History of Sovcomflot

The inception of Sovcomflot is largely tied to the circumstances in the foreign market at the beginning of the 1970s. In 1972, the Soviet Union suffered a poor crop yield, leading the government to decide to purchase grain (primarily feed grain) from abroad. Overall, the nation needed to arrange for the sea transport of over 40 million tonnes of grain annually from the U.S. and Canada. 

Meanwhile, a temporary 'Agreement on Certain Aspects of Maritime Navigation' was in effect between the USSR and the USA, stipulating that all cargo transport between the two countries' ports would follow a 'one third' principle: 1/3 by the USSR fleet, 1/3 by the US fleet, and 1/3 by fleets from other countries. The cost of transport by the USSR and third-party fleets was market rate, but the Soviet Union was paying inflated prices for the use of the American fleet, a cost that needed to be cut.

To solve this problem, Nikolay Zuev, head of Sovfracht, proposed a bold idea for the Soviet planned economy: to employ a commercial bareboat charter scheme with subsequent transfer of ship ownership to the charterer. Essentially, this involved buying a ship on credit without available funds: payments for the ship would come from current revenue from its operation, and once fully paid for, the ship would become USSR property and generate additional income for the country. 

It was anticipated that the cost of the first ships (including loan interest) could be entirely covered by freight from grain shipments from the U.S. to Black Sea ports in under five years. The feasibility of these calculations was backed up by the state monopoly on foreign trade and freight business ensuring a cargo base for these ships at average global freight rates. 

Timofey Guzhenko, Minister of the USSR Marine Fleet, supported the idea of Zuev and drafted a report for Alexey Kosygin, Chairman of the USSR Council of Ministers. On 22 March 1973, the head of government approved Guzhenko's initiative, recognising its importance for addressing the country's economic challenges. The very next day, on 23 March, the Council of Ministers of the USSR decided to allow the Ministry of Marine Fleet to use a commercial ship leasing scheme under bareboat charter terms for grain deliveries. Essentially, the ministry was granted the right to conduct business activities for the benefit of the planned socialist national economy. 

The Commercial Operations Office (COO) was established within Sovfracht in March 1973. The first ships chartered by the COO were two bulk carriers of Yugoslavian construction, each with a deadweight of 44,500 tons, named Sovfracht and Sovinflot. Operational control of these vessels was handed over to the Black Sea Shipping Company. The combined lease of the two vessels, including interest, amounted to approximately 14 million foreign currency rubles. Once the freight earnings fully covered these payments, the dry cargo ships collectively yielded a net profit of nearly 44 million foreign currency rubles. 

This innovative mechanism for the planned economy demonstrated its effectiveness and sustainability: it allowed for significant fleet renewal without state funding and introduced cutting-edge fleet management systems into domestic shipping operations.

In 1986, the Commercial Operations Office was restructured into the All-Union Foreign Trade Association Sovcomflot, which by 1988 had further transformed into the Joint-Stock Commercial Enterprise (JSCE) Sovcomflot, one of the first joint-stock companies in contemporary Russia. Stakeholders of the new company were the USSR Ministry of Marine Fleet and seven maritime shipping companies: Far Eastern, Black Sea, Novorossiysk, Latvian, Baltic, Sakhalin and Soviet Danube.

The primary objective of transitioning to a JSCE was to boost foreign exchange revenues and expand commercial activities to fortify the material and technical foundation of maritime transport. 

Following the dissolution of the USSR, the unified economic system managed by the Ministry of Marine Fleet collapsed. The loss of a domestic cargo base and state support dealt a significant blow to the country's merchant fleet. Despite these challenges, by 1995-1996, the company had successfully steadied itself. 

In 1991, Sovcomflot established a subsidiary company in Cyprus called Unicom to manage its fleet. Sovcomflot thus cultivated its own culture of technical fleet management, incorporating the best global practices, intellectual capital from the Soviet system, and a thoughtful approach to fleet operations prevalent in the domestic maritime sector. 

From the early 2000s, the company began to strengthen its focus on the energy shipping. In particular, in December 2001, Sovcomflot tankers pioneered regular crude oil shipments to European ports from the Baltic port of Primorsk.