13.5.2022 12:25:51 //
Kimmo Kallonen
Jetro Staven

Export industry considers alternatives to transit containers

The invasion of Ukraine triggered massive Western sanctions on Russia that are also being reflected in Finland’s logistical position. A decrease in transit traffic is leading the export industry to seek alternatives to container traffic, predicts Kari Savolainen, Chair of Steveco’s Board of Directors.

Global trade logistics are largely based on containers transported by sea. Their importance has increased as the focus of global production has shifted towards
China and Southeast Asia. It has also increased vessel sizes. Ten container ships with capacities greater than 20,000 TEU are already sailing the seas. If you placed that number of containers in a line, it would stretch for twelve kilometres.

In March 2021, the container ship Ever Given, which is owned by the Taiwanese shipping company Evergreen, got stuck in the Suez Canal due to a steering error. As a consequence, almost 400 ships had to wait at either end of the canal until it was dislodged.

Thousands of ships had to take a longer and more expensive route around the Cape of Good Hope instead. European industry was left without components and Finns spent the summer waiting in vain for their terrace furniture. Ever Given was a serious warning of the vulnerability of global logistics – something that had already been foreshadowed by the coronavirus pandemic.

Russia’s invasion of Ukraine and the resulting sanctions were a third major dent in global trade structures.

Empty containers cost money

As the CEO of companies such as Finavia and Steveco, Kari Savolainen has had a grandstand view of developments in international logistics. Currently a board professional who chairs the Board of Steveco, he anticipates that sanctions will raise the Finnish export industry’s transport costs via a reduction in Russian transit traffic.

“Russian transit traffic has played an important role in terms of maintaining container balance. Goods have been exported to Russia in containers, and when there has been nothing to fill them on the way back, Finland’s export industry has been able to use them. There has been no need to transport empty containers to the Far East, which exports a large volume of goods to Europe and has the greatest need for containers,” says Savolainen.

He points out that Finland accounts for less than one per cent of global container traffic, which makes Finland a fairly unattractive market area from the perspective of major international container shipping companies.

“As sanctions reduce transit traffic, the scarcity of containers will increase costs. Although empty containers are still available, the decline in transit traffic will reduce their availability and increase prices.”

What that means for Finnish export companies remains to be seen.

“Will they seek new markets for their products to replace the Far East, or will they use alternative means of transport instead of containers? It’s likely that alternatives will be sought for containers and especially for exports – roro and break bulk shipments are likely to increase. Break bulk is a good option for many forestry products in particular. It all depends on the cost-effectiveness and competitiveness of the various modes of transport.”

“Products can also be transported by road from Finland to Central Europe, where they can be loaded into containers for oceanic transport.”

Who will be delivering to Russia?

Savolainen is particularly interested in how Russia will obtain the goods it needs when the world’s largest container shipping companies (with the exception of the Chinese company Cosco) have stopped visiting the country’s ports. Five of the largest companies are upholding the sanctions: Maersk (Danish), MSC (Swiss-Italian), CMA CGM (French) and Hapag-Lloyd (German).

“Russia’s large population clusters, Moscow and St Petersburg, are located on the country’s European side, and both must somehow be supplied with products that are not subject to sanctions. Almost all of western Russia has been dependent on Baltic Sea shipping. Due to the war, the situation in the Black Sea is unstable and the only alternative seems to be ports in the Pacific. It will be interesting to see whether Cosco is ready to visit them and maybe other
Russian ports,” says Savolainen.

Almost all of western Russia has been dependent on Baltic Sea shipping.

When goods cannot be transported through Russia, alternative routes for rail traffic have been developed to the south of the country. However, when it comes to the big picture, trains will not be able to resolve logistical issues.

“Trains will help, but they won’t suffice. An entire train is only 40 containers. Even the largest feeders operating in the Baltic Sea region carry 3,000 TEU, that is, about 1,500 containers. That’s almost 40 times the capacity of one train. Not to mention the large oceanic container ships with a capacity of almost 300 trains.”

“In principle, it may be that containers will continue to come to Finland, and then be transported by road to Russia. This would, of course, help to alleviate the potential shortage of export containers.”

Security policy also brings its own flavour into the mix. Finland and Sweden’s potential NATO membership would mean a change in the political situation in the Baltic Sea region.

“Russia would be left with a narrow sea route through the Gulf of Finland between NATO countries. On the other hand, goods traffic is already being transported to Russia through Central European NATO countries.”

Kari Savolainen says that the changes arising from container traffic may not be that dramatic. Containers are used not only in overseas transport, but also for intra-European transport.

“Container traffic will certainly not come to a complete standstill. Short sea containers are circulating in Europe as well. For example, Finnlines and Transfennica transport containers as deck cargo on roro ferries in the Baltic Sea.”

Emission allowances on the EU agenda

Both European countries and the US have already begun to reduce their dependence on China as a result of delivery issues with, for instance, automotive and electronics components and the raw materials required in the pharmaceutical industry. Many logistics experts predict that the “just-in-time” approach will soon become a “just-incase” philosophy, in which concerns about security of supply will lead to more critical production components being stored in manufacturers’ own warehouses.

Climate issues and sustainable development are increasingly being reflected in logistics as well. Kari Savolainen says that, from the perspective of competitiveness, it is extremely important to take Finland’s special circumstances into account when negotiating how emissions limits should be extended to maritime transport in the EU.

“Winter conditions and the need for icebreakers must definitely be taken into account. A low-emission product manufactured in Finland must not be penalised due to costs incurred by emissions trading in shipping. For example, as SSAB is committed to producing zeroemission steel in Finland, we should not find ourselves in a situation in which Chinese or Korean steel is more competitive for the customer due to the pricing of transport emission allowances. This will be one of the most important lobbying
issues in shipping in the near future.”

Savolainen reminds us that the entire logistics chain also has a responsibility towards the climate.

Shipping companies and ports already have plenty to do. “Shipping companies and shipbuilders are developing hybrid vessels, and they will be available at some point. The short-term target is to make shoreside electricity available at cargo ports as well. Such considerations should be taken into account when negotiating emission allowances for shipping.”