• 2023 February 10

    Coal: with a southern accent now

    In 2022, coal exports via Russian seaports rose by less than 2%, year-on-year.  The highly demanded route to the Far East has become a bottleneck for coal logistics, hence the southward shift of coal flows. However, the capacity of railway approaches is also limited there.

    Which port is the leader?

    Coal handling in Russian seaports rose by almost 2%, year-on-year, according to the statistics offered by Association of Commercial Sea Ports. The ports of the Baltic Basin saw a decrease by over 9%, the Far East ports – a slight increase of 0.5%, the Arctic Basin – by 5.5%. The Southern Basin has demonstrated a distinguished growth of almost 20%.

    In the North-West region, the largest share in coal exports is that of Ust-Luga: in 2022, it handled 38.5 million tonnes, down 8.4%. The largest port of the Arctic region, Murmansk, demonstrated a decrease by 3% to 12.6 million tonnes. In general, the growth of coal exports in the Arctic Basin was driven by the activities of small terminals in Kandalaksha, Beringovsky, etc. However, the impact of the Arctic ports is minor.

    In the Far East, the best results were achieved by Vanino port with its terminals having handled 32.5 million tonnes of export coal, up 7%, year-on-year.

    In the South, the bulk volumes were handled in Taman which increased coal handling by almost one third, year-on-year (30.5 million tonnes versus 22 million tonnes a year ago).

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    The year of 2022 was marked by the EU embargo and uncertainty in the global market of freight rates for bulkers. Long-standing problems of overloaded railway infrastructure, especially that of the Far East, have aggravated.

    The Achilles' heel of the Far Eastern route is an acute shortage of BAM and Transsib capacity. Aid the eastward pivot of logistics, all and sundry rushed to the Far East with containers being the first. Container transportation is more profitable than coal transportation for railway operators. For the state, containerized cargo is also a priority, since containers transport, among other things, spare parts and components that are in dire need for the domestic economy.

    In the autumn 2022, the market participants estimated the shortage of the Eastern Polygon capacity at 140 million tonnes per year – that was announced by Ruslan Baisarov, Chairman of Bamtonnelstroy-Most BoD, speaking at the Eastern Economic Forum. He believes that annual capacity of 284 million tonnes is needed.

    Russian Railways says that from 1 January 2023, throughput capacity of the Eastern Polygon makes 158-160 million tonnes. By 2030, with the implementation of the Eastern Polygon development project’s Phase II (BAM and Transsb development), annual coal transportation will grow by over 28 million tonnes. That coal will be directed to Russia’s Far East ports. Additional 25 million tonnes per year can come from Kuzbass and Elginskoye fields.

    Although that forecast has not been confirmed so far, it is below the market demand: the situation with coal shipment is not likely to improve, the more so as large coal terminals in the Far East are working towards diversification of their businesses in favor of more profitable containers and the railways are actively using gondola cars for container transportation.

    In this context, many experts and market players call on unloading of the east-bound routes through organizing deep-sea routes from the APR countries to container terminals in Russia’s Southern and Baltic basins.

    Setting eyes on the South

    Taking into account the overloading of the Far East bound routes and the European embargo on Russian coal, the cargo shippers are setting their eyes on the Azov-Black Sea route.

    Aleksandr Goloviznin, Director, Logistics and Analytical Research, Morstroytechnology, emphasizes that Taman coal terminal is the only one in the European part of Russia able to handle ships of up to 220,000 dwt.

    “The key advantage of the bulk terminal in Taman versus the Baltic ones is its ability to handle 220,000 dwt ships. It handles ships that are much more competitive in terms of freight as compared with those being handled at the Baltic terminals. The loading speed is very high and the way to India and the Asia-Pacific Region is shorter, so it certainly wins in comparison with the Baltic ports,” the expert believes.

    However, the capability of the southern route is also limited by the capacity of railway infrastructure. In the future, the prospects of this route will depend a lot on the speed of the infrastructure debottlenecking.

    Vladimir Savchuk, Deputy General Director of the Institute for Natural Monopolies Research (IPEM), notes that stevedores in Taman offer a discount to attract the fleet of innovative railway cars that feature increased capacity and therefore let enhance the efficiency of cargo delivery by the overloaded southern railways.
    Aleksey Kalachev, analyst of Finam, says in his turn that “the full capacity of the coal terminal of about 72 million tonnes can be reached with the expansion of railway and storage infrastructure. So, the handling capacity of the southern facilities can continue growing in 2023 if the development of railway infrastructure continues."

    Weighty word of freight

    The situation in the global dry bulk segment is also favorable for the development of coal terminals able to handle large ships.

    According to MOL, freight rate for Capesize bulkers has dropped from its peak level of almost $65 thousand per day to about $12 thousand per day in January 2023.

    In 2022, average daily freight rate for Capesize bulkers was $16.2 thousand vs $33.3 thousand in 2021. In the segment of Panamax ships, the difference was not that large: $20.7 thousand vs 26.7 thousand, in the segment of Handymax ships it was even smaller: $22 thousand vs $26.6 thousand. That proves additional competitiveness of cargo transportation by larger ships, primarily on long routes to the APR countries, especially amid the decrease of prices for thermal coal in the Arctic.

    It should be noted that Taman is the only port in the European part of Russia able to service Capesize ships. Russia’s port in the North-West region can only handle Panamax ships. The larger ships, the lower freight expenses, hence the higher profitability of supplies.

    What we finally have

    Thus, the key problem of the coal (and not only coal) logistics in Russia is the development gap between port logistics and railway infrastructure with the latter lagging behind. Coal terminals in all basins are still in demand but those able to accept larger batches of cargo, handle them promptly and service larger ships have the best prospects.

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Vitaliy Chernov