Red and blue stars meet in Russia

The maritime cluster believes in the growth in Russia. So much so that, in the past year, massive investments have been made in the superpower in the East, and more are underway. But the country has its own business agenda. It's about politics and networking. And it can be about bureaucracy and bribery as well.

It's been said that Russian rulers are quite simply fond of conglomerates, corporate groups that consist of a little of this and a little of that,  because it reminds them of the power structure in their own country. That one can, so to speak, use the same door regardless of whether one's visiting the oligarch or the head of the Group, that one can obtain most anything in one place. If this is why the Maersk Group has so far had such fortune in securing beneficient contracts in the powerful country, or that it can likely look forward to more, that's hard to say. But it doesn't work to the Groups disadvantage that it operates both port activities, liner shipping, oil extraction, and drilling activities, when it comes for the Russians to pick their partners. For "ports" and "energy" are two of the key words in Russia today.

Do you want to be kept up to date with the latest developments in Danish and International shipping? Subscribe to our newsletter – first 40 days are free

Tempting many

The Maersk Group, however, is not the only one to have spotted the potential. First of all, many are tempted by the fact that Russia, as a BRIK country, is expected to achieve a stable growth of around four percent in 2013. Second, the country is geographically well placed for shipping companies such as DFDS, Unifeeder, and SeaGo Line. And finally, the various Danish government's have been aware of the opportunities and have been nursing the major business partner in order to clear the way for more players.

Besides being able to deliver the goods that Russia is interested in, the Maersk group also has the necessary muscles to secure a solid position on the Russian market. Maersk took a crucial step when still fairly new Group management, led by Nils Smedegaard, at an executive meeting in 2009 produced a list of 15 countries that the Group would bet on in the future. One of those countries was Russia, and in order to line up the work with massive and promising country, Smedegaard sent Søren Skou, then CEO of Maersk Tankers, to Moscow to look at the possibilities. Not just for the shipping companies, but just as much for the oil acitivities as well as another of the Group's focal areas; the port terminals under APM Terminals. In the following years, the contact between the two parties, and the extent the business between them, have only grown. The crowning achievement was no doubt when Russian prime minister Vladimir Putin, during a state visit to Denmark in April 2011, only visited one address besides the Ministry of State and the royal palace at Amalienborg, namely, the Maersk Group's headquarters at Esplanade in Copenhagen. Here, he expressed his desire for investments in the Russian port infrastructure, which remains outdated, bureaucratic, and expensive. Along for the visit was the CEO of major energy company Gazprom, which is looking for partners willing to participate in the exploration of the massive oil and gas reserves that are said to be hidden in the Arctic region.

Negotiating with Putin's right hand man

Since then, Maersk has maintained the close relationship. It went completely unnoticed by Danish media when Maersk Group CEO Nils Smedegaard Andersen just a few months ago visited Moscow to negotiate with people from the most inner circle's surrounding Putin, including his right hand man, Sergei Ivanov. Not anything specific will necessarily come from the individual meetings, but the long term nursing of customer relations, and the signals they send afterwards, are just as important. For instance the fact that Sergei Ivanov, following the meetig February 27th, announced that "Russia considers Moeller-Maersk a strategic investor. The company has already invested around USD 1 billion in Russian projects and plans to continue its activities here," as it says on the Kremlin's website.

Having a good relationship with the Kremlin is the key to further expansion in the Russian society, including access to the various ministries and the powerful oligarchs sitting heavily on the strategically important business areas - usually because the oligarchs themselves are closely tied to the political system. According to well-informed sources, the Maersk Group has enjoyed a good relationship with oligarch Vladimir Lisin and his logistics empire UCL, as well as with Russia's deputy traffic minister, Victor Olersky. But Maersk's purchase last year of 37,5 percent of the shares in Global Ports signal the presence of a desire to make its own decisions in the ports. Some believe that the price was high, and the most recent financial report from the Russian port operator, with activities in St Petersburg and other places, did turn out to be a disappointment. But the large sum could turn out to be money well spent later on and in other contexts, if Maersk wants to continue to do business in Russia: This could be Maersk Drilling, for instance, which is not yet active in the country.

DFDS stands on several legs

DFDS has been in Russia for almost ten years, operating routes south from St Petersburg and, most recently, Ust Luga. It would be incorrect to say that the money has been pouring in from the East, especially following the financial crisis, and 2013 will also end with a deficit on the Russian markets. The Danish RoRo shipping company has chosen a strategy where the company stands on several legs, for the simple reason that it allows DFDS to play the ports against each other on prices, and because the port in Ust Luga is not plagued by bureaucracy and bribery to the same extent that the port in St Petersburg. To DFDS, the Russian venture is very much a matter of being present in a market that the company believes will one day turn profitable. It can cost rougly 300 Euros in tariffs etc. to send a 1,000 Euros shipment to or from Russia. In Denmark, the price for sending a 1,000 Euros shipment would probably be around 50 to 75 Euros. However, the shipping companies are not the only ones impacted by the difficulties and the high prices; Russia itself is hit at least just as hard,a s the country is missing out on growth because of what the industry refers to as mere bureaucracy, but which often concerns money that have to be paid for no apparent reason, and without anyone knowing where it ends up. For this reason, DFDS has a more flexible setup in Russia, where the shipping company can pull the plug quickly, so to speak. For instance, this means a more flexible fleet and shorter notice periods, as things happen or decisions are made suddenly, changing the business at hand. This was the case, for example, when the Russian authorities suddenly decided to put higher tariffs on beer.

Obscure bureaucracy

But it's the same for all the players in the Russian market; unpredictability is a factor that must be taken into account when doing business. Maersk Line got a taste of it a few months ago, when the Russian authorities conducted a dawn raid, ransacking the shipping company's offices without giving a proper reason for it. Just like the time Maersk Line's competitor, Swiss MSC and its regional head, a Dane, was told via a text message that he was going to jail. Besides what some might refer to as the lawlessness, there's a very large and very heavy bureaucracy, as well as obscure prices and extremely high port tariffs. This can make Russia a bit of an ordeal, and ShippingWatch is aware of at least one Danish, though also internationally significant shipping company that has opted not to enter Russia, for the simple reason that things are too uncertain and unpredictable there.

The influence of Dagmar

The Danish government and the Danish authorities are doing what they can to pave the way for Danish business interests and, in particular, Danish shipping interests. 2006 is often mentioned as an important year in which the Danish-Russian government council for political- and business related interests really took off, following a new collaborative agreement. Maybe because it was also the year in which Empress Dagmar, or Marija Fjodorovna, as she became know in Russia, was buried in the Peter-Paul Cathedral in St Petersburg, thus creating new, warm relations between the two countries. The government council is deemed by many to be one of the bilateral agreements that seem to work well, resulting in investments, especially within the maritime cluster.

Foreign companies, such as those from Denmark, with interests in Russia, hope that the financial and political developments in Russia will improve as the wealth increases, and as politicians hopefully succeed with their ambitions to legalize and improve the efficiency of the business sector. Following many years of negotiating, Russia became a member of the WTO last year, and DFDS, among others, were pleased by this development, as it could, over time, contribute to increased trade.

Do you want to be kept up to date with the latest developments in Danish and International shipping? Subscribe to our newsletter – first 40 days are free

Danish and Russian shipowners strengthen cooperation

Russian Global Ports performs major impairment

Russia establishes state agency for North East Passage 

Sign up for our newsletter

Stay ahead of development by receiving our newsletter on the latest sector knowledge.

Newsletter terms

Front page now

Further reading