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23 Августа 2017

RLL Container Report - 23 August 2017

From: John Keir, Ross Learmont Ltd. Email: john.keir@telia.com Date: 23 August 2017

The shape of things to come.

In the first half of the year, Transcontainer carried a record 860,000 teu, representing an 18.7% increase over the same period last year. The figures for import cargoes caught the eye, as Transcontainer reported a 44.3% increase on inbound box moves to register a total of 151,300 teu for the first half of the year. At 439,000 teu, domestic box traffic on the broad-gauge network remains the rail operator’s core business. Overall, the Russian intermodal operator chalked up a highly commendable 8.7% increase in its box activity. This news comes as RZD, the company’s parent, reviews its options for the future of its valuable container asset. One option being discussed is a break-up of the intermodal operator into two of three separate units, which could compete with each other in a more open market environment. Via United Transport and Logistics Company (UTLK), RZD has a controlling share of the biggest intermodal operator on the broad-gauge network. With an estimated market capitalisation of over USD 700 million, prospective buyers are going to have to dig deep into their pockets.

If truth be known, there is little downside to this deal. The cost of purchasing 33 or 50 percent of the Russian rail container market rather pales into insignificance when weighed up against the benefits of the deal. As the freight figures clearly indicate, the Russian and CIS box market has tremendous growth potential - mainly because it is starting from a relatively low base. Conventional rail wagons are a thing of the past, though they will still be visible in decades to come. The chemical sector is rapidly switching from bulk to bagged cargoes, which can take advantage of faster intermodal distribution. This eliminates a complicated procedure, which first involves a hopper wagon and then the transfer of the cargo into the hold of a bulk vessel for the voyage half-way round the world to a distant port, where the rather expensive reverse process is deployed. In the case of fertilisers, the container offers a faster, safer, cleaner and more convenient alternative to the traditional method of transporting a semi-hazardous cargo half way round the globe. Of course, the real value of the container comes into play on the return leg, when the same containers can be employed to transport agricultural products, such as tea and coffee back to Russia.

When one considers that Russia is the biggest importer of tea as well as a significant importer of coffee, the benefits – both logistical and financial - of a fully intermodal export and import cargo flow become patently obvious. Several large industrial companies are restructuring their own transport divisions, which are steadily switching cargo flows to containers. In the forestry sector, Ilim Pulp is leading the charge and it already controls much of its containerised exports via the Russian Far East ports. The company then uses the same units to bring back import cargoes to its factories and consumers dotted around Siberia and Northern Russia. Russian chemical producers, such as Sibur, are determined to compete on equal terms with their peers in the global market. Now, these giant domestic intermodal operators are taking over the role previously played by RZD, in order that that they may compete head-on with rivals in all four corners of the globe. The ending of a state monopoly and its replacement by two or three intermodal operators should be to the benefit of all in the transport sector. Also, by opening up the transport sector to competition, the new operators will be answerable to the market. They will have to live up to their targets and promises, or face the wrath of the market.

John Keir, Ross Learmont Ltd.
23 August 2017

Copyright ©, 2017, John Keir

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