Tapping the potential of the Siberian railway
Financial Times: December 24, 2007
By Miriam Elder,
Firms see the Russian route as an alternative for shipping goods from Asia to Europe.
Crisscrossing the vast terrain of Russia's heartland lies 5,600 miles of railway directly linking the booming Chinese market with producers and consumers in Europe eight to 10 time zones away.
Yet the trans-Siberian railway, pride of the czars who built it and the Soviets who expanded it, suffers from a lack of investment and the bureaucratic tangles that are a hallmark of doing business in Russia.
Even so, private rail operators in Russia are eager to tap into the railway's potential as a strategic alternative to the increasingly crowded shipping lanes that provide the cheapest and most reliable route for goods heading between east and west.
"Rail is something that could be significantly preferential over other types of transport, as it's quite precise," said Izi Karasu, director of logistics at Procter & Gamble Co. in Russia.
"If the products get loaded and there are no issues at the border, you get the goods in good time."
Industry analysts estimate that the rail journey from Asia to Europe through Russia could cut transit time to less than half. It takes an average of 45 days to ferry goods from Asia through the Suez Canal and Mediterranean Sea and on to European ports. The trans-Siberian railway could, in theory, cut travel time from Asian ports to Finland to 15 days.
Boosted by annual gross domestic product growth of 7%, its coffers flush with windfall oil profit, the Kremlin has made infrastructure a priority this election year. President Vladimir V. Putin has given his blessing to a huge reform program by Russian Railways, the state monopoly known by its Russian acronym RZD.
This will involve sinking more than $500 billion into the aging rail network to modernize tracks, build 12,400 miles of lines and buy 1 million freight cars by 2030.
Capitalizing on the country's location between Asia and Europe is crucial.
Vladimir Yakunin, RZD's president and a longtime Putin ally, said at a recent industry conference that "integration into the global transport system will allow us to use our unique geographic position to build a transcontinental bridge."
Yet that integration is a long way off, analysts say, pointing to such things as bureaucratic inefficiencies and failure to coordinate regional authorities in Russia, and to the fact that the much-touted investment program has yet to be delivered.
"We are of course aware of the fact that the trans-Siberian railway might offer an attractive alternative," said Joerg Schreiber, head of Mazda Motor Corp.'s Russia office. "However, practical implementation meets many obstacles, such as weather conditions and the availability of suitable rail carriages."
Mazda prefers to use shipping lanes from Asia, and moves goods within Russia by truck, he said.
Tariffs and customs procedures remain cumbersome and unpredictable, with goods waiting for border clearance from two days to two weeks and beyond. Coordination is lacking among rail operators, ports and regional officials.
A planned joint venture between RZD and Germany's Deutsche Bahn to set up a 50-50 owned logistics company, totaling nearly $1.5 million of investment, was due to be signed by the end of the year but may be delayed.
And although plans to extend the trans-Siberian railway to South Korea and North Korea -- and even Japan -- have long been discussed, no concrete progress has been made.
"There is a lack of coordination for the entire chain," said Eduard Faritov, transport analyst at Renaissance Capital, a Moscow-based investment bank. "If 18 million containers are shipped yearly from Asia to Europe, the entire number of containers inside Russia is one-tenth of that."