LOGISTICS OF EXPORTING TO EURASIA SERIES 

 

Transportation, Distribution and Warehousing Services in Northwest Russia

 

December, 2006

 

Author: Julia Vlasova, Bisnis Representative in Northwest Russia

 

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2006. ALL RIGHTS RESERVED FOR USE OUTSIDE OF THE UNITED STATES.

 

1. GENERAL MARKET OVERVIEW

 

Northwest Russia is a rapidly developing region due to its unique geographic position, strong local administration, and close ties with the federal authorities in Moscow. The region has borders with EU’s Scandinavian and Baltic countries and operates port facilities in the Baltic, White, and Barents Seas. Several major transportation routes pass through the region including one of the two major federal routes, “North-South,” which goes through Finland, Saint Petersburg, Moscow, Astrakhan, by the Caspian Sea, through Iran, and countries of the Persian Gulf.  The region handles up to 40% of total Russian export--import flows structured as follows: railroad–50%, seaports–30%, and trucking and airfreight--10% each.

 

Main U.S, export categories into Russia are agricultural products, tobacco, machinery, and optic and medical instruments.  The St. Petersburg Greater Port is the major port that handles U.S. agricultural exports into Russia. In 2005, the port processed 767,496 mt of cargo.  Kaliningrad is another major port that receives U.S. food products.

 

Russia exports mainly raw materials such as iron, steel, oil, timber, aluminum, nickel, and certain chemicals. In 2005, Total export increased by 33.2% and reached over $738 million.

 

1.1       Transport Infrastructure and Market Peculiarities

 

The Northwest Russia inherited a well-developed railway and road system from the Soviet Union, which explains why the railroad cargo transportation holds up to 50% of total intermodal cargo transportation.  Most of the railroads, however, are in need of repair.

 

In 2005, railroad companies in St. Petersburg reported a 32% increase in ferrous metal haulage, a 13% increase in ferrous ore haulage, and a 13% increase in timber haulage.  Lack of container carriages does not allow railroad companies to increase container turnover; carriers are reluctant to invest significant resources in expanding and modernizing their container carriage fleet.  

 

Airfreight, as a transportation mode, is less popular because of outdated airport infrastructure and an old aircraft fleet. It accounts for only 10% of total cargo transportation. 

 

There are eight big seaports in the Northwest: St. Petersburg; Kaliningrad; Murmansk; Arkhangelsk; Vyborg; Primorsk; Vysotsk; and new Ust-Luga. There are also several smaller seaports. Maintenance of existing seaports and construction of new seaports, including Ust-Luga and a seaport in the Leningrad region, began the late-90s. Over the past three years, sea transportation has experienced rapid growth. In 2005, the total cargo turnover in the Northwest seaports was over 178 mil tons, a 17.9% increase from 2004. The ports handled more than 73 mil tons of bulk cargo and 107 mil tons of liquids. The Northwest ports accounted for 44% of the total cargo turnover in Russia.

 

The Greater Port of St. Petersburg is the main seaport in the Northwest region. It handles mostly oil and oil products, metals, and container cargo. It also handles about 20% of all international cargo. Most Russian experts believe that container cargo will be transported more by sea than by land. According to the forecast, container cargo traveling through Russian seaports will increase from1.5 mil TEU to 6.2 mil TEU.

 

Currently, the region does not have the sufficient number of container terminals to meet the growing demand. The local government actively supports projects to construct new container terminals. The National Container Company, the leader in container terminal management in Russia, plans to expand container terminal facilities in the port of Saint Petersburg to 1.4 mil TEU. The National Container Company and German Eurogate, the biggest European container group, plan to construct a Baltic Container Terminal with a 3 mil TEU capcity in the Ust-Luga seaport in 2007. It is also expected that International Alliance will take part in the construction of a ferry line for railroad cars from Ust-Luga to Kaliningrad and the seaports of Germany.  

 

The Northwest region is becoming a major transportation hub for oil and gas because of its access to the Baltic Sea. Several gas and oil pipeline construction projects with all associated infrastructure are under way. For example,

-          In 2001, the Primorsk Seaport was built for exporting oil delivered by Baltic pipeline.

-          Lukoil Company is going to expand the oil terminal in the port of Vysotsk from 11 to 15 mil tons per year.

-          There are plans to construct another 3 mil ton oil terminal in Izhevsky Seaport located in the Kaliningrad region.  

-          An oil pipeline from western Siberia to Murmansk and an oil terminal in Murmansk are to be constructed.

-          The North-European gas pipeline from Gryazovtsovo to Vyborg through the Baltic Sea to Germany is also to be constructed.

More projects on oil and gas can be found at www.bisnis.doc.gov.

Trucking haulage grew by approximately 10% in 2005. This increase resulted from growing Russian imports and the resulting increase in container flow through the St. Petersburg Seaport.  The 30-40% annual growth over the last three years in the Russian imported automobile market has also contributed to the increased trucking of new cars. 

 

With the rapid development of hypermarket retail trade and growth in container cargo turnover, the demand for modern logistical center space has become tremendous.  Even unequipped warehousing space is in great demand.

 

In 2005, cargo turnover in St. Petersburg grew 5.4% over 2004 and exceeded 200 mil tons.  The seaport and railroad each handle 30% of total turnover, while trucking, aviation, and river shipping account for approximately 10-15% each.  The total market for transportation services in 2005 is estimated at $3.7 bil, a 27% increase over 2004.

 

In 2004, the federal government agency responsible for port development, Rosmorport, completed widening of the access channel, which increased seaport turnover by 35%, from 42 to 57.5 mil tons of cargo.  Within seaport haulage, container turnover grew fastest and exceeded 12.6 mil tons, a 70% increase over two years.  Market analysts believe that container turnover will continue to grow rapidly, at approximately 15-20% annually, while bulk cargo turnover will decrease.  Further development of the St. Petersburg Seaport is limited by its location and lack of space.  Industry experts believe that when seaport turnover exceeds 65 mil tons, in the next two to three years, new cargo flows will target new port facilities in Leningrad Oblast and other modes of transportation.

 

1.2  Major Infrastructure Development Projects

 

Further development of the intermodal transport industry in Northwest Russia is limited by the lack of modern infrastructure facilities and rolling stock. For example, the largest portal facility in the region, the Seaport of St. Petersburg, is located in the center of a 4.5 mil-person city with significant traffic problems. Government authorities clearly understand the importance of transportation infrastructure development in the city. They actively invest and encourage other investors to participate in projects aimed at improving the transportation infrastructure. Private entities actively modernize their rolling stock fleets and continue to develop new loading and warehousing facilities.

 

Significant efforts are being made by the St. Petersburg government and federal authorities to increase capacity of the seaport.  Several new roads are under construction in the city, which will accelerate cargo turnover from the seaport to the warehouses and logistical terminals that are being built in the suburbs of the city.

 

The above-mentioned reasons make Saint Petersburg and the Northwest region a major intermodal transportation hub of the Russian Federation. The federal government has adopted a program for transportation infrastructure development of the region; its main priorities are:

·         modernization and development of highways;

·         development of regional airport infrastructure and aviation;

·         construction and development of port complexes on the Baltic Sea, including railroad and automobile approaches;

·         an increase in container fleet and more extensive use of containers;

·         development of public-private partnership relationships in infrastructure projects;

·         and taking measures to decrease environmental pollution from transportation.

 

The local government is also working to improve and develop the transportation infrastructure of the region by building new roads and attracting investment in the logistical facilities. The St. Petersburg authorities have repeatedly announced their ambition to make the city the largest logistical center for Russia and one of the most significant in Europe.

 

Major infrastructure development projects are:

·         Western High Speed Diameter. The project will be realized on the basis of concession agreement; the tender for concessionaire has been already announced. Companies’ proposals will be accepted until January 2007.

·         A St Petersburg to Moscow toll-highway.

·         Orlovsky tunnel, the project will be realized on the basis of concession agreements.

·         Expansion of seaport facilities such as Ust-Luga, Primorsk, Saint Petersburg, and Murmansk.

 

Several joint projects with Finnish companies are planned:

·         Cargo transportation through A-corridor, Helsinki--Saint Petersburg--Moscow. The project is supported by the Ministries of Transport in both counties.

·         Development of a transportation system in the Barents Sea. The project is to be realized within the program EC Interreg III. There are 25 participants from Sweden, Norway, Finland and Northwest Russia, mainly represented by regional administrations and Ministries of Transport. 

 

2.         PRIMARY TRANSPORTATION MODES

 

2.1              Waterways and Ports

 

There are eight main seaports in the Northwest: St Petersburg, Primorsk, Vysotsk, Murmansk, Kaliningrad, Arkhangelsk, Vyborg, and Ust-Luga (operating port but still under-construction).

 

The Seaport of St. Petersburg represents the largest group of stevedoring companies in the Northwest Russia such as First Stevedoring Company (general, bulk cargo), Second Stevedoring Company (general, bulk cargo), Stevedoring Timber Company (timber), Fourth Stevedoring Company (dry/liquid bulk, containers, general cargo), JSC National Refrigerated Company, the managing company JSC Seaport of St. Petersburg, and a few other companies. Together these companies are a part of the Greater Seaport of Saint Petersburg, which also includes the terminals of Neva-Metall, Baltiysky Bulk Terminal, Mobi-Dick, Peterburgsky Oil Terminal, Peterburgsky Container Terminal, and JSC Petrolesport. 

 

The Greater Seaport of St. Petersburg handles the full spectrum of stevedoring services and accepts all types of cargo, though the main cargos are oil products, metals, timber, chemicals and containers, including refrigerators. The port can accommodate vessels with deadweight up to 60,000 tons.

 

The Greater Seaport of St. Petersburg has a well-developed infrastructure, which includes rail and crane tracks, automotive roads, engineering communications, repair workshops, filling stations, and water treatment facilities.  It operates 37 berths with a total length of 6,400 meters; covered storages of 97,000 sq m; and outdoor storage grounds of 457,000 sq m. During the ice period of December to April, icebreakers assist navigation.

 

In the beginning of this year, the government sold out its 49% share package of the Seaport of St. Petersburg.  From now on, the state company RosMorPort collects fees for the usage of berths and land only.  Some experts argue that fee collection is not good enough motivation for the government to invest in and support the port development, especially when taking into account the traffic problems the port causes. The municipal authorities argue in reply that the Greater Seaport of Saint Petersburg is a strategic port on the Baltic sea and they will provide as much as assistance as necessary to improve the city road infrastructure to facilitate access to the port and attract investment.

 

The port plans to invest in the construction of the mineral fertilizers handling complex, on-dock refrigerated complexes, the handling facility for metal cargo, and infrastructure.  Due to the limited availability of space at the port, only modern technologies can help fight the congestion.

 

In 2005, the total turnover of the Greater Seaport of Saint Petersburg was 57.5 mil tons, compared to 51 mil tons in 2004. In 2006, from January to October, the port reported a 7.1% decrease in the turnover. This can be accounted for by a sharp decrease in the oil products volume, primarily because the Volgotanker, a river oil tanker operator, terminated its operations due to big losses. . According to the forecast, total handling of oil products in 2006 will not exceed 12.7 mil tons, as compared to 16 mil tons in 2005. The volume of fertilizers has also decreased. Additionally, it is said that part of the cargo owners redirected their cargo through the Baltic ports

 

To cope with the losses, the port management believes it is necessary to start actively investing in container cargo shipment.

 

Ports of Leningrad region

 

Meanwhile, the main competitors of the Greater Seaport of Saint Petersburg, such as Primorsk Port in the Leningrad region, continued to increase its oil exports by 14.9% up to 54.32 mil tons.

 

The total turnover of Leningrad region ports in 2005 was 69.4 mil tons, a 33.5% increase over 2004.  The cargo transportation turnover through the Baltic Seaports of the Leningrad region increased by 15% during the first six months of 2006 compared with the same period of 2005, and reached 39.2 mil tons. 

 

The largest port facilities in the Leningrad region include oil terminals in Primorsk and Vysotsk. The latter specialize in oil export shipments to Western Europe and the United States.  These ports handle 64 mil tons of oil products and 3.4 mil tons of coal.

 

PRIMORSK Seaport

 

Part of the Baltic Pipeline System (BTS), the Primorsk port is the biggest oil and gas terminal on the Russian territory of the Baltic Sea. Primorsk serves 135 tankers, and in April of 2006, the Primorsk port reached the capacity of 60 mil tons. Transneft owns the port. Oil and gas are delivered from Timan-Pechora Province, Western Siberia, and NIS countries.

 

The port management plans has huge development plans. The projects include:

·         expanding its capacity for oil products and liquefied natural gas transportation;

·         building an oil refinery in Primorsk; 

·         constructing two oil export terminals;

·         and constructing oil transshipment facilities.

 

VYSOTSK Seaport

 

Since February 2005, the port has mainly been handling coal. The port is managed by Rosa Holding Company, which is currently considering a project that will increase port capacity up to 15 mil tons.

The port turnover in 2005 was 3.516 mil tons. According to Grigory Dvas, Vice-Governor of Leningrad region, the port capacity can be increased by the end of 2007. The port will be able to accept vessels with deadweight of 80,000 tons. The port terminal infrastructure will be also expanded. 

 

UST-LUGA Seaport

 

The port is located in the west of the Leningrad region near the Pskov region and the Estonian border.  The coal trans-shipment terminal and the automobile terminal, the first of two with the capacity to handle up to 40,000 cars per year, have been recently completed. The port infrastructure, with capacity to handle up to 35 mil tons of cargo per year, is still under construction. Work is being conducted on all 11 terminals; the General Cargo Container terminal and the Sulpher Trans-shipment terminal will be finished by the end of 2007.

 

RZhD (Russian Railroad Company) is going to spend about $150 mil for the reconstruction of the lines leading to the Ust-Luga Seaport. A new railway-ferry line, “Ust-Luga – Kaliningrad Region – Germany,” which will transport transit cargo from Russia through the Kaliningrad region bypassing the Baltic countries, is also under construction and will be open in July 2007.  According to Igor Rusu, General Director of Ust-Luga Seaport, the passenger ferry line is to open in December 2006.  RZhD plans to buy 8.5% of the Ust-Luga Seaport shares at approximately $ 7.18 mil and then, if possible, to increase its share in order to increase effectiveness of the capital invested in the construction of lines leading to the port. The government share in the port will be around 25%.

 

Ford Europe intends to build a new terminal in the port of Ust-Luga to facilitate the delivery of parts to its plant in Vsevolozhsk.  The terms and the cost of the project are still to be determined. The construction of the terminal should double the production of the Ford plant. 

 

German Oiltanking Deutschland GmbH and Severo-Zapadnyi Alyans OOO (North-West Alliance) plan to construct oil and oil products reloading terminals in Ust-Luga and Vystino, with a capacity of 10 mil tons, with a possible increase to 18 mil tons per year.

 

Murmansk Region 

 

From January to October 2006, the ports of the Murmansk region increased the cargo turnover to 15.409 mil tons, a 13.1% increase over the same period in 2005. Exports increased by 13% to 14.888 mil tons and cabotage increased by 31.7% to 458.6 thousand tons. Imports decreased by 2.5 times, to 25,700 tons.

 

The biggest ports in the Murmansk region are the Seaport of Murmansk and the Kandalakshy Seaport.

 

MURMANSK Seaport

 

The Seaport of Murmansk specializes in exporting coal. It also handles general cargo, non-ferrous metals, and apatites. In 2005, the port handled over 14.5 mil tons of cargo, a 14% increase over 2004, including 11 mil tons of coal and 2.5 mil tons of mineral fertilizers. From the beginning 2006, the port handled 14,556,096 tons of cargo.

 

The further development of the Murmansk Port is limited by the railroad capacity in the Kola Peninsula, lack of coal cars, and outdated coal-handling equipment.  Clamshell bucket cranes are still used in the port even though officials understand that car dumpers are required for more effective operations.

 

KANDALAKSHA Seaport

 

The port handles mainly bulk cargo and coal. The port’s infrastructure is not well prepared for coal trans-shipment because it was initially constructed for the needs of railroad construction and iron-ore concentrate transportation. Thus, the port has all necessary facilities for general cargo handling.

 

At present, the port operates at two-thirds of its capacity.  For the first six months of 2006, the port handled only 165,000 tons. Low cargo volume can be explained by a number of reasons such as less favorable geographic location in comparison with the Murmansk Seaport (it takes two days longer to transit cargo from Kandalaksha to European ports), deadweight limitations (up to 30,000 tons), and water draught (9.8 m). Despite this, according to Boris Yushmanov, Deputy Director of Kandalaksha Seaport, there are plans to increase cargo volume up to four mil tons in the near future. The following projects are to be accomplished:

 

Kaliningrad Region

 

KALININGRAD Seaport

 

The Seaport of Kaliningrad processed 14.62 mil tons of cargo in 2005, a 4.4% increase over 2004, including 8.7 mil tons of oil and oil products, a 10% increase over 2004. Container flow reached 107,528 TEU, an almost 50% growth over 2004. Export cargo handling, mainly oil, increased by 1.9% to 12.97 mil tons, while imports increased by 28% to 1.58 mil tons thanks to grain and refrigerated cargo. The port handled 107,528 TEU in 2005, which was a 49.1% increase over 2004.

 

IZHEVSKOYE Seaport

 

The Izhevskoye Seaport mainly serves as an oil terminal with the capacity of 4.5 mil tons and can accept vessels with a maximum deadweight of 20 tons.

 

The port management plans to increase capacity up to 6 mil tons, to construct and develop railroad infrastructure around the port, and to construct another 3 mil ton terminal.

 

Nenetsky Region

 

VARANDEY port

 

The Varandey Port is located on the Pechora Sea coast in the Nenetsky Region and mainly handles oil and oil products, which are delivered from Timan-Pechora oil field and other Northwest Territories.  Its current capacity is 6 mil tons. In 2007, the port authorities plan to increase capacity up to 12 mil tons. Oil companies such as Lukoil plan to establish a permanent complex of storage facilities (415,000 cubic m), an oil pumping station, a 35 km oil pipeline, and an oil-reloading terminal. 

 

VYBORG Seaport

 

For 11 months of 2006, the cargo turnover of the port came to 1,132,000 tons, a 36% increase over the same period in 2005. Rosa Holding (Moscow) acquired the port in 2005 together with the port of Vysotsk in the Leningrad region. The port handles mineral fertilizers and timber cargo. The management has plans for port development and reconstruction, such as dredging, and construction of the port infrastructure.

 

Arkhangelsk Region

 

ARKHANGELSK Seaport

The port mainly handles general and bulk cargo including containers, timber, and liquids. The cargo turnover of the port for 10 months of 2006 decreased by 19% totaling 4,450,300 tons, as compared to the same period of 2005.  Export totaled 1,157,600 tons, 51.9% of 2005-export volume; imports came to 154,000 tons, 177% of 2005-import volume.

The Russian Fund of Federal Property will conduct an auction to sell its 20% share package in Arkhangelsk Seaport on February 7, 2007.  The initial price of the package is about $4,086,000, or 105,015,000 rubles.

 

MEZENSKIY Seaport

 

The main activities of the port are cargo handling, mainly timber, and passenger transportation. Maximum cargo volume registered in the past was 50,000 tons. The port is closed during the ice period.

 

The government, which owns 100% of the port, decided to sell it in an auction. The initial price of the package is about $1.4 mil, or 36.9 mil rubles, while the share capital of the port is only $433,000, or 11,128,000 rubles.  Most experts believe that it might be difficult to sell the port because of its outdated infrastructure and less favorable geographic location. Applications will be accepted until January 11, 2007. The results of the auction will be announced on January 16, 2007.

 

RIVER TRANSPORTATION

 

For the last few decades, the river transportation in the Northwest Region, like in most Russian regions, did not receive investments for development. Currently, the river infrastructure is in poor condition, which partly explains the unwillingness of the Russian government to let foreign companies work on Russian rivers. The cargo volume shipped by river has decreased dramatically over the last couple years. For example, in Saint Petersburg, the cargo volume shipped on the Neva River from May to December 2006 decreased by 40%, as compared to the same period in 2005. Such a sharp decrease is the result of the poor condition of most hydraulic engineering structures on the river. There have been talks about the total termination of cargo transportation on the Neva River.  As an alternative, the government offered to build a by-pass river route on the north or south of the city. 

 

In 2007, the government will invest considerably in the reconstruction of river ways, including the Neva River. The federal government has also adopted a development plan for river transportation which includes:  

·         Creating waterways on the route “North-South” with the depth of no less than 4 meters;

·         reconstructing Belomorsko-Baltysky channel, hydraulic engineering structures on the Volgo-Baltic route, and lockage systems on the Severo-Dvinsky direction;

·         buying cargo vessels which can navigate on the sea and river;

·         constructing reloading container terminals; 

·         and introducing an automatic navigation control system.

 

The Russian government hopes that investment in the abovementioned projects will make river transportation attractive for transportation companies.  The Russian government will have to decide whether to let foreign river carriers work on Russian rivers.

 

2.2             Rail

 

The Northwest region has a well developed railway network leftover from Soviet times.  The railways handle up to 50% of all cargo transportation in the region.  A government monopoly controls all railway transportation and its infrastructure. Railway services are performed by a single company, Open JSC RZhD (Russian RailRoad Company), and its subsidiaries.  In 2003, in order to demonopolize the sector and increase competitiveness, the Russian government started reorganizing the railway transportation system. The railway transportation infrastructure will continue to belong to the government, but the government will sell non-blocking packages of RZhD subsidiaries’ shares in 2007-2008.  The government will also sell the railway stations, the land, and the cars.

 

A second railroad carrier may appear within the next five years. According to Evgeny Mikhailov, Deputy Director of Department of Federal Tariff Regulation of the Ministry of Economic Development and Trade, there are currently no companies that can perform the railroad carrier duties. He suggests that the only real competitor will be a newly established company with considerable foreign investments that can work in all of Russia’s regions. The only Russian railway companies that could develop such all-Russian coverage are SeverStalTrans (SST) and Eurosib. However, most experts argue that Eurosib, the largest group of car deals in Northwest Russia, will not be able to compete with RZhD due to the fact that its primary business is trade operation. SST looks to be a more likely contender due to the several joint ventures SST formed with RZhD.

 

Recently RZhD announced its plans to establish a new joint company with 50%-50% share capital that which will specialize in the transportation of high paying freight. The New Transportation Company (OAO “Novaya Perevozochnaya Kompania”), a subsidiary of SST, will be a RZhD partner.  Another railroad operator “Balttransservice,” specializing in oil and oil products transportation, also belongs to SST.  There are several obstacles preventing SST from competing with RZhD.  The government officials are skeptical about SST’s organizational structure and its ability to compete on equal terms with RZhD.  In 2002, SST announced plans to construct railway container terminals in Moscow and Saint Petersburg, but did not pursue the project. Thus, most experts believe that a new company must be created to compete with RZhD.

 

RZhD is represented in the Northwest by Oktyabrskaya ZhD, a wholly owned RZhD subsidiary.  In 2006, RZhD invested $750 mil in railroad infrastructure development and joint projects, such as building the approach lines to Ust-Luga seaport. RZhD may pursue other projects in the Northwes, including construction of a by-pass railroad on the Vologda direction in order to cope with growing cargo traffic and reconstruction of Cherepovets railway infrastructure.

 

According to Viktor Sukhov, head of Oktyabrskaya ZhD, the total cargo volume shipped by railroad from Northwest ports is expected to grow up to 140 mil tons. This is twice as much as the current cargo volume. 75% of all cargo transportation and 40% of passenger transportation in the Northwest region falls to Oktyabrskaya ZhD. In 2004, the company transported about 40.8 mil tons of cargo to/from the Northwest ports.

 

The Russian government and the Northwest Administration will pursue several strategic development projects in regard to railway transportation in the near the future. They include:

·         Conducting structural reorganization of the railway transportation in order to create conditions for establishing companies with their own car park;

·         expanding traffic capacity of the main lines and integrating them into the international railroad corridors;  

·         reconstructing the main lines, such as Buslovskaya – Saint Petersburg, Kaliningrad – Baltysk, and Buy – Kotelnich;

·         developing approach lines to big industrial centers, ports, and border points in Saint Petersburg, Vyborg, Vysotsk, Kaliningrad, Chernyakhovsk, and Mamonovo;

·         resuming the construction of the Belkomur railroad route, Arkhangelsk-Syktyvkar-Kudymkar – Perm, which was suspended in 2002 due to lack of financing;

·         and constructing power lines.

 

2.3             Roads

The road infrastructure in the Northwest is well developed, though most roads are in need of repair. 

The Northwest region occupies the leading position among other Russian regions in regard to the volume of export-import cargo transported by trucks. The total volume of export-import cargo transportation exceeded 12 mil tons in 2005, which is half of the total cargo transported by road in Russia. About seven mil cars cross the Russian border through the Northwest region, or 40% of the total number of cars crossing the Russian border per year. 55% of export-import freight is transported through the Russian-Finnish border.

There are several priority projects aimed at the development of road infrastructure in the Northwest region. Current projects include:

Another important project relates to the construction and development of road infrastructure near the border. Most roads need to be repaired and expanded because they cannot cope with the growing volume of traffic. The Northwest region and the federal government will invest in the construction of new automobile border crossing points such as Bagirationovsk, Mamonovo, in the Kaliningrad region, Ivangorod, on the Estonian border, and Borisoglebsk in the Murmansk region. They will also invest in the construction of a road between the Brusnichnoe border point and Nyiamaa, on the Russian-Finnish border.  In the opinion of regional authorities, all of these projects, if implemented with the cooperation of neighboring countries, will allow the traffic capacity on the Northwest roads to increase two to three times. Almost all of the Northwest cities and regions are looking for partners to assist in implementing these road construction projects.

2.4              Airways and Airports

 

There are 10 airports in the Northwest region, such as Pulkovo airport in Saint Petersburg, airports in Murmansk, Kaliningrad, Arkhangelsk, Kotlas, Syktyvkar, Vorkuta, Usinsk, Ukhta, and Naryan Mar.

 

Airports in Saint Petersburg, Kaliningrad, Murmansk, and Arkhangelsk accept international flights; others do not have international lounges and accept flights mostly from domestic airports. An international passenger will have to find the appropriate connection, most likely from Moscow or Saint Petersburg.

 

There are airports in Pskov, Pskov region, and Cherepovets, Vologda region, and Petrozavodsk, Karelia region, but they accept only charters or private flights. However, these airports plan to open regular passenger connections in the near future. There is more information on the Pskov airport project in the report called “Pskov Region Overview” at http://www.bisnis.doc.gov/bisnis/bisdoc/0611NWRusPskov.htm.

 

All airports in the Northwest need their infrastructures upgraded. Listed below are the largest projects. Smaller domestic airports will also be reconstructed. The federal government provides financial resources for equipment upgrade and the airport authorities are looking for investors.

 

Saint Petersburg

Pulkovo Airport is the third biggest airport in Russia, after Domodedovo and Sheremetievo Airports in Moscow.  In 2005, Pulkovo Airport carried 10,233,000 tons of freight, 9.3% more than in 2004. The company carried 8,254,000 tons on domestic airlines, a 7.5% increase over 2004, and 1,978,000 tons on international airlines, a 17.3% increase over 2004. The number of passengers is also growing by approximately 4-7% every year.  Regular flights to/from Saint Petersburg are performed by 58 companies.  Pulkovo Airlines carry 54.3% of total cargo volume. The airport received an operating income of about $101 mil in 2005; this number is expected to increasey by 15% this year.   

 

While blocking share package of the airport belongs to the Russian government, Valentina Matvienko, Governor of Saint Petersburg, offered to privatize the airport and transfer 50% of its shares to the city.  The city officials expect the JSC “Pulkovo Airport” will be established toward the end of this year with 100% state share capital.  At present, the city officials are trying to find private investor who would be interested in reconstruction and development of the Pulkovo Airport. The authorities plan to attract up to $1 bil for the project.  According to Aleksey Chichkanov, Deputy Head of the City Committee on Property Management, the city needs to sign a concession agreement with an investor, according to which the latter will be the airport’s managing company and will get some shares. The City of Saint Petersburg will retain no less than 25% plus one share of the airport. The concession tender may be announced anytime during 2007.

 

The first stage will require $20 mil for the construction of a new international terminal and an increase in freight storage on the warehouse premises. Maksim Sokolov, Chairman of the Committee on Investments and Economic Development of the City Administration, proposed to hold an international architectural competition to select the design of the new airport terminal.  He thought such a competition would increase the overall investment appeal of the project and help attract a more attention from investors. He added that the selection could be held in June 2007 and the winner could be announced during the next St. Petersburg Economic Forum. The construction should be started no later than 2008.

 

Moreover, the city authorities hope to make Saint Petersburg a well-developed transportation hub with a wide transportation network. It is expected that the recent merger of Pulkovo Airlines and Rossia will take active part in this project. Moreover, in the second stage of the reconstruction project there are plans to construct a fast train line from Saint Petersburg to the airport.

 

Arkhangelsk Airport

In 2005 it was announced that $554,000, or 14.3 mil rubles, would be spent on reconstruction and modernization of the airport infrastructure.  However, these funds are not enough to make a visible change.  Currently, the airport is looking for partners and investments. 

 

Murmansk Airport

Murmansk airport facilities are also in need of reconstruction and modernization.  The airport needs at least $1.135 mil to upgrade the equipment and passenger terminals.  The management of the airport is also interested in investments.

 

Kaliningrad Airport

A new airport is to be constructed on the base of the currently operating Kaliningrad airport “Khrabrovo”. Investments necessary for the project are $25 mil. The federal authorities granted about $7.8 mil to reconstruct the airport runways.  Kaliningrad Avia, the airport managing company, will attract about $1 bil for total airport reconstruction.    

 

In October 2006, Vneshtogrbank agreed to provide a loan in the amount of $34 mil to the Kaliningrad Avia for 7.5 years. The airport will procure equipment for the new passenger terminal. The airport management is actively seeking partners and investors.

 

Syktyvkar airport

According to RosAviation, the federal government is going to invest up to $9.4 mil, or 242 mil rubles, in 2007 and $9.3 mil, or 239 mil rubles, in 2008 for the construction of a new airport in Syktyvkar.  The investments will be spent not only for passenger terminals, but also for construction of new runways and aircraft navigation systems.  “LenaEroProekt” will work on the design of a new airport and conduct an evaluation of the existing airport facilities. 

 

3.         TRANSPORTATION AND LOGISTICS SERVICES

 

            3.1       Shipping and Freight forwarding

 

Due to its geographic position, the shipping and freight forwarding market in the Northwest is more developed than that market in other Russian regions. The Leningrad region is the most developed, while other Northern regions such as the Nenetsky region, the Komi republic, the Murmansk region, and the Karelia republic are lagging behind.

 

However, after the Russian government announced its plans to make the Northwest a primary transportation hub for oil and gas, it started investing in construction of container terminals in the seaports, the railways and highway roads in the Northern regions. 

 

There are many shipping and freight forwarding companies in Saint Petersburg, including foreign companies, which offer a wide range of services such as cargo transportation by sea, railways, road, and river.  Most companies do not specialize in one type of freightforwarding, instead, they try to work in all market sectors.

 

Most freight owners prefer to send the cargo by sea and railway. Road transportation is also an option. Cargo transportation by river is not popular because of the poor conditions of the river infrastructure.

 

Container freight forwarding from Saint Petersburg to any European city is half as expensive as it is from Europe to Saint Petersburg.  According to a SeaNews survey conducted recently, the average price ranged from €1134 (Euroshipping & Forwarding, delivery from Rotterdam) to €1400 (OOCL, delivery from Hamburg). The lowest price for container freight forwarding from Saint Petersburg to Europe was offered by the same company Euroshipping & Forwarding at €420 (delivery to Rotterdam/ Hamburg); the highest price was offered by OOCL (€700 to Rotterdam).

Logistic experts explain such a price difference by the imbalance in export-import container flows.  According to Seanews, almost 50% of the containers in the Saint Petersburg Seaport are import cargo, 32-33% are export cargo, and 15% are empty containers. This is why sea freight from Saint Petersburg cost about $200 for TEU.  BAF in import cargo ranges from €26 (Modul Company) to €76 (Baltic Transport Systems).  Terminal handling charge is from $150 to $200.  There is an extra fee of about €50 per TEU for winter transportation, irrespective of the cargo-forwarding operator.

 

Below is a list of companies that provide shipping and freight forwarding services.

 

TRANSSPHERE INTERNATIONAL

194021 Saint Petersburg

20, Prospect Morisa Toreza
Tel: + 7 812 327 59 56
Fax: + 7 812 327 59 26
e-mail: welcome@transsphere.ru

http://www.freightforwarding.ru

General Director: Sergey Skorik

DILIZHANS OOO (sea, railway, road transportation)

Saint Peterburg,

57, Prospect Stachek

Business Center Sheremetiev

Tel/Fax: 7 (812) 332-32-79

e-mail: dmitriy@dilizhans.ru

www.dilizhans.ru

 

MEATLAND (logistics services for food suppliers)

Head Office
173 Nevsky Prospekt, St. Petersburg 191167, Russia
Tel./Fax: +7(812) 449-9999 (multi-line)

Distribution Center
6 Sofiyskaya St., Bldg. #2, St. Petersburg 192236, Russia
Tel./Fax: +7(812) 449-9999 (multi-line)

MeatLand L&D Moscow Office
21/11 Vekovaya St., Suite 413, Moscow 109544, Russia
Tel./Fax: +7(095) 510-5560 (multi-line)

Email: info@meatland.ru
http://www.meatland.ru

 

STS LOGISTICS

(All types of transportation services including warehousing and customs clearance)

198097, Saint Petersburg

Saint Peterburg,

57, Prospect Stachek, Liter A

Business Center Sheremetiev, office 234

Tel: 7 (812) 334-99-42

Fax: 7 (812) 334-99-43

E-mail: stsstp@stslogistics.net

Web site: http://www.stslogistics.net

Contact person: Andrey Mikhalev

 

3.2 Underwriters

 

The market of insurance services is growing, but not as fast as some insurers would like.  Large Russian companies insure the goods in export-import transactions; other companies prefer not to spend money on insurance, using instead a cargo attendant or nothing.  A maximum of 5-10% of all cargo is insured.  According to statistics, the following goods are lost more often: mobile phones, office furniture and office supplies, home appliances, and food products such as alcohol, tobacco, chocolate, and sweets.

 

According to insurance companies, the most risky transportation in Russia is considered to be automobile transportation. Cargo safety is affected by poor road conditions, that lead to higher rate of breakdowns, unescorted parking lots on the route, and lengthy, sometimes costly, checking at the customs and militia posts. 

Railways and river transport are the next riskiest modes of transportation. If something happens, it is almost impossible to get a letter of reconciliation.

The safest mode of transportation is air. The airports are secured with video cameras and security guards; airfreight is reloaded in the presence of airport officials and a company-cargo receiver. Insurance fees for airfreight are the lowest.

According to the specialists’ reviews, the level of missing cargo, due to different reasons, is about 0.3- 0.5% of all cargo transportation volume. 70% of lost cargo is due to robbery and 30% is due to damage and breakdowns.

During the last two to three years, the insurance companies decreased the cost of cargo insurance and started offering more services related to cargo safety. They hope that these measures will attract more clients.

 

It is interesting to note that Russian companies usually insure, if they insure at all, each deal separately, while foreign companies prefer to insure the total cargo turnover for the whole year. Foreign companies usually do not insure freight on Russian territory, as they do not know Russian legislation.  Most often, they insure freight only until it reaches a Russian seaport, then the Russians are supposed to take care of the freight.  

 

There are, however, certain things that foreign companies conducting trade activities with Russian firms should know.  According to the Russian legislation, the Russian carrier has limited responsibility over freight even if the cargo owner declared full cost of the goods in the contract.  Additionally, Russian exporters and importers usually use CIP or CIF terms of shipment, which means that the seller has to provide insurance coverage for goods shipment. According to underwriters it is also important that the insurance cover 110% of contract cost.  Also, the insurance charge is not subject to VAT if it is transmitted directly to insurance company, not to insurance brokers, as the latter usually do not have proper licenses.  Underwriters also claim a golden rule: “[s]ell on CIP or CIF terms but buy on FOB terms.” All companies engaged in foreign trade activities should be aware of this rule.

 

There are several big insurance companies in Saint Petersburg such as Rosgostrakh, Ingostrakh, RECO-Garantia, SOGAS, and Capital-Strakhovanie.  The companies are listed below and can be contacted for more information.

 

ROSGOSSTRAKH Severo-Zapad

5, Ushakovskaya nab,

Saint Petersburg, 197342

Tel: 7 (812) 336-3400

Fax: 7 (812) 336-3410

Contact person: Dmitry Viktorovich Kuksinsky

E-mail: sekret@rgsspb.ru

Web site: www.rgs.ru

 

INGOSTRAKH

19, Kanal Griboedova

Saint Petersburg, 191186

Tel/Fax: 7 (812) 332-1010

Contact person: Evgeny Zotov

Web site: www.rgs.ru

 

RECO-Garantia
40, Furshtatskaya St,

Saint Petersburg, 191123

Tel: 7 (812) 346-8678

Fax: 7 (812) 346-8522

Contact person: Igor Isaev or Dmitry Artushenko

E-mail: i.isaev@reso.spb.ru; d.artushenko@reso.spb.ru

Web site: www.reso.ru

 

Capital-Strakhovanie

23, Professora Popova St.

Saint Petersburg, 197376, Russia

Tel: 7 (812) 346-6026

Fax: 7 (812) 346-6027

Contact person: Elena Moskovaya

 

SOGAS

6/2, Kanal Griboedova

Saint Petersburg, 191186, Russia

Tel: 7 (812) 438-1438

Fax: 7 (812) 438-1439

Contact person: Aleksey Viktorovich Shmidt

E-mail: shmidt@sogaz.spb.ru

Web site: www.sogaz.ru

 

3.3 Warehousing and Third Party Logistics

 

This is the least developed sub-sector of the Saint Petersburg real estate market.  Only 10% of the total warehousing space in the city can be considered as meeting modern quality standards.  There are about 4,039 warehouse buildings and built-in warehouses in Saint Petersburg with a total space of over 5.7 mil sq m.  About half of this space serves export-import operations, which include 2 mil square meters of portal facilities and the terminals that collect, re-pack, and customs-clear the cargo.  These terminals have been built by major manufacturers and trading firms for their own needs. The offer of equipped warehouse space in the open market is absolutely insufficient. 

 

The third-party logistics infrastructure is also poorly developed. Not all investors can participate in the logistics projects due to a number of reasons, including inadequate bureaucratic procedures and economic uncertainties. The officials of Saint Petersburg and the Leningrad region announced the development of logistics sector as one of the strategic priorities.

An example of the high uncertainty in this area is Transphere International, Ltd., which decided to build an A-class logistic complex with Global Freight Forwarders Group. The location was selected not far from the ring road of Saint Petersburg.  They planned for the complex to be operational by 2005, when the official authorities promised to build an access road to the ring road. A bit later, it turned out that the access roads that were to be built were three-times less than the initial estimate. As the result, the A-class logistic complex appeared to be completely isolated in a remote area without any access roads.

However, successful projects in the construction of new logistic terminals have been completed by FoodLine Company, with investments of around $10 mil, Alers Saint Petersburg, with investments of around €18-22 mil, and MeatLand Logistics & Distribution, with investments of around $12 mil. Atlanta OOO will construct a reloading (transshipment) terminal at the Predportovaya station; the project is estimated at $1.3 mil. MLP-KAD OOO will invest $135 mil in an A-class construction in the Vsevolozhsky district of the Leningrad region, which is on the border of Saint Petersburg.  Containerships Ltd Oy will invest $70 mil in the construction of another logistics complex in close proximity to the previously mentioned complex.  RZhD is considering establishing joint ventures with the owners of sea terminals to build railway terminals.

 

By the end of 2006, there will be an additional 5 mil sq ft of up-to-date warehousing space in operation.  Experts estimate the city’s current demand exceeds 2 mil sq m. Several warehousing projects are underway in Saint Petersburg and in the surrounding Leningrad region. Examples include:

 

Logistics for refrigerated containers is a very promising area for development. Food import is growing by 18% every year and is received exclusively by the sea. The seaport terminals of the Saint Petersburg Seaport hardly manage to cope with the import volume.  Refrigerated container storage is quite expensive and there are difficulties in transporting refrigerated containers out of the port.  JSC City decided to invest $200,000 in the construction of a logistic complex for refrigerated containers in the Gatchina district of the Leningrad region.  It takes about one hour to deliver a container from the port to the Gatchina complex, which is convenient for the freight owners. 

 

According to many real estate experts, the logistics market in St Petersburg market is very promising. There are no big logistics companies in the market yet, but retail and wholesale companies will develop their trade chains very quickly.  Big retailers used to construct and utilize their own warehouse facilities, but due to the rapid growth of the retail business, some of them have started experiencing difficulties in finding appropriate warehouse premises.  According to Colliers International, St Petersburg has about 115,000 sq m of useable warehouse space, most of which is used by manufacturing companies.

 

Logistics outsourcing is new for St Petersburg, but most experts envisage high demand for this market.  The major problem Russian companies currently face is that existing logistics operators are unable to provide reliable and high-quality service; the companies have to build their own warehouse facilities.

 

Holding “International Logistic Partnership” (ILP) was established two years ago to develop logistics projects in Russia and Ukraine. Pascalis Gardner & Partner is a member of ILP Holding.  The ILP branch signed an agreement with the government of the Leningrad region for the construction of logistic complex near the ring road in Vsevolozhsk. The construction of the first premise will be finished in the second quarter of 2007. ILP will invest about $135 mil in this project and has already signed a rental contract with Relogix Company for more than 56,000 sq m for the period of 10 years.  The cost of the contract exceeded $60 mil.  Relogix is a big logistics operator who has developed a network of warehouses in Saint Petersburg, Samara, Novosibirsk, and Yekaterinburg.  The expected company’s turnover is about $16 mil per year.  According to Aleksey Novikov, Director of Industrial Estate Department at Knight Frank, this deal is the second biggest deal on warehouse renting in Russia.  The largest is the rental agreement for the logistics complex “Pushkino” on Yaroslavskoye highway in Moscow.   

 

4.         MARKET OPPORTUNITIES FOR U.S. COMPANIES

 

Apart from the opportunities mentioned previously, there are opportunities in equipment, vehicles, and materials supplies.

 

Equipment, Vehicles and Materials

 

This part of the report was contributed by Aleksandr Kansky, U.S. Commercial Service.

 

Due to massive construction and investment projects, the demand for modern material handling and transportation equipment is growing rapidly and will continue to grow in the foreseeable future.  American companies may find the following opportunities in equipment and vehicle supplies.

 

·         Cranes – the demand is growing since major ports in Northwest Russia are either considering or are in the process of equipment modernization. 

           

Market Issues and Obstacles

 

The import tax for intermodal transportation varies between 10% and 15%.  On top of the import tax, 18% VAT is imposed on all imports. There are no non-tariff barriers for imports of used highway tractors, trailers, and forklifts. Certification is required for importing new equipment. The certification procedure may be a costly and time-consuming.

 

NW Russia’s Local Certification Agency

Test – St.Petersburg, Federal State-owned Enterprise “Center for certification tests”

1, Kurlyandskaya Str.

St.Petersburg 190103 Russia

Tel: +7-812-251-4859

Fax: +7-812-251-4108

E-mail: letter@rustest.spb.ru

Contact: Yury Gulynin, Deputy General Director

 

Trade Events

 

Trans Russia

March 27-30, 2007, Moscow

Website: www.transrussia.ru

Organizer: ITE PLC

Contact: transport@ite-expo.ru
Web site: www.ite-expo.ru

 

Transtec, the largest exhibition and conference in NorthWest Russia devoted to transportation and logistics.  It takes place yearly in September in St. Petersburg. 

Web site: www.setcorp.ru

International participation:
Dolphin Exhibitions Ltd. (UK)
P.O. Box 68
Ipswich IP7 7ZY, England
phone: +441 449 741801
E-mail: info@dolphin-exhibitions.co.uk

 

5. USEFUL RESOURCES

 

Ministry of Transport of the Russian Federation

Rozhdestvenka street, 1/4

Tel: 7 (095) 200-0803/926-1527

Fax: 7 (095) 926-9038/9128/200-3356

Web site: www.mintrans.ru

Representative: Igor Levitin, Minister

 

Rosavtodor

Moscow, 4, Bochkova St.

Tel: 7 095 286 2972 or 287 8088

Fax: 7 095 287 8084 or 286 1550

Web site: www.rosavtodor.ru

Representative: Dmitry Evaldovich Kuznetsov

 

St. Petersburg Government

Committee for Transportation and Transit Policies

83, Moskowsky Prospect

St. Petersburg 190031 Russia

Tel: +7-812-310-5050; 388-5332

Fax: +7-812-310-0505

Contact: Andrey Karpov, Chairman

 

Leningrad Oblast Government

67 Suvorovsky Prospect

St. Petersburg 193311 Russia

Tel: +7-812-274-1446

Fax: +7-812- 576-6573

Contact: Gregory Dvas, Vice-Governor

 

Murmansk Oblast Government

75 Lenin Prospect

Murmansk 183006 Russia

Tel: +7-8152-486350

Fax: +7-8152-486282

Contact: Eugeny Galkin, Head of International Department

E-mail: galkin@amo.murman.ru

 

Kaliningrad Oblast Government

1 Dmitriya Donskogo Street

Kaliningrad 236007 Russia

Tel: +7-4012-599082

Fax: +7-4012-599084

E-mail: ums@gov.kaliningrad.ru

Contact: Silvia Gurova, Head of International Relations

 

Arkhangelsk Oblast Government

49 Troitsky Prospect

Arkhangelsk 163061 Russia

Tel: +7-8182-646481

Fax: +7-8182-269203

E-mail: intercom@dvinaland.ru

Contact: Svetlana Gorlanova, Vice-Governor, International Relations

 

Seaports Association Saint Petersburg

4 Gapsalskaya Str.

St. Petersburg 198035 Russia

Tel: +7-812-575-4523

Fax: +7-812-251-3308

E-mail: asop@mail.seanet.ru

 

For more information on this report, please contact:

 

Julia Vlasova, BISNIS Representative in Northwest Russia

U.S. Department of Commerce

U.S. Consulate General in St. Petersburg, Russia

Ph.: 7 (812) 326-2585

Fax: 7 (812) 326-2561

E-mail: julia.vlasova@mail.doc.gov

  

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov). 

 

*