for mineral fertilizers, a total of 22 million tonnes per year.

Lugaport alone is designed for handling 24 million tonnes per year including 8 million tonnes of grain, 8 million tonnes of ore and 8 million tonnes of general cargo.

Near it, is the construction site of the Ultramar terminal designed to handle about 12 million tonnes of mineral fertilizers when fully operational, which is more than needed to redirect the flows of fertilizers to Russia.

Besides, Sodrugestvo-Soy, a company headquartered in Kaliningrad, is also looking into handling grain in the Leningrad Region. The company earlier announced its plans to build a terminal in the Batareynaya Bay. However, the project has been suspended due to environmentalists’ protests.

One more large project is Primorsky MRC on the other shore of the bay. It is also intended for handling of dry bulk cargo including 25 million tonnes of coal, 7 million tonnes of mineral fertilizers and 6 million tonnes of grain.

Moreover, Tehnotrans LLC is set to build Vysotsk Grain Terminal with annual capacity of 4 million tonnes.

As we know, New Technological Company LLC is also looking into building a grain terminal in Vysotsk instead  of coal terminal (SPK Vysotsk).

The capacity of all the announced projects is thus as follows: 18 million tonnes of grain (versus the demand for 500,000 tonnes), 8 million tonnes of ore (vs the demand for 6-7 million tonnes), over 25 million tonnes of coal (vs the demand for 5 million tonnes), 19 million tonnes of mineral fertilizers (vs the demand for 10 million tonnes).

As for coal, a dedicated terminal, Rosterminalugol, is operating in Ust-Luga. Equipped with railcar dumper, conveyors and other specialized equipment it allows for highly efficient and environmentally friendly handling of coal. Besides, there are non-specialized terminals handling coal in Ust-Luga (Ust-Luga Container Terminal), UPK in Saint-Petersburg, Port Vysotsky (which is also considering a conversion to start handling grain).

In view of the expected excess of bulk cargo handling facilities, especially those for handling of grain and coal, we should take note that Russian terminals of the Baltic Basin will compete with each other rather than with foreign terminals as it is announced publicly.

Investors are aware of that. For example, initiators of Primorsky MRC project count on establishment of a special economic zone in Primorsk.

“We will be able to offer quite attractive terms of handling to cargo owners and that will be our competitive advantage”, Dmitry Temkin, Deputy General Director for Project Engineering, Primorsk MRC LLC, said in June 2020.

When speaking about a competition with foreign terminals it should be taken into account that the mere fact of excessive facilities available does not mean that the cargo will be taken over automatically. Competiveness of Russian logistics is an important aspect. Meanwhile, Rosmorport insists on a 3-pct increase of port charges and there is a plan to introduce investment dues in ports.

Another aspect is the inclination of consignors to work through their own facilities (and they have made investments in Baltic ports) or to deal with partners tested by years.

It seems fair to say as a summary that the main struggle for dry bulk cargo will develop in Russia. On the other hand, healthy competition is always beneficial.

Vitaly Chernov

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