Shortage of large ships and container facilities were among key limiting factors in 2022 – Vladimir Ivin
In 2022, Federal Tax Service noted mixed trends of cargo flows distribution: 7-pct decrease in terms of volumes and 7-pct increase in terms of value, fall of container throughput in the Baltic region by half and surge of energy exports and throughput of the Far East ports by 125% as turnover of containers intensifies due to improved logistics and customs technologies. Despite the absence of clear forecasts, the customs counts on the upsurge of still poorly developed North-South corridor and plans to expand its footprint on the Arctic route. Vladimir Ivin, Deputy Head of FCS of Russia, tells about the customs’ strategies in the unstable market conditions.
- What are the preliminary results of the past year foreign trade?
- According to 2022 statistics, Russia's foreign trade turnover decreased by 7% in terms of volumes, but increased by 7% in terms of value. The exports mix has not changed much either. Amid the sanctions and planned restrictions, foreign partners, including the European ones, were active in purchasing oil, oil products, coal, LNG – hence certain increase in these segments. Export of various chemical products also increased. Good dynamics was registered in the segment of agricultural goods and food products. Unfortunately, the dynamics in the segments of ferrous metals, grain and fertilizers was negative due to restrictions. The share of timber in total exports also decreased sharply, which should be attributed to the measures of the Russian Government aimed at limiting exports of unprocessed timber and rough timber products in favor of exporting highly processed products. As a result, in 2022, export volumes decreased by 6% but the value increased by 18%, which is explained by the global upward trend in prices for almost all goods, including energy, grain, food, electronics, as well as by growing transportation costs. In general, the share of exports in total turnover increased by 4% to 89% by the end of the year.
The imports mix did not generally undergo essential changes, but the proportions changed. As before, we import a large number of machines, mechanisms, radio electronics, and China accounts for a significant share of them. However, the volume of building materials from Europe sharply decreased. The segment of food products saw a slight increase driven primarily by fruit and vegetables with regular seasonal fluctuations. Parallel import was a new activity in the past year but its share was small.
- How has the water transport share changed in foreign trade?
- Water transport traditionally accounts for the major part of international traffic. The trend intensified in 2022. Last year, it accounted for 63% of turnover by volume and for 43% by value, now it is 69% and 47% respectively. The growth was mainly driven by the export of fuel and energy products. When it comes to the negative trends, apart from the above mentioned reduction in the market of grain and fertilizers, the most noticeable was the decline of volumes in the container market.
- How strong is the deformation of the seaborne transportation market? What caused the disruption, in your opinion?
- Geographic redistribution of flows resulted in the 32-pct growth of imports in the Far East basin. On the contrary, imports to the Russian Federation via the North-West (Baltic) basin, fell by 42%. At the same time, import volumes in the south (the Azov-Black Sea basin), changed insignificantly (+4%). However, this figure does not fully characterize the reality with its mixed trends.
On the one hand, the ports of Ust-Luga, Vysotsk and Novorossiysk, which export energy resources, increased shipments. On the other hand, the container market in the Baltic region shrank by 40-60%, according to various estimates. This is due to withdrawal of large container lines, which used to ensure the regular planned loading of ports.
Besides, problems began with the delivery of goods imported from certain regions of the world, primarily from Latin America and Africa. Previously, they were delivered to European ports by large ocean-going liners, then they were reloaded onto feeder ships and sent through the Danish straits to the Baltic region. This scheme haled at a certain moment, then it was resumed to some but not the same extent.
- What is the FTS’ outlook on this year?
- There are too many unknowns here to predict accurately. Among the factors are fluctuations in export supplies, primarily energy, in 2022. It is not known what the new sanctions packages will include, how the countries we are planning to cooperate will behave. For example, it was a surprise when the Republic of Korea joined the sanctions bloc. One thing can be predicted for sure: the market will be extremely unstable next year. Hopefully, the policy of our partners, first of all, China, CIS countries, and India, will not undergo critical changes, if any.
- What measures does FTS undertake to prevent transport collapse on the eastward routes?
- I would characterize the situation in the Far East as very tense. But it is changing for the better. The coordination of all stakeholders’ actions has improved significantly. If you remember, even northern delivery was under a question last year. There are no such difficulties this year: all the parties involved in the process - port owners, stevedores, the Ministry of Transport, Russian Railways, and, of course, customs - interact online. In my opinion, one of the major problems in the region is the departure of major players which used to ensure a regular and clear schedule of supplies. There were seven large lines, and now there are 45 small and mid-size organizations that deliver goods on a more or less permanent basis. However, their work is not regulated in terms of time and volume with FESCO representing the exception. No one knows when and what amount of cargo will be delivered by a ship. Therefore, ports cannot plan unloading and ships stay idle for a week or more.
As for the goods under our control, I would note the reduction of their customs clearance time and time spent in a port. In most cases, a declaration is submitted after the next day after cargo arrives at the port, the customs releases it within 24 hours, but after that the released goods continue to be stored in the port waiting. The port authorities explain this by the desire of the cargo owner and the expectation for loading onto railways lacking capacity. Last year, such storage of already cleared goods was up to ten days. Now the time spent by cargo in the port has been reduced to five-seven days.
Throughout a day, Customs releases almost 95% of goods following their declaration. Over that day, let’s say in Vladivostok, 36% of cargoes are cleared automatically within a minute, 86% - within four hours. Thus, 5% of cargoes are those that either require inspection, which takes one to two days, and the inspection itself lasts no more than three to four hours, and the rest of the time is spent on port operations, sometimes there is a need for an examination, which can take up to ten days.
To speed up the process, the port collects applications for inspection during the day and prepares containers. Then we start working with them in the morning. Russian Railways has increased the number of flatcars provided for export of containers from 2,700 per day to 3,200 or more. In addition, gondola cars are now in active use to export containers. They can be loaded both in ports and in rear terminals. In our turn, we have cancelled a number of additional customs operations and we now arrange transportation of goods by road to the point of loading into gondola cars with a single document. To ensure this process in Vostochny, Vladivostok and Nakhodka ports, tracking seals were put in practice. They let track the movement using cell towers. The technology was adopted within the framework of local interaction between customs and logistics operators. It proves to be effective. In addition, we started working round-the-clock in the ports of Vostochny and Vladivostok. As a result of all the stakeholders’ efforts, the number of cleared containers increased by 9%.
- What measures could enhance the capacity of Far East ports?
- The terminals of the Far East ports are loaded from 110% to 125%, so growth is only possible with the development of rear terminals. So far, there are practically none of them, except for some temporary storage warehouses that operate in a similar way. We hope for new projects. For example, several agreements were signed at the recent EEF on the establishment of dry ports in 2023-2024. We’ll see. On our part, we are trying to encourage declarants to expand the practice of preliminary declaration of goods. Unfortunately, agents and forwarders do not use this technology as widely as we would like. In case of preliminary declaration, the customs conducts all the necessary clearance and control operations before mooring of vessels. Basing on the results of the customs risk system, even before the unloading, the customs informs the logistics operators about containers that need to be presented for additional control, and those that will be released immediately after unloading. Thus, this technology makes it possible to save several days by avoiding additional port operations.
- What measured are undertaken to offer privileges for shipbuilding and ship repair?
- A wide range of privileges is foreseen for shipbuilding. As for the Far East, it is, first of all, the free customs zone regime in the territory of the Free Port of Vladivostok and the territories of advanced socio-economic development. It is being actively used by shipbuilders, for example by shipbuilding complex Zvezda. Besides, ships entering the national register are exempt from paying VAT and duties. In 2022, additional measures were implemented, which, according to the Ministry of Industry and Trade, let reduce payments for import of technological equipment, components, and tools. 117 vessels were provided with privileges worth RUB 38 billion. (duties - about RUB 10 billion, VAT - about RUB 28 billion). In general, the cope of additional benefits in the form of exemption from customs payments totaled about RUB 108 billion in 2022.
- What is the scope of the duty-free import procedure under the free economic zone (FCZ) regime? How is the FCZ developing in the Free Port of Vladivostok?
- The FCZ procedure in special economic zones and similar territories such as "Free Port of Vladivostok" and "Arctic Zone of the Russian Federation" is generally in demand among businesses. The number of special economic zones is constantly increasing, Today, there are 41 of them plus two above mentioned territories, but FCZ regime was applied only in 18 of them and in the Free Port of Vladivostok. That is because its establishment requires additional investments and implies a certain business model. In 2022, the volume of goods covered by the FCZ regime decreased across the country as a whole, but in the Far East there was an increase of 21%, mostly due to exports. In terms of volumes, exports from the Free Port of Vladivostok increased by 42% with goods made from imported components making the bulk.
- What is your opinion about the operation of the North-South corridor in 2022 and its forecast for this year?
- As you know, this corridor has three directions: two land routes - western and eastern, and a sea route - through the Caspian Sea. They all develop differently. At the moment, the capacity of the corridor is small, about 5 million tonnes of cargo per year. An increase is expected by 2030, tenfold or more, according to various calculations. These 50 and more million tonnes are expected to be equally distributed among the three routes. The eastern one is already operational. It is based on the railway that runs through Iran, Turkmenistan and Kazakhstan.Russian Railways says it is already ready to transport 5 million tonnes and it transports as much cargo as is provided with no problems, although on an irregular basis so far. The western branch is more complicated - it is necessary to complete the construction of the railway in Iran for a link with the Azerbaijan railway network. Small volumes of goods are currently being transported by road hear. The plan is also 15 million tonnes. As for the offshore route, we consider it as the most preferable one, since it excludes additional transit countries, hence lower risks. However, this direction is still underdeveloped due to logistics and infrastructure limits. There are plans to develop SEZ Lotos, organize ferry transportation to the ports of Astrakhan and Olya, and a container line to the port of Makhachkala. There are our customs posts in all these ports and they are ready for an increase in cargo traffic as the volumes here are small so far. The Government of Russia has planned additional measures for its development with a comprehensive approach that takes into account the shortage of the fleet, port infrastructure problems, the need for dredging, as well as the issue of balancing port dues and freight rates.
- What are the prospects of navigation seals in other ports, apart from Novorossiysk?
- FCS has been using navigation seals from 2014 to control sanctioned goods. The technology lets reduce the number of customs operations, replace them with electronic support. However, its introduction in maritime transport began only in 2022. It website used in the port of Novorossiysk to increase the volume of ferry traffic from Turkey. The decision was made after the ferry line became regular, and the volume of cargo began to exceed the port capacity. It was decided to take out the cargo, using navigational seals, to a site outside the port for customs clearance. According to RF Government’s decision, this technology can be used in three more ports – Great Port of Saint-Petersburg, Vladivostok and Vostochny. However, the technology has not been lunched there.
- How does the cooperation with other countries’ customs develop towards facilitation of customs procedures?
- In 2022, relations with foreign customs underwent great changes indeed. Our traditionally close partners from the EU countries terminated cooperation almost completely. We still have some cooperation channels for interaction on some cases, particularly emergency ones.
At the same time, cooperation with the colleagues from Asia, Africa and Latin America has intensified
Two important agreements were signed with China in 2022. One of them is on the exchange of information on goods’ characteristics including their customs value, the other is on the recognition of the status of an authorized economic operator. Both are being successfully implemented with the possibility to expand their scope under discussion. An agreement on a simplified customs corridor with Iran came into force on July 31 and imports of goods covered by the agreement, primarily food products, increased by almost 40%. A similar agreement was concluded with Azerbaijan, which also led to an increase in food imports.
- What measures on NSR development are planned by FCS?
- The Federal Customs Service put forward its proposals at the phase of project preparation, and they were taken into account in general. First of all, it is now possible to apply the FCZ procedure in the Arctic zone. We expect it to stay in demand as the project develops. Secondly, the customs authorities will exercise all types of control at checkpoints along the NSR. Only border and migration control is not covered. We believe that this will not only be a good testing ground for securing the “two services at the border” technology, but also a facilitation of cargo clearance. Besides, we made our proposals on the arrangement of checkpoints both in terms of customs control and in terms of creating infrastructure for people to live. Now most of the checkpoints in the Arctic are in little demand and work on a rotational basis: when you need to clear the cargo, a group of customs officers go there. But to work on a permanent basis, you will have to allocate additional staff and provide employees and their families with the conditions for a normal life. In fact, only two permanent checkpoints operate in the Arctic today – on the Yamal and in Murmansk. However, the project implies the permanent operation of customs posts in such ports as Tiksi, Pevek, Provideniya, and other terminals in Chukotka and Yakutia. We constantly remind about this problem, trying to solve it with the participation of the Arctic regions’ authorities.
- What are the prospects of the “smart checkpoint” project? What port is to be the first?
- Smart checkpoint is one of the targets of the Customs Development Strategy until 2030. In 2022, the Ministry of Transport approved the requirements for the implementation of this model at all types of checkpoints, including maritime ones. We expect such projects to appear before 2025. In fact, this is a comprehensive project that includes various control tools integrated into a single information platform for operation of all control authorities at the checkpoint. The main factor that prevents the project from being completed right now is the need to purchase technical equipment and integrate it into a single complex. To date, the Ministry of Transport has developed plans to ensure in-stream control without stopping transport. Work has begun on their deployment at some automobile checkpoints.