Congestion and Customs

Along with roads and fools, transportation professionals may want to add another eternal problem to doing business with Russia – congestion. Russia’s infrastructure has not kept pace with the boom in Russia’s economy over the past decade. While shippers have been able to maximize poor roads and inefficient railways, and coax impressive volumes out of limited port facilities, congestion remains an ever-present fact in Russian transportation.

Throughout the 1990s and now the first decade of the new millennium, shippers grown accustomed to 40-kilometer lines of trucks at the Finnish-Russian border. They have learned to build their cost models to account for waits of up to 10 days or more for cargo to leave port. They have learned the hard way, through anxiety, lost profits and countless man-hours spent trying to understand the incomprehensible, that the major cause of congestion at Russian gateways is the Federal Customs Service.

For example, the First Container Terminal handled a record 1,072,346 TEU in 2008, up 11% over 2007. An impressive gain, to be sure, but consider that over 60% of all containers took 6 days or more to leave the port and it is clear the throughput could have been much more.

The situation at the Russian/Finnish border is equally difficult – the roads leading from the port areas of Kotka and Hamina are overloaded with truck traffic, and border crossing at Torfyanovka, despite undergoing modernization over the past few years, is still unable to keep pace with demand.

The reason? Corruption among Russian Customs officers. The January 19 issue of the Russian newspaper, Novaya Gazeta, featured a fascinating piece about Torfyanovka, The Great Post (Великий пост).

The piece states baldly that Russian Customs forces virtually every Russian importer to violate statute 291 of the Russian Federation Civil Code – Bribe Giving (Дача взятки), and explains how the mechanisms of corruption work:

“…not long ago the chief of a Customs post, who had been fired not long ago, told me how to act to make sure no problems came up with Customs.
“Go to the Deputy Chief of Customs Clearance and say, “I (for example) want to bring in fuel injectors for tractors. He’ll tell you straightaway without any beating around the bush: A thousand dollars per container – and no problems.
“You start to get indignant: “What do you mean? Look at the Customs Code here!” And you go with your Code to the Clearance Inspector and try to import your cargo in by the rules.
“Then the Clearance Inspector says, “Your Customs Declaration has pencil marks here.” And so you go and make a new Customs Declaration. Then Customs tells you, “Somehow these fuel injectors don’t look like fuel injectors. You need a Certificate of Conformity for them.” You find the Certificate.
“Then questions come up about the invoice. And this goes on for a month until you finally go to the very same Deputy Chief of Customs Clearance and say, “OK, let’s do it your way.” He agrees, only now the amount isn’t a thousand, but five thousand. That’s the fine for stubborn people.
“Importers of cargo with an expiration date, as well as importers to whom delivery dates are important, don’t let the situation reach the point of a “fine for stubborn people.”
“And a lot of people are interested in making Customs go faster. The first three days customs stores cargo free, and then makes you pay 4 rubles per kilogram per day. Then it goes to 8 rubles per day from day six. If, for example, you have 5 tons of cargo (and there are many people like this), then a week of storage can cost you about 300,000 rubles. If you’re e a small businessman, then don’t even hope the amount won’t keep growing.”
“If Customs isn’t in Moscow – then add in the cost of having your truck sit (since carriers fine you for this), and the cost of not fulfilling your contract with the person who ordered your goods.
“Customs officers understand all of this perfectly well. And even though the Customs Code stipulates a three-day period for clearing cargo, it’s common for cargo to be held up at Customs for a month. Customs requests all kinds of documents, checks and re-checks the authenticity of the cargo, and demands all sorts of additional explanations from the supplier. ‘Would you be able to confirm the length of the continuous drive belts? I understand the question is totally idiotic but Customs demands it…’
“Collecting damages from Customs is almost impossible. Even if the Arbitration Court confirms that Customs held the cargo illegitimately, compensation for damages means filing a new claim and spending another year going around in the courts.

Just how deep is corruption in the Russian Federal Customs Service? And who is involved in it? I hope to address these topics – and more – in my next few blogs.