Cargoes are not accepted: what is happening at ports and how this will affect prices

12.06.2021

The restructuring of global supply chains has caused a collapse in the Far East. Experts believe that the problem will not be resolved quickly and consumers will face shortages of goods and price rises.

Russia’s Far East ports have been overwhelmed by changes in global logistics flows. As a result, suppliers were unable to deliver goods, including essential goods for some Russian regions, on time. Experts believe that the problem will not be resolved quickly: consumers will face shortages of goods and price rises.

Local Deficit

In mid-October, food shortages started in Chukotka and Kamchatka. The problem is the logistic collapse in the Far East. Ports cannot cope with the flow of cargo, and the minimum waiting time for unloading is 10 days, with an average of up to a month.

Global Problems

Parallel port closures in all parts of the world from Korea to the US have disrupted global supply chains, while the rising cost of shipping via the Northern and Southern Sea routes has prompted carriers to look for new routes. Multimodal transport across Russia has become an alternative. In recent months, the number of FEA participants in the Far East has grown by a third, and the need to have «Northern Supply Haul» to Chukotka and Kamchatka in time for the end of navigation has only complicated the problem.

Capacity Shortages and Poor IT

The increased volumes have proved unaffordable for Russian ports. The infrastructure has not been updated for decades and there is a lack of power or energy for IT systems. Even if there is space on the site, vessels remain unloaded in the roads. According to experts, throughput capacity in the Far East needs to be doubled, and already now.

Railway Deficit

It is not only maritime transport that has had problems. The shipped containers do not leave the ports immediately, as the rail terminals in Moscow are also overloaded. At the end of October, the Russian Steel Association sent a letter to Deputy Prime Minister Andrey Belousov, pointing out the transport collapse at Russian Railways. At the same time, Russian Railways managed to increase container traffic along the China — Europe — China route by 47% in the first nine months of 2021. Delayed landings result in ships demurrage in the road, during which the customs authorities do not register the goods, despite the fees already paid.

Profiting from Delays

Yury Trutnev, deputy prime minister and Presidential Envoy to the Far Eastern Federal District, has instructed to prioritize cargo for Russian consumers to ensure Northern Supply Haul and construction. However, experts believe that the problem is systemic and that its detrimental impact can only be reduced with a reverse redistribution of freight flows due to the higher cost of transport through the Far East. Imports from China have now declined, but may rise in the run-up to the holidays. In the meantime, unscrupulous carriers deliberately delay the delivery of goods in order to sell expedited transport services.

Everything Gets More Expensive

The rise in prices for container shipments from China and Southeast Asia is not such a sensation for the market, and it has already had an impact on the cost of household appliances and electronics. Now the crisis is starting to raise fuel prices, which makes goods more expensive for final consumers.
Another severe consequence of delays in the supply of equipment from China could be a decline in production in a number of other sectors. Experts estimate the risk of losing 0.2% of GDP at the end of 2021 due to transport difficulties.

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The transport and logistics infrastructure of the Kaliningrad region, together with the favorable geographical location of the region, special business conditions, customs privileges and tax preferences for residents of the Special Economic Zone, creates possibilities for the uninterrupted movement of goods and the dynamic development of international trade relations.
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