CC BY
227Russian Journal of Logistics and Transport Management, Vol.1, No.2, 2014
©Evgenia Balbutskaya
Saimaa University of Applied Sciences
RUSSIAN TRANSPORT INFRASTRUCTURE DEVELOPMENT
(Review article)
Abstract
Transportation systems are considered from the local point of view and beyond to the influence on economic, cultural and social development of society. The role of different models of transport in Russia and their peculiarities stems from the size of a territory of Russian Federation, which characterised by entirely different geographic, cultural and climatic conditions. In order to provide the smooth development of the transport infrastructure, the challenges were categorised into five key groups. By the solving of the primary issues of the transport sector, the Russian logistic market can confront the adversary effect of the existing barriers to become a connecting node for Asia and Europe.
Keywords: transport infrastructure, logistics market, investments. 1 Introduction
Russia is the world's largest country in terms of area. The territory covers 11-time zones that have entirely different geographic, cultural and climatic features. Bureaucratic hurdles and an adequate infrastructure complicate logistics processes in Russia just as a lack of competition, insufficient transparency and limited logistics know-how do. However, Russia intends to become a hub between Asia and Europe (Dhl-discoverlogistics.com, 2014; Hamalainen and Korovyakovsky, 2007).
Mr. Putin often talks about developing transport infrastructure, and it is upgrading all the time. Major investments programs to modernize Russia's transport infrastructure between 2010 - 2015 are forecast to cost covered costs amounting to 420 billion U.S. dollars. The next few years will see the implementation of major construction projects for roads in Russia (Roadinnovation.com, 2014).
Different conferences are often organised where sharing the best practice on the implementation of infrastructure projects in road construction, and the use of innovative materials, technologies and equipment, as well as increasing investment attractiveness in the road construction industry. These kinds of conferences promote the development and modernization of the road construction industry in Russia. By studying real case studies in the application of proven practices in the implementation of innovative materials, advanced
construction and reconstruction technologies, and the maintenance and repair of roads is provided (Roadinnovation.com, 2014).
On general, Russian government spends more and more investments in developing and modernizing the logistic infrastructure in Russia. According to the Transport Strategy of the Russian Federation on the period until 2020 and 2030 and Fedotov et al. (2013), the investments in transport infrastructure will increase to 4 - 4.5 % GDP with 60 % off- budgetary sources.
However, despite all efforts and investments, Russian transport infrastructure is still not well enough developed. Russia does not get 3% of GDP because the disadvantages of transport infrastructure yearly. Since the infrastructure development plays a significant role in welfare of the country, this issue requires a discussion.
2 Transport infrastructure and its national peculiarities
Transport is an important part of world economics. The development of countries is hardly possible without transportation systems. Transport factor influences on the efficient production and goods sales, because transportation costs are included in the price of any product. For this reason, it is important to have well-developed and organized supply chain.
The role of transport is beyond the moving cargo and passengers and extends to the influence to economic, cultural and social development of society. That is why, the transport is considered as one of the most significant basic industries of economics. The important role of transport in development of a country was highlighted by A. Smith, M. Lomonosov, N. Baranskiy, N, Mironenko, G, Lappo and other famous economists and geographers. All of them acknowledged that transport provides several public functions, the most important of them are:
1. Economical function, what provides development, connections and coordination of all field of economics;
2. Cultural, where through transportation esthetic values are distributed (there are museums of transport, social groups of old autos and so on);
3. Sociological function, where transport helps in time-saving, labour easing and a labour productivity;
4. Scientific function has double characteristic. From one side transport should be improved, and it is new goals for scientists. From another point of view, transport allows many fields of sciences to be developed;
5. Reverse function is shown in the possibility of fast redeployment of army, population and production (Sherbanin, 2005).
In the Transport Strategy of Russian Federation until 2030, the primary goals of transportation systems are as follows:
• Forming joint transport space of Russia on the basis of balanced development of efficient transport infrastructure
• Providing availability, volume and competitiveness of transport services by quality criteria for cargo owners on the level of necessities of an innovative evolution of a county's development (Transport Strategy of Russian Federation until 2030).
These aims do not serve only to transport infrastructure development, but the development of the country's economics as the whole. Infrastructure, required for the support of raw economy in Russian foreign commerce and internal consumption are very significant, therefore it is necessary to solve current transport problems now, and do not wait for serious structural changes during next 10-20 years (Timofeev, 2012).
Additionally, for the country's economics there are two reasons for an importance of transport infrastructure:
• Growth of GDP and export potential depends on transport infrastructure. The world economic crisis is going down, and there are not big obstacles for continuing development, only the transport infrastructure can be this barrier. For example, in 2011, Gazprom could not export 50 thousands ton of condensate because of the transportation problems (Panchenko and Belikov, 2011).
• Without continuous infrastructure development, it is hard to imagine space development of Russia. In 2008, 39 thousands of centers of population did not have transport connections via roads with a hard surface (15 million people or 10 % of all population of the country) (Timofeev, 2012).
Meanwhile, the construction of roads with hard surface is going nowadays and developing quite fast. The reason behind is their significant role in the development of the whole country even there are different kinds of transport modes available (Table 1).
Table 1
Transportation of goods by transport modes (Mln. tons).
Year 2000 2005 2007 2008 2009 2010 2011
Railway 1047 1273 1345 1304 1109 1312 1382
Motor 5878 6685 6861 6893 5240 5236 5663
Pipeline 829 1048 1062 1067 985 1062 1131
Maritime 35 26 28 35 37 37 34
Inland waterways 117 134 153 151 97 102 128
Air 0,8 0,8 1,0 1,0 0,9 1,1 1,2
Total 7907 9167 9450 9451 7469 7750 8339
Source: Federal State Statistics Service, Rosstat (2012).
Due to the reason that Russian territory stretches from the Baltic to the Pacific, country has regions with entirely different geographic, cultural and climatic conditions what can effect on difficulties in logistic operations across various modes of transport (Dhl-discoverlogistics.com, 2014).
The logistics infrastructure is to be extended particularly in the hubs of Moscow and St. Petersburg (Handbuch Logistik Russland, 2005; Korovyakovsky and Panova, 2011).
Due to these facts, in some regions of Russia, the road density is gaunt (at 40 m of road per square km). At the same time, most of freight transports between Western Europe and Russia are done by road - through Poland and Belarus or over the northern route through Poland and the Baltic states (Dhl-discoverlogistics.com, 2014).
As a result, on general, freight is transported primarily by truck and, to a lesser extent, by rail (Table 1). However, in the performed ton-km, rail transport makes up the largest share of freight transportations, since Russian rail network the world's second longest after the United States (Milla, 2010). The focus of rail transports is both shipments between Russia and Europe and through transports from Europe to Asia via Russia (Abelmann and Doborjginidze, 2005; OECD, 2004).
The Trans-Siberian Railway plays an especially interesting role (Panova, 2011, Hilmola and Lorentz, 2012, .Hilletofth et al., 2007). Thanks to this link, shipment times of goods between Pusan and Helsinki can be reduced from about 47 days by ship to around 16 days. The potential of the Trans-Siberian Railway is about 300 000 TEU per year. However, it cannot put its strengths to use at the moment. The reason for this include rates and handling procedures by the Russian railroad company, bureaucratic hurdles and the introduction of a value-added tax on transport services (Dhl-discoverlogistics.com, 2014).
Russian infrastructure is especially deficient in terms of maintenance and modernization. The lack of multimodal goods transshipping hubs and the current transport systems generate few network effects for logistics service providers.
The biggest challenges are created by the lack of modern logistics technologies. In addition, bureaucratic hurdles, including customs clearance, are slowing the transportation.
However, despite difficult conditions, Russia intends to become an important hub for Asian-European transport and in part for the north-south axis running from Northern Europe to India.
3 Challenges to Russian transport infrastructure development
The task of transport infrastructure modernization confronting Russian is an enormous one. The depreciation of the infrastructure base has reached a critical stage and the lack of proper connections between the regions already undermined the integrity of the country as a whole. For its part, economic growth, averaging 7 % annually, has generated an upward trend in cargo and passenger volumes not experienced during the 1990s. The new growth patterns of the economy also increase the pressure for timely and reliable transport services. Accordingly the demand for logistical services is growing year by year, exceeding the pace of change in the sector.
The paradox is that the vast territory which Russia has at her disposal in different parts of the country is poorly connected. This situation can be partly explained by taking a look at the map. In general, the infrastructure system is at its most dense in the European part of Russia where the majority of the population is located and the economy is most buoyant. On the other hand, the base network in Siberian and the Russian Far East is not yet developed and some areas even lack connections to the main transport system (Pynnoniemi, 2008).
Against this background, the Russian rail system is an asset of paramount importance for the Russian economy. The railways account for 40 %of the cargo and 43 % of overall passenger turnover. In 2007, the cargo turnover of the Russian Railways grew by 4.5 %, while the growth of private railway operators was even higher, 15 per cent. The highest growth in the sector was demonstrated by container transport, which surged by 30 per cent to five million TEU (TEU is the equivalent of one 22-foot container) (Pynnoniemi, 2008).
At the same time, sections that can be regarded as bottlenecks account for 30 % of the length of the main railway freight routes. What is more, 60 % per cent of the Railways' fixed assets and 80 per cent of cargo wagons and diesel locomotives are decrepit.
The capacity of Russian ports to handle containers (20 million TEU) does not exceed the current capacity of the world's largest container port in Singapore. These figures are part of the reason why Russia accounts for only less than 1 % of the cargo turnover between Europe and Asia and, according to the latest estimates, only 5 % of the transit potential of the country (Pynnoniemi, 2008).
In addition, the under-development of Russia's road network hampers prospects of changing the structure of the economy. During the last ten years, the number of cars grew fine times faster than the length of the main road network. In fact, the Russian market for cars is considered to be the fastest growing and most interesting market in the world.
The growth of motor transport has been felt in Russia's largest cities in particular. Experts warn that if the traffic problems are not resolved in the near future, then cities such as Moscow will be paralyzed. To make matters worse, over 34 000 people die on average in traffic accidents in Russian and some 250 000 are injured annually. This is many times above the average for the EU member states.
Although the growth in traffic volumes is the immediate reason for the congestion along the main city and inter-city roads, as well as for the growing number of traffic accidents, the underlying cause is Russia's lack of regular roads. The country currently has around 1 million kilometers of roads. The bulk of the road traffic is concentrated in the federal roads, which account for approximately 5 % of the total road length, namely less than 50 000 kilometers. Only 40 % of the federal road network fulfills the criteria for "regular" roads. This figure is even lower for the majority of roads that are under the remit of the regional and municipal authorities (Pynnoniemi, 2008).
Although traffic congestion in the largest cities creates pressure for the development of the federal routes, problems with the remaining 850 000 kilometers throw the regional integrity of the country into question.
The Russia authorities some years ago announced that the country will have "regular roads" by 2013. The plan was to construct 6000 kilometers of new routes. In addition, it is true that the expenditure on roads has increased, however still on the desired level everywhere.
On general, facts mentioned above illustrate the limitation of Russian transport infrastructure development, which can be categorized into five key groups (Timofeev, 2012):
• Limited traffic capacity
For instance after the collapse of Soviet Union in the Republic of Komi the volume of transported cargo on the Northern railways decreased in 3 times (from 56 million tons in 1990 to 19 million tons in 2010. Many coil companies had losses because of it.
• Transport fragmentation
Today there is no integral picture of coordination and synchronization of different kind of transport, what result in non-effective competitiveness between rail and road transportation.
• Lack of financing for supporting and development of transport
infrastructure
Total deficit of investments to railways infrastructure to 2015 is about 400 billion rubles. Annually Russia invests to transport infrastructure about 2 per
cent of GDP. It is one- third less than USA, Europe and other developed countries and three times less than China spend for their transport infrastructure development.
• Lack of construction technologies and competencies According to Rosstat data, only 33.1 % of federal routes conformed to
requirements in 2010. Primary factors, affecting to development and modernization of road transport infrastructure, are qualitative design, construction and well-timed service.
• Lack of services for participating private sector in development of transport infrastructure
In comparison with other countries, Russian private business is mainly out of design, financing and management of transport infrastructure.
4 Problems of Russian logistics market and its solving
According to the World Bank's survey conducted in 150 countries, Russia takes 90th place in the world on level and development rate of the logistics sector (Arvis et al., 2014). The global financial crisis has adversely affected the Russian logistic sector. In 2009, the volume of the logistics services market decreased by 20.9 % and amounted to 36 billion Euros. To retain customers, Russian companies started to reduce prices dramatically. At the same time, the demand for warehouse space and the amount of private cargo transport decreased by more than 30%. However, as experts note, the market for logistics services in Russia is potentially very profitable for companies working in the sector, but the logistics infrastructure of the country is sorely in need of investments to meet European and world standards. Moreover, economic instability, bureaucratic delays and management style differences remain the significant barriers for entrance into the market.
It is necessary to solve problems mentioned below and thus improve the efficiency f its operation to male grounds for further development of transport and logistics complex in Russia (Fisenko, 2011):
1. The most important thing is so-called logistic approach to resource provision to the completely national transport system, particularly in establishment and operability of railway, road and pipeline networks, as well as air transport, seagoing and river vessels and respective infrastructures.
Objective necessity for the logistics organization of resource provision of the whole transportation sector can be attributed to the following reasons (Dybskaya and Sergyeev, 2008). First, there are an integrated logistics tools synthesizing the methodology of general systems theory, computer science, systems engineering, marketing and other disciplines. They can allow to solve the problem of movement of materials and information flow from their places of origin to the place of consumption. Second, the logistics created the conditions
for removal of the acute conflicts between different segments and activities in the transport sector. These aspects imply a potentially high harmonization of the economics interests of all participants in supply chains, complexes and systems. Finally, third, logistics has a powerful resource-saving potential. The reason behind is its systematic approach to organization of not only material but also of other economic and information flows during the operation, construction, repair and maintenance of transport networks (Fisenko, 2011):
2. For effective planning and coordination of manufacturing and logistics processes across the country and sectors of the national economy, the accurate forecasts are necessary, for example, forecasts of cargo base, investments and so on. These forecasts give an opportunity to predict in advance, to plan and allocate resources in order to meet new challenges. Prediction improves the efficiency of logistics since it creates an opportunity for sharing information and resources, not reserves.
3. It is necessary to solve and overcome major challenges and constraints that hamper the development of logistics itself and logistics technologies in Russia; the main ones are following (Fisenko, 2011):
• First issue is a lack of transport infrastructure, which is a prerequisite for economic growth and investment activity of the national economy. Annual Russian economy losses from a bad state of the roads and insufficient level of its development exceed 1.8 trillion rubles or more than 2 % of GDP. In Europe, the average rate of commodities movement is 1000 km per day while, in Russia, it is no more than 300 km per day. Finally, the cost of road transportation in Russia is 1.5 times higher than in EU countries.
• The second problem is irrational development of goods and services distribution systems, inadequate and unstable rates of modern packaging industry development and so on. Despite of the fact that the turnover of the packaging market in Russia in 2008 reached 12 billion US dollars and a market had even entered the top ten largest ones in the world, there are some acute problems in this sector of economy (Fisenko, 2011).
• Third issues includes extremely low level of introducing modern electronic communications systems, electronic networks, communication and telecommunication systems, distribution and logistics centers, informational, organizational and legal logistic activities support, the small level of industrial-technical base of storage facilities, lack of modem production processing equipment, low level of mechanization and automation of warehouse operations. The Russian market for logistics services is not highly developed. Experts estimate its potential as 120 billion US dollars, while the share of cargo forwarding and transportation for all modes of transport is 55 %, warehouse services sector figure is 13 %and integration and supply chain management sector is 32 % (Loglink.ru, 2014). Experts believe that logistics market will be shared by Western companies soon for whom Russia is considered to be the area of interest (Fisenko, 2011).
• Fourth issue is inefficiency of the Russian customs. Speaking about this critical issue to improve the efficiency of the cargo delivering system it is necessary to modify radically the customs operations, especially at checkpoints. Notably, valuable goods four days delay at the port costs as much as cargo transshipping. The existing system of customs clearance reduces the competitiveness of Russian ports for transshipment of high fare container cargo and leads to tangible losses for the operators and the state. Every extra day of downtime adds to the cost of goods up to 0.5 % (Fisenko, 2011). Nowadays, the average time for cargo spending on berths of the seaport in Russia is 35 days, but in the world it is just three days. Therefore, many Russian goods are being transported to foreign ports. An impressive example is that according to a survey conducted by DHL the goods transportation cost in Russia is four times higher than in China.
• Fifth issue is the absence of modem means of conveyance that meet world standards almost in all types of transportation as well as a high degree of wear and tear of rolling stock equipment.
5 Conclusions
In comparison with the situation in the early 1990s, Russia has put in place a general regulative and policy framework in order to implement the planned investments. The country already has significant framework documents for the modernization of the transport system.
Russia is hardly unique state. The paradox, however, is that it is a country that seems to fail repeatedly in its efforts at infrastructure planning and development. As mentioned above, the harsh climate and geographic conditions are largely to blame for certain difficulties, but some of the problems are ideational rather than practical.
Today all members of Russian transport market understand the necessity of investments to transport infrastructure. Russian government invest to the transport infrastructure about 2 % of GDP annually, however, planning more proper and needed investments, as well as well-timed service of rail, road and other transportation, could decrease the costs of the government. It seems that the creation of integrating mechanism allows to joint efforts of government and private sector for successful transport infrastructure development.
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