'World economy is just not ready for stories like in the Suez Canal'
How they can 'soften the blow' in the field of world cargo transportation, and what does the poor quality of Russian railways have to do with it
How global corporations in the pursuit of profit thoughtlessly forget about the risks, whether China will start overland transportation of goods through Russia, why terrible railways are a problem not only for Russian Railways, and why our country can be an example in the field of transport informatisation — read in the interview with HSE Professor Igor Lipsits to Realnoe Vremya.
“The story of the cargo ship in the Suez Canal is not accidental”
Professor Lipsits, the story with the cargo ship in the Suez Canal, which was resolved only after 6 days and brought billions of dollars in losses, seems surprising to some, exceptional one. How can we assess what happened? How serious are the problems for the global economy that this seemingly accidental story has exposed?
This story is not an exceptional phenomenon, but rather a fairly conventional one. I can remember the stories that are really quite serious — in 1993, in Japan, there was a fire at a Sumitomo plant, which produced 90 percent of the world's epoxy resin, without which it was impossible to manufacture semiconductors. Then there was a long-term shortage of this component, which, by the way, still continues to affect the electronics industry. In December 2020, an earthquake hit Taiwan, where 21 per cent of the world's chip production is concentrated, which also dealt a blow to the electronics industry. Also, there were a lot of problems for production facilities both in Japan and for foreign manufacturers who received components from Japan with the Fukushima Daiichi nuclear disaster.
It is worth noting that, unfortunately, Southeast Asia is a region where a huge part of the world's production is located, but it is subject to unexpected natural disasters, and as a result, the whole world is shaking, because the world is very subtly dependent on one supplier or one enterprise. Therefore, the recent incident with a cargo ship in the Suez Canal is not an accidental story.
Does it turn out that the world any day can face such stories because of one geographical point in Suez or China?
Well, yes. The countries located production facilities around the world due to efficiency criteria, because of the cheapness of production. As a result, several largest enterprises in Asia account for a very large concentration of supplies of goods. Any problem with these enterprises or transport routes from them leads to that the whole world will immediately begin to shake. This is a consequence of globalisation due to the criterion of efficiency.
This is a global problem — we are talking about American and European companies, and the question of the transformation of the world economy under the influence of such events is already being raised. It just turned out that world economy is not ready for stories like in the Suez Canal
After the story in the Suez Canal, where in the near future can they think more seriously about other ways of uninterrupted delivery of goods? In China or around the world? Who is really able to take care of the problem?
This is a global problem — we are talking about American and European companies, and the question of the transformation of the world economy under the influence of such events is already being raised. It just turned out that world economy is not ready for stories like in the Suez Canal. Look, when the freighter got stuck, there was a discussion about ships going around Africa, as it was in the late 1960s. But there is the problem of Somali pirates — which means that they need to send naval ships to protect cargo ships, and this, in general, is already a nightmare.
The world is not ready for risks like the Suez story, and it is the whole world that needs to change something in this regard. I assume that in the next ten years we will see quite serious changes that will be aimed at reducing the risk of such events for the global economy.
“It is a strange social insanity to put the topic of risks on the back burner”
But the question arises — why did no one think about hedging their bets before? After all, it would probably be more correct to build factories that are important for the world economy in different parts of the world, and the transport route for goods probably should not be the only one due to the growth and development of the world economy?
An interesting question. The answers to it lie in human psychology — people have a feeling that the world is now so close, transportable, easy and convenient in technical terms that one can not think about any risks and shocks, and one only needs to think about profit margins and reducing production costs. It is quite possible to organise the rest, they think.
There was a downright feeling that a person is all-powerful and no risks can affect him in any way. It is a strange social insanity to put the topic of risks on the back burner, and all this has recently manifested itself.
is the point of risk for the global economy Asia and the delivery routes from it? Or can the “black swans” come from both America and Europe?
The process has gone very deep. One can see that when the pandemic began a year ago, there were problems with such simple elements as masks and other protective equipment. Just earlier, in order to reduce costs, their production was taken somewhere in China, and there was no own production of masks on the territory of the United States. There was a very uncomfortable situation, the “war of masks” began, and recently in one of his statements, US President Joe Biden began to shout that American companies should change their logistics chains, create reserves, and so on. Because it turned out that in the pursuit of reducing production costs, American companies have excluded the risk factor, the concept of supply chain failure. This means that America may be in big trouble and will not be able to get what it would seem easy to get.
So now, in fact, there is a terrible discussion going on in the world, which, if we dig deep, has several aspects. On the one hand, an import substitution project is being discussed, but this path is very difficult, because it is not easy to organise the production of what is currently produced in China. Theoretically, some production can be located in the United States and in Europe, but costs will increase — and therefore prices will increase. But will people be willing to pay more for such products? It is still unclear, but some production of goods for insurance by world powers will still be created.
Southeast Asia is a region where a huge part of the world's production is located, but it is subject to unexpected natural disasters, and as a result, the whole world is shaking, because the world is very subtly dependent on one supplier or one enterprise
Besides, the discussion of the situation on the creation of other logistics has begun. There is even the term “bimodal logistics”, in which the company must have two logistics models: one — in order to reduce costs and sell cheap, and the second — to be able to quickly rebuild in the event of any failures.
The third aspect that has often been heard in world discussions since the Suez incident is the intention to urgently develop a “physical Internet”. In other words, let's use information management technologies on the Internet in order to automatically manage the delivery of goods, change their routes and suppliers. That is, automatically choose the best route and the same suppliers. Now, probably, a radical restructuring of the world economy in this way will really begin.
“The PRC is ready to return to the idea of land transportation through the territory of Russia”
Which of these discussed ways to prevent risks to the economy can the world's superpowers decide on?
First of all, they will start (and have already started) work on creating a “physical” Internet. We are already talking about a large project of the European Union to automate the delivery of goods, which Russia, by the way, has long approached. Our trucks, if anyone does not know, have sensors that give the opportunity to see where the car is and how it moves. Such sensors can be installed on each container ship and we can see where it is located, at what point in space, and the company can already decide which way to go. Russia will definitely do this, but this is still a problem for large economic entities such as the European Union or the United States.
And companies are now most likely to be engaged in the restructuring of logistics systems in order to switch to another cargo supplier in case of some serious situations. If Russia was ready to integrate into such chains, then our firms could get the mandate of second best, that is, the second-best supplier of goods, and could supply a lot. By the way, about two weeks ago, China stated that they were discussing the issue of changing the transport routes for the supply of goods, because the story in the Suez Canal strongly raised the issue of further sea cargo transportation. It turns out that the PRC is ready to return to the idea of land transportation through the territory of Russia — I do not know what will come of this, but we have already started discussing the idea.
Will the Chinese side still focus on the railway, or are there any intentions to deliver goods via the Northern Sea Route?
Yes, the emphasis is on the railway, but the problem is that Russia needs to radically rebuild its railways. They are very lousy and insanely slow — the speed of movement of goods on them is somewhere in the region of 10 kilometres per hour. Maybe the train itself goes faster, but all the stops, overloads, switching from one traffic network to another, are very slow — and as a result, traffic on the road turns out to be slow.
The world has repeatedly proposed to Russia to reform its railways to increase the speed of movement of goods on it, and if they listen to such advice now, Russia will largely benefit.
To launch cargo transportation via the same Northern Sea Route, Russia needs to build a certain infrastructure in the north, but you understand what it means to build the same ports in the north. This is difficult, because now the ground is melting in places. And it's expensive... Even if the ice breaks and there is a free passage of ships without icebreakers, it will also be expensive and unrealistic.
To launch cargo transportation via the same Northern Sea Route, Russia needs to build a certain infrastructure in the north, but you understand what it means to build the same ports in the north
There may well be new railways in Russia! But the question immediately arises — will they? After all, we once announced our desire to launch high-speed rail routes from Moscow to Kazan and even to the Urals, but as you can see, Russia has not made any progress on this issue. We could not even bring to mind the high-speed line from Moscow to St. Petersburg. The Sapsan train with a maximum speed of 250 km/h is not quite that, since Russian Railways had planned to bring it to 500 km/h — for example,it is common in China.
If such projects were implemented, Russia would become a very large transport corridor and would make a decent profit on it: at speeds of 500 km/h, railway workers would win even from air carriers. High-speed highways would change life in the country very much — life changes where there is an HSR. We know this very well from other countries.
The Chinese have been pushing us for this project for a long time — we know that they have developed the Great Silk Road project for a long time and they really want to run this railway through Russia. Negotiations on this project were underway, but the Chinese did not see much activity in Russia on this issue. Therefore, they started a not very efficient route along the shores of the Caspian Sea to Turkey, through which they enter Europe.
Maybe Russia wanted more investment from China?
It's hard to say. China, of course, wants to participate in investment with all the countries through which this road will go, but it is difficult to say how ready Russia is now for this — I do not see any movement on the HSR.
I would like to finish the conversation with the Suez Canal again. Can we assume that the channel will be reconstructed in order to avoid such risks in the future?
The channel, of course, needs to be expanded, but who will do it? Initially, when it was created, it was a consolidated programme — money from France and England was invested there. But will a consolidated group of investor countries be created for such projects today? It is difficult to say, because today the world is hardly ready to implement this. Here, for example, how much talk is already going on about the construction of a stand-in for the Panama Canal? But nothing happens — neither Russia nor other major countries participate in this project, although it is also, like the Suez Canal, a sore point of the world economy, a “narrow neck” that can threaten the world economy. Even the United States is not interested in building a stand-in for the channel!