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Russia Turns East
As a result of the Ukraine war Russia’s transport logistics have undergone some profound shocks and are seeing a growing eastern emphasis. Oleksandr Gavrylyuk reports
8 The Trans-
Siberian Railway is seen as vital to the growing emphasis on moving greater cargo volumes eastwards – massive investment is under discussion
The Kremlin’s devastating war in Ukraine and resulting international sanctions have dramatically changed Russia’s economic landscape as a whole and its transport industry in particular.
Russia, which has dedicated three decades of its postSoviet history to fitting into the global economic system, now finds itself beyond its mainstream.
Saint Petersburg, Russia’s key sea maritime gateway for the past three centuries, has, along with its other Baltic ports, lost the lion’s share of its container handling volumes. In the face sanctions, liner operators had little alternative other than to leave Russian trades. “Our Baltic terminals were almost paralysed in April, with just sporadic container operations,” comments Olga Gopkalo, a Saint Petersburg-based maritime transport analyst. “But even if the feeder lines decided to return, that would not improve the situation, as long as the European hubs, such as Rotterdam and Hamburg, refuse to work with Russia.”
Having withdrawn from the Russian market, the international carriers have halved the volume of ISO boxes operating locally. Furthermore, the structure of container trade has changed - today exports account for 40 per cent of container activity, while the import share is now just 14 per cent. As a result, according to Vladamir Savchuk, Deputy Director of the Moscow headquartered Natural Monopoly Institute, the number of boxes leaving Russia each month is three times that moving in the opposite direction. This, in turn, is expected to result in an overall container deficit in the Russian market of up to 350,000TEU in 2022.
Similarly, as the West has been closing its markets for Moscow’s commodity exports, Russia’s Baltic seaports have lost their significance as the main westbound gateway. At the same time, Russian traders have started looking for new markets and building up new logistics schemes. Thus, from March to June this year, according to Aleksey Shilo, Deputy Director General of the state-run monopoly Russian Railways (RZD), Russia’s exports of ferrous metals and fertilisers to Asian (and, above all, China) markets expanded by 20 per cent and 16 per cent year-on-year respectively.
EASTERN EMPHASIS
Growing international isolation has led to the Kremlin selling its mineral resources to China and India with a substantial discount or even below the actual cost of production. This year, Asia has become the largest importer of Russian oil, with Beijing and New Delhi purchasing it with a 30 per cent discount.
“In general, we can now ascertain a clearly demonstrated redirection of export freight flows from the nation’s western to its eastern and southern ports, as well as overland rail terminals at the Russo-Chinese border,” highlights an official statement from RZD’s logistics branch.
Last year, the total volume of trade between Moscow and Beijing reached the record-breaking figure of US$146 billion, up 36 per cent on 2020, as per the data released by Russia’s Foreign Ministry. Since March this year, with the launch of international restrictions, the trade turnover between the countries has somewhat decreased, but China remains the
Northern Sea Route - Chinese banks are allegedly prepared to lend the Kremlin up ‘‘ to US$1.3 trillion on preferential terms by 2027
largest importer of Russian commodities, accounting for 13 per cent of all Russian exports.
However, the limited capacity of the Trans-Siberian Railway (TSR), Russia’s key transport system connecting its European part with the Pacific coast, is not sufficient for shipping all the planned export cargoes to the Far East. For instance, Russian coal producers have had to reduce their deliveries to China by eight per cent in May 2022 compared to the same month in 2021.
Another problem faced by Moscow is a shortage of freight railcars. In April this year, Russia’s freight wagon production shrank by a quarter compared to April 2021 and by 21 per cent in March 2022. The banned export of western-made component parts to the country underpins this negative situation.
The suggestion has been made to utilise the northwestern harbours’ idle capacities for handling coal exports to Asian markets. This is, however, an expensive option and really only feasible with high global prices.
Under the circumstances, Russian traders have, in the opinion of local observers, to work on transforming their export routes and particularly by the time prices start lowering (possibly by the year-end).
For example, Moscow could potentially harness the geographical location of its Black Sea and Caspian ports to boost its export volumes to southern markets, such as Turkey and the Mediterranean region on the one hand and Iran, India and South Asia on the other.
Maksim Reshetnikov, Russia’s Minister for Economic Development, has recently ordered its agency to work out new rates for the International North-South Transport Corridor (INSTC), which to-date have been far from competitive.
Meanwhile, observers report the Kremlin has been actively using its Black Sea harbours and those in annexed Crimea to export grain and metal stolen from the occupied Ukrainian regions. Equally, it has looked to implement schemes for socalled “parallel imports” of sanctioned cargoes via Turkish and Iranian ports.
NORTHERN SEA ROUTE
Elsewhere, it is planned to intensify shipping along the 14,000 km-long Northern Sea Route (NSR), Russia’s segment of the Northeast Passage). To kick off the large-scale project, Chinese banks are allegedly prepared to lend the Kremlin up to US$1.3 trillion on preferential terms by 2027.
Both Moscow and Beijing would be able to capitalise on use of the NSR, as a shorter alternative to the traditional trans-ocean routes via the Suez Canal, according to Nikolay Nepliuyev, the Russian financial expert. The toughest challenge to be met in the course of the project implementation is to ensure year-round navigation through the route. It remains questionable though as to whether the NSR project is really viable given that the energy related development projects associated with it are scaled down or do not proceed – and in this regard the withdrawal of foreign energy majors is clearly a problem area.
Russia and China have been long-time economic and political partners. Moscow’s aggression against Ukraine and the subsequent sanctions have brought them even closer. What was initially seen as an emergency change of traditional trade routes is now evolving into a fully-fledged economic and geopolitical relationship.
“Developing a necessary infrastructure to turn Russia eastward is the most important task for the country,” declared Yury Trutnev, Russia’s Vice-Premier, emphasising the key role of TSR and NSR for the future expansion of cargo transportation volumes.
“It is not possible to widen NSR due to natural reasons, but renovating and widening TSR will be not only possible, but meaningful for solving our logistics tasks,” he stressed.
In the meantime, Russia’s private business circles have voiced their readiness to invest US$25 billion to upgrade the Trans-Siberian and Baikal-Amur railways and increase their aggregate capacity to 260–280 million tonnes by 2035 under a concession agreement with the federal government...
8 Plans have been
