Russian Railways and Ports: Move Towards Each Other

Certain difficulties arising in railway transport and sea ports cooperation has become a traditional problem which is rooted in the poorly developed infrastructure and the lack of proper amount of co-ordination between these two modes of transport. Now the sides are trying to work out new and more efficient tools for cooperation; currently expectations are laid upon ОАО RZD who might participate in the authorized capital of the ports and launch a joint logistics centers network.

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Poor Port Capacities for Rich Cargo Volumes
Nowadays Russian ports handle 3.5 times more cargo compared to the amount they used to in the 1990 - s. In the last three years the general volume of cargo transportation has grown by 1.5 times, including ports of the North-Western basin – two-fold increase, South basin – growth by 1.4 times, the Far East – one fourth increase. According to experts, cargo base will continue to grow due to the favourable economic situation.

Last year the RF sea commercial ports handled 421 mln tons of cargo, which is 14 mln tons more than what was handled by the USSR ports in 1989, including Baltic and Ukrainian ports results. Over 180 mln tons of cargo, or 45% of cargo handling volume, is serviced by railway transport. According to Alexander Misharin, Deputy RF Transport Minister, under conditions of keeping export growth by 30% per year on average and a favourable price policy for raw material cargo, the handling volume made by ports can reach 550 mln tons by 2010, wherein about 230 tons will be the share of cargoes transported by railways.

At the same time, it is important to note that the basic port capacities are practically exhausted now. This is happening simultaneously with significant changes of the cargo nomenclature structure and the introduction of new technologies. As a result, present-day specialized complexes built in the 1960-70 - s fail to meet modern technical requirements.

Considering the forecasted dynamics for cargo flows towards the ports, OAO RZD carries out large-scaled work aimed at infrastructure development, as well as the development of railway accesses to terminals. Thus, from 2003 to 2006 some RUR 130 bln was invested into railway transport infrastructure development.

According to Vadim Morozov, OAO RZD First Vice-President, the most significant project on railway development in the North-West region is the construction of the high-speed line Buslovskaya with a cargo line to Kamenogorsk (works are to be carried out within accesses development to the port of Murmansk). The total cost of the project is estimated at RUR 60 bln and the work is to be completed by 2015. In the South Federal region the major objects of railway transport development are complex reconstruction of Syzran – Vogograd – Krasnodar – Novorossiysk railway and the Tamansky peninsula railways.

Large-scaled work is also planned for the ports of Nakhodka, Vostochny, Vladivostok and Vanino, in order to service the forecasted handling volumes. Among major objectives are finishing the second bridge across the Amur by 2009, reconstruction and development of Ussuriyisk and Smolyaninovo stations, and Nakhodka transport junction development. Moreover, this is also the most complicated and expensive project of Kuznetsovsky tunnel construction which gives basis for prospective regional ports development, including the port of Vanino, Sovetskaya Gavan etc. The aggregate investment volume for the Russian Far East development by 2015 totals RUR 76 bln. «Long-term development projects will be a success, if both infrastructure and technical equipment of the ports will develop properly», Vadim Morozov stresses.

Problematic car
However, now port capacities development is a problem to solve. In 2006, due to convention bans, some 58 thousand cars were left unloaded. This makes 3.5 mln tons of cargo and financial losses worth RUR 2.9 bln. This problem is getting more and more serious considering the growing volumes of foreign trade cargo.

According to Sergey Kozyrev, OAO RZD Vice-President, last year the average number of rail cars in the ports amounted to 16 thousand units per day, though the unload volume made 4 thousand cars daily. Thus, since this is 70% from the volume of the aggregate handling capacities of the ports, OAO RZD did not transport and ports did not handle about 20 mln tons of cargo.

Alexander Pilipets, Chairman of the Committee on production and maintenance problems of the Association of Sea Commercial Ports, states that nowadays ports make up their production plans due to the norms of unload volumes calculated for the plans of orders given for rolling stock.

However, starting from January 2005, OAO RZD has been operating the norms of maximum handling capacities of the ports which are given in OAO RZD documents. This misunderstanding makes the sides accuse each other of breaking the unload norms, uneven supply of rolling stock and rail cars idling. To solve this problem, it is crucially important to adopt a unified formal basis and operate unified and coordinated figures.

Further development of cooperation between OAO RZD port railway stations and companies involved into load/unload procedures at the terminals should take the path of mutually beneficial relations and all steps are to be co-ordinated in the course of port and port stations development. Moreover, problems in port and railway relations are also caused by the present-day business practice. Thus, situations when cargo is not accepted by the ports result from lack of warehousing capacities. Port warehouses were constructed as a buffer to host cargo when it cannot be loaded onto the vessel immediately. In reality these capacities are now used as a competitive advantage in the fight for clients. Low rates for cargo warehousing results in the situation when port areas are handled as warehouses to sell cargo to customers, which decreases terminal carrying capacity and does not allow railways and ports to cooperate efficiently.

Nikolay Bochkarev, Head of OAO RZD car department, points out another reason why cooperation cannot be set properly. The fact that coal handling grows in the winter period and clam-shell technology is typically used leads to serious damage of rail cars, since only the ports of Ust-Luga and Vostochny have the necessary equipment to keep up with the set technology, i.e. these two ports operate car dumpers, defrosters etc. This is why about 6 thousand cars were damaged in 2005; in 2006 the damaged car number increased and amounted to 20 thousand units. This made 56% out of the whole amount of damaged rolling stock on the railway net. Annually about 100 thousand cars are to be repaired due to such damage. That causes unscheduled costs worth RUR 650 mln.

Moreover, ports destroy relatively new gondola cars which are taken out of operation while awaiting repair. For example, in the ports of Murmansk and Posyet 19 and 13 units respectively will be damaged.

Clam-shell technology use makes the deficit of gondola cars even more serious, since it causes longer periods of rail cars being involved into cargo operations.

OAO RZD tries to stabilize the situation by acquiring gondola cars. Last year the company purchased 8.5 thousand, this year it plans to buy 21 thousand units, wherein 17 thousand of gondola cars.

Port as way out
To solve the above-mentioned problems, a «through» logistics technology of cargo timely delivery to ports is to be developed. In this respect OAO RZD authorities have found out one particular fact, i.e. if the cargo owner owns the port infrastructure and rolling stock, there are no problems with damaging and idling cars or with through logistics infrastructure. «This is quite a clear answer to the crucial problems of the sector. To increase cooperation and efficiency, ports, railways and rolling stock owners should launch joint business-projects and turn into partners and shareholders», – Sergey Kozyrev says.

Port business community holds another opinion. They state that, despite the fact that OAO RZD has bought ports shares, the number of warehouses in ports and their capacities remain the same, as well as rent terms for stevedores, lack of co-ordination with cargo consignors etc. Thus, they express fears that rail cars will nevertheless idle at accesses.

Despite these fears, the work on uniting transport sectors has started. Novorossiysk Sea Commercial Port JSC (NSCP) believed OAO RZD must become a shareholder to provide a better understanding between the two modes of transport on the level of property management. The company has reached an agreement with NSCP owners and now 20% of shares are controlled by OAO RZD. «We’ve taken this step not to stop competition and transport sector development, but to eliminate subjective difficulties arising on cargo move via the Russian territory», – Vladimir Yakunin, OAO RZD President emphasizes.

Igor Vilinov, NSCP CEO, also notes that after Vladimir Vorobyev, OAO RZD Vice-President, NSCP Board, has joined, the situation has turned for the better both in terms of solutions for current problems and implementation of investment projects aimed at cargo turnover boost at the port complex.

Now OAO RZD plans to acquire 25% of shares of Ust-Luga port. Also, an opportunity to control the Russian Far Eastern ports of Vladivostok and Nakhodka is considered. The negotiations are underway and the company’s authorities hope for a positive decision.

Logistic center as a buffer
Many experts believe logistic centers launch can become a way out for setting proper cooperation between ports and railways. The international practice shows that the major link to unite different modes of transport efficiently is a logistic center. Where such centers have been launched, there is no idling or abandoned rail units.

In the opinion of Semen Rezer, President of Guild of Forwaders, railways, ports, forwarders, stevedores etc. should become shareholders of logistic centers, which are to be launched on the basis of acting port railways, stations and ports themselves. However, OAO RZD should control them and have the control stock, since this corporation operates all the required resources.

In Mr.Rezer’s opinion, logistic centers should function on the basis of business-plans jointly developed by railways, ports and other transportation process participants, including regional administrative offices. This way transport flows can be organized in logistic chains. Logistic centers should perform as integral logistic operators that allow to organize the transport process rationally and follow both customers’ and carriers’ interests, in order to increase transportation efficiency. By now positive experience of introducing effective logistic solutions has been acquired by the Sverdlovsk, Gorkovskaya, Karasnoyarskaya, Severnaya and Eastern-Siberian railways.

Moreover, Semen Rezer notes that the role of normative acts regulating logistic centers functioning must be strengthened, since we do not have such laws. Railway Regulation does not contain rules for forwarders and logistics. That is why special acts on transit transportation are required.

It is crucially important to create proper conditions for these centers to function. Thus, the system of taking fines should be substituted by mutually beneficial relations when each side gets commercial profit and any sort of lack of coordination results in financial losses. Also «door-to-door» delivery must be based on a complex logistic approach to transportation, including electronic document turnover that will speed up transportation.

In transport junctions modern terminals are to be launched, which would unite all transport capacities and meet the requirement of the cargo owners. In general OAO RZD is carrying out the work on such centers launch in Moscow, Saint-Petersburg, Yekaterinburg, Novosibirsk, Rostov-on-Don, Kazan, Perm, Volgograd etc.

Tariffs to be reformed
No matter how much is said about the new forms of railway and port sectors cooperation, one of most significant factors for transportation market will always be tariff policy. Nowadays, compared to the normative base, it allows to plan tariffs three year ahead. However, some transport market participants believe this is too short a period for making plans. Development programmes of big companies-operators are worked out until 2016, but when they apply to OAO RZD and ask to set tariffs for the above-mentioned period, they get a negative answer.

Speaking of railway cargo rates, Sergey Kozyrev states that one of the reasons for poor competitive quality of the Russian production now is the costly transport-forwarding services. It is impossible to change the location of the cargo formation centers that are too far away. Thus, transportation efficiency is to be increased. To do so, OAO RZD proposes to introduce tariff differentiation, i.e. high rates are applied for on-time cargo delivery and part of acquired funds is forwarded to risks insurance. Low or seasonal tariffs are set for cargo delivery within the agreed period. However, first of all, to set such tariffs, warehouses for seasonal cargo are required. Secondly, IT controlling cargo, urgency and a full set of cargo must be launched and linked with companies’ complexes.

Speaking about port tariffs, it must be noted that in the last two years the Federal Tariff Service (FTS) has followed the inflation rate for the rates on coastal cargo load/unload. In general, everybody believes this step made it possible to regulate ports and forecast tariff increase for client.

However, the question still unsolved is rates for ship calling the ports, i.e. the so-called port duties which influence the charter rate immediately. The Federal Tariff Service believes that the state ought to participate in infrastructure maintenance and development in a more active way. According to Viktor Kvitko, Head of Transport Regulation Department of the Federal Tariff Service, during the development of port duties rates the situation in neighboring countries was analyzed. Taking funds required for port infrastructure maintenance as a whole, for example, for the port of Klaipeda, port duties make 60%, i.e. this is what the vessel owner pays for ship calling, while 40% is made by the stevedoring companies paying for rent of the port infrastructure.

In Russia the situation looks different. On average, 93% of funds required for infrastructure maintenance comes from port duties and from 3 to 7% is made by rent. Moreover, it is important to consider another fact: according to the acting legislation, port duties go to the Federal Agency on federal property control and afterwards a certain amount is transferred back to ports within federal target programmes. This is quite a complicated system of financing which is unable to support port maintenance properly.

Another problem lies in the fact that currently the Federal Tariff Service does not allow to implement projects of state-and-private partnership. Of course, there are some cases when private structures invested heavily to modernize and develop ports. However, normative-and-legislative acts do not envisage a mechanism of getting finances invested into the state infrastructure construction back to investors. This is an objective reason restricting the process.
In V.Kvitko’s opinion, to reach the goal and work out new forms of OAO RZD and ports cooperation, we should analyze foreign colleagues’ experience and make compromises in a more efficient way. Despite the fact that the Federal Tariff Service is doing its best to develop favorable tariff conditions in order to increase national transport competitiveness it is quite clear that tariff regulation is not the only cure for the problem; it is to be solved by a complex approach.

Laws go first
While discussing cooperation forms and their efficiency, ports and OAO RZD come to common opinion: they believe new normative-and-legislative base should be worked out in such a way as to allow cargo consignors, cargo owners and transport business to develop good-working schemes of cargo transportation via the Russian territory. For example, nowadays, regulations for cargo transportation issued in 1956 are still actual and applied for railway sector functioning. It is obvious that this law does not correspond to modern requirements. In this respect, the RF Ministry of Transport started to develop the project of the Federal Law «On direct multimodal transportation».

Another law the approval of which is extremely important today is the Federal Law «On ports»: it was considered by the RF Government in late March 2007. According to Alexey Druzhinin, Deputy Director of State Policy for Railway Transport department, this is, in fact, the first legislative initiative aimed at regulating port activities. The law defines the term «port» and subjects involved. A clear definition of a «sea port infrastructure object» is given, as well as «cargo handling» etc. This is a qualitatively new law which will allow to regulate port activities properly. Also, it clarifies some tariff regulation issues.

Another important step taken towards the normative base development was the drafting of the law «On free port economic zones». Sergey Shishkarev, Deputy Chairman of the Committee on Energy, Transport and Communication of the RF State Duma, notes several fundamentally important clauses of the future law. First of all, the draft expands the term «actual» on ports and free economic zones up to 49 years (currently it is ten years). Secondly, port zones residents are to follow higher rates for minimum investment volume. Since free port zones can be created within acting sea and river ports, limits concerning their launch are to be withdrawn, i.e. it means they won’t start not from scratch but from the property, equipment and transport belonging to ports.

Speaking of regulations for free customs zone functioning, foreign goods import to this territory will be allowed with no customs duties or VAT. Russian goods transported to the free customs zone under conditions of export deliveries will be allowed with no VAT or export customs duties, but excise-duty will be charged.

Summing up what was said above, it is important to remember that the problem of cooperation between ports and railways is a traditional one. Some time ago, to sort it out and coordinate the functioning of transportation process participants, a special agreement was developed. It envisaged charging fines for breaking obligations. It was believed this regulation can solve the problem, though it brought numerous problems instead. Now, one would better hope the chosen way is right and new, more successful forms of cooperation will be found. OAO RZD might play the key role in the process of port complexes control.

Viewpoint

Alexander Misharin,
Deputy RF Transport Minister:
– The RF Ministry of Transport has developed programme documents in order to eliminate bottle-necks in the areas of maximum concentration of foreign trade and transit cargo flows, as well as create alternative routes that would speed up cargo move in international communication and national port competition development on the eve of Russia’s joining the WTO. These programmes are Transport Strategy of the RF until 2020, The Strategy of Transport Development until 2010 and the Federal Target Programme «Modernization of Transport System». According to the above-mentioned documents, the investment volume allocated for the port capacities development and for planned cargo turnover handling amounts to RUR 690 bln wherein 129 bln is state investment and 560 bln is non-budget funds.

Alexander Shimansky,
CEO «Mortsentr-TEK» JSC:
– During constructive cooperation arguable questions often arise on cargo taking, cars handling, unload norms etc. This results from the fact that there are no unified technical regulations which would balance the work of both sides. The normative base that regulates the aspect of cargo transportation via the ports has not been re-considered since the 1990 - s.
Another problem crucial for port business community is that further development and modernization of handling complexes is impossible without accesses and railway infrastructure development. Unfortunately, currently there is no mechanism of investment attraction into port stations development. We hope that the arrival of carriers and the infrastructure owner envisaged by the restructuring will make it possible to unite railway infrastructure shareholders for port business and invest into its development according to the plans of port capacities enhancement.

Galina Zimovskaya,
Director on Tariffs, OAO RZD Transport Services Center:
– OAO RZD policy has always been friendly to the ports. After the first stage of tariff unification (leverage of the rates for ports and border check-points) OAO RZD allocated RUR 150 bln to support ports. Most importantly, the port business won time to develop its infrastructure. However, they didn’t use this opportunity. That is why now the unification might be stopped. In new conditions new requirements to tariff regulation will arise. Nowadays, considering Russia joins the WTO and the third stage of railway sector restructuring is unfolding, we should restrain from tariff principles of the port sector regulation and develop new forms. In this respect the major problem is flexible tariff policy under conditions when only infrastructure services are regulated and transportation is free market. Then railways and ports will be able to maintain the positive tendency which was observed starting from 2001, when transportation volumes via the Russian ports grew by 86%.

Mikhail Zaichenko,
Head of the Far Eastern Railway:
– Nowadays we have certain problems while cooperating with ports. The fact that these problems were not solved last year resulted in an over 15% increase of technological norm of cargo on the railway. Unfortunately, in 2007 the situation hasn’t improved and even got worse, so now this figure makes 41%. Abandoned trains awaiting unloading in the ports are accumulated on the railway. As a result, cargo handling dropped by 4.9% in Q1.
We believe the major factors which stop on-time cargo volumes handling are insufficient port capacities, as well as significant wear-and-tear of load/unload equipment and unpractical use of capacities. Moreover, ports break rules developed for each complex specialization.

Nadezhda Vtorushina

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