Logistics News Review. September 2022

JML Commercial Director Andrey Mironov comments on key developments in Russian and global logistics (September 2022).

1. There is a lot of news today about “big construction projects”. Construction, modernization and the like of border crossings, terminals, roads and other transport and logistics infrastructure are being carried out or planned (relevant documents are signed) everywhere. This is very good, if it were not for one “but”. When we are talking about long-term actions (more than half a year), we need to act in advance and prevent problems, not after they occur. Therefore, when we read these messages, it is important to understand why and who needs all this now and whether it will be needed in the near future. What is relevant and needed right now may not be needed at some point in the future. This is the biggest pain point for long-term projects, especially in today's ever-changing environment. And one more question to ask yourself when reading such news: are there really any real actions behind the loud headlines in the news? For example, after the sensational opening of the cross-border bridge in Blagoveshchensk, it turned out that container ships can move across it with great restrictions. That is, in fact, containers cannot be sent to China over the new bridge.

2. Turkey increases the cost of passage through the Bosporus and Dardanelles five times, and commercial relations between Russia and Turkey are becoming increasingly close. Turkey's increase in the cost of passage from the business point of view is a logical decision. Just business, as they say. And parallel import and import of goods to Russia through Turkey will stabilize. This process has just begun: new routes, new (and “well forgotten old”) goods and stores, new partnerships from Turkish shores - the bulk of all this is still ahead of us. Russian-Turkish cargo turnover is growing and breaking records. This is happening thanks not only to parallel imports, but also with the arrival of new brands on the Russian market.

3. Record shipments of freight trains on the China-Europe route have been recorded. This is another story from the “just business” series. The Chinese are producing, setting up supply chains, building railroads and trying to use the situation to their advantage. We, on the other hand, are only “harnessing the sledges”.

4. Rates have been growing, are growing and will continue to grow. This is influenced by two main factors: an increase in the incoming flow of requests, a shortage of empty cars and the departure of major players from the Russian market. Under the current conditions, price growth is a natural phenomenon. Another thing is that rates have been growing at a tremendous rate for three years now. I have written about this before: during the pandemic the cost of freight transportation rose 10 times, i.e. by 1000%. Now, of course, the increase is not the same, but it still has a tangible impact on the end user and on business. The question arises: why is the growth of freight transportation rates not controlled by anyone? How long can this price bubble continue to inflate, and to what extent is this rise in cost justified by objective circumstances?