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Co-owner of Delo Group: Russia can play a much more significant role in global logistics

Sergey Shishkarev, Chairman of the Boards of Directors of Delo Group

Since the beginning of the year, the Russian logistics industry has undergone serious changes. Sales markets, freight lines and partners have changed. All these factors caused domestic companies to build a transport and logistics routes almost from scratch. In an interview with TASS, Sergey Shishkarev, Chairman of the Boards of Directors of Delo Group, told what opportunities have opened up for Russia with the departure of major global logistics companies.

– The global logistics industry faced serious changes at the beginning of this year, affecting the container market in particular. How has the situation in logistics changed in recent months in general? What major changes do you feel?

– The changed conditions acted as a cold shower on many participants of the transport and logistics market and sobered them up. The departure of the world’s largest sea carriers from the Russian market, difficulties with chartering vessels and the closure of traditional routes, especially via Europe, forced us to look for new ways and options to ensure transportation. Business solved this problem. As you can see, store shelves are not empty, businesses did not stop, foreign trade indicators, while declining, but there is no collapse. One of the recent months’ results is that the country’s transport and logistics system has become much more resistant to external influences. For example, Russia took the first steps toward building its own trading fleet, including a container fleet.

I believe that the country needs a “Russian Maersk” (Maersk is a Danish company, one of the leading container carriers, note TASS). Its creation would be the reasonable completion of the entire logistical chain we are building in our country and in the world today. We would close all its components and get not only great synergy effects, but also real logistical independence. Besides, we would be able to distribute cargo flows between transport corridors evenly.

Speaking about the future vector, Russian logistics is a part of the global one, but its influence on global transport flows, unfortunately, is still small. I am sure that Russia, as a transit country, could play a much more important role in global logistics. Now it is 2-3% of the world’ commodity flows but, taking into account the length of our territories and transit opportunities, especially railroad transportation, well-developed port infrastructure, and new routes, including via the NSR, these results could be higher. In my opinion, we are extremely careless about our capabilities, and I think that the implementation and a multiple increase, for example, in container transit could become a separate, highly profitable sector of the economy. The transportation of containers is always followed by the development of terminal facilities, engineering, traction rolling stock. There will be a multiplicative effect, giving a boost to the production of platforms and containers, which are still not being manufactured in sufficient volumes in Russia. We still buy the bulk of containers abroad, in China. Can you imagine what the effect would be from transit operations alone? No doubt this is a question of the future, the conditions, including geopolitical ones, must mature. But we need to think about this future today.

– How has the container market changed in recent months?

– The logistics of container transportation has changed dramatically. But first, a few words about grain. It is a separate and very important segment of our company’s activity.

Last year we increased the potential transshipment capacity to 6.5-7 million tons at our KSK Grain Terminal in Novorossiysk. We launched a 40A deep-water berth and reached 240 meters underwater. This is currently the most modern grain terminal in the country. And thanks to well-planned investments made in previous years, now we are able to meet the increased demand from exporters and buyers of our grain. This year we expect to show the volume of grain transshipment reaching 6 million tons, which will be the maximum result for the whole history of KSK operation.

As for containers, there has definitely been a full-scale turnaround to the east. Both exporters and importers want to deliver cargo via the Far East, so all infrastructure facilities there: railroads, land border crossings, and sea terminals, have become overloaded. Our North-West direction has decreased from over 100 thousand containers per month to 10 thousand. Now Ust-Luga and terminals in St. Petersburg are gradually coming back to life due to the growth of non-container cargo turnover and the beginning of vessel calls from Southeast Asia, particularly from China.

– Everyone talks about the reorientation of cargo to the east. What is the situation today at the Eastern Polygon? What are the main problems in the East now? How difficult is the situation with the removal of containers from there?

– The turn to the East is complete, we are regrouping our forces, means and the flows of export and import to the Far East. We are doing everything we can, but in this case the infrastructure is a little late, even our own. We did not expect to reach the capacity limit at our Eastern Stevedoring Company in Nakhodka in a few months. We have a big investment program for the Far East. Last year we gave up coal transshipment in favor of containers, this year we modernized part of the storage area and put into operation two new big RMG storage cranes. We bought almost 50 additional hectares of land next to our terminal in Nakhodka for future capacity expansion. But we have not yet fully implemented our plans; it was just physically impossible. And it’s not due to the fact we are in a hurry or not – there are certain technologies for creating and developing stevedoring facilities, which must be observed.

In general, we should say openly – in terms of technological readiness for market reorientation, both our own and our colleagues’ infrastructure cannot cope with the current volumes. The ports (i.e. the Far East ports) are operating at 100% load, but this means that as the volume grows, the risk of overloading people, machinery and equipment grows. Besides, due to several factors, vessels stand for a long time at Far Eastern ports, waiting for loading (although this year VSC managed to reduce the average duration of the roadstead by a third compared to last year). And this leads to serious financial losses for marine operators, including us.

One of the anti-crisis measures for us was the active development of our own shipping business: we acquired SASCO (Sakhalin Shipping Company, note TASS) and took additional vessels for charter to export customers’ containers to international markets.

– How do you suggest addressing these issues?

– At the Eastern Polygon, everyone should be equal. I have repeatedly suggested to create for this purpose a consumer council for the infrastructure services of the Eastern Polygon. So together with Russian Railways and our partners we could discuss issues related to the balance of freight to and from the East. We need to have a negotiating table to understand how to coordinate with each other. The Eastern Polygon is fully loaded, and if we want to increase the transportation of some categories of cargo, we must abandon others. This issue did not become urgent yesterday, but now it is under the control of the Ministry of Transport of Russia and the Minister personally, an operational interdepartmental headquarters has been created. The Government Office and the First Deputy Prime Minister Andrey Belousov coordinate and supervise these efforts. And we can see that the authorities are listening carefully to business: consignors, railway operators, and owners of marine terminals.

If you remember, we proposed creating the сouncil as a platform for discussing these problems back at the Eastern Economic Forum in September. I think that if we had moved forward with this proposal, the crisis that occurs with the removal of import containers from ports in the Far East would have been less acute. Authorities at all levels, together with business, are now trying to find a way out of this situation, and we appreciate the efforts of the government, the Ministry of Transport and Russian Railways. But, unfortunately, not everything is working out yet.

This problem is multifactorial. As we remember, in the last two years, China has been constantly closing and opening because of Covid restrictions. In recent months, many restrictions have been lifted, and all the import that was supposed to arrive from China and did not reach us either because the ports were closed or because of the temporary shutdown of businesses, flowed into our country. As a result, there arises an excess of import over export. In addition, autumn is traditionally a high season for consumer import due to the approaching New Year.

Ultimately, since September we have faced restrictions in the use of the freight capacity of the Eastern polygon. They are always in short supply, and more than 60% of them are devoted to the transportation of steam coal for export. Containers, oil products, construction and other cargoes must fit into the remaining 40%. Due to geopolitical problems, the main export markets, both for raw materials and non-primary export, are concentrated in the East. We certainly want more containers in the export direction in the East than we have now, as containers carry a significant portion of non-energy exports, and in the opposite direction – not only consumer imports, but also components for industry.

We, participants of the logistics market, have no contradictions with the authorities in this issue. Both the Ministry of Transport and the Ministry of Economic Development and Industry understand the importance of containerized cargo for the economy, and they see that the macroeconomic effects per ton of cargo in a container are much higher than that of the same coal. But we understand that the government needs to solve this problem considering all factors: macroeconomic stability, social stability, including that in the regions, and the interests of all industries and transport market participants.

The current problems in the Far Eastern ports, in my opinion, have clearly indicated the need for a comprehensive solution to the main problem: the imbalance of transport and logistics links, resulting from the impact of unfavorable external and internal factors. Of course, this problem must be solved in parallel with the urgent measures to stabilize the logistics situation in the most difficult areas. But the impact of negative external factors can last indefinitely, and emergency methods will not work anymore. In our opinion, it is necessary not to patch up the holes, but to prevent their appearance in the future.

And if in the first months after the crisis the main task was to redirect the maximum amount of cargo to the East, now we have come to understand that only an even distribution of cargo flows in all directions and the same use of the entire transport infrastructure of our country will create the necessary safety margin, allowing us to survive any external impact. Asia can be reached not only by railways, but there are also alternative routes, possibly a little more expensive and a little longer in time. However, with the systematic use of all transport corridors, the cost of delivery will level off and the time will decrease.

Let’s go back to practical measures to solve the situation with import containers in the Far East. Firstly, we proposed to develop shipping routes from Southeast Asia to the ports of the Azov-Black Sea Basin and the Baltic as much as possible. The first vessels are already testing these directions, making, or planning to make vessel calls to Global Ports terminals in St. Petersburg and Ust-Luga. We are also carefully considering the possibility of starting to work on these routes as a shipping company.

Secondly, we suggested to use more actively the railway route through Kazakhstan for export-import operations, in recent years it was exclusively developed as a transit route. This process is already in progress while transit is decreasing. However, we believe that the reserve of this route has not been fully realized yet, and the border crossings on the Russia-Kazakhstan border are seriously underloaded. The most valuable thing is that cargo from Kazakhstan comes out to the west of all the Eastern Polygon bottlenecks and does not have any additional load on it.

– Russian Railways have proposed using semi-cars to unload the ports of the Far East. What do you think about this proposal, and do you have any ideas to resolve the situation in the Eastern Polygon?

– Our opinion has not changed – we think that the transportation of containers in gondola cars is less technological and safer than on traditional fitting platforms. Delivery time and transportation costs are increasing. But in recent weeks we have started to load in open wagons as well, to normalize the situation with the removal of containers with import from the Far East. And we plan to increase such transportation as a temporary measure to rectify the situation with overloaded sea terminals.

– You have one of the few holdings that stayed at about the same level of margin just like last year. What did you have to do, how did you have to reorient flows and logistics to prevent going at a loss?



– It happened that the group’s assets had a serious safety margin and were able to react flexibly to changes in the situation. This is what allowed us to take advantage of the new conditions. Despite all the challenges the group is developing and moving forward using any opportunities for growth.

For example, since February we launched 25 regular international and domestic rail services, significantly renewed our client base, and concluded about 15 basic agreements with major market players. Only in the last three months, we have opened routes to India, Egypt, and Israel, and we are working with the Emirates and Saudi Arabia via Istanbul.

– Politicians say that the crisis is a time of opportunity for Russian business, and you are actively developing the group’s international business. What regions of the Asia-Pacific region are you planning to launch services in?

– The Asia-Pacific region is traditional for the activity of our assets, organizing services in many of its member states: China, India, Vietnam, Mongolia. TransContainer opened a subsidiary in Japan in August. As for other destinations, there are also Turkey, Israel, and Egypt.

In general, we are ready to consider any new route and any new service, if the shipper is interested and the necessary cargo base is available. We are also developing a ferry route between Turkey and Novorossiysk to enable Turkish cargo in trucks to enter Russia by the shortest possible sea route, without long waiting times at land border crossings. We expanded the infrastructure at our NUTEP marine terminal and equipped a remote area owned by our forwarding holding company, RUSCON, to conduct all control procedures not at the port, but at a specially equipped onshore terminal. We hope that the route will be fully operational in the coming weeks.

Of course, neither the route itself, neither the time frame for its organization (only three months), would have been worth talking about without the most constructive, close, and kind cooperation with the state authorities exercising control functions on the state border of our country. I mean primarily the Federal Customs Service of Russia, the Border Service of the Federal Security Service of Russia, and Rosselkhoznadzor.

I would like to thank the Russian Export Center headed by Veronika Nikishina for doing so much to make the ferry project implemented as quickly and fully as possible.

– About imports from China. What volumes are coming in? Has transportation from China been restored?

– Imports from China are going on, but not the volumes that consumers expect. Transports with this country have not stopped. It is our largest and most reliable partner in Southeast Asia. Chinese authorities are extremely serious about anti-epidemiological measures on their border, so the processing of trains from Russia, as well as from all other countries, is carried out very carefully. That is reason that we have no desired quantity of container trains with export for return loading with import as we would like our Chinese partners to receive daily.

– What are your investment priorities domestically?

– In addition to the significant extension of our terminal in the Far East – Eastern Stevedoring Company, which I mentioned above, there are several other areas.

The first one is the Zabaykalsk border crossing. We have combined two terminals, our own and the one we bought last year. We are implementing the idea of a single technology for their operation. We want to increase our throughput capacity many times over. To achieve this goal, several investment projects related to the extension of infrastructure carrying capacity are implemented at Zabaykalsk. First, this is the through technology of arrival, unloading and departure of container trains at the terminals increasing the speed of their processing many times over.

We have almost finished all the work and we are preparing to launch this new technology process by the end of the year. No less important is the expansion of terminal infrastructure of the 1435-mm gauge, the one that is used in China. This will allow the terminal to handle a significantly larger number of import trains of our Chinese partners.

The Azov-Black Sea Basin is a special region for the group, it is a place of its foundation.

Today it has become the largest maritime transport hub in the European part of the country, replacing the northwestern direction by itself. Therefore, our second priority is to develop the Novorossiysk transport hub at an accelerated pace to avoid the Eastern Polygon situation. We are seriously working with Gazprombank and Bamtonnelstroy-Most on possibility of building a bypass road Tsemdolina – Portovaya in Novorossiysk, and we are ready to cover 25% of the construction cost together.

Yes, it’s expensive because it’s an overpass, but there is no other option. The city is choking on traffic, this federal highway is needed, and it is necessary to start its construction, whatever the cost. We are ready to act as a concessionaire.

The third area of development is the Moscow Transport Hub, we are considering and discussing different options to increase our presence in this key location for Russian logistics.

– Even before the sanctions, the group stated the need of creating its own domestic digital logistics platform without any foreign partners. Is its creation possible in the current realities and when?

– I am sure that everyone, not only participants of the transport and logistics market, understands that our country needs to create a unified national logistics information ecosystem which could be the basis for the development of a multimodal transport system. And not just logistics. There are the forces and resources to create a unified national digital platform in Russia.

The digital platform is practically the main issue in our strategy. Today we ourselves are experiencing problems because the goods unhindered transportation demands instantaneous processing of all documents. Our task is to consolidate the various companies’ and departments’ systems into one. We are ready to act as a system integrator of all existing systems.

In our opinion, the transition to a single logistics ecosystem can be implemented in two stages. The first stage should involve the implementation of common standards for data exchange and the development of regulations for the processing of digital documents for all participants of the supply chain. The second stage is creation of the digital services for logistics management, including optimization of routes for cargo movement, coordination of electronic transportation plans, and monitoring and coordination of their execution. I am confident that once fundamental decisions are made, technical issues can be resolved very quickly.

– FESCO recently launched air cargo deliveries. Do you have plans to enter new markets, including the airfreight market?

The group is developing, the sphere of its interests is expanding, so we may consider any interesting assets that meet our development goals. However, we do not have plans to enter the airfreight market right now. It is more important for us to fully develop our traditional niche in container logistics, where we see huge potential development.

Source: https://tass.ru/interviews/16321145

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