Coastline of the Russian Federation

Back in Soviet Union times under the protection of the IRON Curtain the foundation of modern shipbuilding was laid to supply the outer world with agricultural and raw materials treasures. The 21st century has opened a new age of shipbuilding and ships designing, giving the ways to implementation of hi-tech, modernization of the old work bases and enterprises, using and introducing new and modern technologies. Nowadays, the Russian shipbuilding complex includes about 150 industrial units joined together and connected to many fields of production.

The beginning of 2000’s was slow but steady in making international connections, introducing and opening the inner market step by stop to foreign shipping community including investors. The beginning of the military conflict in the East of Ukraine and the subsequent economic sanctions that prohibited any sale or supply of any technologies and equipment from other countries, have made the shipbuilding industry to experience a slight decrease in the number of ships produced per year. Thus it has also been a twist in production oriented to strengthen the military area.  Since 2014, the main type of ships dominating in shipbuilding is of military importance. If the share of new buildings for military purposes between 2011 and 2012  accounted for 35-40%, the number of military new vessels  between 2017 and 2018 in percentage terms crossed the mark of 70%.

During the period from 2010 to 2018, more than 1000 ships and other auxiliary marine equipment have been built in Russian Federation. The orders mainly came from state-owned enterprises and private companies. The imposition of sanctions served as a powerful impetus for the state to develop measures and methods for import substitution of technical components and equipment within a limited time frame. As a result, the industry did not experience great difficulties in keeping the shipbuilding on the level.

By 2020, there are another 400 large vessels are scheduled to be handed over. The share of 60% will be produced for military purposes.

What is it worth to build a fleet?

At a time when shipbuilding in the rest of the countries of the Black Sea basin is based on a private initiative and develops by means of the expense of private investors from locals or international banks, the Russian Federation annually implements so called “state financing” and “state support programs” in the field of domestic shipbuilding.

In 2018, the Russian government has allocated more than 2 billion rubles (which is approximately 31735453 US dollars) to support the construction of new ships at the local shipyards.

Shipyards were busy processing orders for laying a keel from both individuals and government orders.

When we look through the development stages In the period from 2010 to 2018, the amount of investment in new buildings and in auxiliary marine equipment amounted to 358 billion rubles (which is approximately 5.68 billion US dollars). Presently at a time of complicated relationships developing between Russia and some of European countries and the USA, the share of 17% out of all investments falls on the state and local budgets and the remaining percentage falls on private investors. Nevertheless as per forecast and information from the state representatives, the state investment part will increase in the future.

In consequence of the support from the government side, there are 110 new ships of various types being built at domestic shipyards. Among the new builds there are tankers of the project RST25 and RST27, project 19614, dry cargo ships of the project RSD 44, RSD 59, as well as self-propelled and non-self-propelled barges and tugs.
The countdown moment

Based on the results of a preliminary analysis of the general condition of the “river-sea” ships built over the past 50 years, it can be seen that the peak of decommissioning and utilization of the “old fleet” will be in 2022.
According to preliminary data provided by the Marine Engineering Bureau in 2022, the necessity for the vessels of this type will be at least 110-140 units. Same time approximately 50 units of Volga-Don Max type tankers will be on demand for handling cargos from the ports of the Russian Federation in the Black Sea in terms of quantity of cargo and possibility to pass under the Kerch Bridge.
From this perspective we can now identify serious enough reasons for the number of new builds to increase annually. If this does not happen, then we can expect a significant reduction in the mixed sea-river type vessels by 2022 proposed for cargo shipment in the Black Sea basin. As a result, the freight rates for shipments will be steadily increasing approximately in two times due to lack of the tonnage available in this area (the estimate of the time-charter equivalent for 2022 is approximately $ 9–10 thousand). It is self-explanatory that this segment can be concidered as reasonably attractive for the local and international investors same way.
Analyzing these steps, it can be concluded that over the past few years, despite the influence of external factors, Russian Federation has managed to launch the process of updating the fleet, both civil and military.
One foot in the future, another in the past
In order to present and understand the full picture, we have to flick through several important statistical data. In the early 2000s, there were 1717 serial dry-cargo vessels of the mixed “sea-river” type, designed and built at shipyards on demand requested from the Soviet Union government. Nowadays, 687 out of above stated vessels have already been demolished (which makes 40%), and 87 vessels have been lost (which makes 13%).
Ships of such projects as Volgo-Balt and Sormovsky, they are also called as “three-thousanders” because the project implies a cargo capacity of 3,000 metric tons, suffer the greatest losses. They were the most numerous and were used for the shipment of all types of cargo including scrap metal, which increased the deterioration of the metal. The average age for demolition of such a vessel is 37.1 years. There were 141 ships built with a capacity of 2,000 metric tons and 108 units have already been demolished, i.e. 77%. The average age for demolition is 36.7 years. There have been constructed 163 ships of ST and STK type together. Presently 54 vessels, which is 33%, have already been demolished. The average age  is 26.7 years.
Among the main reasons that stimulate shipbuilding in Russia, we can highlight the following. The shipment and transshipment of grain, the denial of insurance companies to work with the fleet over 30 years of age due to deterioration and inappropriate or poor use of vessels, as well as the demand for the mandatory installation of new and fairly expensive ballast water treatment equipment onto the new and old ships.
For a long time Russian grain traders put forward serious demands on the vessels offered for loading and shipment of grain cargoes. It is a tendency that every year, the quantity of vessels have got approval from charterers and receive contracts decreasing.
The amount of grain grown for export increase every year, which means that the demand in ships of mixed “sea-river” type will be at a high level. The water area of the ports on the Black Sea is uniq and specific conditions distinguished by a shallow depth, ebbs and flows due to wind, as well as restrictions on the passage of large vessels due to the Kerch bridge limit the variety of the fleet allowed to work there.
Since 2020, insurance companies plan to impose restrictions on work with the fleet over 30 years. Even now it is quite difficult to find an insurance broker who will help insure vessels from reliable insurance companies. The difficulty doesn’t end on getting the policy for an old vessel. It also spreads on ability and possibility of a club to fulfill the conditions for an insured event, and for the shipowner to have a chance to receive insurance payments .
In addition to this, the ratio of the conditions of coverage of insurance payments for a particular case is not enough compared to the cost of the insurance itself.
As for the ballast water equipment, it has been discussed  and written over a lot to open up this topic. The year 2022 will be a turning point for all ships and all shipping companies all over the world. The requirements of the convention on the mandatory availability of a ballast water treatment system without exception will come into force. Such a system must be installed and put to work by all means.
When laying the keel, such a system is already implemented into the new project of the vessel and becomes a part of it naturally. At the same time, cargo capacity and other important characteristics of the vessel are not subject to significant changes.

The situation is much more complicated with old ships. Now on the market there are such systems from a range of manufacturers. The cost of the system itself varies within 300 thousand US dollars and of course you can find a more economically convenient option from some manufacturers from China. Then it must be installed directly onto a certain ship to the detriment of carrying cargo capacity. To be shore the system is compatible with the certain  vessel prior to installing the system, it is necessary to submit an application to the design bureau for miscalculations and get the approval by all authorities for the installation. Negotiations with shipyards that are ready to perform this type of work, indicating the time frame, will also take some time. To book a place at a shipyard for this work to be done during a low season and trying to get in these terms is always connected with difficulties of unforeseen expenses.

As can be seen from above, such a work could be performed with an old ship, but how much is it economically efficient and expedient?!

During the last 3 years, the state of the market for sea freight transportation is not particularly pleasing to shipowners. Low freight, international political leverage go hand in hand with increased and more stringent requirements from port authorities and flags. So there is every reason to believe that very soon shipowners will be forced to make a choice whether to remain in this business or leave the market and engage in another type of business.

We would not like to finish our report here on such a sad note. So I would like to get back to the positive and motivating aspects which will help us to look and approach into the Future with hope that everything will be fine.

Incentives to upgrade

The implementation of any projects can be successful with proper optimization of production using modern technologies. The construction of a new fleet in the Russian Federation cannot be successfully implemented without 2 major factors: the government support and digitalization with the introduction of modern technologies in the production process. If the first factor is clear, then the second factor can be described in more detail.

So, what is the digitalization of shipbuilding? It is a method of transferring of the entire production process throughout the entire production cycle - from the design of vessels to thier full readiness - will be ” translated” into a digit.

This type of modernization allows to reduce the time spent on each segment of production without loss of quality and with the best calculations of the materials used and equipment involved. To be more specific, this type of work allows to reduce costs and time at the section manufacturing site and at the assembly-welding rigging, when assembling the side sections and hatch covers.

In terms of promising support measures for shipowners, who decide to build new ships at Russian shipyards, they consider the possibility of providing subsidies for reimbursing part of the construction costs, issuing compensation when introducing pilot lots and projects for entering the world market.

Issuance of investment quotas for new fishing vessels built on domestic shipyards. Proposal for reimbursement to shipowners of up to 25% of capital costs in the construction of small and medium sized vessels might be of good support. Referring to prospects, this type of state support will increase the number of such vessels upto 120 units.

A large-tonnage fleet can also count on state support. Here compensation is planned in the amount from 20% to 30% and this is already expected in 2020.