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2016 December 6

Navigating to the future

Key trends that will influence long-term development of national shipping include fast development of new technologies, toughening of environmental requirements applied to marine bunker and fuel systems, growing number office-class ships. This opinion was expressed by Victor Olersky, Deputy Transport Minister of Russia – Head of Federal Marine and River Transport Agency, at the industry-focused conference “Russian shipping: looking into the future”. 

Among macroeconomic trends playing into the hands of Russia Sergey Frank, Chairman and CEO of Sovcomflot, also mentioned a retreat from the focus on cheap labour in shipping (which used to push the development of related industries in Asia) in favour of hi-tech solutions, gradual decline of convenient flags’ competitiveness amid regulators’ efforts, enormous cargo base in Russia (Arctic fields), higher financial stability of the industry (banks used to cause volatility in spot markets, financial discipline in Russia is higher as exemplified by Sberbank loans).

Rise of the machines

The future which seemed to be a science fiction a decade ago is a matter of few years now. Crewless ships are being tested already and Victor Olersky forecasts their operation for inland and short sea navigation to start within the coming 5 years. According to him, introduction of crewless ships in international shipping is expected within 10-15 years as it requires time to develop special international legislation.

As Sergei Generalov, President of Industrial Investors Group – member of the Presidium of the Presidential Council for Economic Modernization and Innovations, said at the conference, the year of 2016 has seen the launch of the National Technology Initiative in Russia. NTI providing for innovative developments in shipping was initiated by RF President as a private-public partnership for advance development and introduction of new technologies. MariNet Group operating in the framework of NTI integrates both large companies and startups, scientific centers and state authorities related to water transport. According to Sergei Generalov, a number of breakthrough developments are seen in the shipping sector worldwide: apart from crewless ships they are e-navigation and energy efficient shipping. “The key issue here is weather we will find ourselves lagging behind on the roadside or succeed in taking the lead to shape the future with a profit for us,” the expert says.

As for e-navigation, the project is underway to develop and test the facilities and technical standards in pilot zones. The most intense activities are performed in the European Union with the USA, Canada, Australia, Japan and S. Korea also busy with this work. 39 pilot zones have been registered worldwide. In Russia, technical infrastructure is being developed in the framework the Federal Targeted Programme  GLONASS for a pilot zone in the eastern part of the Gulf of Finland. Also, Transas is developing technical facilities to be applied for e-navigation in the mentioned zone. This will allow for establishment of one of the world’s first e-navigation centers focused on routine execution of shipping tasks. Besides, the work is underway on creation of a maritime internet portal to provide up-to-date satellite data allowing to reduce the number of intermediaries in the market of geo-information services and to improve the quality of information services for navigators.

As for Russian studies in the field of crewless navigation, a group of companies, higher education institutions and scientific centers are involved in virtual practicing of different situations with crewless ships under e-navigation.

In the field of energy efficiency, apart from LNG-powered vessels (including project of specialized bunkering tankers) Russia is looking into possible application of hydrogen fuel cell batteries. Krylov State Research Center is the leader in this segment.

Sergei Generalov believes that Russia has a good export potential in the mentioned fields while the tougher environmental requirements of international legislation can give an impetus to promote breakthrough technologies.

Back to the present

Nevertheless, the fleet of Russian International Register of Vessels is quite modest on a worldwide scale (about 1% of the global tonnage) though recent years have seen a positive trend amid measures proposed by the Ministry of Transport (primarily the law on support of domestic shipping and shipbuilding). As Aleksei Klyavin, President of the Russian Chamber of Shipping, said at the Conference, RIRV currently numbers over 1,000 vessels with total deadweight of about 5 mln t. Average deadweight of vessels, mostly ships of inland and mixed sea/river navigation, is about 4,000 t. Russia is extremely short of large capacity sea-going vessels flying under the national flag. “This niche than can be occupied by Russian ship owners and Russian shipbuilding”, says Aleksei Klyavin.

USC President Aleksei Rakhmanov said that the support of shipyards’ modernization projects is needed to develop large capacity shipbuilding. “Most of Russian shipyards will be dual-purpose shipyards in the future. They will successfully build both warships and civil vessels, thus shifting towards closing the niche of large capacity shipbuilding which has been absent in Russia historically. I think, in the nearest time we will be able to provide our key customers with construction facilities to meet the demand we see today”, said USC President.

However, investment climate should be improved to ensure orders placed with Russian shipyards and vessels flying the flag of the Russian Federation.

For that purpose, Aleksei Klyavin believes, fair competition should be ensured, excessive and overlapping requirements to vessels flying the flag of Russia should be cancelled or applied to foreign-flagged vessels as well. For example, licensing of hazardous cargo transportation is applied only to national-flagged vessels though this segment is secured in Russia with sufficient control, supervision and risk insurance. “You will not enter an American port if you don’t comply with the local legislation. In our country foreign ships call our ports without meeting the requirements of Russian legislation. Of cource, this does not contribute to attractiveness of Russian flag or competitiveness of Russian ship owners,” says Aleksei Klyavin.

Apart from lowering of administrative barriers and revision of legislation, shipping and shipbuilding require other measures of state support like introduction of utilization grants, subsidizing of financial agreements, providing an access of domestic ship owners to a cargo base where it is possible.

According to Sergey Frank, Chairman and CEO of Sovcomflot, one of historically developed problems is the practice of FOB contracts. He believes it was reasonable amid capital constraints in the 90-ies. “The situation has changed with the times. For example, Chinese Government has set a task to reach 70% of export sales under CIF contracts which will put everything in its place and become a growth driver”, Sovcomflot CEO said at the Conference. He also mentioned the practice of Norway where national flag dominates in Arctic projects (not being a convenient flag as it is). Arctic project of Russia are different so far – there are few vessels flying under the flag of Russia. Moreover, we could use the experience of Norway in tender conditions stating citizenship requirements for captains, crewmembers etc. “What is stopping us from doing the same in our Arctic region? Does it look unreasonable? Not at all, it is very reasonable. It is a matter of navigation safety – nobody is as much experienced in Arctic navigation as Russian seafarers”, believes Sergey Frank.

Measures proposed by shipping and shipbuilding communities imply certain protectionism. In the opinion of Victor Olersky, it is appropriate within reasonable limits, for example in the Arctic. The Ministry of Transport earlier proposed that the legislation should ensure the access of Russian ship owners to the cargo base of Arctic fields. Yet, in the spot market Russia’s fleet is not sufficient for protectionism. “The trend of replacing the foreign ships with Russian ones is needed but this should be done carefully”, says Victor Olersky.

When speaking about improving the competitiveness of the Russian flag, the Head of Rosmorrechflot emphasized the necessity to ensure a stable political and regulatory environment.

“Ship owners are cosmopolitic. They are very dependent on political stability as investments into shipping are investments for 10-15 years. They are dependent on regulatory stability. They should understand that the laws and regulations are not going to change throughout the entire payback period. At the same time tax conditions should not be worse as compared with ‘convenient flags’”, said Victor Olersky. Today, thanks to the law on support of domestic shipping and shipbuilding, tax conditions in Russia are not worse as compared with the ‘convenient flag’ jurisdictions, he noted. Besides, Victor Olersky believes state authorities should promptly respond to ship owners’ problems as delays are too costly for them.

Both global and Russian shipping industries are in transition situation today. We are on the threshold of yet another technological revolution and we also have an enormous cargo base in the Arctic. It is important to jump at the chance, to use the situation for our own benefit rather than remaining a commodity power giving complete control over added value and synergetic effect to foreign countries.

Vitaly Chernov