Bringing the Far East Closer: Approaches to Reducing Transport Costs

2 September 2021

Bringing the Far East Closer: Approaches to Reducing Transport Costs

KEY CONCLUSIONS

There is almost limitless potential for logistics and the development of container shipping in the Far East

“I believe that the Far East has virtually limitless potential. To date, we have selected only one transhipment point in the east – the Commercial Port of Vladivostok. During the next stage of the project’s development, several such transfer points could be built in the Far East. We are already holding serious negotiations on this matter with the Sakhalin government, and we are talking with Nakhodka [...] We have begun implementing a project to create a permanent transit line […] These offer additional transport opportunities, and there is a container line. We plan to launch it by 2025,” Director for Business Development at Rosatom State Atomic Energy Corporation and Deputy Director and Chairman of the Board of Directors of Atomenergoprom Yekaterina Lyakhova.

“We are currently seeing growth dynamics in cargo turnover at ports – more than 4.6% growth in transhipment in 2020. Containers increased by 13% in this total volume. This is rather sustained and steady growth: the Far Eastern basin as a whole processes 223 million tonnes at ports,” First Deputy Minister for the Development of the Russian Far East and Arctic Gadzhimagomed Huseynov.

“I believe that the volume of traffic will be warranted. We calculated the volume of containerization, and it’s more than 50% lower than throughout the whole country, but in transit we have not yet even reached 5%. We now see that our partners and shippers to China would very much like to use railways [...] So the potential here has not been exhausted. We believe that containerization is the future. We will offer even better services,” Russian Railways CEO and Chairman of the Executive Board Oleg Belozerov said.

“There is virtually limitless potential for [container] transit. Last year, total transit through the territory amounted to 800,000 containers in a 20-foot equivalent. Container transit increased by around 30% this year [...] We estimate the total cargo traffic in the main transit from Asia to Europe and back at 30 million containers,” TransContainer President and Chairman of the Executive Board Alexander Isurins.

PROBLEMS

Insufficient development of transport infrastructure in the regions of the Far East

“We conducted a survey and asked the participants what they see as the main problem in the development of the Far East. And 63% of the participants answered that it was the insufficient development of transport infrastructure or high transport costs. So we understand that today transport remains a bottleneck that limits the development of one of the most promising regions in the world. At the same time, the [response] ‘insufficient carrying capacity of the Eastern operating domain of the railway’ ranked first,” AEON Corporation Founder and Chairman of the Board of Directors Roman Trotsenko.

“China has thrown down the gauntlet and closed its market for the export of Far Eastern fish products. The fish recovered, as they say. We could deliver [fish] to Europe ourselves through the central part of the country, but today the logistics are not ready for this. Fishing ports are obsolete and worn-out. Theoretically, they don’t exist. There is coal and scrap. There are not enough containers, and there is no infrastructure for their transhipment,” Investment Partnership Ryba.RF Corporation Chairman of the Supervisory Board Alexander Krutikov.

“Unfortunately, we did not transport anything last year, but we could have transported 15 million tonnes. For us, the issue of transport infrastructure is key in the context of developing the macro-region of the Far East. For more than six years, we have been implementing a programme to accelerate the development of the Far East by creating preferential regimes and attracting investors. A lot of work has been done. We have more than 2,600 residents and RUB 6.3 trillion in declared investments, of which about RUB 2 trillion have already been made,” First Deputy Minister for the Development of the Russian Far East and Arctic Gadzhimagomed Huseynov.

Transport tariffs are not commensurate with the real situation in the economy

“The cost of coal and the volume is growing, and we are seeing greater losses. How can we create a correct and fair tariff? I believe this issue has not yet been settled or resolved. We understand that some areas need to be supported, above all, the coal sector. But the current situation has led to the fact that the tariff decisions should be changed. If the rates are favourable, we are currently the most reliable borrower internationally. If the tariffs are favourable, we will find investments. In this regard, it’s a question of the fairness of tariffs,” Russian Railways CEO and Chairman of the Executive Board Oleg Belozerov.

“As production workers, steel workers, coal miners, and port workers, we understand the validity of this issue raised by Russian Railways that the indexation for consumer inflation is insufficient considering that industrial inflation is, of course, outpacing it. We understand that Russian Railways is infrastructure and not an office. This includes locomotives, rails, depots, serious equipment, and electrification. Of course, inflation continues,” UMMC Chief Officer for Seaport and Railway Projects Irina Olkhovskaya.

SOLUTIONS

Intensify the digitalization of the transportation sector in the Far East and introduce IT technologies

“Above all, it’s an issue of logistics costs. This can only be done through total digitalization [...] The key moment of this digitalization is the emergence of end-to-end blockchain platforms to record a transaction, support document flow, and track all stages of transportation from the origin of goods to their point of destination [...] In Russia, this seamless multimodal logistics platform should have the status of a state information system so as to integrate not only sea lines, terminals, and cargo owners, but also government agencies, above all, the customs authorities, regulators, primarily tax authorities as well as Russian Railways,” Sollers Group General Director Vadim Shvetsov.

“We are about 300% overloaded in terms of export capacity in almost all regions. The only way out we see is unmanned transport [...] This year, we are launching two vehicles in Chukotka. These include products made by Russian Helicopters and vehicles with good lift capability, with a payload of 50 to 100 kilograms, and a flight path of up to 350 kilometres. This suits us perfectly. It’s important not only for the Far East, but also for the centre of Russia [...] The answer to the question of how to bring the Far [East] closer [...] for us there is only one answer – it’s drones,” Russian Post CEO Maxim Akimov.

Regulate tariffs due to growth in traffic volumes and legislative support from the state

“An important measure for adjustment is the tariff policy. We wouldn’t like to subsidize coal with tariffs. Cars are not ready for this. We just need a stable tariff policy. Russian Railways is building it absolutely right. There are preferences for new routes and for new promising cargo flows. But in this regard, I would like this decision to be made not for a year, as it is now being adopted, but for a longer period, for example, for five years,” Sollers Group General Director Vadim Shvetsov.

“Tariffs are a thing that we can easily be scared of. But let’s in fact understand the following: if you carry more, then the current tariff will look economical. Costs are still there. They are divided by volume. When we export 85% of today’s capabilities, I would like to first export 100, then look at the savings. Instead of saying first: well, we definitely can’t export 100% of what we already have to, so let’s raise the tariff,” Siberian Generating Company CEO and SUEK CEO Stepan Solzhenitsyn.

“Since we have cross-subsidizing, certain colleagues are right to say: why are we paying more? Let’s tie it to a certain price, boost unprofitable cargoes, reduce highly profitable ones, and create additional conditions for the development of small transportation business, medium business, and highly profitable ones. We agree with this position,” Russian Railways CEO and Chairman of the Executive Board Oleg Belozerov.

For more, see the Roscongress Foundation’s Information and Analytical System roscongress.org

Bringing the Far East Closer: Approaches to Reducing Transport Costs

Read more