Deliveries of timber to China from the North-West have become twice cheaper than from Siberia

The price of lumber delivery from the North-West to CHINA fell from $120 to $20 per 1 cubic meter. m due to an overabundance of containers, and from Siberia - increased from $20 to $50, said the HEAD of Segezha Group. He urged to diversify the ways of timber shipment

Timber processing companies in northwest RUSSIA saw a significant reduction in logistics costs when shipping lumber to China compared to Q4 2022 and Q1 2023. For example, at the moment the cost of delivery to China dropped from $120 to $20 per 1 cubic meter. m, now there are spot offers on the market at a price even lower - $ 4 per 1 cu. m. This was told to RBC by the president of one of the leading timber holdings Segezha Group (owns the Segezha pulp and paper mill and other assets in the North-West and Siberia) Mikhail Shamolin.

This was confirmed by a representative of the largest plywood manufacturer Sveza (also operating in the Northwestern Federal District) and a top manager of another timber industry enterprise operating in the Northwest: “Now we are seeing offers from container operators to deliver goods to China for less than $10 per 1 cube m. Rates began to fall in the spring of 2023, and dropped to such a minimum only in August. “In the north-west of Russia there is a certain imbalance of imports and exports - imports from Chinahas grown, and there is not enough Russian EXPORT cargo, because of this, the rates for transportation in containers have really fallen sharply, ”he explained. According to the Chinese customs service, in January-July 2023, the supply of goods from China to Russia almost doubled, increasing from $36.07 billion to $62.55 billion. The Russian Federal Customs Service has not published statistics since the spring of 2022.

Shamolin also believes that one of the reasons for such a sharp decline in logistics service rates is the accumulated imbalance in the flow of loaded and empty containers in the West- East and East-West directions : in particular, there is an "overstocking of containers in Moscow and St. Petersburg." “[Such low rates for the export of sawn timber from the North-West] is understandable, since for transport companies this is a necessity, in the presence of restrictions on the transportation of empty (empty.) containers by rail and even when they are removed, it is better to share the costs with the shipper”, — says the head of Segezha Group.

But for an objective assessment of the situation on the sawn timber market, it is necessary to consider the situation as a whole, taking into account the second center of sawmilling in Russia - Siberia, Shamolin points out. Since the beginning of 2023, there has been a huge shortage of containers there, so now the price of delivery in containers from Siberian timber processing plants to China is $55 per 1 cubic meter. m or more, he adds. Before the crisis, the cost of logistics from Siberia, which is much closer to the Chinese market, was $20, from the North-West - $40. Shamolin considers the optimal average price for delivery from the North-West and Siberia to be $30-35 per 1 cubic meter. m, which will allow to compete with manufacturers from North America and Europe in the Chinese market.

Why rates fell in the North-West and rose in Siberia

Rates for shipments of goods in containers from the north-west of Russia to the eastlow due to serious competition among operators for export cargo in the direction of China, says a representative of Russia's largest railway container operator TransContainer. Now, a significant surplus of empty (empty) containers has formed in the Moscow transport hub, with a significant need for them in the export-forming regions of Siberia, he continues. “There is indeed a shortage of container equipment. This is due to restrictions on the railroad for sending empty containers over short distances from large junction stations in Siberia to small stations in the same region, ”confirms a representative of the FESCO transport group,

In addition, there is a shortage of empty wagons at the sea terminals of the Far East and land terminals of the Far Eastern Federal District to load imports, a representative of TransContainer notes. According to him, on these routes, Russian Railways "very limitedly" agrees on applications for sending empty containers. “As a result, in order to ensure the return of containers to the supply chain, operators need to ensure that containers are loaded at a reduced rate to ship containers to Siberia and the Far East,” he complains.

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The representative of TransContainer emphasizes that the shortage of containers in Krasnoyarsk and all of Eastern Siberia, where there are many timber industry enterprises, is “a rather acute problem.” “The rates from the North-West have really fallen, and there is a historical deficit in Siberia, because Russian Railways does not allow “empty goods” to be sent there, as a result, export goods cannot normally leave from there (Krasnoyarsk and East Siberian Railways),” adds a source among transport companies.

According to the temporary rules for determining the order of cargo transportation through the Russian Railways network, adopted in March 2022, after the start of Russia's special operation in Ukraine and the imposition of international sanctions, empty containers have a lower priority than domestic or export cargo, recalls a representative of the railway monopoly. This approach is aimed at stimulating the maximum use of scarce infrastructure in the eastern direction, he points out.

How to solve a problem

“We are solving the problem of a shortage of containers in Siberia in different ways, in particular, we are convincing Russian Railways to increase the number of trains sent there in domestic Russian traffic,” a source in one of the transport companies told RBC. Currently, Russian Railways, together with container operators, are developing solutions aimed at ensuring the supply of containers to the regions by forming a passing load or replenishing existing container routes with empty containers, but not more than 50% of the composition, a company representative told RBC.

“In addition to short-term jumps in the rates of transport companies, it is necessary to analyze medium-term and long-term trends in the logic of developing the capacities of the Eastern Test Site, Russian Railways as a whole, the need to load the port of St. Petersburg , the balance of export and import operations of Russia as a whole,” Shamolin believes. According to him, in this situation, the diversification of shipping methods - direct sea shipments by containers, multimodal, direct rail shipments - is the main solution for stable export deliveries.

Now the rates have been reduced not only for railway, but also for sea container transportation, notes a top manager of a timber industry enterprise operating in the North-West. For example, last year at its peak, the cost of delivery to China through the port of St. Petersburg was $7 thousand per container, now it is $1.2–1.3 thousand per container, which corresponds to $25 per 1 cubic meter. m. “We believe that logistics rates at such a low level cannot last long. But it depends on many factors - on the volume of imports, opportunities for the growth of exports from Russia, and so on, ”he says. The Sveza representative also believes that such a sharp drop in rates is a short-term trend. “It is also possible that they may begin to grow due to a decrease in imports to China and further growth of the exchange rate against the ruble,” he warns.

“Under these conditions, state subsidies for the timber industry complex to compensate for logistics costs have become a key decision to support the industry . This tool has already shown its effectiveness, and we hope that it will continue to be used to support the Russian timber industry as one of the sectors of the economy most affected by the sanctions,” says a Sveza representative. At the end of July 2023 , the government adopted a resolution according to which timber industry enterprises in 2023–2024 will be able to count on compensation for up to 80% of the costs of transporting their products in the event of export through seaports in the Northwestern Federal District. “In the long run, support is very importantof the Russian government in the form of a special subsidy for the export transportation of timber merchants through the ports of the north-west of Russia,” confirms Shamolin.

Currently, active work is underway to extend the national project "International Cooperation and Export" (valid until the end of 2024), within which a mechanism is being implemented to compensate for the costs of transporting timber industry products in order to continue the support of non-commodity exports demanded by Russian enterprises, the press service of the Ministry of Industry and Trade reported. The issue of extending this mechanism will be decided in agreement with the concerned departments and representatives of the industry, as well as taking into account the economic situation, they added.

The Sveza representative believes that in addition to maintaining transport subsidies, Russian timber merchants can be helped by attracting large cargo carriers to work along routes passing through the ports of the North-West and the Far East. In addition, companies need support in concluding intergovernmental agreements, they also need new financial routes and financial infrastructure solutions for international settlements.

What about demand and prices in China

After the introduction of Western sanctions in the summer of 2023, China, where anti-COVID restrictions were in effect for almost three years, became the main market for Russian lumber. “We have been waiting for an increase in demand for sawn timber in the Chinese market since the lifting of covid restrictions. In March 2023, the market really went up, but already in April prices went down and lost all growth,” says a top manager of a timber industry company operating in the North-West. However, in August, prices in China resumed - for example, sawn spruce timber in Shanghai rose in price from $185-190 to $230 per 1 cubic meter. m, he said.

Mikhail Shamolin, head of the Segezha Group, also recognizes the difficulties in the Chinese market: after the lifting of the “extremely tough” anti-COVID restrictions, the market has not fully recovered there, and demand for lumber lags behind supply. In 2023, China's total sawnwood demand will decline from 80 million cubic meters to 50 million cubic meters, according to the head of a timber company. m.