Great East of SPIEF
The first phase of the “great pivot” of Russian foreign trade to the East has been completed: cargo flows have been redirected, the business has adapted to the new realities, and the key decisions have been made. It is time to proceed to the second phase: to create the appropriate infrastructure, build a fleet to meet new tasks, optimize state regulation and support measures.
The eastward turn of Russia’s foreign trade began long time ago and it was not because of the politics. In fact, the centers of production generating cargo flows were increasingly shifting to Asia. It is clear that since the spring of last year this process has sharply and painfully accelerated for well-known reasons. As part of the St. Petersburg International Economic Forum 2023 (SPIEF-2023), Russian President Vladimir Putin outlined the main results of this process’ first phase and identified the main tasks that need to be addressed in the future.
| In brief Russia’s main tasks in transport and logistics amid the eastward pivot are as follows: overcoming the shortage of port infrastructure for the most popular types of cargo (primarily grain, fertilizers), increasing the carrying capacity of the Eastern Polygon, building its own large-capacity merchant fleet, developing the Northern Sea Route as a full-fledged transport artery, and the North-South international transport corridor, as well as reducing administrative pressure on business. |
Daily bread
According to Vladimir Putin, exports of goods hit a ten-year high in 2022 at US$592 billion, with non-commodity, non-energy exports accounting for almost a third of this amount at US$188 billion.
“Agricultural exports reached a new high of over US$41 billion… Russia has been a top five grain exporter for ten years now. We have been the largest supplier of wheat to the global market since 2016. There is every reason to expect our companies to take the next step this year by setting a new record in wheat exports. In doing so, Russia will be proactive in ensuring global food security and helping countries, including in Africa, suffering from food shortages,” said Vladimir Putin.
“Agricultural exports reached a new high”
Indeed, according to the RF Transport Ministry’s statistics, it is grain that shows the largest increase of turnover in seaports. In January-May 2023, grain throughput increased 2.2 times - up to 28.2 million tonnes. Grain is the fastest growing cargo in ports and its volumes follow coal in the bulk segment.
Grain is traditionally exported through the ports of the Southern Sea Basin, while there is a shortage of specialized sea grain terminals in the North-West and the Far East.
As for new projects, at SPIEF 2023, Demetra Holding LLC (a company of VTB Group, acquired a 50-pct share of Taman Grain Terminal Holdings Limited which owns 100% of Grain Terminal Complex “Taman”) signed a MoU with Russian Railways on strategic partnership in development of railway infrastructure for transportation of agricultural products. By 2027, the company plans to build railway infrastructure to the grain terminal in the port of Taman. It will have annual capacity of up to 14 million tonnes of grain and agricultural products.
Railway bottleneck
The Eastern Polygon with its limited capacity is obviously the key bottleneck limiting transport infrastructure of Russia.
Vladimir Putin paid special attention to this issue at SPIEF 2023. As for the Eastern direction, by 2025 its export freight volumes will grow by a third and another 100 million to the 2022 figures will be added by 2030, he said.
“Here, the key is to increase the transport capacity of the Baikal System, the Baikal-Amur Mainline, and the Trans-Siberian Railway. Already this year it will add 15 million tonnes to reach 173 million tonnes,” said the President.
"BAM and Transsib capacity will add 15 million tonnes to reach 173 million tonnes in 2023”
“I would like to take this opportunity to commend the success of the Government and Russian Railways, which were able to quicky scale up container outflows from the Far East, eliminating bottlenecks and reducing the load on the Far Eastern terminals while facilitating imports of goods and components from Asia,” said Vladimir Putin.
According to the Ministry of Economic Development, export/import flow by the Eastern Polygon totaled 157.4 million tonnes in 2021. According to the forecast of the Ministry for the Development of the Russian Far East and Arctic, eastward cargo transportation by the railway will reach at least 219 million tonnes per year by 2030.
By the northern route
Railway is not the only way to transport bulk cargo to the Far East and back. We also have the Northern Sea Route (NSR). According to Vladimir Putin, cargo volumes on the Northern Sea Route will multiply in 2024.
“Last year, it was used to carry 34 million tonnes of freight. We expect that in 2024, these volumes will multiply, which will require a rapid upgrading of rail and other kinds of infrastructure in the Murmansk Transport Hub and other Arctic ports,” said the President.
“In 2024, cargo volumes on the Northern Sea Route will multiply”
As Aleksey Chekunkov, Minister for the Development of the Russian Far East and Arctic, said at the Forum, the Northern Sea Route Development Plan adopted in August 2022 and requiring RUB 1.8 trillion is already financed by the state and off-budget sources at 60-65% with the rest to be received as private investments.
At SPIEF 2023, Rosatom and VTB signed an agreement on cooperation in implementation of the NSR development project. The first step under the agreement is to finance the construction of the 3rd and 4th nuclear-powered icebreakers of Project 22220 intended for servicing cargo flows in the western and eastern sectors of the Northern Sea Route. The icebreakers are under construction at Baltiysky Zavod shipyard. VTB is also supposed to continue participation in implementation of projects for energy supply to the Arctic and Far East regions of Russia involving floating power units and small nuclear power plants.
According to Rosatom, the fleet of icebreakers on the Northern Sea Route will be increased to 14 units by 2030 and it will need at least 7,500 crew members. Taking into account the education period, their training should be started next year.
When speaking at SPIEF, Igor Tonkovidov, President and CEO of PAO Sovcomflot, emphasized the significance of raising the share of Russian ship owners in cargo transportation by the Northern Sea Route.
“Like all over the world, there is a competition for the transportation of goods by the NSR. The balance of Russian and foreign shipowners in such transportation should meet the needs of the country. We count on understanding and support from regulators and cargo owners in this respect,” said Igor Tonkovidov.
North-South and back
In fact, the turn of logistics to the east is also a turn to the south. Therefore, the significance of the North-South International Transport Corridor is growing, as Vladimir Putin emphasized at SPIEF.
“We are going to pay special attention to the North-South Transport Corridor, with plans to double export freight volumes by 2025 and to triple them by 2030. In May, as many of you know, we concluded an agreement with our Iranian partners on building a rail section in Iran that is currently lacking. We are also dredging the Volga-Caspian Canal that will be deep enough this year to take vessels with a draught of 4.5 metres,” said Vladimir Putin.
“We are going to pay special attention to the North-South Transport Corridor”
In his turn, head of Russian Railways Oleg Belozerov estimated the potential of the North-South ITC at over 100 million tonnes per year.
“The potential of the corridor is colossal. In the future – over 100 million tonnes. Last year showed the strategic importance of the North-South ITC for the country, we need to develop it even more actively,” said the head of Russian Railways.
It should be noted that the development of transport corridor’s infrastructure is quite active. State Transport Leasing Company (GTLK) and the Russian Export Center (REC) signed a memorandum of cooperation in the development of the North-South ITC within the framework of the Forum. The agreement provides for the preparation and launch of joint investment initiatives for the development of the North-South ITC, including the development of new logistics services and routes, the creation of opportunities for the formation of a modern transport infrastructure for shippers and attractive conditions for the export of transport services.
Infrastructure development under the North-South ITC project is needed not only in Russia but also in Iran. In the framework of SPIEF, Russia and Iran signed an executive contract for implementation of the project on construction of Rasht-Astara railway.
Domestically built fleet for Russian trade
It is no secret that Russia has so far been strongly dependent on foreign merchant fleets. In the current geopolitical conditions, one of the main tasks is to create our own fleet for new tasks.
According to Vladimir Putin, Russian shipyards are to build at least 260 ships in the framework of a large-scale shipbuilding programme until 2027.
“Russian shipyards are to build at least 260 ships in the framework of a large-scale shipbuilding programme until 2027”
“We will considerably upgrade the commercial fleet, The Ministry of Industry and Trade has already introduced amendments into the large-scale shipbuilding programme The resources of the National Wealth Fund will be used for the programme implementation. I would like to emphasize that under this programme alone, it is planned to build at least 260 ships at Russian shipyards in 2023-27,” said the President. Besides, the construction of icebreakers will continue.
Bulk cargo (coal, grain, fertilizers) makes the core of the dry cargo segment. Therefore, the construction dry bulk carriers is an acute issue.
In this regard it should be noted that Saint-Petersburg based Krylov State Research Center will design large-tonnage grain carriers of 40,000 dwt and 60,000 dwt by the end of November 2023, under the contract with Rosagroleasing. The first bulker will be built and leased out to the customer in late 2025 — early 2026. After 2026, at least 2-3 vessels of these types will be launched annually. Minimum 60 bulkers are needed to cover the domestic demand. When speaking at SPIEF-2023, USC General Director Aleksey Rakhmanov said that construction of Panamax grain carriers would be performed under distributed shipyard principle.
Of course, not only bulkers are needed. Other types of ships are in demand, particularly container ships needed to service lines replacing western ones, ferries, ships of mixed navigation, etc.
As USC head said at the Forum, the corporation would complete the designing of a large ferry for the Caspian Sea in 2023. According to his statement, USC is ready to take part in construction of ships for transport corridors, first of all the Northern Sea Route, to ensure the growth of cargo flow. Aleksay Rakhmanov refers to dry cargo carriers of Project RSD-59 as the most successful and profitable one. About 40 units have already been built. Besides, USC head reminded about the keel-laying of two container carriers which will operate on inland water ways.
Apart from shipbuilding, it is crucial to develop ship repair facilities. Yevgeny Ditrikh, General Director of State Transport Leasing Company, proposed to establish a working group on ship repair under the aegis of the Ministry of Industry and Trade and United Shipbuilding Corporation. The group is supposed to determine how ship repair facilities of Kaliningrad, Murmansk and Arkhangelsk should be involved.
An investment project on construction of a hi-tec ship repair yard in the Arkhangelsk Region was also presented at SPIEF-2023. According to Arkhangelsk Region Governor Aleksandr Tsybulsky, an investor will get a ready package comprising the proposals on sites for the new facility, estimation of expenses for its creation and the scope of potential orders, as well as an opportunity to become a resident of Russia’s Arctic Zone of PDA.
Besides, designing of a ship repair cluster in the Murmansk Region is to begin this year. “We have completed the marketing research of the ship repair market in the Murmansk region, studied potential sites and formed a preliminary financial model for the project. The ship-repair complex will be able to serve civilian ships, which make up more than 80% of the fleet assigned to the port of Murmansk. The design of the facility will begin this year and be completed in 2024, after which the construction phase will begin,” said GTLK head Yevgeny Ditrikh at SPIEF-2023.
No inspection
One of the key messages of the state in the person of the President declared at SPIEF-2023 – was the commitment to an open economy. Despite all the challenges Russia faced last year, the country did not go down the road of self-isolation. In open market economy it is necessary to ensure the freedom of entrepreneurship and the reduction of administrative barriers.
So the President called for rejection of inspections if a business does not involve high risk of causing harm to people or the environment.
“If a business does not involve high risk of causing harm to people or the environment, it should not be inspected at all. It should be free from scheduled or unscheduled inspections. Preventive measures are quite enough. From next year forward we will continue decreasing administrative pressure on businesses,” said the President.
Sabrina Mukfi.
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