By K Raveendran
In a rather unnoticed development as a byproduct of the Russia-Ukraine war, a directional shift in Russia’s trade with the world has turned the global container trade upside down, creating both challenges and opportunities for all players concerned.
This container crisis is primarily a consequence of the deepening trade imbalance between Russia and China. According to Container Xchange, the technological platform for the global logistics trade, Russia is flooded with more containers bringing goods from China than can be sent back, with railway depots grappling with an overwhelming accumulation of empty shipping containers originating from China. The commodities exchanged between the two countries play a role in exacerbating the problem, as Russian raw materials are primarily transported to China via rail tanks and open wagons rather than in containers.
The platform estimates that currently there are around 150,000 surplus containers in Russia. All containers from Russia to China go with a pickup charge. In fact, many Chinese companies are selling containers below market price to get rid of the boxes since it doesn’t make sense to send them back to China. From Moscow to Shanghai, the offline market offers around $1,500 for new containers. If cargo worthy containers are in good condition and cost less, they prefer to sell the boxes in the local market.
In February 2022, the average price of a 40ft high cube container in Moscow was $4,175, which has come down to $580 as of 25 September 2023. Similarly, the average price of a cargo worthy 20 ft container, which was $1,961 in February 2022, has now hit a bottom of $675.
China, traditionally a substantial purchaser of Russian energy, has now emerged as a vital source of imports, encompassing a wide range of products such as machinery, pharmaceuticals, auto parts, consumer goods, smartphones, cars, and agricultural equipment, from China. This shift has created a shortage of closed cargo containers, further intensifying the logistics challenge. This shift is also a direct result of numerous international companies exiting the Russian market amid ongoing geopolitical tensions and the conflict in Ukraine.
Trade between China and Russia witnessed substantial growth of 36.5 percent in the first seven months of 2023, totalling $134.1 billion, according to Chinese customs data. China’s exports to Russia surged by 73.4 percent, reaching approximately $62.54 billion, while imports from Russia also grew significantly by 15.1 percent, totalling $71.6 billion.
Soon after Russia’s invasion in Ukraine in February 2022, the bilateral trade between China and Russia dipped for a brief period of time and then picked up to reach record levels. Russia anticipates that its trade volume with China will surpass $200 billion this year, a notable increase from the approximately $185 billion recorded in 2022.
Overloaded Russian ports and roads are causing transportation inefficiencies. Although some investments have been made to improve infrastructure, fiscal constraints complicate matters. Russia is seeking Chinese investors to address these issues, but uncertainty stays due to recent actions against Western companies. In an attempt to improve the container congestion, Russian shipping companies have started offering discounts to expedite the return of containers to China.
The compatibility between Russia and China’s foreign policy objectives, emphasizing multipolarity and resisting control, may strengthen their partnership in Asia, impacting the region’s geopolitics. This shift towards Asia represents a clear trend for Russia towards establishing better trade partnerships with Asian countries.
For instance, in 2022, trade between Russia and Central Asian countries increased by 15 percent, reaching more than $42 billion. This growth is attributed to strong trade partnerships among countries in organizations like the Shanghai Cooperation Organization (SCO), BRICS, and the Eurasian Economic Union (EAEU). Central Asian nations, such as Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, collaborate closely with Russia on technology and independence-related matters. This expansion of trade bolsters Russia’s regional influence and strengthens its ties with Central Asian partners.
European sanctions and voluntary boycotts have, on the other hand, redirected Russian trade away from the euro area, increasing dependence on non-sanctioning partners and leading to discounted commodity exports. This shift has reoriented Russia’s global trade, making it heavily reliant on China and other Asian countries.
Once a key euro area trade partner, Russia experienced a 50 percent dip in trade with Europe. While euro area exports to Russia initially dropped quickly, they have since partially recovered for non-sanctioned goods, while sanctioned goods exports remain low. Russia also reduced natural gas flows to Europe, causing a 90 percent drop in gas imports. Europe compensated by importing gas from Norway, Algeria, and Azerbaijan while increasing liquefied natural gas (LNG) imports, substantially diminishing Russia’s influence in European energy markets. (IPA Service)