In early April 2002, Vladivostok hosted the Eastern Conference of Cargo Owners. Held at the initiative of the Russian Ministry of Transport, the conference was a logical continuation of two earlier events: the Southern Conference of Cargo Owners in Novorossiisk in February 2002 and the Northern Conference in Arkhangelsk in March 2002. These forums' main objective was to develop the concept of a maximum-efficiency cargo transportation system for export and import.

Problems arise in all stages of cargo movement, from producers to end users, and the most important question is how to distribute cargo among Russia's ports so that each operates at its optimum workload. It has been a pressing issue since fall 2001, when the Ministry of Railroads unified tariffs on cargo transportation by railroad. Designed to increase efficiency in foreign trade, results of the measure have not been as positive as expected.

Until Aug. 1, 2001 all export/import cargo transportation by Russian railroads was charged a foreign transportation rate, which was 200 percent higher than the inland tariff. This rate applied even in cases where cargo was transported by railroad to a port located in Russia, and from there to a foreign destination by sea.

The Ministry of Railroads maintained that because the cargo went on to a foreign destination, it should be subject to the foreign transportation rate. Therefore, the cost of transporting similar cargo similar distances could differ by 200 percent depending on its final destination. This was absurd economically, and the tariff unification was designed to correct this.

Unfortunately, the measure was implemented without regard for a number of factors, and conducted under pressure from the presidential administration, among others. It was hasty and not properly considered; as a result, the inland and foreign rates were simply leveled.

It seemed cargo owners should rejoice that tariffs had been reduced, increasing profit margins. But the tariff levelling caused a major re-orientation of cargo, overloading some ports and leaving others idle.

Specifically, the southern and northwestern ports, which never suffered from a shortage of work before, found themselves receiving two to four times the amount of cargo they could process. The Far East ports, including Vladivostok, Nakhodka and Vostochny, have seen a sharp reduction in cargo handling.

The economic and financial consequences of this situation are extremely damaging for all involved in cargo transportation. Cargo owners suffer losses when delivery schedules are disrupted, railroads suffer losses when freight cars wait for unloading, and ports themselves are either overloaded or idle.

The main question raised at the Eastern Conference of Cargo Owners was how to re-orient cargo in favor of Far East ports. Representatives of different structures suggested diametrically opposite solutions.

First Deputy Minister of Transport Vyacheslav Ruksha maintained that the Ministry of Transport has not sufficiently intervened in the situation.

"It is necessary to use the ministry's coordinating functions more effectively in order to normalize the situation with cargo flow," he stressed.

But after describing the situation at length, he offered few ways to resolve it.

International Metallurgists Union Vice President Alexei Khoruzhy was more specific.

"The world market for ferrous metals is experiencing a very serious crisis, and, therefore, foreign trade in this segment involves very high risks for Russian producers. The slightest calculation error can push one into a loss. Only cargo owners should be entitled to determine cargo itinerary and he should do that in accordance with the market situation. It is unacceptable to allow structures to dictate which ports his cargoes should go to."

Vladivostok Merchant Port President Mikhail Robkanov told the conference about the conditions under which Far East ports are operating today.

"The tough competition for cargoes between the ports has led to a precipitous fall of cargo processing rates, which has de-stabilized our financial situation. The rates have dropped 50 percent in the last three years, which is quite a dramatic reduction," he said. "As things stand today, port rates stay at around $6 per ton of cargo, while workload is 30-50 percent of the rated capacity."

Will cargo handling return to the Far East ports? The conference has not answered the question. There are many contradictions still unresolved between those involved in cargo transportation and handling. And the desire of state-run structures, such as the Ministry of Transport and Ministry of Railroads, to use that to their advantage is too strong.

As far back as 1883, the famous Russian statesman Sergei Vitte wrote, "Cargo moves from a place where the price is low to a place where it is high, and the difference should be shared between the cargo owner and its carrier."

It's about time Russian cargo owners and carriers acknowledged this simple truth.

The author is deputy general director of Metallurgtrans.