Russia's grain transportation challenges

by Meyer Sosland
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While Russia has the potential to become one of the global grain industry’s truly dominant and reliable exporters, a few hurdles remain. Infrastructure bottlenecks and bureaucracy are problems that Russia’s public and private sectors must continue to work to improve.
In November, the U.S. Department of Agriculture’s Foreign Agricultural Service (FAS) issued a report on Russia’s grain port capacity and transportation issues. While Russia does not publish aggregated statistical data on the capacity of its grain export terminals, FAS Moscow’s report makes estimates based on a summary of media information, experts’ estimates and field visits.
The FAS report noted that while grain analysts estimate Russia’s grain export port capacity to be approximately 25 million tonnes (see chart, page 45, for breakdown), with direct loading of railway wagons into ships as well as using ports from other countries, Russian exports are able to exceed this port capacity number. This estimate includes deep water ports on the Black Sea, shallow water ports of the Volga-Don basin and Azov Sea, and fairly insignificant port capacity on the Caspian Sea and in the Russian Far East. Russian traders also may export grain through the deep water ports of Ukraine and through some ports of Baltic countries, but the competition with Ukrainian and Kazakh grain in these ports is very intense.
FAS said that for all of the Russian ports, the constraint to exports is the speed and capacity of the intake of grain — due to rail logistics, documentation problems, etc. — rather than the actual speed of loading grain onto ships. Nevertheless, weather can at times delay ship loading at these ports. For example, in Rostov wind can reduce the river draft and thus delay the movement of exports for a number of days.
FAS estimates the capacity of Russia’s deep water ports on the Black Sea at 13 to 15 million tonnes per year. The dominant grain port on the Black Sea is the Port of Novorossiysk, which has two terminals and an estimated capacity to export 11 to 12 million tonnes of grain per year. The Port of Tuapse has a new grain terminal with an estimated capacity of 2 to 2.5 million tonnes a year. The third is the Port of Taman, which has a very small grain export capacity at present but has ambitious plans to expand in the near future.
The Port of Novorossiysk consists of two major grain terminals — the “old” terminal and the “new” terminal. The capacity of the “new” privately-owned terminal is estimated at approximately 6 to 7 million tonnes per year, and the “old” terminal, called the Novorossiysk Bread Combine (NKHP), belongs to the state-owned United Grain Company (UGC), which upgraded and modernized the terminal during the grain embargo and increased its capacity from 3.5 to 4.5 million tonnes per year.
From July 1 through the end of September 2011, the UGC-owned terminal dispatched 1.2 million tonnes of grain, or more than 10% of the total Russian grain exports in this period. FAS noted that the UGC continues the modernization of NKHP by increasing the grain storage capacity, reconstructing the railway infrastructure and building a new export gallery with new ship loading equipment. After these changes, the grain handling capacity at this terminal will increase to 5 million tonnes a year.
Both terminals at Port of Novorossiysk can load Panamax-sized vessels, and grain is delivered to the port both by trucks and by rail. At Novorossiysk and many shallow-water ports, grain from growing areas near the ports — within 250 kilometers — arrives primarily by truck, while grain produced farther away arrives typically by rail. Also, grain from inland elevators is primarily transported by rail. FAS’ report noted that because of this, the percentage of grain delivered by rail increases as the marketing year progresses.
In Novorossiysk, delivery schemes are improving and the terminals even organize automotive management of truck flow. However, FAS noted that intake logistics continue to remain a major constraint and frequent rail bottlenecks occur. In July-September 2011, the Port of Novorossiysk loaded for export approximately 3.3 million tonnes of grain or 35% of the grain Russian exported in these months.
The Port Tuapse has one grain terminal, which was opened in December 2009, that can load Panamax-sized vessels (up to 50,000 tonnes). Storage capacity at the terminal is around 100,000 tonnes and the export capacity is 2.5 million tonnes a year. However, FAS noted that since it opened, the terminal has not been able to operate at full capacity for two reasons. First, shortly after the terminal came online the grain export ban was put into place. Second, even with the lifting of the ban, the high volume of railway traffic destined to Sochi for Olympic construction has reduced free railway capacity to supply the terminal. Also, this terminal can only be supplied by rail, as roads connecting Tuapse to key growing areas go over mountains and are too steep and windy for shipments by truck.
So despite strong demand for port capacity in Russia, these logistical bottlenecks mean the grain terminal may not be able to operate at capacity until later in 2012. In July-September 2011, the Port of Tuapse dispatched approximately 470,000 tonnes of grain.
The Port of Taman’s present grain storage and loading capacity is not significant as this port does not have a grain terminal and does not currently have railway access. However, the port already has vegetable oil handling capacity, and several companies have investment plans for grain export facilities. At the end of September 2011, the UGC, the Ministry of Transportation of the Russian Federation and the Administration of Krasnodar Kray signed an agreement for the construction of a new grain terminal in Taman and railroad access to this port that will allow the handling of 6 million tonnes of grain per year by 2014, and to load vessels of up to 40,000 tonnes.
The FAS report notes that industry analysts estimate the total grain export capacity of all the shallow water ports in the Volga-Don-Azov basin at 8 to 10 million tonnes. Many companies, including major grain traders, have their own terminals and berths in the Volga-Don-Azov basin, and load 3,000- to 5,000-tonne ships.
Because of the large number of loading facilities and the proximity to the key growing areas, in July-September 2011 these ports shipped more grain than Russia’s deep water ports. According to industry analysts, grain exports in July-August from the shallow water ports of Azov-Don cluster reached 3,024,000 tonnes and exceeded by 40% grain exports from Novorossiysk (1,840,000) and Tuapse (297,000 tonnes) combined.
Although facilities in the Azov-Don cluster in July-August loaded 1.5 million tonnes a month because shipping from many of these facilities largely ceases in the winter, total capacity is only estimated at 8 to 10 million tonnes. Most of these ports stop functioning at the end of November and navigation is opened in March. Some of these ports can function with the help of ice-breakers, although this is not feasible up river. The major shallow water ports are Rostov-on-Don, Eysk, Azov, Temryuk, Kavkaz, Taganrog.
Rostov-on-Don: Grain export capacity of this port is estimated at 3 million tonnes a year. The port is a shallow draft facility loading 3,000- to 5,000-tonne vessels, mostly to nearby Mediterranean countries.
Eysk: Port handling capacity is over 2 million tonnes a year. In July-September 2011, Eysk port loaded over 980,000 tonnes of grain for export in vessels that can carry up to 6,000 tonnes each. Thus, if berths of this port work at full capacity only seven to eight months a year, this port can load more than 2.5 million tonnes.
Kavkaz, Temryuk, Azov, Taganrog: These are small ports in the Kerch channel and on the Azov Sea. They have small grain loading facilities that belong to grain trading companies and directly load grain from trucks or railway cars (if railway lines reach the berth), to 3,000- to 5,000-tonne vessels.
Small Volga-Don River Terminals: These terminals load grain to 3,000- to 5,000-tonne vessels. The export capacity of these terminals is estimated at 600,000 to 800,000 tonnes per year. Usually the weather conditions do not allow functioning of these terminals from December through March.
Russia’s Baltic ports have a total grain export capacity of up to 2 million tonnes. However, grain exports from these ports are not significant. They have small channels and the competition with other cargoes, including imported cargoes, is very stiff. Also, these ports are far from key Mediterranean markets, which are the largest buyers of Russian grain.
Russia had plans to build a grain terminal with a capacity of 1.5 million tonnes per year in Vladivostok in order to export Siberian grain to Asian markets. However, these plans have not been implemented so far. Some analysts estimate that the cost of transporting grain from Siberia to Vladivostok is higher than from Siberia to European ports.
FAS analysts noted that actual port capacity will not be a problem this year, as the real bottleneck is in getting grain to the ports as a result of poor management of railway logistics, high cost of transportation from Siberian regions, and competition with grain from Kazakhstan (for markets, for Russian grain cars, etc.).
According to FAS, Russian railway officials complained that in October 2011 Russian railways shipped 500,000 tonnes less grain than they could have if traders had loaded and unloaded railcars faster and avoided detention of cars. These delays are due to inadequate management and lack of forward planning, the poor conditions of grain handling facilities at railway stations, and delays in preparation of shipping documents.
For transporting grain in trucks, the shipper needs to receive only one document (permit) from the state regulatory bodies. But for shipping grain by rail, the shipper needs to receive nine documents from government officials, which usually work only five days a week. As for the cost of rail transportation, grain in Russia is considered a product of the second tariff group (not socially important, unlike ore, coal and concrete), and as a result freight rates are high. FAS also noted that the poor condition of the Russian railway cars fleet is also a problem, although this situation has improved and RusAgroTrans, the leader in railway grain shipments, has been purchasing new cars in 2010 and 2011. At present, this company owns 30,000 grain cars, or 90% of the Russian grain cars’ fleet, but it has been reported that the company leased out 5,000 cars to Kazakhstan for transporting Kazakh grain to export terminals.
As for trucks, when the grain embargo was introduced, many truck companies switched to non-grain cargoes. When exports renewed, they increased transportation fees. Traders complain that in some cases the fees increased by 30% to 50% compared with fees in the summer of 2010.
The cost of shipping grain from Siberia to European ports is the major constraint for increasing exports of Siberian grain. Siberian provinces produce approximately 18 million tonnes of grain on average, but domestic consumption of grain in these provinces varies from 11 to 12 million tonnes. The annual grain surplus may amount to 6 million tonnes in certain years, but due to the high cost of transportation, it is very expensive to ship this grain to export points.
According to analysts, the delivery of Siberian grain to export terminals varies from 1,500 rubles ($50 [1]) to 2,000 rubles ($67) per tonne. For comparison, transportation of grain from the Southern European Russia and even from the Volga Valley to the export terminals usually does not exceed 500 rubles ($17) per tonne. Also, the returns from grain production in Siberia are lower than in Southern European Russia, as input costs are higher and yields are significantly lower. Although quality is typically higher as spring wheat is produced in Siberia, the price premiums for high baking quality of Siberian grain have been very small. FAS noted that this year there is a large grain crop in Siberia, and grain farmers complain that they do not have enough storage capacity to store all grain because Siberian elevators still store intervention grain. Distances from ports and this shortage of storage have dampened domestic prices in Siberia, but even with these lower prices, exports of Siberian grain have not been feasible, although this may change with new railroad tariff decisions.