Infrastructure investment ongoing in Black Sea

Local market
The size of the local market determines the size of the ships required.
Black Sea region
Economics and politics are driving port investment in the Black Sea region.

There are many container ports in the Black Sea region and while few attract larger vessels, infrastructure investment is continuing to compete for volumes, writes Alex Hughes

Investment in infrastructure continues, or is planned, throughout the Black Sea region, driven by a combination of demand but also political will. However, it is not just for containers that facilities are expanding, with grain also being catered for moving forward.

Istanbul is the major container port serving the Black Sea, handling 60% of all volumes, says Nishal Sooredoo, analyst at Ocean Shipping Consultants. Constanta (a 12% share) and Novorossiysk (with 8% share) are the two other main ones, with Poti, Odessa and Varna each making smaller contributions.

“Ports such as Novorossiysk, Odessa and Varna have built their businesses to serve local markets. For this type of traffic, each port has a direct competitive advantage, since serving these markets from a foreign port would involve additional administration for border crossing and less efficient inland connections to the end destinations,” he says.

Nevertheless, other ports, such as Poti, have also partly developed demand on the back of transit cargo (mainly to Azerbaijan).

“This is also the case for Constanta, which acts as the point of entry for transit cargo by barge on the Danube River to Central European countries,” adds Mr Sooredoo.

Nevertheless, Istanbul remains the main transshipment port for the Black Sea region. This is largely because of the physical limitation of the Bosphorus Strait, which doesn't allow the transit of ships larger than 10,000 TEU.

As a result, Istanbul has developed into a transshipment point for large vessels coming from Asia and North Europe, with 2,000 TEU feeders then serving ports inside the Black Sea.

Transshipment, however, remains volatile and highly price sensitive, driven by port tariffs. “Shipping lines often move volumes from one terminal or port to another, but these volumes do remain in the same region. So, for the Black Sea region, for example, while transshipment volumes could move between Constanta, Istanbul and Piraeus, they do nevertheless remain in the (East Med) region,” says Mr Sooredoo.

There is lot of investment in the Black Sea region, such as the development of Anaklia and Poti in Georgia, as well as expansion plans in both the Ukraine and Bulgaria. Some of this development is to provide much needed additional capacity, but Georgia is a good example of a project driven by politics rather than economics.

“There is a need for additional capacity in the country, but if Anaklia is built, the new development for Poti would not be required. If Poti is expanded, there is no need for Anaklia.
Currently, both development are being pushed but only one is really required,” he says, noting that there are already private operators in all ports and there are not a lot of opportunities left for private investment left in this region (unless a new port like Anaklia is built).

“The overall dynamic in the Black Sea region will not change significantly because all ports are now mainly focusing on their captive market,” says Mr Sooredoo.

Although vessel sizes cannot exceed 10,000TEU, there is already one service from Asia with ships of that size that makes weekly calls at Istanbul, Constanta and Odessa.

Ports on the Eastern side (i.e. Georgian ports) have draft restrictions and can not take vessels of more than about 3,000 TEU. For this reason, the Georgian government wants to build a new port at Anaklia.

However, what remains is that it is the size of the local market that determines the size of ships that come to ports.

Another factor impacting the container business in the Black Sea has been the war in eastern Ukraine, which started in March 2014. Odessa was initially badly affected, seeing volumes drop by 26% between 2013 and 2015. Yet by 2017 these had recovered to pre-war levels and grew strongly by 15% in 2018, thanks in part to the fragile cease fire holding.

Inland connections from ports in Bulgaria and Romania are generally good. Constanta, for example, benefits from access to the Danube River, with barge connections to the rest of Europe and this has clearly helped it to develop. In Georgia, connections are being upgraded to help with capturing more transit traffic to Azerbaijan and beyond.

However, Mr Sooredoo notes that there are no real alternatives to using Russian ports for Russian cargo, so this has not really impeded their development. “In the case of Ukraine, the war has made it very difficult and dangerous to serve landlocked regions like Belarus and Moldova via Ukrainian ports. The large drop in volumes in 2014 and 2015 was partly attributed to these transit markets and this situation remains the case now,” he says.

In August 2019, a radical shake up of the Black Sea container handling market is due to take place. This will be the result of the inauguration of NUTEP's new deep water Berth 38, which will be able to receive 10,000 TEU vessels at its Novorossiysk terminal.

The new 389-metre long berth, which will eventually absorb investment of around $125 million, has water depth alongside of 15 metres. In the short term, the largest vessels expected to berth there will be of 8,000 TEU, later increasing to 10,000 TEU.

This is a significant addition, since it is the first such deep water berth available at any of Russia's southern ports. The berth area itself covers an area of 4ha and can store up to
3,080 TEU in the yard.

NUTEP Container Terminal, which is part of DeloPorts - the stevedoring arm of the Delo Group - is also investing in associated storage facilities, totalling $10.76 million. This will
add an extra 150,000TEU per annum of storage capacity, although the full berth development will eventually double that, allowing NUTEP to handle somewhere in the region of
700,000TEU per annum.

“The development of the terminal is being synchronised with the growth in cargo, so the second part of the development programme may take several years to implement,” notes Chief Executive Officer of NUTEP Container Terminal Yury Matvienko.

In terms of equipment, in April 2019 ZPMC delivered three ship-to-shore gantry cranes and a further four RTGs. In addition to containers, DeloPorts is also a major grain handler. Indeed, its KSK grain terminal handled 4.8 million tonnes in 2018, volumes rising by 14% compared to 2017. The company candidly attributes rise this to a good harvest and strong demand.

As with all agribulk traffic, future predictions are hard to make, given so many factors influence demand. Nevertheless, the company is working on expanding its grain throughput
capacity at the KSK terminal to 6 million tonnes by 2021.

“Existing terminal capacity at the port is sufficient to absorb current annual increases in traffic across both grain and containers. Furthermore, after the launch of berth 38 at NUTEP, our terminal storage capacity will increase two-fold, depending on how we see traffic evolving,” says Mr Matvienko.

According to Mr Matvienko, on a geographic basis NUTEP has the most cost effective connections to both highways and railways at the Port of Novorossiysk. Railway operations are undertaken at a dedicated six-track fan, where a locomotive is permanently stationed to roster trains. As a result, the overall share of freight transported by rail transport through NUTEP is growing annually.

Nutep reports 36% box growth in 2018

In 2018 NUTEP posted a record total annual throughput of 333,000TEU, which included monthly records in both March (40,800 TEU) and December (45,100 TEU). Overall,
containerised tonnage reached to 3.8 million tonnes, reflecting a 36% increase over 2017.

According to the company, it has a 44% share of containerised cargo traffic at Novorossiysk, equal to a 6.5% share of Russia and up to 43.2% when the Azov and Black Sea
areas are viewed in isolation.

Noting that import-export container traffic grew by 9.6% in 2018 compared to 2017, with both laden import and export boxes up, Mr Matvienko told PS that: “The increase was
caused by organic growth in volume generated by our main customers, Maersk Line, Cosco, CMA-CGM, Hapag-Lloyd, and the ONE carriers. The good levels of growth included regular flows of imported refrigerated containers containing fruit and vegetables for consumption in the Russian Federation.”

Transshipment is not yet a regular feature of operations at Novorossiysk, although some one-off services of this kind do take place. This could change when the new berth is
fully operational.

While 2018 was mainly positive in terms of traffic, 2019 has seen some degree of retrenchment, with throughput in the year-to-date slightly below the volume posted to date, one year ago.

“Macroeconomic factors have primarily affected the position. Based on the available signals from the market, we estimate that the situation will begin to change and the overall volume of box traffic at Novorossiysk is expected to increase by around 2% - 3% at NUTEP by year end. We estimate our total growth potential for 2019 to be somewhere in the region of 15% - 17%,” confirms Mr Matvienko.


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