Russian project cargo market forced into painful transformation
Due to the strict sanctions imposed on Russia and its growing isolation on the global stage, the market for project cargo transportation is currently undergoing a challenging transformation. Shippers are facing significant difficulties in managing a completely altered supply chain and grappling with a severe shortage of equipment.
The Russian cargo transportation market saw a significant increase in the project cargo transportation sector before February 24, 2022, due to the high demand for delivering oversized equipment for large-scale infrastructure projects in the country. The annual growth rate for this sector ranged from 7-10 per cent. Germany, Netherlands, and France were the primary suppliers of the equipment, with a sizable portion of it coming from these EU countries.
However, the onset of the military conflict in Ukraine caused a halt in the majority of these supplies, dashing any hopes of continued industry growth at the same pace as before. Moreover, this situation prompted a complete shift in Russia’s project cargo supply chains. Previously, the majority of oversized cargo was transported to Russia through its North-Western seaports, primarily St. Petersburg.
The situation has radically changed in recent months, with most oversized cargo, including machine tools, production lines, power equipment, and heavy special equipment, being delivered to Russia from China via Far Eastern seaports. However, this region has been unable to deal with such flows. The shortage of equipment suitable for transporting oversized cargo throughout Russia complicates the situation even more.
A forced shift
Speaking to the Russian Kommersant business paper, Igor Rebelsky, founder of VIG Trans, a Russian carrier of oversized cargo, said that oversized cargo transportation from China to Russia has grown by 35 per cent compared to 2020. At the same time, Russian carriers estimate the growth through Russian Far East ports at significantly higher figures – by 400 per cent, with the most significant increase observed in the demand for construction equipment.
According to recent data, project cargo transportation to Europe has decreased by 80 per cent compared to the previous year. Sanctions on Russia have led to a significant increase in transportation distance. Prior to the sanctions, the average delivery distance from the ports of St. Petersburg or Novorossiysk was about 2,000 km. However, this number has now increased to 8,000 km. Furthermore, limited capacity and poorly developed port infrastructure in Russia, particularly in the Far East, have further worsened the situation.
Sanctions imposed on Russia have caused a shortage of transport technologies required for delivering project cargo, like low-loaders, flatbed trucks, and similar equipment. This has resulted in increased transportation costs, prompting shippers to switch to other modes, especially railways.
Unfortunately, the Russian railway sector is also facing significant issues due to the lack of infrastructure for delivering such types of cargo, particularly necessary platforms for transportation, and a shortage of qualified personnel.
Moreover, rail transport tends to have longer delivery times and is restricted in terms of infrastructure when it comes to oversized cargo, like passing through railway tunnels on the Trans-Siberian Railway. As a consequence, while railway transport is cheaper, it still poses problems for the project cargo industry.
Another issue is the lack of equipment, specifically ships and vehicles, for transporting oversized cargo. There are also problems with obtaining spare parts and a shortage of specialized containers for this type of cargo. According to experts from the Russian Ministry of Transport, these specialized containers, such as open-top and flat rack containers, are expensive and not in high demand compared to standard containers. Additionally, the owners of such equipment were mainly large ocean liners that are no longer operating in Russia and therefore do not provide this equipment to their former partners.
Bulk carrier fleet has sprung to the rescue with shippers having to improvise. The most common solution seems to be the placement of cargo on decks and in the holds of bulk carriers.
Vessel manufacturing under pressure
Strengthening sanctions on Russia have also taken their toll on the country’s vessel manufacturing capabilities, which is expected to affect vessel supply in the next couple of years, according to Ferenc Pasztor, Deputy Head of Research within Drewry.
The country has a shortage of various vessel parts beyond marine engines, the biggest contributor to the wider supply issues. Although new suppliers are being sought after in “friendly countries” and domestic manufacturing is also planned to be ramped up, this might take several years to be worked out.
In a forecast earlier this year, Pasztor said that the exact impact on multipurpose vessels being built in Russia is unknown still, the same challenges are expected to be apparent in the sector, and hence strong headwinds to domestic yards, which have been supplying MPVs for the Russian domestic market.
In May, there were 16 vessels in the orderbook that were being built in Russia that Drewry were aware of, although they have a total dwt of only 120,000. “This means they belong to the size category in which vessels are getting really old globally, and where fleet renewal is needed,” said Pasztor.