2.1. Market Review

About NCSP Group

NCSP Group is the leading stevedoring company in Russia and the third largest European port operator by cargo turnover. NCSP Group includes ten specialized stevedoring companies operating at ports in the Azov-Black Sea and Baltic basins.

NCSP Group includes Russia’s two largest ports by cargo turnover — Novorossiysk on the Black Sea and Primorsk on the Baltic Sea — making it a leader in the country’s stevedoring services market.

Novorossiysk Port is the largest port in the Azov-Black Sea basin and in Russia as a whole. The port’s cargo turnover was 86.8 million tonnes in 2012, of which NCSP Group handled 83.0 million tonnes. NCSP Group companies handle 95.6% of the cargo at Novorossiysk Port and 47.0% of the cargo shipped through all ports in the Azov-Black Sea basin.

Primorsk is Russia’s second largest port by cargo turnover and one of the biggest in the Baltic. It handled 74.9 million tonnes of cargo in 2012, representing 13.2% of total turnover at Russian seaports and 36.1% of cargo at ports in the Baltic basin. LLC Primorsk Trade Port, an NCSP Group company, handles 100% of the cargo at the port of Primorsk (data from the Association of Commercial Seaports of Russia, or ASOP).

The Group’s second asset on the Baltic is the LLC Baltic Stevedoring Company’s container terminal at the port of Baltiysk in Kaliningrad Region, which currently handles half of all containers in the Baltic exclave. The terminal handled 185,100 TEU in 2012, amounting to 1.0 million tonnes or 7.8% of all cargo in the region, according to ASOP.

Russian stevedoring services market review

Cargo turnover through Russian seaports totalled 567.1 million tonnes in 2012, as growth accelerated to 5.9% from 1.8% in 2011, according to ASOP. Russian seaports handled 7.4% more bulk cargo, 3.7% more general cargo, 4.7% more liquid cargo and 8.3% more cargo in containers in 2012.

The growth of bulk cargo traffic through Russian seaports was driven by 13.9% increase in coal volumes to 89.2 million tonnes. Turnover of ferrous metals grew by 4.8% to 25.6 million tonnes, while nonferrous metals rose by 1.9% to 4.2 million tonnes, supporting the overall growth of general cargo transhipment. Transhipment of liquid cargo also increased: crude oil volumes grew by 2.6% to 198.4 million tonnes of crude oil, and oil products by 8.0% to 114.0 million tonnes.

Container cargo turnover grew 8.3% to 12.8 million tonnes in 2012, which was equivalent to 623,700 TEU, up 4.4% from 2011.

Export cargo turnover jumped by 9.3% to 447.7 million tonnes and import cargo grew by 6.3% to 47.5 million tonnes. However, transit cargo fell by 18.4% to 40.2 million tonnes and coastwise cargo saw a slight decline of 0.9% to 31.8 million tonnes.

Export cargo, at 447.7 million tonnes, accounted for 78.9% of total cargo turnover at Russian ports in 2012, up by 2.4 percentage points from 2011. Import cargo rose 0.1 percentage points to account for 8.4% of the total (47.5 million tonnes).

Seaports in the Baltic, Azov-Black Sea and Pacific regions handled 36.6%, 31.2% and 23.6%, respectively, of cargo turnover through all Russian seaports in 2012. Cargo turnover grew 11.6% to 207.2 million tonnes at ports in the Baltic in 2012, 7.1% to 134.4 million tonnes in the Pacific and 2.3% to 176.7 million tonnes in the Azov-Black Sea basin.

Since ports in each of these regions specialize by cargo type and by geography of export and import shipments, they do not compete directly with one another. Ports in the Baltic, for example, predominantly handle and lead the Russian stevedoring services market for container cargo and crude oil/oil products, handling 57.6% of containers and 42% of oil cargo. Ports in the Azov-Black Sea basin, meanwhile, handle 92.1% of grain shipments and a third of oil/oil product cargo.

NCSP Group share in cargo traffic by sea basins, 2012, mln. tonnes

Сompetitive environment

NCSP Group still competes in the Azov-Black Sea basin with the Tuapse Port and other smaller ports in southern Russia (Temryuk, Yeisk, Taganrog, Azov, Rostov and Kavkaz), as well as with ports in Ukraine (Odessa, Nikolaev and Ilichyovsk). However, Novorossiysk Port is far ahead of its rivals across the whole range of cargo and competition is more in niche areas. Ports in the Sea of Azov, for example, have considerable natural limitations in terms of the draft of ships and difficult ice conditions in the winter, while Tuapse Port specializes in handling oil products from Rosneft’s Tuapse Oil Refinery.

NCSP Group’s competitiveness in the Azov and Black Sea region is the result of numerous key factors: year-round operation of Novorossiysk Port, the depth of the port’s waters, its extensive waterfront, ample warehouse space and modern loading equipment. Novorossiysk Port offers higher loading and unloading productivity, a high level of service and the convenience of not having to cross national borders to deliver cargo to port, giving it an edge over Ukrainian ports in servicing Russian cargo.

Competition from Ukrainian ports becomes more significant when there is a lack of loading capacity in Novorossiysk. For example, in 2012 the Ukrainian port of Yuzhne introduced technology for loading bulk cargo (iron ore) in the harbour, enabling the port to accommodate bulk carriers with deadweight of 100,000-110,000 tonnes. The resulting increase in the port’s throughput capacity in the short-term drew some ore away from Novorossiysk. NCSP Group began introducing similar technology for large-capacity Cape Size bulk carriers in 2013, which will enable it to restore its position in this segment of ore cargo.

The main competitors of NCSP Group’s LLC Primorsk Trade Port in the Baltic basin are still the Big Port of St. Petersburg and the ports of Vysotsk and Ust-Luga. However, Primorsk remains the market leader thanks to its competitive advantages such as year-round operation and shipping, a natural depth of up to 17.8 meters, short length of navigational channel and convenient berths for large vessels with deadweight up to 150,000 tonnes. The availability of land for new port terminals and their further development offers additional potential for the growth of Primorsk Port and NCSP Group as a whole.

The most pressing issue at the moment is the lack of a rail link to Russia’s biggest oil terminal. Oil is shipped to Primorsk by pipeline, while oil products are delivered by pipeline, by sea and by road (bunkering fuel). This problem could be solved with the planned construction of the new Losevo-Kamennogorsk railroad and the modernization of the Ruchyi-Losevo and Vyborg-Primorsk-Yermilovo sections of railroad. The Losevo-Kamennogorsk line is intended to take freight trains going to ports on the Gulf of Finland (Primorsk and Vysotsk) to the Ruchyi-Petyayarvi-Losevo-Kamennogorsk-Vyborg line in light of the launch of high-speed passenger services on the St. Petersburg-Helsinki line.

Industry regulation

In line with a Russian government order to consider the advisability of deregulating stevedoring companies, the first phase of this process — elimination of price regulation — is now underway. Stevedoring companies are being given the opportunity to independently set prices for cargo handling services, while Russia’s Federal Tariff Service (FTS) monitors prices.

The FTS ruled on February 5, 2013 to eliminate price regulation for three Russian ports: Temryuk, Taganrog and Arkhangelsk.

Federal Tariff Service by its order № 52-t/1, dated 26 March 2012 and registered by the Ministry of Justice as of 18 April 2013 under registration number №28181, has terminated direct price regulation on all cargoes, except crude oil and oil products, for a number of stevedoring companies operating at port of Novorossiysk, including PJSC NCSP, OJSC NLE, and OJSC NSRZ. The order shall come in force in due course.

The abandonment of direct rate-setting and maintenance of monitoring will increase transparency while also making it possible for market participants to conduct a flexible pricing policy based on prevailing market conditions.

  © PJSC «Novorossiysk Commercial Sea port» 2013