Thursday, December 23, 2010

Big Yards Searching for Big Orders

After a decade of building new crude carriers for the Alaska trade, new product tankers for the coastal trades and new container carriers and trailer ships for the Jones Act trade, the country’s bigger shipyards are searching for new orders – and the pickings are lean. In October the East Coast’s Aker Philadelphia yard conceded that it has yet to secure fresh contracts and acknowledged that if it is “unable to expand its current backlog, it would be challenging to continue as a going concern”. The yard disclosed that it “has reduced and will continue to adjust its workforce in line with its backlog” and warned that “the challenging US economy continues to delay the decision-making process for newbuilds and creates difficulties regarding financing of newbuild projects”.

Aker Philadelphia delivered the tenth tanker of the 12-ship series it has been building for OSG in August, with the final two OSG ships to be delivery in the first half of next year. OSG had proposed having 25 of the ships built several years ago but a swing to Articulated Tug/Barge (ATB) combinations for petroleum product movement has dented this market.

US Navy Charters Commercial Tankers

The US Navy's Military Sealift Command (MSC) is chartering two newly built US-flag commercial tankers to replace a number of its older T-5 class ships that have been meeting the fuel requirements of US forces stationed overseas. The first of the vessels, the 600-foot Empire State, entered MSC service under a short-term charter agreement in mid-2010. Its contract has now been extended for five years and it will be joined by a sister vessel, Evergreen State.

Both ships are products of the NASSCO shipyard at San Diego, California and have a capacity of approximately 331,000 barrels. They are replacing two of the MSC's four government-owned T-5 class tankers, USNS Paul Buck and USNS Samuel L. Cobb, which have been transferred into the US National Defense Reserve Fleet (NSRF). Of the service’s remaining two T-5s, the USNS Lawrence H. Gianella has been transferred to MSC's Maritime Prepositioning Force while USNS Richard G. Matthiesen will join Cobb and Buck in the NDRF next year.

All four T-5s were built in the mid-1980s and operated under long-term charters from private owners until they were purchased by the MSC in 2003.

MSC-operated tankers carried 1.5 billion gallons of petroleum products worldwide last year, including replenishing trips through ice to the McMurdo Research Station in Antarctica and the Thule Air Force Base in Greenland.

Not a Many Splendored Thing

In one of the more publicized cruise ship misadventures of the past several years, Carnival Cruise Lines’ 2008-built Carnival Splendor was disabled by an engine room fire off the west coast of Mexico on November 8th and not towed into port until November 11th, the 3,299 passengers and 1,167 crewmembers on board having to make due during this period with cold food, non-working toilets and other inconveniences.

According to Carnival spokeswoman Joyce Oliva, a generator caught fire in the ship’s aft engine room at approximately 6 a.m. on November 8th, damaging a switchboard and preventing the transmission of electricity to other machinery, including the ship’s propulsion motors. Nearly everything requiring electricity then became inoperable, including air conditioning, hot water, stoves, waste system and refrigeration. The cause of the fire, which was quickly put out by the crew and the ship's automatic fire-suppression system, is still being investigated.

Vessels assisting the stricken cruise ship during its ordeal included the container vessel Dresden Express, which is active in the Automated Mutual-Assistance Vessel Rescue System (AMAVRS) program, as well as the US aircraft carrier USS Ronald Reagan, which was on a training exercise nearby and able to ferry more than 60,000 pounds of supplies via helicopter. Also involved were the US Coast Guard Cutters Edisto, Morgenthau, and Aspen and a Mexican Navy 140-foot patrol boat, plus several Mexican tugs, the latter because it was first expected that the Carnival ship would have to be moved to a Mexican port.

Tugs used in the 6-knot tow to San Diego included Harley Marine’s 4,400HP Millennium Dawn and 3,000HP Ernest Campbell. “We’ve never had anything like this happen before,” said Carnival Cruise Lines CEO Gerry Cahill of the event.

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.

Tuesday, December 21, 2010

Alameda Corridor Receives Negative Outlook From Fitch

Bond rating agency Fitch on Friday affirmed "high" and "good" level ratings on $1.7 billion in Alameda Corridor bond debt, while at the same time issuing a negative ratings outlook for the bonds.

Opened in April 2002, the $2.4 billion Alameda Corridor is a 20-mile-long freight rail expressway that currently shuttles approximately 35 percent of the cargo containers moving through the Southern California ports to a transcontinental railroad yard near downtown Los Angeles.

The $2.4 billion cost of the corridor was financed by the issuance of just over $1.7 billion in corridor revenue-backed bonds, $400 million from the ports of Long Beach and Los Angeles, and various other government sources. Corridor revenues are generated by fees charged on containers using the corridor.

On Friday, Fitch issued an "A" rating, labeled as upper medium grade, on $966 million in bonds issued by the corridor's governing authority in 1999. The agency also issued a "BBB+" rating, labeled as lower medium grade, on $737 million in subordinate issuances from 1999 and 2004.

Both of these ratings, while nowhere near as high as the "AA" ratings held by the two ports, remain in fairly positive territory. The "BBB+" rating is still two full ratings levels above non-investment grade bonds.

Bond ratings, such as those issued by Fitch, offer a guide to the level of risk associated with a particular debt issuer, in this case the Alameda Corridor. Fitch is one of the three most recognized bond rating agencies along with Moody's and Standards & Poors and one of only ten such agencies recognized by the Securities and Exchange Commission.

Higher ratings, such as "AAA," generally open more financial resources up to an issuer and often at much more favorable terms. Low ratings can mean a significant increase in what a debt issuer has to pay--through higher interest rates or stricter terms--when looking to issue new debt. Low ratings can also prevent an issuer from being able to renegotiate or restructure an existing issuance at more favorable terms.

More worrisome for the corridor than the bong ratings, however, is the ratings outlook issued by Fitch. The corridor had held a "ratings watch negative," which is issued when Fitch sees a heightened probability of a downward rating change. On Friday, Fitch changed this to a "negative ratings outlook," a more concrete assertion applied when Fitch believes that the issuer's rating is likely to move downward over a one- to two-year period.

In issuing the ratings and outlook, Fitch pointed out that although the corridor saw dramatic downturns in cargo volumes in 2008 and 2009, container volumes moved along the corridor in 2010 have show a 14 percent increase compared to the first 10 months of 2009.

"This indicates that volume is recovering somewhat," said a Fitch statement, "however, the volume setback incurred in 2008 and 2009 combined with the corridor's escalating debt service profile mean that action is still needed to meet the authority's debt service obligations."

Fitch pointed out that there are several options available for the corridor to address the anticipated shortfall in revenues, including refinancing a portion of outstanding debt via the Railroad Rehabilitation and Improvement Financing, or RRIF, offered through the United States Department of Transportation's Federal Rail Administration. The RRIF provides direct federal loans and loan guarantees to finance development of railroad infrastructure. ACTA applied for a RRIF loan in March 2010 to restructure the $737 million in subordinate bonds, and expects a decision on its application in early 2011.

"Another option would be to refinance a portion of existing debt with a traditional municipal finance issuance, utilizing the existing senior and subordinate liens," said Fitch. "In both these cases, ACTA would seek to reduce annual debt service requirements and backload debt, while substantially reducing or eliminating the need for port shortfall advance payments to fund a portion of debt service in future years."

The real concern would be if the corridor could not meet its debt service. The ports of Long Beach and Los Angeles are legally committed under the corridor operating agreement to cover up to 40 percent of the corridor's annual debt service payment in the event of shortfalls.

While on the one hand this provides the corridor with a backstop that improves its credit standing, such a drain on port revenue, especially if the shortfalls continue for a long period of time, could significantly impact the two ports' cash flow situations.

Fitch estimates "the ports' gross joint liability for corridor debt service at $60 million to $150 million spread over the years 2012-2020 depending on the severity of the stress assumptions."

While Fitch points out that both ports have an adequate amount of unrestricted cash to meet any near-term shortfall payments without having to adjust their rates or tariffs, any sizable draw down of port cash reserves could reflect on the ports' own ratings.

According to Fitch, as of Sept. 30, 2010, the Port of Los Angeles had $311 million in unrestricted cash and the Port of Long Beach had $403 million in unrestricted cash.

Los Angeles Port Tightens Clean Truck Regs to Punish Scofflaws and ‘Loopholers’

The governing board for the Port of Los Angeles is cracking the whip on scofflaws that have been circumventing clean truck rules in the port area and others that have been exploiting a loophole in the ports' truck program regulations.

The five-member Board of Harbor Commissioners on Thursday approved new penalties of up to a $1,000 and six months in jail for port-servicing drivers that transfer containers from compliant clean trucks to older and more polluting trucks within the port area. In addition, trucking firms found to be involved in such transfers, known as "dray-offs," could face a revocation of their concession agreement with the port and have all of their trucks barred from port service.

The clean truck program requires that all trucks servicing the port have a signed concession agreement with the port and only use 2004 or newer model year trucks. The program's regulations stiffen on Jan. 1, 2012, to only allow 2007 or newer trucks to service port facilities.

Using the dray-off technique allows trucking firms to move a greater number of containers with fewer clean trucks, which according to the port, defeats the emission-cutting concept of the truck program and puts fully-compliant truck firms at a disadvantage.

The new port regulation, which still requires Los Angeles City Council approval, only addresses dray-offs that occur within the port boundaries.

The port board also approved closing a loophole in the clean truck program regulations that was being exploited by a growing number of drivers. The clean truck program only set model year regulations on Class 8 trucks--mainly because there were only a handful of the smaller Class 7 rigs in the port at the time and these smaller trucks can not legally handle the weight of a fully loaded container.

However, the number of old Class 7 trucks calling at the port--some estimated to cost less than $5,000 compared to a new compliant $120,000 Class 8 rig--has exploded in recent days. The port estimates that the average age of the Class 7 recently brought into port service is about 12 years old, or roughly what the average age of a Class 8 truck in the port fleet was before the clean truck program began in October 2008. The newly-approved port regulation closes the loophole by applying the truck program model year restrictions to Class 7 trucks as well. Owners of Class 7 rigs have until July 1, 2011 to either upgrade their engines or purchase new compliant vehicles.

Some trucking firms had previously testified to the port board that while they wanted to remain compliant with the truck program rules, they were forced to begin using some of the smaller trucks simply to compete with those that had first brought in the Class 7 rigs.

Los Angeles Port Ends Negotiations Over Shipyard Re-Use

Two years of contentious back and forth between the Port of Los Angeles and a Long Beach firm hoping to redevelop a shuttered shipyard at the port essentially ended with two words and a vote on Thursday.

"We're done," said Port of Los Angeles Executive Director Geraldine Knatz, just before the five-member port board voted to officially terminate negotiations with Gambol Industries over the shipyard re-use project.

However, the port board's decision, which now allows the port to move forward with its original plans to use the former shipyard site as a dump site for dredge material, did not sit well with Gambol plan supporter and City Council member Janice Hahn.

Following the port vote, Hahn, whose district covers the port, said she plans to take the issue back to the City Council. The port is operated by the city's Harbor Department, which answers to the Los Angeles mayor and city council.
In addition, as recently as last month, Gambol threatened litigation over what it claims have been bad faith efforts by the port during negotiations on the shipyard re-use plan.

Gambol's plan called for a $50 million re-development of the shuttered South West Marine shipyard along the main channel of the port into a modern ship repair facility. The firm, which claims it has a solid business plan that would create hundreds of jobs at the proposed facility, has faced stiff criticism from the port, shipping industry, and longshore unions. However, under pressure from Los Angeles City Hall, the port signed a memorandum of understanding with Gambol in 2009 to consider the development of the ship repair facility.

Port officials have maintained that the Gambol plan was unrealistic and could seriously delay an Army Corps of Engineers channel-deepening project and ongoing terminal development at the port. The port envisioned the former shipyard slips as a perfect location to deposit dredge material from the Army Corps project.

Earlier this year, Gambol proposed sending the dredge material to the neighboring Port of Long Beach's Middle Harbor project as landfill, saving Los Angeles the $30 million cost to build a retaining dike at the shipyard, according to Gambol. Port of Long Beach port officials shot down the idea, stating in an Oct. 18 memo that Los Angeles port officials had failed to respond to a Long Beach port request for design plans for the reuse of the Los Angeles fill material in Long Beach.

In an Oct. 27 letter to officials at both ports, a Gambol attorney claims that Los Angeles port officials purposely failed to submit the design plan to Long Beach in an effort to undermine the Gambol project.

The Gambol letter went on to claim that the firm had lost million of dollars in development costs due to Los Angeles port officials' actions and warned that Gambol would seek all "available remedies" for what the firm's attorney describes as "the port's conduct, actions and/or inactions, and numerous violations of the MOU."
Following the port vote, Gambol officials indicated the firm would continue to fight for the shipyard re-use project.

In the early 2000s, the adjacent Port of Long Beach engaged in a similar process, searching for several years for a firm that could present a viable plan to redevelop several massive dry docks vacated by the U.S. Navy into a shipyard. While several firms stepped forward, the plans never materialized and the drydocks were eventually filled with dredge material and paved over to add additional acreage to a massive container terminal development.

Seattle Port Growth Down In November, Tacoma Up

The Port of Seattle continued to report increased year-over-year cargo volumes in November, while across Puget Sound the Port of Tacoma turned in its second straight month of growth for the first time since June of 2008.

While the Port of Seattle reported its 11th straight monthly increases of 2010 in November when compared to the year-ago periods, the port's total box numbers were off 17.2 percent from the previous month. The port's November numbers fell to the same levels as those in April, indicating that the peak season that began at the port back in May is slowly, but steadily dropping off as the year ends.

For the month of November, the port handled a total of 169,953 TEUs, up 11.3 percent compared to November 2009. Port officials also reported handling 70,466 loaded import TEUs in November, a 9.9 percent increase over the same month last year. In another sign that volumes are slowing, the port reported handling 46,545 loaded export TEUs, a decline of 3.3 percent over the year-ago period.

Despite the slowing year-end volumes, the port is still on pace to easily shatter beginning-of-the-year predictions of cargo growth for the year. Most analysts and experts were predicting a moderate 5 percent growth at West Coast ports in 2010. Seattle moved a total of 1,975,813 TEUs in the first 11 months of the year, a 37.3 percent increase over the January to November period in 2009.

Across the sound, total container volumes at the Port of Tacoma in November were only nominally up over the month of October--by about 450 TEUs, or less than 0.4 percent. Tacoma has experienced dramatic ups and down from month to month since the start of the year, with no discernible pattern.

In November, Tacoma port officials report handling a total of 120,095 TEUs, a 1.9 percent increase over November 2009 and tying with August for the largest monthly percentage growth since June 2008. The port also handled a total of 38,950 loaded import TEUs, a 16 percent increase over the year-ago period, and a total of 31,857 loaded export TEUs, a 4.7 percent increase over November 2009.

Despite the positive gains in three of the last four months, Tacoma is still on track to end the year down about 7 percent. However, this represents a significant improvement over 2009 when the port was down for the calendar year by 16.9 percent compared to 2008. Tacoma has not had a statistically significant positive year since 2005 (the port actually gained 0.038 percent in 2006, but reported the year as 0.0 percent growth).

Economic forecasters from the University of Puget Sound said last week that Tacoma would end the calendar year up 7.1 percent and could expect to see 4.4 percent growth in total container volumes in 2011.

The Cunningham Report Ceases Publication

Earlier this month, Southern California’s The Cunningham Report ceased publication after 15 years and 750 weekly issues. Publisher George Cunningham says it’s time to do other things.

“It's a big world, there are adventures to be had, and we are going to have them.” He says in his farewell note to readers. We here at Philips Publishing Group and PMM Online wish him all the best.

Russian Shipping on the Verge of Big Changes

By Eugene Gerden

December 2010

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.

Eugene Gerden is a free-lance writer based in Moscow, Russia who has covered the European maritime industry for 10 years. He can be reached at gerden.eug@googlemail.com.