Old Way to New Reality: Eastern Vector for Logistics

Vitalii Chernov, Head of the Analytics Department, “PortNews”,

March 5 2022


The current situation, despite the shock effect, has only accelerated what has been happening over the past many years: the turn of Russian foreign trade, and hence logistics, to the East. Moreover, this happened not so much because of geopolitical events, but because of the rapid growth of the economies of China, India and other Asian countries. Now, against the backdrop of Western sanctions, we can predict the growth of container imports from the countries of the Asia-Pacific region. In the context of high freight rates on the deep sea and the refusal of a number of Western container lines to work with Russia, it is advisable to take this import cargo flow via the ports of the Far East and deliver it by rail to the European part of Russia. Another option is delivery to Turkey (or ports of other countries that have not imposed anti – Russian sanctions) with further transportation to the ports of the South Basin.

The insufficient capacity of railways, especially in the Far East, as well as the refusal of a number of container operators to work with Russia are among the main obstacles.

If we talk about the railway transportation, then as recently as last autumn and winter, a rather heated discussion was held regarding the throughput capacity of railway approaches to the ports of the Far East. Unfortunately, the reconstruction of the Eastern range of Russian railways lagged far behind the rapidly growing needs of the Far Eastern sea terminals. According to market participants, due to the insufficient carrying capacity of the railways, the corporate investments in the development of marine terminals cannot pay off.

Earlier it was mainly attributed to coal deliveries via the Far Eastern ports. However, due to the sharp increase in freight rates for sea container transportation caused by COVID-19 pandemic, market participants began to invest in container capacities as well. A striking example is the container terminal in Vostochny Port, the expansion of Vladivostok Marine Commercial Seaport, the modernization of the “Eastern Stevedoring Company” (VSK)… Now it is clear how much these capacities are in demand there. Therefore, there can be only one solution here: it is necessary to expand the throughput capacity of the railway infrastructure at an accelerated pace.

As for container lines, one should not fall into alarmism here either: ‘refuseniks’ can be replaced by operators from countries that have not joined the sanctions, and such work has already begun. For example, we have the Russian transport group FESCO, there is the Chinese COSCO, etc. – in reality, Russia is not in isolation so far. In the future, of course, it is necessary to create our own container lines. For example, the possibility of building several container ships was considered as part of the development of navigation along the Northern Sea Route. “DP World” joined the project for the development of container transportation along the Northern Sea Route, with Murmansk and Vladivostok as its principal gateways / hubs. It should be noted that “DP World” is managed by the world’s largest investor and developer “Dubai World”, owned by the UAE government, which has not imposed sanctions on Russia.