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A few days ago, a year has passed since the auction for the sale of a controlling stake in TransContainer by Russian Railways. It was acquired by Delo Group for 60.3 billion rubles, which then consolidated the rest of the operator's shares. Sergey Shishkarev, head of Delo Group, told Kommersant about what happened to TransContainer over the year, how the Group will develop, its interaction with FESCO and the Russian Railways, as well as the current problems of the rail container transportation market.

A year ago, you bought TransContainer. How does the company work now?

For me, November 27, 2019, and the entire period of preparation for the auction, was very emotional. During 2020, the Group has consolidated 100% of the shares of TransContainer. A difficult year for everyone has become for us the year of integration of TransContainer into Delo Group, building a well-coordinated management team and working together with our partners, Rosatom State Corporation, to work out a medium-term development strategy for the Group. We want to preserve the existing successful approaches of TransContainer and other assets as much as possible and add new ones. Delo Group has developed and will soon present its strategy, which summarizes all the most promising ways of our development, goals, and objectives.

Does Delo Group intend to buy FESCO in full or a share?

An expected question, I think it is one of the main questions for you in our interview. In the past two months, the entire business community has been observing with concern the corporate conflict in and around FESCO. The reasons are clear - one of the largest container operators in Russia could be destroyed by the centrifugal force of the conflict, which would lead to serious turbulence in the market. And I am very glad that the acute phase, especially in the Commercial Port of Vladivostok (VMTP), was overcome. Of course, it will take FESCO some time to recover from everything that has happened, and I wish my colleagues to quickly return to normal, fruitful work.

As I have mentioned several times before, and now I do not refuse my words: FESCO is a very interesting asset for the Delo Group, which is obvious even to a person distant from the container shipping business. But to date, the group is not conducting any negotiations on this matter. In addition, there are many other interesting assets for us both in the stevedoring business and in 3PL transportation.

Does Delo Group have anything to do with the management of VMTP, an agreement on which FESCO signed with Rosatom?

No, our Group has nothing to do with the management of VMTP. Rosatom is a huge conglomerate. And although in our capital he owns 30% of shares in the parent company of Delo Group – Management Company Delo, this absolutely does not mean that all decisions of Rosatom's management are automatically projected onto us. Rosatom is fulfilling its state task - the development of the Northern Sea Route. If we look at geography from this point of view, the decision to take over the management of the Commercial Sea Port becomes obvious and understandable.

How are your relations with the Russian Railways (RZD) in general developing?

After the purchase of the TransContainer, the issue of interaction with the Russian Railways was and remains extremely important and delicate. In the process of preparing the deal, we discussed in detail all its conditions, including the moral and ethical side of further joint activities. I believe that today we have established normal working relations with the Russian Railways.

At the same time, during the year we discussed a number of controversial and not entirely pleasant issues with them, including the resumption of container transportation in open-top wagons, tariff policy, the admission of TransContainer to Kazakhstan transit and, finally, the creation by OAO RZD a direct competitor to TransContainer. On some issues, some clarity has been achieved, others are still at the stage of elaboration or postponed.

Russian Railways proposes to index the tariffs for containers’ transportation by 4% in the future. How do you feel about this initiative?

The issue worries all operators of the Russian container market. The topic has been discussed for a long time, all parties argue for and against it. The Russian Government has listened carefully to everyone, and there will be no increase in tariffs next year.

Of course, any economic activity should be profitable, regardless of the form of ownership of its subjects and means of production. And here, like no one else, I understand our friends and partners from the Russian Railways. The indexation of tariffs associated with inflation is, albeit an unpleasant, but objective circumstance.

The introduction of preferential tariffs is a decision of the state (and Russian Railways is a state company) aimed at the development of containerization in our country, a kind of price paid for development and progress.

Over the past 50 years, containerized cargo transportation has grown at a rate of 11% per year, being a driver of world trade and economic development. Our country is no exception - in recent years, the growth rate of this type of cargo transportation has exceeded 10%. But Russia is still lagging other developed countries in this indicator (for example, in the EU it ranges from 18% to 40%).

If we analyze the information on the growth of container traffic in Russia, we can see that its steady growth (up to 0.6 million TEU per year) began only in 2016. At the same time, from 2005 to 2015, over ten years, the growth amounted to 1.23 million TEU, from 1.72 million to 2.96 million, and from 2016 to 2019, in just two years, more than 1, 7 million TEU, from 3.26 million to over 5 million.

In our opinion, there is a cumulative effect of this economic measure, when operators were finally able to achieve profitability, increase the fleet of wagons and containers, balance tariffs, and enter a state called stability. This stability must be maintained, brought to a plateau, and understood that the crutches can be removed.

The proposed indexation is small; do you really fear a strong negative effect?

The rise in tariffs for container transportation in 2017, as our partners from the Russian Railways say, did not adversely affect the growth of this type of transportation. In digital terms, we can agree with this, but how to assess how much this decision slowed down the development of containerization in the future? We have the same attitude to the proposal of the Russian Railways to index tariffs for container transportation this year as well. In fact, without being convinced of the stability of the system, with this step we could, if not undermine, then noticeably slow down the growth rates of the industry, which is already lagging behind the established by the state - for example, the Transport Strategy for the period up to 2030.

Another important factor is that the increase in tariffs for container transportation will cause the transfer of a significant part of the cargo base from container transportation to road and sea transportation and will make the transportation of cargo in containers unprofitable. The growing share of road transport will create a number of risks: an increase in the share of players in the gray sector and tax evasion, destruction of highways, traffic safety issues, medical risks, in particular during epidemiological difficulties, and environmental risks - increased CO2 emissions.

It is also very likely that transit traffic will switch to traditional deep-sea routes - the sea route from Asia to Europe and back through the Suez Canal or the Cape of Good Hope. Currently, rates for the carriage of containers by sea remain high, which is explained by a significant reduction in the frequency of shipping by sea lines due to a drop in demand during the COVID-19 pandemic. However, some routes are expected to be resumed by the end of the year, which will cause a drop in rates and an increase in the attractiveness of the sea routes for Asian shippers.

The Russian Railways has previously said that the company, together with its customers, intends to conduct a large-scale revision of the entire pricing policy, bringing it in line with the needs of the economy and infrastructure capabilities. We are ready to participate in this work and provide our proposals.

Do you think it is likely that the Russian Railways will create its own analogue of TransContainer? How will this affect your business?

I believe that time has already answered this question - in November 2020, OAO Russian Railways Business Active was registered. Based on the stated goals of its creation, this is the direct competitor of the TransContainer.

The Group considers Russian Railways to be a strategic partner and values ​​long-term partnerships, as evidenced by the signing of the Cooperation Agreement. Therefore, we perceived the creation of a new player with great concern. And it is not just a potential loss of market share and, consequently, profits. It seems that such a step less than a year after the privatization of TransContainer violates the spirit of the agreements that were discussed at the stage of preparation and holding of the tender for the sale of its controlling stake, including the invariability of the basic conditions of the container transportation market in the medium term. In addition, it can give a negative signal to market participants, including foreign investors, who would potentially like to participate in the privatization of state property under state guarantees. In our case, as you can imagine, these guarantees are slightly blurred.

It seems that the creation of a full-fledged container operator by the Russian Railways will almost inevitably lead to monopolization of the container transportation market (especially taking into account the share of UTLC ERA and the Federal Freight Company in it), and the squeeze-out of small and medium-sized players working here. In addition, according to information already appearing in open sources, the new operator may receive benefits from the Russian Railways for repairs and priority travel on the network, which will inevitably violate the principle of competitive pricing.

One of the reasons why the Russian Railways proposed to pointwise increase tariffs for container transportation in 2021 by 4.75% was the lack of funds to implement its investment program. At the same time, the Company is simultaneously investing, albeit with the involvement of a private investor, in the creation of a new market player in a segment with high competition, where the return on investment and profit can be quite extended in time (unless, of course, artificially create obstacles to competitors).

As a container operator, we believe that this sector is already quite competitive, and the role of Russian Railways is much more important in issues where government participation is critically needed. First, we are talking about the development of railway infrastructure, which does not fully cope with the growing needs of the national economy for fast and high-quality logistics. Several questions raise our organizational and legal components of actions to create a new operator. But today it is too early to talk about it.

How dangerous is the permission to transport containers in open-top wagons for TransContainer's business?

“Dangerous” is probably not quite the correct definition. As I said earlier, during the privatization of TransContainer, an agreement was reached with the Russian Railways on the invariability of the basic operating conditions of the container transportation market for the next three years. Based on these conditions, the Group agreed to the amount of the mandatory payment, which is fixed in the agreement with RZD.

I cannot name the exact amount, but we are talking about tens of billions of rubles. Calculations of our specialists show that if even the 10% of the idle open-top wagons r fleet is involved in container transportation will lead to the decrease of TransContainer’ payments to RZD by several billion rubles.

In our opinion, Russian Railways may not only lose part of the agreed payment, but will also gain little from the decrease in empty runs through the system declared by the railway workers - they will not decrease, since container operators will take the place of open wagons.

The issue with open-top wagons has been repeatedly discussed at all levels, including the Government of the Russian Federation but unfortunately today it remains frozen.

As for the danger, it is worth recalling the background of this issue: the local technical conditions allowing such transportation were canceled on December 1, 2014 precisely because they did not comply with the safety standards stipulated by the Charter of Railway Transport of the Russian Federation and other industry documents. Therefore, such transportation was dangerous not for our business, but for the railway industry on the main active routes. However, here, too, we showed flexibility, realizing that in huge Russia there are a lot of bearish corners, uninteresting for large container operators, without the necessary special infrastructure. But our people live there, and they need to carry goods. Therefore, we agree that, provided the safety of the rolling stock, packaging and cargo is ensured, it is possible to transport containers in open-top wagons from distant inland stations, where there is no appropriate equipment, to junction stations for reloading to platforms. At the same time, open-top wagons with containers should not get on regular container trains, nor should they participate in export-import, not be delivered to ports, border crossings and TransContainer terminals.

Is there a need to increase subsidies for container transit?

I expressed the idea of ​​subsidizing railway container transit through the territory of Russia at a meeting with President Vladimir Putin on May 7. Then we talked about the fact that such a subsidy, according to our calculations, would allow an additional 200-250 thousand TEU of transit through the territory of Russia, taking them from sea routes. After lengthy interagency agreements, an indefinite resolution of the Russian Government was signed on subsidizing a reduced tariff for transit from East to West for the Russian Railways. However, its volume in 2020 is insignificant - about 400 million rubles, which corresponds to subsidizing approximately 6.5-7 thousand 40-foot containers.

We believe that next year this amount should be increased at least tenfold, to 4 billion rubles, which would make it possible to additionally transport more than 60 thousand containers through the territory of Russia. Otherwise, this will prevent the market and customers from feeling the stability and reliability of this transit channel and reorienting them to the Russian route. We discussed this issue with Mr. Belozerov; the Russian Railways mostly shares this position.

Currently, the Ministry of Transport is working on the issue of allocating a subsidy for 2021, its potential size is still unknown to us.

How are Delo Group's relations with Rosatom developing? Is there any progress in creating a national container operator?

Throughout the past year, we have consistently developed partnerships with Rosatom. Naturally, the work proceeded mainly in an organizational manner, since such a solid state holding entered our capital for the first time in the history of the Group. It was necessary to outline the strategic directions of the joint work. That is why Rosatom is actively involved in developing the Group's strategy. As I said, the strategy is at the final stage of approval, after its approval by the Board of Directors of the Group, it will be officially presented to the media.

Nevertheless, the first contours of a global transport and logistics block integrated with Rosatom have already emerged. This can be evidenced by the successfully developing cooperation between the Russian nuclear holding and the Ruscon group, which adequately copes with the new project logistics for itself - the delivery of part of the products, including oversized ones, for nuclear power plants under construction abroad.

How is the reconstruction of KSK grain berth going? Will it end next year?

Reconstruction, or rather, the creation of a new deep-water grain berth at KSK is the most important part of our investment project in Novorossiysk, comparable to the deep-water berth of NUTEP container terminal opened last year. The faster it works, the faster the investment will begin to pay off. As of today, the construction of the grain pier is on schedule and we are going to inaugurate it in July 2021.

Is Delo Group planning to sell its stake in KSK? In general, do you plan to sell or repurpose any assets?

Like the new container berth of NUTEP, the grain berth under construction at KSK will become unique, the only one of this level in the Azov-Black Sea region and of course such an asset is of interest to various market participants. We regularly receive various proposals and discuss them, but it is too early to talk about specific deals.

As for the significant re-profiling, I can single out the transfer of the functions of a railway container operator from Ruscon Group to TransContainer. Such actions are logical both in terms of getting rid of internal competition between holding companies, and in terms of increasing the synergy effect. Now Ruscon group specializes in project logistics, forwarding and tries itself as a 3PL-operator of groupage cargo with the transfer of partner functions to local operators.

In addition, together with partners from Maersk’ APM Terminals, we are considering the option of re-profiling one of the universal terminals of Global Ports for a narrower specialization ("Moby Dik").

What will happen to Ruscon? Will it remain a separate legal entity?

Yes, Ruscon will remain one of our independent holdings. As you understood from the interview, we have high hopes for this asset.

Last year, you did not rule out the possibility of building a fleet and entering the shipping business. Are these plans still in effect today, or did you say this in the context of the project to create a national container operator?

We always consider all opportunities for business expansion. And the creation of our own shipping container line does not go beyond the potential of the Group, including the prospect of forming a national container operator. Today both the pandemic and the efforts we made to integrate TransContainer into the Group's asset system have made their own adjustments. Now we are as they say in good shape. And making such important decisions as creating your own shipping line requires a cool head and clear calculation. We will return to the consideration of this issue when the situation stabilizes.

Have the personnel reshuffles been completed at Delo Group?

Today I can say yes, completed. On November 27, we brought in three new members to the TransContainer Board of Directors, the last major senior management decision in the Group since last year's asset expansion. For the next year we intend to work with the current management team.

What are the performance results of Delo Group this year?

Despite the coronavirus pandemic and a general decline in the global economy, the Group's core assets showed steady growth. For ten months, the container terminal DeloPorts increased transshipment by 32% compared with a fall of 1% in the average transshipment in the market, container turnover of GlobalPorts sea terminals increased by 7.1%. Transshipment of the DeloPorts grain terminal increased by 38% over ten months, with an overall market growth of 26%. Over the current period, TransContainer has kept its share of rail container traffic in the Russian market at about 40%.

And although there are objective market factors such as the organic growth of the container market, we are probably doing something right.

Source - Kommersant, 30.11.2020