Russia taking measures as refrigerated container shortage looms

Russia’s ability to transport temperature-controlled cargo is in danger, and may soon face a significant decrease, due to a lack of refrigerated containers (reefers) caused by sanctions against the country in the wake of its invasion of Ukraine.

Authorities are trying to avert a crisis by eliminating all customs duties on imported reefers, and pushing for boosted domestic production – but those efforts may be insufficient in staving off a crisis.

Russia’s reefer fleet consists of two main parts. Roughly 10,000 containers, mostly 40-foot units, are owned by transportation and production companies domestically. The other part of the fleet is containers from sea shipping companies that deliver freight to Russia and let local logistics companies use the containers for domestic transport in Russia.

Seafood is especially vulnerable to the availability of reefers, even compared to other food categories. Roughly 75 percent of Russia’s annual five-million metric ton (MT) catch is harvested roughly 6,000 kilometers away from the region where the majority of people live. The result is that in order for domestically caught seafood to have a domestic market, it must be shipped across the country – which typically happens via rail.

In 2021, Russian Railways transported 93,400 TEUs (twenty-foot equivalent unit, measurement used for container statistics), up 31 percent to 2020. In January to March 2022, it was 27,300 TEU, an increase of 34 percent to the first quarter of 2021. March 2022 alone saw a hike of 29 percent to March 2021 to more than 10,000 TEU. The volume of seafood, primarily frozen fish, shipped in reefers via rail was 459,400 MT in 2021, about 10 percent of the national catch, and a total 40 percent higher than in 2020. Most of this seafood traveled from the Primorye region to the western part of Russia.

That seafood all needs to be transported in refrigerated containers, and logistics company Taskor-21 CEO Vitaly Momot said in an interview with Vedomosti that Russian transport operators need about 1,500 new reefer units each year, but there are fears that need won’t be met.

In Spring 2022, the Food Industry Enterprises Association (FIEA) reached out to Russian Government Chairman Mikhail Mishustin to signal an impending lack of reefers. While the overall number of containers still covers the industry’s needs, the association said a lack of capacity was starting to crop up on some routes – and is anticipated to get worse.

The expected future shortage stems from two main factors. In 2020, a new regulation was enacted by Russia’s government regarding the procedures to approve new reefers. The new rules require that one container from an order placed abroad must be imported into Russia for a test check. If the test check is passed, then the whole shipment will get certified and allowed into the country.

In practice, this means that a manufacturer and a client run the risk of having a whole shipment of finished reefers, often dozens, not certified for use by Russia.

The challenge was present, but not causing issues, until the start of Russia’s invasion of Ukraine. Soon after the invasion, a multiple major sea companies – including the top three Maersk, CMA CGM, and MSC – all stopped operations in Russia. Coupled with the regulation, the exodus dealt a blow to the availability of reefers.

Other factors are also coming into play. Exchange rate fluctuations between the Ruble and other currencies, and a surge in the cost of freon used for reefers, contributed to a limited supply.

“All these challenges can stop transportation of temperature-controlled cargo in Russia, including imports and exports,” the FIEA letter said, Kommersant reported.

Authorities have been quick to respond to try and counter the potential shortage. As of 1 July, an import previous import duty of 10 percent on all reefers was stopped until July 2024 – a measure proposed by FIEA and seafood industry trade organizations that was also supported by the Russian Federal Agency for Fisheries. Since a reefer with an external power supply can cost USD 20,000 (EUR 19,971), and an autonomous reefer can cost up to USD 50,000 (EUR 49,929), the removal of import duties represents significant savings.

“The decision to zero the import duty will make it possible to purchase the equipment abroad and create the conditions for expanding manufacture of reefers in Russia. This will effectively tackle the deficit of containers for fishery logistics,” Primorye Fisheries Association President Georgiy Martynov said in a statement published on the association’s website.

The government is also trying to spur production of reefers domestically in Russia. Efforts to revive local manufacturing started a few years ago, when the Russian Ministry of Industry and Trade launched a tender for the design of a new reefer.

The tender was awarded to the Omsk-based Omsktransmash company. In April, Omsktransmash Chief Project Manager Ivan Tselousov told the press that it plans to start production in 2023, starting with an output of 300 units a year and expanding to 500 containers a year in the future. Currently, four prototype models are undergoing trials.

Other manufacturers are also planning to manufacture reefers. Chelyabinsk-based CHTZ-Uraltrak announced it plans to enter the segment, though it hasn’t said what it expects its output will be. In addition, the (Don Mechanical Plant) announced in July it successfully completed four-year trials of its reefer units, and it expects to be able to manufacture 120 units a year.

However, between Omsktransmash’s maximum expected output of 500 containers a year, Donskoy Mechanicheskiy Zavod’s 120 units, and an unknown amount from CHTZ-Uraltrak; it is likely that the industry will fall far short of the 1,500 reefers needed each year.  

Photo courtesy of Karasev Viktor/Shutterstock