Thoughts on the new Shushary Terminal in St. Petersburg

One of the more welcome pieces of news to come out of the Russian transportation market in recent months was the announcement that Russia’s National Container Company is opening an off-dock container terminal in Shushary, St. Petersburg. The Shushary Terminal occupies a prime piece of logistics real estate – at the intersection of the Moscow Highway and St. Petersburg Ring Road, near the main center of western investments in the auto industry (Ford, Toyota and Nissan all have plants nearby) and right next to Pulkovo airport.

Even better news is that the Federal Customs Service included the Shushary Terminal into the Baltic Customs zone of authority; according to the NCC press announcement:

”This will provide a unique possibility to transport containers from FCT to the off dock facility in Shushary in bond under the simplified scheme of internal customs transit. Such scheme does not require presentation of any additional commercial documents by either shipping line or consignee apart from those readily available at the time of vessel’s arrival at FCT, i.e., freight manifest and bill of lading.”

Shipping lines and freight forwarders will now be able to move containers directly from the First Container Terminal by truck or rail shuttle to the Shushary Terminal under bond and with minimal documentation. The cost for the service is now under negotiation with NCC, but the cost for moving a 40’ container the 17 kilometers to the off-dock from the port will likely be somewhere between $200-$300 including container lifts.

The move is a good response to the long-awaited desire for Russia to provide more capacity for the booming container cargo market; carriers, importers and exporters have clamored for additional space for years, as market growth outstripped the capabilities of the First Container Terminal to handle it. The complaints became especially vocal after the great reefer crisis of 2006-2007, when carriers scrambled to import thousands of containers of beef and pork before a quota deadline expired on the New Years. The Shushary Terminal adds storage space for 10,000 TEU of laden containers and 4,500 TEU of empty boxes, and NCC estimates its annual throughput at 200,000 annually.

The only immediate drawback is, of course, the drastic drop in the need for the excess capacity. With 2009 volumes at FCT down almost 30% compared to 2008, there doesn’t seem to be much immediate need for the space at Shushary. However the market is bound to rebound when the price of oil rises again, and when it does the additional throughput will be very much appreciated.

Looking at the longer term, the availability of new capacity in St. Petersburg presents container carriers and cargo importers with a host of interesting issues that will determine the shape of the market for years to come. By now, carriers probably will have negotiated space commitments for Shushary, and if the historical patter obtains, Maersk Line will pursue aggressively a large share of the 10,000 TEU available slots to support its major clients in the automobile industry. Competitive logic dictates that MSC, OOCL, CMA-CGM and the other majors match the move by securing their own quotas. The interesting question will be to see if the costs for holding these spaces are passed along to customers while the market remains flat.

Assuming the market recovers in 2010, carriers will face further challenges managing their policies for using the Shushary Terminal. For example, if there is a 2010 congestion crisis, will a carrier force a customer to move his box from FCT to Shushary and then recover the cost before releasing the cargo? Contract of carriage terms allow for just this but it would be a tough sell in the Russian market, and probably wouldn’t fly with global or key customers.

A few other questions arise immediately from contemplating the new off-dock Shushary Terminal. As I’ve discussed in my other blogs, the major cause of congestion in the port of St. Petersburg (among other places) is the awkward and opaque paper mill of clearing cargo through Russian Customs. Certainly, Baltic Customs bears a large responsibility for the fact that over 50% of all containers passing through the First Container Terminal in 2008 took 6 days or more to leave the port.

This being the case, it is hard to see any real advantage to creating the capacity for more container storage space in St. Petersburg. A container carrier needs to turn his equipment about six times per year to make a profit; anything less, and lost time begins to eat into profits. Although it seems counter-intuitive, there is a real danger that additional capacity in a situation of slow turn-times exposes a container carrier to greater financial risk, not less; more of his equipment is tied up for longer periods of time.

I don’t believe this is an idle speculation. There is plenty of speculation about corruption in Baltic Customs, and its liberal use of administrative arrest ties up to 10% of all cargo shipping containers at one time in tangled webs of bureaucracy. A container carrier could very well ask what advantage there is to having even more of his containers sitting idle while consignees negotiate with Baltic Customs, or go to Arbitration Court, to get their cargo released.

In other words, without addressing the main cause of congestion in the port of St. Petersburg – the Federal Customs Service – the new off-dock may prove to be nothing more than a Band Aid.

http://www.container.ru/English/Company/News/20081230.html