What’s happening with the Russian economy? Logistics market is a good indicator. Consider the freight rates. Since late February they fell by 30-40%. For example, according to the freight exchange ATI.SU, rates on the Moscow-St Petersburg direction fall by 34,3%. Moscow – St Petersburg highway connects the largest city of the country with its main seaport. It is for Russia what Camino Real (Mexico-Veracruz) was for the Colonial Mexico. With the St. Petersburg seaport traffic decreasing almost by half, there’s much less to deliver.
How much did the freight rates fall across Russia? Estimates vary, plus rates on different directions probably fall unevenly. Most common estimates would vary between 30-40%, with some (Oboz company) giving as low estimates as 25% and some (Deliver company) giving as high as 50%. The fall in the freight rate reflects the general decrease in the interregional trade. There’s now much less to ship = the rates are falling. And yet, the actual costs of freight are skyrocketing for the shortage of trucks and spare parts. The cost of the latter increased by 70%.
The import dependence of Russian truck companies may look surprising considering that on paper Russia import substituted greatly. Theoretically, most Russian trucks are either Russian (Kamaz, GAZ, ZIL, Ural) or Belarusian-produced (MAZ). Consider the figures for December 2021. In practice Russian car industry is fully import dependent. Consider this interview with a leader of a trade union on the AvtoVAZ automobile manufacturer. All the machine tools, all the instruments, all the equipment is imported. And it is imported *not* from China. Many misunderstand the role of China in the world economy. They confuse it being the largest industrial exporter with being the most important exporter of *everything*. For example it exports far less machine tools than one would expect. Germany is more important in this respect.
What information can we draw from the Russian freight market data? First of all, we are seeing as the enormous country is gradually losing its cohesion. Consider that all three means of transport: airways, automobiles and even the railways are heavily import dependent.
The situation with freight rates falling by 30-40% and the spare parts prices increasing by 70% is unsustainable especially considering that the average truck in Russia is 21 years old. Very soon communicating or trading with faraway provinces will turn into a major problem. Furthermore, the freight data allows us to track the main smuggling channels that Russia is now using. While demand on most directions is falling there is one direction with a skyrocketing demand (more than +100%). It’s Georgia. Ergo, it is the major smuggling channel now.
I took the figures on the Russia freight market dynamics from here. Overall, I consider the RBC to be a highly reliable source on the Russian economy.
Comment: Galeev’s sources are all in the linked thread. He makes a couple of interesting points. The first is fairly straightforward. The second is more esoteric and tenuous, but I think he may be on to something.
First, Russia’s transportation sector will slowly collapse. The freight market is drying up from lack of foreign imports leading to less to transport internally. Shipping prices are dropping. The supply of repair parts is drying up. Parts that are available are skyrocketing in price. All this will lead to layoffs and bankruptcies across the sector.
Second, the transportation network that knits the far flung Russian empire together will unravel. This is one of Galeev’s great hopes. Granted, Russia is a security state with strong, centralized control mechanisms, but a severely weakened transportation sector could lead to a loosening of national cohesion. Many Russian states and regions may learn to go it alone without the strong control and direction from Moscow that an efficient transportation network enables. They may learn to like being on their own.
I don’t think these problems will show up until much later in the year. On the other hand, the Russians are a tough and resourceful people. They may adjust while keeping their “multi-culti” nation together as a cohesive whole.