Sea-rail route offers South Korean exporters new option to Europe

Sea-rail route offers South Korean exporters new option to Europe

 

Russia Trans-Siberian Railroad.

After the delivery to Vladivostok by ship, cargo is then transported via the Trans-Siberian Railway (above) to St. Petersburg. Photo credit: Shutterstock.com.

South Korean shippers who transport cargo to the European Union may find a cheaper, quicker option as a result of a new sea-to-rail route through Russia.

The new route connects the South Korean port of Busan and Russia’s port of St. Petersburg and involves the port of Vladivostok as a transit hub to move container cargo to Russia and other European destinations.

After the delivery to Vladivostok by ship, cargo is then transported via the historic Trans-Siberian Railway to St. Petersburg.

Delivery time is only 15 days, compared with 30 to 35 days in the case of container shipping transport via the Suez Canal. However, the new Busan-St. Petersburg route will cost 1.7 to 1.8 times the container shipping route via the Suez Canal. The higher cost is expected to be not as much of a detriment as it typically would, due to value-added goods transport; shippers of these goods place a premium on speed and are more willing to pay for it. The estimated tariff for this route is $6,500 to $7,500 per TEU.

What’s more, the size of commercial/business activity and trade in this region would appear to support the faster Busan-St. Petersburg route. 

Russia’s FESCO Transportation Group and South Korean logistics provider Hyundai Glovis Co. Ltd. have jointly launched the Busan-St. Petersburg route.

Dmitry Bratynenko, a vice-governor of Russian federal district Primorsky Krai (RPK), said there is huge South Korean shipper interest in the new route. According to Bratynenko, at least 60 South Korean companies are interested regarding cargo delivery to points in Russia and the EU. Products range from auto parts to electronics products to other high-priced goods.

According to experts’ estimates, container cargo volume on the route will reach 10,000 TEU by the end of 2018; some experts envision volume surging sevenfold to eightfold in 2019.

What’s more, RPK officials predict the route will do well, with strong interest from shippers. According to RPK, unlike most Chinese container trade routes through Russia, the new Busan-St. Petersburg route will not require a state subsidy. It also said that in 2018 investors plan to launch similar routes from other major South Korean seaports to Vladivostok.

Further, Russia Ministry of Transport experts and some of the country’s leading transport companies believe the new route could potentially amass container volume larger than the current sea routes, which involve the use of the Suez Canal. The majority of South Korean cargo exported to the EU and Russia comprises value-added goods, which require speedy delivery — something that shippers prioritize even more than the cost of delivery.

Russian trade policy

The start of regular container cargo transport from South Korea to the EU via Russia is part of the Russian government’s ambitious plans to make Russia a major container cargo transit hub for Asia Pacific to the EU. Earlier this year, Russian railway monopoly RZD announced measures to increase container cargo volume from Japan. Currently, the majority of Japanese container cargo is still transported to the EU by sea and air transport, but Russian officials want that to change.

One example: RZD had recently offered Japan shippers a one-stop service — from Far East ports across Russia via the Trans-Siberian Railway to Central Russia and then to the EU.

Olga Stepanova, RZD’s deputy director for sales, said the current deepsea container shipping market is highly volatile, in contrast with the shortsea market, which remains more predictable. According to Stepanova, this is also due to the fact that railway tariffs usually remain in effect for at least a calendar year.

In 2017, Japanese cargo exports to Russia totaled $6.67 billion and about 900,000 metric tons (922,080 tons) in volume terms. At the same time, Japanese exports to the EU are almost 10 times higher in both value and volume.

Further, by mid-2017, RZD had already launched two new services on the Japanese-Russia trade. These services, known as Trans-Siberian in 7 Days and the Baikal Shuttle substantially shortened container delivery time on the route, as well as for the broader Asia Pacific-EU market.

The Trans-Siberian in 7 days service transports containers from Far East seaports to the western borders of Russia in seven days. At the initial stage, cargo is loaded from Nakhodka-Vostochnaya — the largest near-port railway station on the Russian Far Eastern Railway — to Moscow. The average territory covered is 1,200 kilometers per day (745 miles per day). That’s more than in 2014, which was 1,073 kilometers per day. Officials expect this performance metric to improve in the years ahead.

Concerning the Baikal Shuttle, it transports containers from Japan’s port of Yokohama to Moscow and in the opposite direction.

Yevgeny Ditrikh, Russian minister of transport, said the new service saves shippers 15 percent to 20 percent on costs, compared with alternative transportation by ocean carrier. In addition, the new route reduces delivery time from 42 days to 25 days.

Further, RZD hopes to increase its container cargo business with more food transport, which to date has accounted for only a small portion of South Korean exports to Russia and the EU.

Contact Eugene Gerden at gerden.eug@gmail.com.