The Container Market: The miracle that did not happen

18.05.2009 (16:52)

In the beginning of 2009 a new tendency was noticed in the container sector. The flow of exports, which had been decreasing since last autumn, changed places with imports: 23.5 % down against 44 % down in the 1st quarter. The reasons were, firstly, the end of the New Year's consumer boom and the subsequent fall in consumer demand because of rapid rouble devaluation making imports unprofitable, and, secondly, the fact that cargo owners who had fulfilled their obligations under last year's export/import contracts, did not rush into new agreements. So, how much did the whole container market shrink as a result?

Imports have shrunk …

The overall growth in container traffic on RZD’s network in 2008 was 5.7 %, though December figures had dropped by 18 % in comparison with September’s. But in January and February 2009 turnover of containers on Russia’s steel highways was down 26 %, and for the 1st quarter - by 25.6 %.

“The greatest fall is expected in the transit cargo sector, because competition from sea carriers grows as they reduce their rates considerably,” predicts Sergey Velichkov, the Expert-Analyst from the Natural Monopolies Institute’s Railway Research Department.

In fact, total container transit through Russian seaports fell last year by 28.3 %, and this figure for the January/February period was down 65.3 %.

Over the few years since 2006 we had managed to get used to the fact that the transit stream was gradually drying up (or at least changing its route), but as regards the fact that the import stream could become shallow too, this threat appeared absolutely inopportunely, though it was predictable enough.

So, for first two months of 2009 container transhipment through Russian ports was 37.7 % down, including the reduction in imports of 45 %. The Southern pool suffered least of all (if such an expression is applicable here); 26.1 % down. The fall took place because of a reduction in inward cargo handling (-25 %) by the largest OAO - "Novorossiysk UTEP". Second place was taken by the Far East Pool 34.6 % down, including a fall in imports (-57.7 %). Here the statistics "were impaired a little" by the OAO "Eastern Stevedoring Company", which lowered its transhipment volume by 53.4 %. Imports through terminals also fell considerably - by 69.7 %. The lowest results were shown by ports of the Northwest Pool – 41.5 % down. Export and import freight traffic decreased similarly. ZAO "PKT" (First Container Terminal), which is the largest container terminal in Russia and the CIS, reduced turnover by 26.6 %, OAO "Petrolesport", which is one of the most significant stevedores in St.-Petersburg - by 62.1 % (also export-import container handling was 60 % down). The 1st quarter results were practically the same: container transhipment of export cargo was by 23.5 % down, import cargo - by 44 %. Actually, the share of imports was also decreased by the total number of container transits on the Russian Railway network. According to RZD’s Central Transport Services, if this figure was 18 % in 2008, in the current year it has already reached 12 %. The flow of export containers moving towards stations at seaports and to overland border points was also down 7 % in January, and 29 % in February 2009.

Asia-Pacific Reduces Speeds

When analyzing changes in container flows, it is impossible to skip mentioning the largest international artery - the Trans-Siberian Mainline. The Trans-Siberian Transport Coordinating Council (KSTP)’s figures are that the volume of international large-capacity container transit by rail from January to February 2009, in comparison with the same period in 2008, "has shrunk" by 57 %, including imports by 65.2 % and exports by 45.1 %. The most interesting fact is that transits have conceded first place in the charts, which it had kept for many years, to imports which have jumped one position upwards – to minus 61.3 %.

As is known, the state of Trans-Siberian transport is influenced by the dynamics of commodity circulation in Russia and Europe with Asia-Pacific countries. This in turn depends on the health of these states’ economies where negative changes started last autumn. So, in October 2008, commodity circulation between the Republic of Korea and Russia was by 4 % down to $1585.5 million; and between Japan and Russia - by 28 % (only $2631.2 million). As for China, which has the most developed trade relations with our country, in January commodity circulation was 42 % down (59 % down in exports and 27 % in imports). It is obvious that Chinese consumer and export markets are falling. And if in 2007 OAO RZD registered foreign trade cargoes transited by rail between the Russian Federation and the Peoples Republic of China in the amount of 53.4 million tons, in 2008 it was only 48 million. It is not difficult to guess which way this year’s total figure will go. 

In total, for the period from January to February 2009, the volume of large-capacity containers transported by rail has decreased by 37 % (total 26,705 TEU transported).

“The fall in cargo transits this year is the continuation of a process which started at the end of 2008,” said the Secretary General of the Trans-Siberian Coordinating Council (KTSP), Gennady Bessonov. “In November 2008 cargo transits in large-capacity containers decreased by 25 % in comparison to October 2008 and by 27 % to November 2007. It was caused by the fact that commodity circulation between China and Russia last October decreased by 35 % to $6367.9 million. The deterioration of external conditions and an internal policy of correction in 2008 created the background for the Chinese economy, which holds fourth place in the world, to slow down considerably. As a result Chinese economic growth was 9.6 % down in the first half of 2008, which was much less than this figure for the similar period in 2007 (11.4 %).
The head of KTSP has also voiced HSBC Bank’s forecast that the Peoples Republic of China’s economic growth in the first half of 2009 would fall below 7 %, and the total for 2009 would be less than 8 % (the lowest increases for last two decades). In 2010 the rate of growth of the gross national product in the Peoples Republic of China is expected at below 9 %.

As regards other Asia-Pacific countries, the situation there is almost the same. Falling transits between Russia and the Republic of Korea were - 74 %, and between Russia and Japan - 14 %.

The Final Optimist?

Container transport operators share information very reluctantly. But it is clear anyway that the container sector is experiencing a bad time, if even such a large and strong transport market participant as OAO "TransContainer", whose transport share of the Russian railway network last year was more than 60 %, suffers losses. "Our losses are much less though than competitors,” notes Company General Director Peter Baskakov. “Thus, loads carried in large-capacity containersby other proprietors reduced by 30 % over the first two months, and in the containers of OAO “TransContainer” – only by 14 %". In the 1st quarter of 2009 the fall slowed down a little. For example, “TransContainer” moved 12% less of cargo in flat wagons on interstate and domestic routes than for the similar period last year. Whilst this figure for other flat wagons proprietors decreased by 36 % in comparison with the same period last year. 

It is necessary to say that "TransContainer" representatives are optimistic enough. As the company said, intra-quarter loading figures show the beginning of a revival of national industrial enterprises. However despite a stable monthly increase in loading figures, last year's levels have not yet been reached. By the way, in 2008 TransContainer handled 3.6 % TEU less through its own terminals than in 2007. At the same time, in the 4th quarter of 2008 this company’s flat wagons transported 8 % more containers (TEU) than for the similar period of the previous year. And the volume transported in large-capacity containers in 2008 was 1.6 million TEU, or 15.6 % more than in 2007. Thus the share of cargoes in their own "boxes", both in percentage and in the absolute figures, increased by 3.5 % and 29 % respectively, to 32.8 %. But nevertheless, this is already in the past.

Variants Available

In these circumstances there is not much more that can be done than to try to realize the various options to keep the container stream flowing, if not on high, then at least at a satisfactory level. Many experts also point out the considerable level of cargo containerization, including export. The most vivid example is “Transcontainer”, which realized in time the high importance of promoting its services this way.

It is a question of the work carried out by this company now, to switch to containers, those cargoes which are currently transported differently, for example, in covered wagons. Besides they paid attention at the opportunity to use flat wagons (which are not in great demand so far) for the transportation of non-containerised cargoes, such as wood and cars. TransContainer’s Press-Service says that in January 2009 such cargoes were shipped by 143 units of rolling stock, and in February - already in 228 wagons. The growth of car and ferrous metal pipe loading was especially rapid. The total for the three months of 2009 - more than 800 flat wagons were loaded with non-container cargoes.

Bessonov’s opinion is that it is possible to raise large-capacity containers’ commercial appeal by organizing the regular plying of container trains on the principle “The container lot must have been formed right to the time when the flat wagon is submitted”.  "This scheme allows for the optimization of logistics - to minimize rolling stock formation time and its idling, to reduce the cost of transportation, to reduce the transit time of the route, and to avoid sorting containers during transportation," he added.

But the participants of the transport market say that price conditions restrain the creation of new routes; a better way of saying this is that the absence of desirable privileges restrains their creation. Preference is stipulated only for internal fast container transports, or for transports to seaports. Thus, in case of transports through overland border points, tariff privileges in exports and imports do not exist.  

“In current conditions, teamwork with state bodies is one of the main ways to attract container cargoes to the railway. This assumes a change of tariff rates and a change in customs policy at border stations (both sea and overland),” added S.Velichkov. "In order to attract import container cargoes, the reduction of container train idle time at border points and also the development of backup customs terminals in ports, are necessary first of all. In order to develop overland transit corridors on Russian territory, it is necessary for transport companies to provide not only rhythmical delivery under a unified document, but also at prices comparable to the service."

Resume

What is the future of container transport? The majority of experts believe that generally demand in this sphere will continue to worsen. Different forecasts predict that by the end of the current year container turnover in Russia can have decreased by 13-14 %, and the best forecast for 2010 is that it will remain at 2008 levels. Everything depends on the general economic situation. If the measures to stimulate economic growth undertaken by different governments do not bring sufficient results next year, then many more years will be needed to restore and expand the container market. And the number of companies which will offer these services will be essentially reduced. Only one fact brings a little encouragement; that despite pitiable results in the 1st quarter of the current year, the figures for March, in comparison to February, on a number of railroads on the network, show an unequivocal increase in container usage.

Viktoria Merkusheva

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