Four crucial challenges for Ukrainian export logistics

2022/04/21 at 9:43 AM

The Russian military invasion of Ukraine in late February has significantly damaged the country’s logistics sector, especially in moving freight abroad. At the moment, the Ukrainian companies are doing their best in arranging new transport solutions to maintain the flow of export goods. What crucial challenges do they face in this process?

Before the Russian aggression, the Ukrainian sea ports played a significant role in moving local bulk goods abroad. Up to 90 per cent of the Ukrainian grain and iron ore were exported via the country’s harbours, mainly on the Black Sea. For instance, the Port of Pivdennyi, the largest one in Ukraine, handled around 53.5 million tonnes of freight in 2021. 42.5 million tonnes of this amount were the export goods.

Port of Pivdennyi, the largest harbour in Ukraine, source: TIS

With the beginning of the military actions against Ukraine, the warships of the Russian Navy blocked the Ukrainian harbours on the Black and Azov seas. As a result, the export logistics in Ukraine was almost destroyed. Currently, the Ukrainian companies are trying to find new opportunities for export goods by establishing new transport solutions. Meanwhile, they are facing several significant challenges. To provide some insights in this regard, Interlegal, the Ukrainian law firm that is focused on shipping in the Black Sea region, organised the webinar “Transport, Shipping & Trade in Ukraine. War Update”.

Blockade for unknown period

The most evident challenge that has already affected the entire logistics sector of Ukraine is the Russian blockade of the sea ports. As Andrii Kuzmenko, director at ZIM Integrated Shipping Ukraine Services, pointed out, this maritime siege may cause much more negative effects as nobody knows when it ends. “Right now the situation is clear as the ports will not be working until at least the hot phase of the hostilities is over. On the other hand, what I am afraid of is that the blockade of the Ukrainian ports is a very cheap exercise for the Russian Forces but extremely costly for the Ukrainian economy. I am afraid that the blockade will be lifted, probably, in the very-very last sequence even after the hostilities are over. As they can effectively block the ports from Crimea and they do not need any kind of major land or air-supported operations,” he said during the webinar.

The mentioned uncertainty is fuelled by 420 floating mines installed by the Russian Navy in the Black Sea to completely block the Ukrainian harbours. “Everybody in the shipping community had already seen the news about floating mines… Shipping will be possible only after the minesweepers from some countries will be able to confirm that the fair waters are free from mines,” the expert added.

Additional costs

Another important challenge is the additional costs. What does it mean for the Ukrainian shippers? First of all, they have been losing money from the first day of the Russian aggression against Ukraine. More than 90 vessels were blocked in the Ukrainian ports since the morning of 24 February. Some of them were loaded with freight. For instance, the Ukrainian media reported that the Russian Forces stole five bulk ships loaded with grain from the Port of Berdiansk. Their further destiny is still unclear.

Nibulon grain terminal on the Dnieper River, source: Nibulon

Moreover, the disruption of the well-functioned supply chains usually causes additional costs, particularly for arranging the new schemes to deliver freight to the customers. At the moment, the most obvious ways for the Ukrainian export goods are the maritime terminals of the neighbouring countries, namely Poland and Romania. But moving freight to other ports by rail or truck requires more costs. In the case of Romania, there is a quite cheap option. It is about the Danube River. The bulk or intermodal freight from the Ukrainian ports of Izmail or Reni can be delivered to the Port of Constanta by barges. According to Andrii Kuzmenko, there are some issues in the Romanian legislation that make such a transport solution inefficient.

Bottlenecks for railways

Nikolay Gorbachov, president of the Ukrainian Grain Association, began his presentation by reminding some figures. According to him, almost the entire export of the Ukrainian grain was handled at the sea ports and only 1-2 per cent ran by rail via the western border crossings. “Now we face the situation when we have to export all our stocks through railway border crossings. We have 13 railway checkpoints with our western partners (Moldova, Romania, Hungary, Slovakia, Poland). Unfortunately, we cannot load the same volume as we did it to the ports. If we could bring to the ports about 6 million tonnes of grain per month. At the moment, in theory, we can export to Europe in ten times less, about 600,000 tonnes. I underline that it is only in theory. Practically, we can move through all the railway border crossings only 220,000 tonnes per month, almost three times less than our potential,” the chairman of the Ukrainian Grain Association noted. He also specified that there is an option for moving export freight via the Danube ports but they must be renovated to handle more volumes of grain efficiently.

Ukrainian grain hopper wagons, source: Kryukiv Railway Car Building Works

Moreover, there is another issue, which is related to the documentation. “The phytosanitary certificate for each wagon is valued only 15 days. Sometimes, the wagons wait in a queue for more than 15 days. And what should we do in this case? We have to make an additional check and obtain an additional certificate,” Nikolay Gorbachov explained. There is a hope that this issue will be tackled as the Ukrainian Grain Association is working on it together with Ukraine’s Ministry of Agrarian Policy and Food. “None of us know when this war will finish. I am sure that we will win but when? And we have to be ready to export new crop to Europe by rail or by barges,” he added.

Big decrease

The fourth key challenge for the logistics of the Ukrainian export is the decrease in volumes. According to the Ukrainian Grain Association, the new crop will be around 63 million tonnes of grain (in 2021 it was 106 million tonnes). This means a big decrease, namely about 40 per cent. “First of all, we will decrease planting areas from 25 to around 18 million hectares of land. Mostly, it is because some of our regions, such as the Kherson, part of Zaporizhzhia, Luhansk, and Donetsk oblasts, are occupied where farmers, unfortunately, cannot do anything,” Nikolay Gorbachov said.

Despite this, the Ukrainian shippers and forwarders are planning to export grain from the new crop. “In our expectation, we can export about 30-32 million tonnes of grain during the next season,” Nikolay Gorbachov unveiled the forecast of the Ukrainian Grain Association. In the 2019/2020 marketing year, Ukraine exported a record volume of grain, 57.2 million tonnes, in 2020/2021 – 44.9 million tonnes. In the current marketing year (it will last until the end of June), more than 42.5 million tonnes of grain were exported until 21 February. These figures once again confirm the expected decrease.

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