Analysis – New container and breakbulk shipping line: from Yarimca, via Don-Volga rivers canal, into Aktau and Turkmenbashi, then to China and back

Yarimca, Turkey (Ports Europe) June 7, 2021 – The big losers of the yet to be launched new container and breakbulk shipping line, linking Marmara (Yarimca container terminal) in Turkey with the Caspian Sea, via Russian inland waterways, will be Azerbaijan, Georgia and Iran. The new route will be jointly launched by P&O Maritime Logistics, part of DP World, with the support of DP World Yarimca container terminal and other DP World group companies. It will provide regular container-based shipping between Turkey, Russia and the strategically important region of Central Asia for the first time. The line’s launch will come after a trial voyage was successfully completed at the end of April. By linking with DP World Yarimca, which is the first specialised port in the İzmit Gulf, the route will also provide direct shipping links, via the Russian Don and Volga rivers system, into Aktau (Kazakhstan) and Turkmenbashi (Turkmenistan) ports in the Caspian Sea. The growing regional market for containerised goods is currently served mostly by the Caspian Azeri port of Baku and the Black Sea ports of Poti and Batumi (both Georgia). Iran is also a transit country for the Turkey-Central Asia cargo and looking to expand its role. On the new service, P&O Maritime Logistics’ Multi Carrying Vessel (MCV) will mainly transport containerised products such as industrial machines, construction materials, textiles, cosmetics, white goods, marble, while also offering a service for break bulk & project cargo. MCV type vessels can navigate the Russian rivers and it is expected that at least two more vessels will be outfitted and classed for container carriage for the new line’s launch in the coming months. Kris Adams, CEO of DP World Yarımca, said: ‘The new Turkey–Caspian line makes the movement of goods more streamlined and less costly. With our knowledge of the trade networks between these countries, we are aiming to support our customers to become more competitive in these markets. With trade booming between these regions, the opening of a new sea route will undoubtedly be a boon to firms operating in these markets’. Martin Helweg, CEO of P&O Maritime Logistics, said: ‘There is immense potential for increasing the efficiency of trade between Turkey, Russia and Central Asia. We were selected because of our ability to carry both breakbulk and container cargo, which fits with the type of goods that move on this route. With land transport making up 95% of total carbon emissions for the transport sector, this new river-sea based route is more cost effective and environmentally friendly. With this solution we can reduce carbon emissions by 17% or 0.5 tonnes per container, saving the customer on average 10-20% of the cost compared with trucking and bring the cargo to the destination 15% faster compared with rail, enabling our customers a range of benefits’. DP World Yarimca is one of the largest container terminals in Turkey with a capacity of 1.3 million TEU after the completion of its second phase. DP World Yarimca, the state-of-the-art terminal is equipped with super-post panamax quay cranes. Electrified Rubber Tyred Gantry Cranes (e-RTG) are being used for yard handling. In 2020, approximately $31.2 billion in trade took place between Turkey, Russia and Central Asia. The region accounts for 6% of Turkey’s exports and 9.6% of imports. $17.8 billion of imports and $4.5 billion of exports were with Russia, one of Turkey’s largest trade partners. The new line allows Moscow back into the strategic game of container traffic. Up to now, Moscow had focused on bulk cargo, the importance of which is declining. This new sea-river-sea route is expected to significantly increase container traffic between Turkey and Central Asia and potentially between China and Europe. Volga-Don Canal and its limitations The main problem facing the new line is the navigation via Don and Volga rivers (Volga-Caspian Sea Navigation Canal - VCSNC, or Volga-Don Canal), especially during the summer, when the water levels are lower. The rivers are also notorious with for the fast accumulation of sediments (silting up). Russia is currently addressing the issue with a plan for a comprehensive reconstruction of the VCSNC, in order to ensure a passage draft of up to 4.5 m and the two-way traffic of vessels. In 2020, 3.5 million m³ of soil was recovered as part of repair dredging works in VCSNC, and a further 3.9 million m³ of soil is scheduled to be dredged 2021. Volga–Don Canal depth is only 3-3.5 metres, with further summer limitations. The 101-km canal together with the lower Volga and the lower Don, provides the most direct (over 800 km long) navigable connection between the Caspian Sea and the world’s oceans via the Sea of Azov and the Black Sea. The canal ends with the Caspian Sea port of Astrakhan. Russian Caspian ports There are no modern Russian container terminals on the Caspian Sea and the Volga river, and it looks like, finally, the Russian government wants to build a large container port in Astrakhan region, primarily for transshipment of goods. Moscow is looking for ways to gain cargo from Azeri and Kazakh ports. The opening of a feeder line last year from China and India through Kazakhstan and Azerbaijan turned Azerbaijan’s Baku and Kazakhstan’s Aktau ports into key transshipment facilities in the Caspian. A modern new port, Turkmenbashi, has been built in Turkmenistan in the eastern part of the Caspian Sea. It also has regular lines that serve routes to Baku and Aktau. Iran is also investing in ports to trade with other Caspian Sea littoral states. The main problem for a new container terminal in Astrakhan is the lack of modern multimodal transport infrastructure, particularly highways and the integration of railway services at the river port. In October 2020, Russia’s Ministry of Economic Development said that it plans to allocate RUB 2.8 billion (€31.6 million) for the creation of a port SEZ (special economic zone) in the Astrakhan Region by 2022. Funds will also be made available in 2021-2022 for the modernization of Olya port’s berths and construction of a new seaport. The two-phase project includes modernization of the existing terminals of Olya port and a second phase would be a new container terminal on the Caspian Sea. Olya is some 100 km south-east of Astrakhan. The government will allocate RUB 1.1 billion of subsidies to the Astrakhan region for land development and modernization of Olya port’s berths and RUB 1.4 billion for creation of a new port. The governments of Azerbaijan and Kazakhstan are protecting the market from the penetration of new players, and the geopolitical situation, including international sanctions, both of which contribute to restraining Russian cargo traffic. The outdated equipment of the Russian ports and the low level of presence of the Russian fleet in the Caspian Sea are also serious issues. International sanctions against Iran also hinder the development of the transit of goods to Europe. According to cargo carriers, the new port of Turkmenbashi could become a link in the Caspian Sea and forward cargo to the Russian ports of Olya (where a new port is being developed, just 50 km to the north), Makhachkala and Astrakhan due to the reorientation of cargo from Uzbekistan, Kazakhstan, and Iran to the Caspian Sea. After years of neglect, it seems that Moscow is slowly discovering the potential of its three Caspian Sea ports and the role they can play in the International North-South Transport Corridor, a 7,200-km-long multi-mode network of ship, rail, and road route for moving cargo between China, India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Europe. Russia wants a transport hub in the Caspian Sea to challenge developments in other littoral states as it seeks a stake in the cargo transit business between Asia and Europe, which is manifested in various international transport corridors which form part of China’s new Silk Road. The Russian government is also planning to develop the infrastructure of Makhachkala port, Dagestan, on its Caspian Sea west coast and turn it into a transit hub for the country. The target is to attract additional traffic in oil, grain, and fish, to improve Dagestan crisis-hit economy and give a push to local socio-economic development. It is unclear why Moscow wants to build also a deep-sea port in Kaspiysk, which is only 18 km south of Makhachkala. One more reason for the sudden “discovery” of Makhachkala’s potential is that a group of Iranian companies, financed by China, wants to invest in the development of the small southern Russian port of Lagan, a few kilometres from the Caspian Sea, Batu Khasikov, governor of Russia’s Kalmykia Republic, said in March. Lagan is some 200 km north of Makhachkala. The Iranians want to invest 100 billion rubles (€1.16 billion) in port facilities capable of handling 22.5 million tonnes of cargo transhipment capacity per year. The idea seems to be over-ambitious as the total current capacity of all Russian ports on the Caspian Sea is only 12 million tonnes. Eurasia Canal A new port in Lagan might make more sense if combined with a proposed new east–west canal (Eurasia Canal) to the Sea of Azov – and thus to the Black Sea and onward to European markets. Theoretically, the new Lagan port could become operational within two years from the start of its construction. A canal from Lagan to the port of Yeysk (Eisk) on the Azov Sea might initially be dredged to a depth of only 2.5-3.5 metres, and only used for barge traffic. Dredging a canal for sea ships is expected to cost additional 200-300 billion rubles (€2.3-3.4 billion). The Moscow response to the Iranian-Chinese initiative for Lagan was a July 2020 order of the Russian government that states: “The construction of the Caspian seaport of Lagan is included in the amended scheme of territorial planning of the Russian Federation in the field of federal transport. The construction of the port is included in the “Individual program of social and economic development of the (Russia’s) Republic of Kalmykia” for the period up to 2024”. The order explains that the construction of this port is of “geopolitical significance” for Russia and will accelerate “the integration of the transport complex of Kalmykia into the world transport system through participation in the formation of international transport corridors”. The documents prescribe the construction of a modern port in Lagan with grain and oil terminals with a capacity of up to 5 million tons and 500 thousand tons per year, respectively. Also, terminals for packaged and containerized cargo are planned in Lagan (their capacities are not being specified). For more information about Russia’s Caspian Sea ports in Ports Europe analysis Russia “discovers” its strategic Caspian Sea ports - August 13, 2020 and Russia keeps pushing for development of Caspian Sea ports and Volga-Don Canal- December 14, 2020 The proposed Eurasia Canal would turn Russia into a primary route for trans-Eurasian container traffic. In a recent Svobodnaya Pressa article, analyst Aleksandr Sitnikov claims that silting up of the Volga–Don Canal has made it too shallow in summer months to handle most ships. A new man-made canal would represent both an economic and geopolitical breakthrough for Putin. According to Sitnikov, the new canal could cost as much as $18 billion. But the Eurasia Canal would cut the distance by ship between the Black and Caspian seas from more than 1,000 km to less than 800 km. For more information about the port of Lagan and the Eurasia Canal in Ports Europe analysis, read Strategic and overambitious Iranian move in Russian Caspian, financed by China, or much ado about nothing - March 23, 2020 Copyright (C) Ports Europe. All Rights Reserved. 2021.

Analysis – New container and breakbulk shipping line: from Yarimca, via Don-Volga rivers canal, into Aktau and Turkmenbashi, then to China and back

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Analysis – New container and breakbulk shipping line: from Yarimca, via Don-Volga rivers canal, into Aktau and Turkmenbashi, then to China and back

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