Thursday, December 23, 2010

Russian Ports Hoping to Compete in the World Arena

By Eugene Gerden

Russia is planning to become an active player in the global marine cargo shipping market, by expanding its share of international transit shipments and increasing the cargo turnover of its seaports, according to statements recently made during a St. Petersburg, Russia conference, “The Future of Russian Ports.”

Russian seaports are steadily recovering from the effects of the global recession, which is expected to result in an increase of their total cargo turnover of up to 525 million tons this year, compared with 426 million tons in 2009.

Russia’s large seaport capacity includes about 100 km (62 miles) of total length of its ports' quay front and more than 1,000 gantry cranes, as well as several thousand different transshipment possibilities. Technical capabilities of the country's transshipment complexes allow its facilities to handle about 10,000 of cars a day, while the total storage capacity of the country's ports is estimated at 15 million tons of cargo.

Despite these figures, Russia still has a shortage of seaports, and the existing capacities can’t cope with the ever-growing exports of hydrocarbons, petroleum, grain, fertilizers and other products.

Oleg Bukin, director of "Management of Transport Assets" company, which operates several stevedoring companies in Russia, in an interview with the local “Transport of Russia” paper, said further development of the Russian seaports is mainly hampered by undeveloped infrastructure near the ports.

"Most of the roads have low capacity, being in poor condition. This reduces the efficiency of port land and impedes the work of railway transport. The lag in the development of port infrastructure has already resulted in a significant portion of foreign trade cargo being delivered to Russia by sea to the ports of neighboring countries in Western and Eastern Europe, and handled in these ports. This leads to lost profits of the Russian ports and a decrease in tax payments to the budget", Bukin said.

Russia's current share in the global market of transit shipments remains low. According to the head of the Investment Department of the Federal Agency of Maritime and River Transport (RosMorRechFlot) Viktor Vovk, in 2009 Russia provided services for carriage of only 9 percent of global transit cargo shipments. However, the transit capacity between Asia and Europe is estimated at US$600 billion, and Russia's share could theoretically increase up to 15 percent of this value, especially in the case of an active use of the Northern Sea Route (NSR).

The interest of Russian and foreign shipping and business communities to the Northern Sea Route is determined by two major factors. First of all, it can become more profitable alternative for other shipping routes between the ports in Europe, the Far East and North America.

According to V. Pazovsky, a senior fellow of the Far Eastern State Maritime Academy, the Northern Sea Route is interesting for foreigners as a transport artery for the transportation of minerals from the Arctic regions of Russia.

“These areas contain up to 35% of global oil and gas reserves. Starting transportation of the Russian gas and oil by sea may be more advantageous than building gas and oil pipelines. In addition, these pipelines to Western Europe can only pass through the former Soviet republic, whose policies are not always predictable, while transportation through their territories is quite expensive,” he said. At the same time, the ice conditions in the Barents Sea and the western part of the Kara Sea are quite favorable and allow the passage of ice-class tankers without escort of icebreakers for most of the year. In addition, said Pazovsky, the Northern Sea Route can arrange transportation of fertilizers from the Kola Peninsula to the East Asia and in particular to China.

According to Vovk, during the next 10-15 years the ice edge would go far enough, to start the use of Northern Sea Route (NSR) for 6 months of the year.

One of the main advantages of NSR is that it is almost half as long as other sea routes from Europe to the Far East: the distance from Hamburg, Germany to Yokohama, Japan through the NSR is 11,880 km, while the alternative through the Suez Canal is 20,520 km.

According to experts of the St. Petersburg Rosbalt business journal, after the collapse of the USSR the NSR was abandoned, and now its recovery requires billions of dollars of investment. Moreover, as recently stated by the governor of the Murmansk region Dmitry Dmitrenko NSR will be only profitable if the volume of its cargo shipments don’t fall below 4 million tons per year.

However, some Russian experts have already expressed their doubts, regarding with the ability of the Northern Sea Route, in its present conditions, to pass large volumes of transit shipments. Among the main reasons for their skepticism are the need for the use of specialized ice-class vessels, lack of awareness of foreign ship owners about the ports, located along the Northern Sea Route, the lack of reliable ice-breaker and information systems and traditional Russian bureaucratic formalities. In addition, representatives of the Suez Canal Authority have repeatedly stated its readiness to compete with the Northern Sea Route through the reduction of its tariffs.

At the same time the development of the Northern Sea Route is not the only way to expand the current Russian share in the global market of transit cargo shipments.

According to a recently adopted Marine Transport Program in Russia, by 2015 the level of investments in further development of all Russia's largest seaports is expected to reach 630 billion rubles (USD $19 billion).

In the case of Black Sea South ports, particular attention is expected to be paid Novorossiysk port, Russia's largest port, which has an annual capacity of 100 million tons. The port has a good geographical position, being located on the northeast coast of the Black Sea and at the intersection of transportation corridors linking Russia with the Middle East, America, the Mediterranean, South and South-East Asia.

In addition, the port is deep and does not freeze all year round, which allows for uninterrupted navigation. In this regard, during the next several years, new rail and automobile roads are expected to be built near Novorossiysk. There is also a possibility of further expansion of its container terminals and an increase of their capacity up to 2.5 million tons by 2015.

In addition to Novorossiysk, the government plans to accelerate the development of other Russian major Black Sea ports, including Taman, through the construction of a new dry cargo port area, as well as "Rostov Multifunctional port”, an expected universal multi-modal transport and logistics hub. By 2015, the volume of transshipment cargo at both ports should reach 40 million tons and 16 million tons, respectively.

With regard to the Northern ports, the turnover of the Murmansk port is expected to increase from 35 million tons in 2009 to 80 million tons by 2015, while in Ust-Luga from the current 10 million tons to 120 million tons.

In the case of Caspian, the government is ready to start further development of local Olya and Makhachkala ports, while in the Far East a new Vostochny-Nakhodka transportation hub is expected to be established. The latter project involves gradual construction of new container terminals with a total eventual capacity of 10 million TEUs a year, as well the establishment of a special economic port zone at the Sovetskaya Gavan port.

According to Alexei Klyavin, Head of the Department of State Policy for Maritime and River Transport Ministry of Transport of Russia, implementation of all of these projects will help to increase the total annual cargo turnover of the Russian ports to 750 million tons by 2015.

At the same time, the use of the enormous potential of Russia in the sphere of transit shipments is impossible in the absence of reforms of already existing legislation. According to some experts, Russia is one of the world's most unfavorable countries in terms of customs procedures. For instance, while in Russia customs inspections apply for 44 percent of delivered cargo, in Germany and the US, these figures are less than 3 percent, while in the UK even 2 percent. Moreover, the companies must submit an average of 8 documents for exports of cargo from a Russian port and no more than 13 for imports, twice what is required in developed countries.

However much may change in the near future. At present the Russian Ministry of Transportation is completing the development of the bill, which should significantly simplify all the customs procedures in the Russian seaports.

Julia Zvorykina, an Assistant Minister of Transport, recently said that the Russian government is considering creating a single electronic customs database, which will simplify paperwork and reduce processing time of customs declarations.

"Such a system already exists in world major sea ports," Zvorykina said. However, the timing of the introduction of this system was not disclosed.