How the sea freight business is changing in the new environment

Because of the sanctions, the cost of shipping increased immediately by 70-90%. Yury Belov, co-owner of Keystone Logistics, talks about the refusal to work with Russian ships, abandoned containers and the future of logistics

Farewell to containers and additional costs

What challenges has your business faced lately? Did they have to change the business model because of them?

— Throughout March and April, we lived in conditions of uncertainty. Almost every week new restrictions appeared: as soon as you solved one problem, you adapted, as yet another sanctions are introduced and you again need to look for solutions.

We own two small boats. When it became clear that large container carriers were closing their service in our country, we decided to organize the delivery of goods to Europe on these ships. Made some pretty successful flights. But another package of sanctions banned the acceptance of ships with the Russian flag. The business model has ceased to exist. Although it was quite difficult to build and run it, we spent a lot of effort on it.

In the end, we had to change. We used to ship over 3 containers per month. Today, the container business in the northwest tends to zero. Therefore, now we are starting to use bulk carriers (a type of dry cargo ship used to transport goods in bulk. — Trends) and are thinking about expanding our own fleet.

— Are there more Russian or foreign companies among your clients? Have relations with foreign organizations changed?

– We mainly work with Russian companies and send goods – fertilizers, sulfur, bitumen – for export. We practically stopped interacting with foreign contractors. We deliver the rest of the goods, applications for the transportation of which were placed back in March.

Our headache: what to do with the containers that are at our terminal, and who will pay for additional operations.

For example, in May, the line (as the carrier company is called. – Trends) Hapag Lloyd refused to take out the loaded containers. And in April, we agreed on all the conditions with their head office in Hamburg. The cargo passed all the checks, it was allowed to be transported. As a result, the containers are in the port, but we are told that they will not conduct any business with the Russian Federation. Now we correspond with them, find out who will bear the costs.

Similar stories were with ONE (Japan, Singapore) and Hyundai Merchant Marine (South Korea). The total amount of expenses incurred has not yet been fixed, but it is approximately ₽4-5 million.

Have supply routes become longer and more expensive?

“For our company, the supply chain has shrunk. Previously, we sent goods in containers, and on the way to the final destination, they could be reloaded in two or three countries, which increased transit time.

Now we are loading one large vessel. It goes directly from the port in St. Petersburg to ports in Brazil, Argentina or Chile. But it has become really expensive to carry. The cost of sea transportation has increased by 70–90 percent, depending on the direction.

At the same time, it is not possible to ship a large vessel to every port. The larger it is, the cheaper the transportation in terms of a ton of cargo. The maximum volume of a batch that can be loaded in St. Petersburg is 35 thousand tons. From an economic point of view, it is optimal, of course, to operate in batches of 50–70 thousand tons.

It has become more difficult to work with small batches of up to 5 thousand tons; it is extremely unprofitable to carry them over long distances on ships of this size.

In general, delivering goods has become more difficult. Back in early 2022, goods could be shipped anywhere in the world, and the size of the lot did not really matter. A full-fledged container service made it possible to deliver almost anything to end consumers in any country. Now everything will roll back 15-20 years ago.

Then the main buyers were large traders. They placed a large order with a manufacturer, chartered a full ship, and sold the goods to smaller traders in the destination country. The development of the container service made it possible to abandon trading through traders.

Process optimization and communication with professionals

– Do you plan to raise the cost of services?

We operate in a fairly competitive environment. And if you just raise the rates, you can be left without customers. It is better to work on optimizing processes. Our clients now have other problems enough. We try to help with logistics, find solutions in order to maintain the ability to ship the same volumes for export. I will add that since the beginning of the crisis, our profit has not grown.

– Do you think you will be able to save the team in a crisis?

– I really hope for it. We have a very good and close-knit team. Something, but it is very easy to assess the quality of a team during such a crisis. Colleagues adapt quickly, trying to do more than what is required of them. I am very grateful to them.

Is your business sustainable now?

It’s hard to talk about sustainability. Everything is changing too fast. What seemed unshakable yesterday may cease to exist tomorrow. Now we need to be as flexible and adaptive as possible.

— Did the experience and knowledge gained at the Skolkovo School of Management help you?

– Definitely, yes. In large corporations and in large international companies operating in our country, there are various systems that are used for decision-making, for motivation, and so on.

These systems have long been developed and improved in Western business schools. Finding out about them is quite difficult. But it’s easy to start using such systems once you’ve been told about them. And it helps.

In general, the Skolkovo School highlights the areas of knowledge necessary for doing business and pushes you to further self-development.

The people who study with you on the stream are also very important. Each individual is a professional in his field and can answer all your questions. The School has a special atmosphere and energy: you come to the module with a bunch of problems in your head, and after studying and communicating with classmates, you leave with ready-made solutions.

The collapse of chains and the future of logistics

— Do you make any forecasts in conditions of uncertainty?

— Let’s just say that we are optimistic about our future, but we also take into account pessimistic scenarios. For us, this is a ban or restrictions on the export and import of goods. Moreover, they can be introduced both by Russia itself and by other countries.

— What, in your opinion, awaits the logistics sector in our country?

— There is a large-scale restructuring of the industry. The supply chains were severely disrupted. The demand for logistics is high, but the supply is low.

For example, rail links with China could be actively developed. But there is a limitation – railway border crossings. They allow passing, if I am not mistaken, about 15 trains per day from the Russian side and only five trains from the PRC. Such capacity is not enough to cover the interests of all market participants. It will not be possible to increase the throughput quickly; large investments and time are needed.

I think that logistics companies will start creating small maritime services. Several medium-sized vessels will be able to serve certain destinations.

When major international carriers return to Russia, it will already have its own market. Russian companies need to have time to develop to a level that would allow them to compete. Opportunities like this don’t come along very often.