Beyond Ports: Russia – An Interview with VTG Rail Logistics

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Railway transportation can never be overlooked, especially when dealing with Russia. There has been a lot of development, both positive and negative, with the movement of cargo via rail to and from Russia and CIS, which is why PCW has taken the time to get the latest updates from one of the transportation providers in this sector, VTG, which is currently headquartered in Berlin.

VTG – What does it stand for and when was it established?

In its current form, VTG originated from Vereinigte Tanklager und Transportmittel GmbH, which was founded as a state-owned enterprise in 1951. It was later privatised in 1961 in the framework of the sale to Preussag, which is now the TUI Group.

By means of various targeted acquisitions and disinvestments, the business operations were oriented towards the following three segments: Wagon Hire, Rail Logistics and Tank Container Logistics.

VTG is headquartered in Hamburg.

VTG Rail Logistics Deutschland GmbH, where we, the Project Solutions department, belong to, is a 100% subsidiary and was founded 1987. In 2014, it underwent major restructuring when the Rail Logistics Division of Kuehne + Nagel joined as J/V.

When did you join the company and what is your background in shipping?

The whole Project Solutions team, myself included, joined in 2014, but most of the team members have been working together for more than 10 years, some of them since the early 90’s.

Personally, I started in 2006 after graduating in Logistics. From the outset I was heavily involved with heavy lift transportation. I worked in a team of 15 people and we worked on a number of overland projects with a railway focus.

We have constantly performed the same services within VTG, and now I’m responsible for major industrial projects (KAM) as well as being a technical expert for Super OOG Transport.

How would you describe the development of rail transportation from Central Europe to Russia over the last few years?

Due to sanctions, we have observed a significant drop of the export rates from Europe to Russia, which of course led to less traffic volumes. For example, the former well-known ferry route Mukran (Germany) to Klaipeda (Lithuania) as well as to Ust-Luuga (Russia) are either no longer in service or, if they are, they run infrequently. During the ‘boom’ era, we often experienced problems with the availability of wide-gauge railcars at most border stations, which is mostly not the case anymore.

So it’s fair to say that the political problems connected with economic slump in Russia have impacted the transport volumes to Russia. Our clients are aware that it is more complicated at the moment to secure business in Russia because of project funding and the ongoing sanctions and restrictions, especially in the machinery/industrial equipment sector that we serve.

International forwarders do often recognise that the typical cargo routes change to Asia. Even if business is controlled by European companies, the cargo will go via new routes from Asia directly to Russia via the Far Eastern hubs or the Chinese borders.

Probably one of the questions that is asked the most is related to transit clearance. In more recent times, it has become easier to overcome the border checks. Often we can cross the border PL/BY within 12 hours or less. This is a huge feat compared to the former times when it was not uncommon to be kept waiting at the border until the cargo was able to enter CIS territory.

The constant change over the last few years has turned the railcar market upside down. More and more private modern equipment is now available, allowing us to choose from various options regarding transportation, so we predict that a shortage of equipment availability is not in sight for the next year.

Another interesting development is that the Baltic states have become more and more of a new hub for overseas cargo to Russia, which allows us to be more flexible and not rely on the standard routes via St. Petersburg or Brest (BY).

Russian customs is known to be notoriously difficult, slow and incredibly picky. How do they fare these days?

It is also not easy nowadays to fulfill all the requirements of Russian customs. The main focus needs to be on the quality of the transport-accompanying documents.

It is an absolute must that the seller and buyer communicate well as to how the documents have to be prepared. Also, today, it is not uncommon that customs ask for thorough cargo descriptions, which includes photographs of the load.

What’s more, it is also imperative to pre-announce the transport to the involved transit and final customs clearance agents. The more they know in advance the easier clearance will be.

In most situations we normally discuss such issues in advance with our clients as soon as we receive the initial inquiry and first cargo information, especially if they plan to carry out critical procedures such as temporary importation.

If you do not prepare such things wisely before transport, the reality is that it could cost you a great deal of money; this is the best-case scenario, whereas the worst case would be that the Russian customs could seize your cargo.

With regards to the compliance issues, this situation has improved dramatically over the last few years, and such problems are less common, with exceptions of course.

What would you say are some of the ‘golden rules’ that should be observed when transporting by rail to Russia?

Railway transportation is a “deceleration” product – it works, but it takes time. If you are in a rush, it’s probably not the best ideas to consider rail transportation.

If your cargo is of E&I (Electrical and Instrumentation) equipment, don’t even think about rail transportation as an option if you are not taking care of shock-absorbing packaging.

If your cargo is oversized and fits the Russian clearance profile, rail transportation could be a more reliable and cost-effective option, especially since there are no additional costs afterwards.

Rail transportation to Russia is not a surprise package, if you have the right partner with extensive experience, it could most definitely work for you.

When it comes to securing your load, cargo lashing is done the old-fashion way – it’s done using a lot of wood and welding on the wagon. Sometimes it is just best to stick with what works the best.

However, if you can transport your cargo by using a standard truck, rail transport is not often competitive in terms of pricing, especially if the destination is not far behind the Ural Mountains.

What are the most remote places in Russia that you have transported equipment to and do you transport both containers and break bulk pieces, and are there any limitations?

Over the years my colleagues and I have shipped cargo to various oil fields and mines in Siberia and the Far East. In the Far North, there are no tracks available, and in these cases we have had to transship the cargo. During the winter months, it is especially more precarious travelling on icy and muddy roads to reach the final destination. The environment in places such as Vorkuta, Norilsk, Yakutsk, Ust-Kut, and Nizhnevartovsk are particularly harsh.

We transport in both ways. Basically, we do whatever it takes to deliver the cargo to its final destination. These days the biggest plus is if you are able to adapt the transport requirements and needs of the client to create a tailor-made transport solution to overcome such problems.

If it is necessary and it makes sense, we combine both these transportation methods with short-sea travel or trucking.

Railway transportation is of course subject to special regulations by the RZD (Russian Railways). The dimensions are fixed within the Russian gauge clearance profile that defines grades of load. If we handle heavy or large oversized transport, we need to ask the Ministry of Russian Transport for approval. From there, they dictate the routes and restrictions. For container loads, the RZD is focuses on the method of load securing and weight distributions. Containers with item weights greater than 1.5MT have to be checked in advance in order to guarantee a smooth transit.

What is the heaviest piece that you have transported by rail to Russia?

A 220 MT steel roller.

Many people believe that as soon as cargo enters Russian territory it just ‘disappears’; is it possible to track it at any given time?

The idea of cargo ‘disappearing’ into thin air once it lands in Russia stems from the former days. This is no longer the case. These days we have the technology to provide a daily status update on the cargo’s location. You will be able to see where the wagon is at any given time and how long it is going to approximately take to reach its final destination.

The tracking is not done by GPS; instead we use a Russian station messenger system, which has been completely reliable up until now.

What kind of bill of lading or railway bill is issued for the transport, and can you cover the transport from door-to-door and does door-to-door mean only station to station, and what happens when the cargo arrives at the final destination?

If you start transport by rail in Europe it will be the CIM (r/w bill) that will change to SMGS (r/w bill) when entering the Russian gauge system. Door-to-door is a bit tricky, however, in Europe we do often organise a pickup by truck.

The problem is that nowadays just a few suppliers still have a direct railway access, and if the cargo is sent by rail to Russia, the Russian consignee will have to do a final clearance at the destination railway station; this is Russian customs legislation and there is no getting around it. The only exception is if the transport is part of a huge industrial project where the consignee has achieved the classified resolution for importation.

In such cases, and if the railway station is not the final destination, we are allowed to organise a transshipment and on-carriage under a customs bond until its terminus.

Clients that do not have experience with shipments to Russia also often think that they can deliver to Russia on a DDP basis, which is not the case.

So, a final delivery term would have to be generally agreed upon a DAT/DAP basis. That’s a very important fact and sometimes a trap for them.

How long does it take to get a quote when a client wants to deliver cargo to Russia, and what information MUST you give to get a quick quote?

If it fits into standard truck trailers or a container, it would normally take us no more than 1-2 days to offer you a quote. If it is connected to standard railways, it would take us 2-3 days, depending on the origin/destination and if we have to investigate special lashing requirements etcetera. If it comes to large oversized or heavy weight cargo and we have to select special transporters or need to combine truck, barge and rail, it could sometimes take up to 4 weeks.

That longer length of time is due to the special investigations we have to initiate in advance in order to give a reliable quote and working transport concept. Oversized grades on rail larger than Grade 3 mean a special request to RZD needs to be made before a price indication can be given.

Of course the more information we have from the beginning, the faster we can act. In general, we need the following details:

  • HS code of the cargo
  • Exact cargo description (if IMO, we need SDS)
  • Exact 3D drawings with individual measurements shown
  • Exact dimensions and weight
  • Estimated date of execution
  • Single transport / recurrent shipments / separate lots
  • Special cargo requirements (handling, support saddles, shock-sensitivity)

Are the railway wagons you use Russian or is the cargo transferred at the border?

In general we do have to transship the cargo when entering the Russian wide gauge tracks.

Within Europe, we use private wagons, however in Russia, it’s a mix of state-owned and private wagons, and this all depends on the route and cargo type.

Russia vs. Western Europe Rail Gauges – What’s the difference?

In Central Europe we have the normal gauge width of 1435mm whereas the Russian gauge, which is also the same in the Baltic States and most of the CIS states is set to 1520. To practically overcome this, we have to transship the cargo at the border stations from European to wide-gauge wagons or we do trucking/ferry shipping up to the wide-gauge hubs in the Baltics.

What’s the deal with cargo insurance?

We can provide transport insurance coverage for our clients if they want us to. This is nothing special compared to the usual modes of transport. The claim management depends on the kind of claim.

Claims that can be problematic are claims for delivery delays as most railways do not accept them, or if they do, they are extremely restrictive. There are minimum transit kilometers fixed in the railways rules that they have to guarantee for, but honestly they are so few that it is practically not worth claiming any compensation for them. If the cargo is damaged during transport, the LSP must first define/record the responsible party.

If the rail provider is found to be the responsible party, they are liable just as any other party would be. But from our own personal experience, it is usually not the railway company that is the one that causes the damage. In the majority of cases it is the handling company that has done the transshipment or lashing.

Most of the claims we settle if they are undisputed with our clients go smoothly without any problems. However, it must be noted that it could sometimes take months or more if we need to finalise any claims that involve railways.

On the other hand, we will always advise our clients as to which cargo is critical to send by rail. We will always advise clients when we offer a quote whether liability will be rejected or not, the same goes for if we feel that the cargo cannot be successfully and safely transported by rail. If the client decides to go ahead and send it via rail despite our recommendations to do otherwise and the cargo is damaged from constant vibrations or something similar, we will not cover these claims.

How do you foresee the future of railway transport to Russia and how do the various countries Russia/CIS cooperate customs wise now there is a Customs Union?  

It is a customs union nowadays in most cases, but for railways it was never a problem before due to the SMGS that all CIS states belong to, so to be honest, transit customs was easy to handle also before the Union.

Now it’s just easier for every other mode of transport, especially trucking. With regards to the future of rail transportation to Russia, I would say that the connection between Europe and China and therefore Russia as a transit country would increase in the coming years.

More industrial cargo will be sent to the Far East of Russia, as there are major ongoing infrastructure projects and there are still a lot in the pipeline, therefore the need for railway transportation will naturally increase as well to serve them all.

However, railway exports to the European parts of Russia will decrease because trucking is nearly always cheaper and faster.

Another promising thing for us is the increase of exporting from Russia of semi-products and basic petrochemical equipment. Most of the Russian suppliers do have railway access, so railway transport might be a good option when European EPCs purchase the equipment there.

Finally, do you have your own offices in Russia and do your European offices have Russian speakers?

Yes, we have one in Moscow, but because Russia is so big and we require a great deal of flexibility in presence at the project execution sites, we have decided to work with a selected number of long-term agents and freelancers for site presence. Compared to the big players, we cannot afford to finance big structures so we try to be as flexible as possible with this concept.

And yes, we have Russian-speaking staff in our offices, as this is a must to communicate best with consignees, agents and customs officials when focusing on CIS business.

VTG Rail Logistics Deutschland GmbH
Sascha Bengel