In Port News 02/06/2015
The ripple effect of the “situation” in Russia is being felt across the Baltic Sea, leaving Finnish ports to deal with the fall out.
In 2014, the Finnish port of HaminaKotka reported total traffic of 13.4m tons, a drop of 4.2% compared with the 13.99m tons handled the previous year. For many years, Kotka has been the chosen transit port of choice for imports into Russia, so both the downturn in that country’s economy and sanctions imposed against it were bound to have an impact on traffic.
Port Strategy asked the port authority’s commercial manager Kyösti Manninen which of these two factors had done the most damage. He says: “The effect of sanctions on port traffic is difficult to track. However, the weak rouble has, of course, decreased Russian purchasing power and, as a result, has impacted negatively on port traffic.”
Overall, Russian imports handled by HaminaKotka were reported down by approximately 30% year on year; on the positive side, Russian exports have remained at the same level. “For the future, we expect Russian exports to maintain existing levels. Despite that, imports will probably stay at a little lower level than they were before,” says Mr Manninen.
Russian weakness
The main impact of the weakness of the Russian economy has been felt most by HaminaKotka’s box traffic, which fell 8.3% in 2014 to 574,982 teu. Again, Mr Manninen pointed more to the current state of the rouble, rather than sanctions, to explain this.
“While transit container traffic between Russia and Finland has declined, exports of Russian dry bulk – which include significant quantities of both fertiliser and coal – have not been affected at all. Indeed, they have become more attractive as a result of the exchange rate,” he says. “Despite the downturn in traffic, there has been no impact whatsoever on the port authority’s investment budget, while profitability has not been affected either,” he adds.
Asked whether, in the longer term, Kotka and Hamina can find new business to offset Russian losses, Mr Manninen notes: “We retain a strong belief that Russian traffic will return to normal in the future. However, in the meantime, some private sector terminal operators in the port have adapted their business conduct, especially regarding Russian traffic.”
The Steveco Group, which operates container terminals in both Kotka and Helsinki, as well as a general cargo facility in Hamina, has probably been affected more than most by the situation in Russia.
Throughput pressure
In 2014, for example, Helsinki Container Terminal reported throughput of 225,323 teu while Kotka Container Terminal handled 398,215 teu. In contrast, Tapio Mattila, director of the company’s container operations, recalls that, in 2013, throughput at Kotka had been in the region of 470,000 teu.
“There is only one explanation for such a huge drop: a major decrease in Russian transit traffic, which went down by about 30% on the year,” he says.
Under normal circumstances, trade with Russia accounts for around 40% of all Steveco’s box business in Kotka, which Mr Mattila stresses is by far the most important Finnish port involved in cross-border trade. However, at the moment, it has fallen to 30%.
“Actually, the entire market is abnormal, because Kotka normally acts as a conduit of goods into Russia. Currently, it is exports from Russia that are on the increase, reflecting the low level of the rouble against other major currencies,” he says.
This major shift in emphasis in trade has also created a new problem: there are not enough empty containers available at Kotka to accommodate enhanced outward flows from Russia. As a result, shipping lines are having to reposition boxes, pulling in empties from Poland and other Baltic Sea ports.
“Only Helsinki has spare containers for use by exporters. This is because it is mainly an import centre for the Finnish domestic market,” says Mr Mattila.
Bulk boom
Other Finnish companies are also reaping benefits inherent in a weak rouble. Having invested heavily in sectors such as dry bulk and sawn timber, they are seeing demand rise. Similarly, Russian fertiliser producers are shipping out ever more consignments, as their product becomes more competitive globally.
“In the near future, I expect to see more export containers leaving both Russian and Finnish ports,” said Mr Mattila. “However, because there is a shortage of some goods in Russia, the government may place an embargo on specific exports, which could hit business.”
Nevertheless, as things stand, he says that 2015 has started with further falls in Russian transit containers of 10%-15%.
“Although traffic is at a very low level at the moment, things could improve rapidly. You only have to look at the crisis in Russia in 1998, which developed almost overnight and resulted in an even bigger loss of traffic. However, the recovery was almost as fast. Then, in 2008, there was another huge drop, although the recovery was just as speedy.
“Admittedly, the current crisis is somewhat different in that it has now lasted for 18 months, but this is not the first crisis we have seen in Russia and nor will it be the last.”
Mr Mattila says it is problems with the economy, rather than imposed sanctions, that are impacting most on trade.
“Sanctions are not having an impact on box traffic at Kotka at all,” he says. Nevertheless, he points out that sanctions placed on foodstuffs have hit domestic Finnish exporters, although such exports have traditionally crossed the 1,300km border between the two countries by either road or rail, but not really by sea.
Vehicle slump
The car manufacturing sector has been hard hit and this has had a knock on effect at Kotka Container Terminal, since parts and components once shipped by container are now no longer being handled. Hardly surprising, given that Volkswagen, Toyota and General Motors are all closing down their businesses in Russia because nobody there is buying new cars.
“Obviously, we now have spare capacity in the container terminal at the moment. However, Finnish exports are doing very well, which is helping to partially offset the loss of Russian transit traffic, while breakbulk traffic is booming.”
The decision by Steveco to previously convert the former container terminal at Hamina into a breakbulk terminal therefore looks to have been a good one. Not only does it handle dry bulk, but also paper reels, heavy lift and project cargo. About a year and a half ago, business there was relatively quiet, but now project cargo volumes are notably rising. Heavy lift components produced by Finnish industry predominate and the bulk of this is exported.
“We are positive about growth in this sector,” says Mr Mattila, who nevertheless concedes that, while individual consignments are profitable, the level of profit as such is lower than that of containers since volume is less.
“As a company, in spite of this huge loss in cross-border traffic, Steveco is still operating in the black, albeit only just,” he says, adding that, along with other box terminal operators in Finland, current investment is minimal.
To date, no quayside gantry cranes have had to be mothballed, although straddle carriers have been redeployed. Having a successful general cargo terminal at Hamina has also allowed Steveco to transfer excess workers there from Kotka.
Helsinki remains relatively unscathed
Although the Port of Helsinki does handle some Russian transit traffic, its exposure to that market is nowhere near that of Kotka’s.
“Because our share of transit cargo is not so high, the direct impact of the economic downturn here is quite small,” says Kimmo Mäki, chief executive of the Port of Helsinki. “However, the overall development of the Russian economy has had some influence on the Finnish economy. So, from that perspective, there has been some influence.
“On the other hand, cargo volumes at Helsinki have been increasing for almost two years and we are also seeing growth of 3% in 2015 compared to last year,” says Mr Mäki.
While the city of Helsinki does generate trailer traffic to and from Russia, Mr Mäki says that, today, the vast majority of seaborne trailer traffic tends to be handled by Russia’s own ports, with Helsinki handling just a small percentage. Furthermore, Russian imports are performing less well than exports, given the weakness of the rouble.
In contrast to Kotka, box traffic at Helsinki is rising, growing by 2% so far this year. “That is not to say that the economic downturn and sanctions have not impacted on traffic at Helsinki; they have, but that impact has not been that great,” says Mr Mäki. “In fact, for this year, we are forecasting traffic to continue growing, although only by a few percent.”
