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Not so temporary shift to the Baltic

Political repercussions have been echoing around the Baltic long enough to result in real, structural changes to cargo flows and quays, explains Stevie Knight

When Russian sanctions on various Baltic states kicked in around 2014/15 the whole dynamics in the region changed. There was less Russia-transit cargo coming into the Baltic states, and less to Finland too. But while this suppressed some ambitions, it rather counter-intuitively pushed one port into the limelight.

Speaking to Port Strategy, Roy Van Eijsden of WSP points out that a drop in transit volumes to Russia has led to more consolidation at earlier stages in the logistics chain. “And Gdansk has benefited,” he says. Container throughput jumped from 1.3m teu last year to over 1.58m teu at the port and its 2016 DCT2 expansion brought capacity at Gdansk to 3m teu.

“Gdansk has become a real hub port, so now when we look at the Asia-Europe trades, instead of just assuming that direct calls will end in northern Europe, we now have to include Gdansk,” he says, adding it has even challenged Hamburg for both transhipment and cargo from the Polish hinterland. “It’s not on the same level as Rotterdam – but it is attracting the largest vessels.”

In fact last year it hosted the 21,413 teu, OOCL Hong Kong. This stands out in stark contrast to the small, feeder-sized network around it, which, with a few exceptions like Klaipeda, tend to max out below 4,000 teu.

Interestingly, Gdansk’s little sister Gdynia also looks to be getting its own fillip. Its access channel, which currently limits vessel size, is to be deepened and this, consultants speculate, may well trigger a merger between Gdynia’s two incumbent operators, Hutchison and ICTSI since “the larger ships would mean economies of scale then make sense… a merger would give them both more focused investment,” explains Mr Van Eijsden. He predicts there will be some “local shifting” given the new competition, but nothing its big sister can’t handle.

One-off

However, Gdansk’s new stardom is not something that others are likely to be able to repeat. “I don’t think that there will be a second major hub port in the region for the foreseeable future,” says Elisabeth Schoppmann of HPC Hamburg Port Consulting. “It’s important to understand the hinterland, Poland has 38m people so Gdansk has both transhipment and gateway cargo supporting it… other places are to a certain extent limited by a much smaller domestic market.”

In terms of growth, many northern Baltic ports have at least partially relied on Russia’s pull and she points out it’s a numbers game: “You have 17m people in Moscow metropolitan area and 6m in the St Petersburg agglomeration, compared, for example, with 1.3 in Estonia.” Therefore the region has been dampened by the ongoing impact from the vicious devaluation of the rouble and continuing Russian sanctions.

She adds that “the figures tell their own story”: along with St Petersburg – which plunged 27% between 2014 and 2015 – Riga, Klaipeda and Tallinn, were also hit. While the first two have made it back and last year gained on the original highs of 2014, Tallinn, like St Petersburg, is currently still nearly 20% down, although she now expects volume to rise along with Estonia’s economy.

Interestingly, the most notable exception to the difficulties has been in Finland: there’s been a slow but steady upward trend especially at Hamina Kotka which nuzzles close to the border.

However, it does seem as if Russian ports, despite a brave attempt at handling their own transhipment cargo (from regions that haven’t curtailed their relationship), still remain mired in challenging customs procedures, and costly fees of all kinds – while other Baltic facilities are proving themselves nimbler, less pricy and more adept, says Ms Schoppmann. It could result in a bumpy ride if the Russian ports respond with an aggressive pricing strategy, she adds.

Counting opportunities

But, despite the region’s challenges, Ms Schoppmann’s clear growth opportunities exist.

Some have seen enough potential to take on the difficulties: Maersk, for example, is embracing the hostile conditions and limited scale with specially designed, ice-class feeders to reach the Baltic’s northern ports.

Moreover, Klaipeda has now gained 20% from its 2014 low, hitting 472,000 teu last year. It’s benefiting from colder interests: along with regular boxes the port entertains the region’s largest market share of chilled cargo (apparently bananas are especially popular) “and so this is where MSC will be concentrating their reefer traffic” explains Mr Van Eijsden. It’s partly driven by a dearth of reefer slots on the mid-sized, 8,000 teu vessels “so it makes sense to try to consolidate this cargo stream when and where you can” he adds. Its freezone, which has gained an offshore pipe fabricator and will soon host Carlsberg and Brooklyn’s brewery business, stands to push cargo even higher.

However, Klaipeda’s also gained the attention of the Chinese: operator China Merchants want to build a huge new container port on the present facility’s outskirts. While many are openly courting Chinese interests, some in Lithuania aren’t so happy; its Brussels MEP has been recently quoted in Vakaru Ekspresas as saying: “We have only one [port] … upon which Lithuania’s security depends.”

Despite a few misgivings, China’s Belt and Road initiative is turning into a high-stakes game for the region.

“Almost every port between Beijing and the Baltic thinks it’s on the Silk Road,” says Mr Van Eijsden. Ms Schoppmann adds: “A lot of countries are expecting to capture Chinese cargo – but it may require investment to realise.” To this, she adds a word of caution: “It is still not clear who will benefit or how the different ports and countries will be integrated. Investment needs due care, taking into account both opportunities and also potential challenges.”

Mr Van Eijsden continues: “The Chinese are trying to gain strategic points in overseas territories to serve their own export markets, it is a brilliant way of thinking but collecting little pieces to build up that puzzle is hugely challenging. And so there are a lot of lines on the map, lots of alternatives … you can go through Italy, the Black Sea, up the Danube to Constanta or the other way round. So, it is an important driver, but it’s both a political tool and a marketing tool: really I think it’s a bit overhyped. At the end of the day, the cheapest routeing will win-out.”

‘Trump’s thumps’

However, it has all recently gained another dimension with new US trade wars which might, perversely, draw Europe and China closer: “The Chinese are now looking for new friends,” he says. Trump’s thumps are hitting the world’s economies in ways never seen before “and who knows, Europe might even be next”.

But it’s not all about China: there is at least one other vision that’s already on the way to becoming reality. “The Rail Baltica project is more solid and more defined,” says Ms Schoppmann. This, part of the EU’s North Sea Baltic TEN-T corridor, advertises itself as ‘the biggest Baltic infrastructure project in the last 100 years’.

The Baltic’s links have been mainly east-west, using the Russian 1520-millimetre gauge rails, but this limits options, making an interchange with the rest of EU difficult and expensive. Rail Baltika aims to remedy this by linking the region with Europe through a 870-kilometre north-south European gauge railway, connecting Helsinki, Tallinn, Pärnu, Riga, Panevežys, Kaunas, Vilnius and, importantly, Warsaw where it crosses the Baltic-Adriatic corridor.

There are other areas in the Baltic seeing political decisions exert a pull – or push – on cargo. In Sweden it’s down to labour disputes.

Gothenburg has been in trouble for a while, with long, drawn out strike problems. WSP’s Roy Van Eijsden explains that the port has historically served Stockholm on Sweden’s east coast, but the issues have sparked a search for alternatives: “Yilport’s Gavle is already doing well and you also have Hutchison developing Nynäshamn port…. in fact, rather than going through Gothenburg and taking the last leg by over-land transport, it’s a bit cheaper to serve the area with large feeders.” He adds that if you factor in the labour issues “it all becomes significant enough to make a business case”.

What next? Even given the tendency toward overcapacity, somewhat limited local cargo and a potential price contest, HPC Hamburg Port Consulting’s Elisabeth Schoppmann says that some facilities “could trigger growth” by careful leverage of new developments – such as Belt and Road and Rail Baltica.

Source: portstrategy.com

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