The Summary of the SeaFocus 2008

SeaFocus 2008 - article was published in "Overcoming the Obstacles" - UnitedLog Consulting yearbook 2009title

At the end of September 2008 UnitedLog Consulting (former Establish) organized the “Sea Focus 2008” seminar in Helsinki in collaboration with the shipping companies Finnlines and Finstaship, and the Finnish Maritime Administration. The goal of the seminar was to discuss challenges in trade on the Baltic Sea, to bring forward new logistics solutions regarding sea trade and to evaluate possible future financial outlooks.

The chairman of the seminar, Martin Saarikangas, who is also the founder of the shipbuilding company Masa-Yards, shared his views on the existing economical situation in September 2008.

“The current atmosphere is not good, people are afraid of a global recession. Personally I don’t believe that the economical situation will get very severe, but will be more of an economical setback that will not last for long. The United States’ problematic situation cannot stop the whole world from moving forward.”

He stressed that transportation is still needed whatever the financial situation in the world. “There are constantly new markets opening up as developing countries are industrialized and consumption increases in countries. Finland is doing well at the moment in shipping goods. Exports to Russia, for example, mainly pass through the Baltic Sea and are currently growing. This creates work for Finnish maritime companies. All in all, one can say that our eastern neighbor is a tremendous opportunity for all of us.”

Growth continues

The CEO of UnitedLog Consulting Finland, Johan Hackman, described the current state of sea transport. “When you look at the statistics for 2007, they show that the amount of airfreight and road transport has decreased, whereas sea transport has increased. One explanation for this is that exports to Russia continue to grow”, Hackman said.

Russia’s strong economical growth has left its trace on the logistics services that are available in the vast country, which are underdeveloped compared to the needs that expansion has created. “Distribution in Russia does not work as well as in Finland. They are just in the initial phase of building transportation routes between all of the cities with a population over 1 million people. Scheduled connections between smaller cities are still something that belongs to the future. The capacity of Russian harbors can’t meet the needs and demands of the rapidly growing transport chain. Overall, the demand of logistics services in Russia exceeds the supply. I believe Finnish companies should invest in the ongoing Russian harbor projects. This should be done after thorough preparations, and the country’s financial and political risks must always be considered.”

Hackman also emphasized that there are a lot of future challenges in sea trade: “The amount of ro-ro transportation is exceptionally large in the Baltic Sea area. It is possible that container transport will grow at the expense of ro-ro transport due to the higher payload of containers. This will surely be brought up at the next seminar in 2009, with the theme ‘Energy, Economy and Environment’. Russia is aiming to replace the transit traffic with direct transportation into Russia. This will, of course, take some years and Finland still has some advantages on its side. Nevertheless, Finnish companies should be prepared for an eventual change.”

Concern regarding safety

Markku Mylly, the General Manager of the Finnish Maritime Administration, expressed his concern for the safety on the Baltic Sea during the seminar. “The traffic on the Baltic Sea is constantly growing and Russia is a significant catalyst.”

Mylly states that during the busiest days in summertime there are roughly 600 merchant ships and countless private boats on the Baltic Sea. The transverse traffic between Helsinki and Tallinn constitutes a problem of its own, and the amount of double-bottomed ships on the Baltic Sea has grown. Both of these factors increase the risk of serious accidents that could result in much loss of life and great environmental damage inflicted through oil spills.” He is also worried about the poor know-how on maritime winters. “The past winters have been very mild and this could mean that ships’ crews do not necessarily have sufficient experience of winter conditions at sea. If and when there will be harsh winters, the risk for accidents at sea will increase”, Mylly warned.

Oil is vital to Russia

The CEO of Neste Shipping Ltd., Risto Näsi, shared his thoughts on the financial significance oil has for Russia. “In Russia, oil stands for 75 percent of total exports, half of the country’s national budget and a little over 30 percent of the GDP”, Näsi explained. Russia produced 480 million tons of oil in 2006. In 2007 this increased to 490 million tons of oil, which constitutes a growth of two percent. According to Näsi, the Baltic Sea is still going to be the most important energy route to Europe for Russia in the future.

Advantages of multimodal transportation

One of the most discussed issues during the seminar was multimodal transportation, where goods are transported in the most efficient way available at one time, e.g. by sea, rail, road or air. A subdivision of multimodal transportation is trimodal transportation, where three vehicles are used in the goods transportation phase. Development Manager Auvo Muraja from Saimaa Terminals Ltd. discussed the advantages of trimodal transportation, particularly within Russia.

“Trimodal transportation deals with the obstacles that can be found in transportation inside Russia at the same time as it optimizes transportation costs.” Muraja further explained that with trimodal transportation it is also possible to increase the return cargo. Typical problems with road transport in Russia usually occur as bad congestion at border posts. Russians also have a very obscure way of pricing their services regarding truck freight. Unfortunately rail transport is not without its own problems either. “There’s a shortage of cargo wagons, which makes it hard to operate in the country. Finnish tariffs regarding frontier traffic also reduce the competitiveness of rail transport.”

According to Muraja, sea transport to Russia is undergoing some significant changes. “Even the new harbor capacity that Russia has invested in will not be able to cope with the great increase in freight. But the Russians are systematically trying to direct the stream of goods into their own harbors instead of going through Finland and the Baltic States.”

Stora Enso has a long history in trimodal transportation

Logistics Manager Antti Vehviläinen of Stora Enso told us that the company has used trimodal transportation before the term was widely used. “Forest industry goods have been transported by sea, road and railroad for ages; this kind of combination of three different transport modes, also know as chaining, has been very common throughout the logistics world for a long time now”, Vehviläinen stated.

He reminded the audience that there is a sea route available from the Baltic Sea to Moscow and also to other big cities in Russia. “Sea transport is an excellent choice for bulk cargo. The downside is that the routes are only open for half a year at a time. Russia’s sea transport is also in need of competitiveness so that costs could be reduced. Moscow and surrounding areas constitute the most important marketplace for Stora Enso’s products. The Moscow area has many new terminals, but most of them are only built to handle one or two modes of transportation. Besides, they are usually so called A-level terminals with internal heating, a high security-level and sky-high hire rates.”

The forestry industry manages with the so called B-level terminals with no heating, like the Scanbumaga terminal.  Vehviläinen continued: “Scanbumaga is a B-level terminal that is located near the center of Moscow. It is a trimodal terminal that you can access by sea, rail or road. A further benefit is that the terminal uses Finnish technology in data administration and operational systems.” The owner of Scanbumaga is Oy Saimaan Terminals Ab, Auvo Muraja described some of the terminal’s functions. “The trip to Scanbumaga from the Finnish border takes about two days by road, four days by rail and seven days by sea. These estimations include customs clearance.” Muraja says that the weakness of Scanbumaga is the steep hire rates; it is many times higher than the price level in Finland. Another weakness is its location; the terminal is situated behind the city bridges, which cuts down the size of ships that can access the terminal.

The railway contender

Timo Jaakkola of DHL Freight Russia, Baltics and Transit Traffic, states that rail transport is challenging traditional sea freight in the Far East. The route goes south of the Trans-Siberian railway. “The advantage of using rail transport compared with sea transport is that rail is much faster than sea. It is possible to reduce the transport time up to two weeks by rail, whereas by sea it typically takes from 3-4 weeks, and at the worst by up to six weeks from when a Chinese supplier sends the goods and a European customer receives them.”

Deutsche Bahn has been testing container transport between Beijing and Hamburg in cooperation with China and four other transit countries. “During the test phase it was possible to make the trip in 15 days if all the pieces fell neatly into place and everything worked out just right. The time it takes to transport the goods between the cities is roughly cut by half compared with traditional sea freight. The time saved is so significant that it will surely interest both third party logistics and customers”, Jaakkola explained. His is that by 2012 there will be a strong and constantly growing customer base for the rail company.

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