• 2023 May 10

    What hinders investments into container ports

    Vostochnaya Stevedoring Company. Photo from the company's website

    Drastic changes in Russia’s container logistics have led to downtime of facilities in the North-West and their congestion in the Far East. In this situation, investments are required both in the creation of new facilities in overloaded regions, and in the optimization and diversification of the existing facilities in underloaded ones. Meanwhile, investors face a number of challenges.

    In brief

    Russian construction terminal need investments, both in the expansion of some terminals and in modernization and diversification of other terminals. Most investments run through a contract model applied by Rosmorport but not applied by Russian Railways. The business also emphasizes the need to facilitate the obtaining of relevant expert approvals.

    North-West in excess

    It is no secret that container segment of Russia’s foreign trade used to focus on the west for many years. The North-West ports, primarily Great Port of Saint-Petersburg, were developing their container component most actively before the pandemic. PortNews pointed to the excessive development of the Baltic container segment back in 2017. Even then, we estimated an excess of container capacity at 3.7 million TEUs per year.

    As Igor Pukhov, Commercial Director of Management Company Global Ports LLC, said at the recent meeting of the Expert Club of the Eurasian Union of Rail Freight Transportation Participants, the total annual capacity of container terminals in the North-West seaports is 5 million TEU, including 3.1 million TEU of Global Ports’ terminals.

    “This year, we expect the North-West terminals to handle 1 million TEU while their capacity is about 5 million tonnes TEU per year,” said Igor Pukhov.

    So, the figures share by the expert show that the current excess of capacity is as high as 4 million TEU per year.

    According to Igor Pukhov, total throughput of the group’s all container terminals in the North-West region is expected to reach 150-170 thousand TEU in 2023. In 2021, it was about 80 thousand TEU per month.

    This situation forces stevedores to diversify their cargo flows which requires certain investments.

    “The business feels the situation. Some terminals turn to handling dry bulk cargo, some start handling mineral fertilizers that is not typical for container terminals,” said Ruslan Mukhametov, Head of the Department for Ports and Infrastructure Development of Rosmorrechflot (Federal Marine and River Transport Agency).

    PCT. Image source: Global Ports 

    East under excessive load

    While the facilities of the North-West are underloaded, the Far East demonstrates considerable growth of container volumes. Igor Pukhov says that Vostochnaya Stevedoring Company of Global Ports increased container handling in the first quarter of 2023 by 17%, year-on-year.

    The basin needs investments both in the expansion of container facilities and in optimization of railway logistics. For example, Vostochny Port JSC has mastered the technology of transporting containers in gondola cars. In 2023, the number of containers shipped in gondola cars is expected to almost double, to over 22 thousand TEU. The share of containers carried in gondola cars is planned to surge from 35% in 2022 to 90%.

    “Today, we can surely say that the loading of containers into gondola cars is now equal to the loading onto fitting platforms,” Irina Olkhovskaya, UMMC Director for Port and Rail Projects, said at TransRussia Forum.

    Financial issues

    Thus, albeit different, investments in container terminals are needed in regions with their excess and in regions with their shortage.

    Igor Pukhov believes it is not reasonable today to invest in facilities allowing to handle larger volumes, that is extension of the waterfront acquisition of berth equipment, expansion of rear facilities. “However, investments continue, they are focused on special projects aimed at supporting the reviving cargo flow. In our case, we invest in containerization of bulk cargo which ensures optimal loading of the terminals. In 2019-22, we invested $207 million, mainly in the Far East. We will further invest in the Far East and in the North-West,” said the representative of Global Ports.

    As Andrey Boldorev,Head of the Department for Investments and Strategic Development, FSUE Rosmorport, said at the Expert Club meeting, declaration of investments in the development of container facilities in seaports of Russia have been submitted to Rosmorport by six stevedoring companies. The projects are located in the Far East, Southern and Arctic Basins. He mentioned the projects of Commercial Port of Vladivostok (1.7 million TEU per year), Port Sukhodol (3 million TEU), Pervomaisky terminal (460 thousand TEU), port Olya (1 million TEU), Novoroslesexport (300 thousand TEU), Rusatom Cargo (800 thousand TEU).

    Meanwhile, there are factors hindering private investments, Chairman of ASOP BoD Denis Ilatovsky said at the meeting.

    Petrolesport. Image source: Global Ports

    “Modernization of old ports is possible, perhaps... However, the construction of new ports seems to face the problems. Our economy is highly volatile and it is not possible to guarantee the future cargo flows, neither at the level of private investors, nor at the level of the state both in terms of the volumes and in terms of the time. The law adopted in 2021 (Federal Law dated 2 July 2021, No 340, on introduction of amendments into the Law on Seaports of the Russian Federation and in Certain Legislative Acts of the Russian Federation — Ed.) demands that investors guarantee the loading of the monopolists’ infrastructure (that of Russian Railways and Rosmorport). Thus, a private investor has to take over the risks from the state structures,” says Denis Ilatovsky.

    In his turn, Andrey Boldoorev emphasized that most investment projects in ports are being implemented through an investment/contract model.Rosmorport covers the investments using the collected port dues. It is a sort of guarantee. If there is a turnover of cargo, ships calls and port dues, Rosmorport returms those money to investors... In practice, this mechanism works in 100% of cases. It lets select serious projects that will work,” he said.

    At the same time, Denis Ilatovsky says this mechanism, is not applied in relations with Russian Railways. According to ASOP Head, it is necessary to develop the water areas and approaches to large terminals and to speedup obtaining of relevant expert approvals. “To start the construction or modernization of any terminal, a project should obtain several expert approvals which take from year to a year and a half. That is to be addressed,” he believes.

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Vitaliy Chernov