Keynote Points:
The export indicators of Ukraine dropped fourfold with the war being the major factor affecting exporting possibilities.
The maritime trade is dangerous so the commodities are currently exported by rail and road via the western border. Most of the cargoes are transported by lorries and the number of carriers who have obtained licenses has increased by 30% last month.
Border crossing points have no sufficient throughput capacity to handle many vehicles.
It is necessary to commission new border crossings but this will depend on infrastructure, namely, of access ways provided and on investment possibilities on both sides of the border.
Ukrzaliznytsia plays the role of a guide providing carriers and road owners with information and showing opportunities. The open-business principle in place in Europe depends on connections and agreements with partners.
A transition towards European gauge standards will depend on investment capabilities of private Ukrainian companies.
It is necessary to diversify ports and design a new long-term business strategy.
Transcript of discussion (for the full video of discussion please follow the link)
– Before the war, 75% turnover was going via sea ports that are out of reach now. How the trade has declined and the structure of exports changed now? What are the priority matters the Ministry of Economy is currently working?
Taras Kachka
There are several trade dimensions in our statistics: 75% exports – ores, grains, vegetable oil, metals, 20 million tons in total, Groups 72 and 73 – were via sea ports. The main load was borne by the road transport, not that big in volume yet with the biggest added value and the most varied trade with the European Union. Some 30 million tons were transported by rail, metals and ores accounting for a half of it.
The past two months have seen several important factors at play. The first one is the war that generally affects export possibilities. In the first weeks of the war, the focus was on imports, humanitarian aid and military equipment supplies. As of 1 April, the economic activity was restored, in particular, in the metallurgic industry, and work reversal back to normal was reported in Zaporizhzhya, Kryvyi Rih and Dnipro.
The second factor is the maritime transport we have no clear alternative of. On the one hand, there is a benefit in it for in the 15–20 years the sea exports have developed in Ukraine so that no European port would be able to fully substitute product shipments from Ukraine. This means we produce a lot and our ports perform efficiently. On the other hand, we did not have an intellectual commerce via the Western border at the same level as via sea ports. The trade via sea ports is rather simple: one can just sell a product at the port and it will be shipped then. We were building a large trade empire, a corporation, like the one created by Kernel that was trading on remote markets through its terminal and ports.
They used to transport more than 3 million tons of ore by railroad; the same figures stand in March and April, and the pace is kept the same. There are a set infrastructure and commercial ties there. Because of this, we are now looking into developing market trade at the western border from scratch. There are issues to resolve, both technical ones and those of who to sell and on which terms and conditions. During the talks with Polish deputy Prime Minister for Agriculture it has been revealed that some of our exporters are keeping their railcarriage on the border with no final buyer in sight. Ukrzaliznytsia and the Ministry of Infrastructure are making huge efforts now to improve the logistics.
As the matters of trade via the western border show, the area for trade with the European Union has properly worked for us for industrial and processed products transported by road. The commodities worked by sea. Ukrainian wheat buyers in the EU demand obsolete set of documents as the trade is much simpler. It’s just there has been no tradition of trading via Romania, Hungary, Poland before, it is being developed right now.
Because of the abovementioned reasons, the exports figures slumped almost fourfold in Ukraine. The matter of maritime trade via Ukrainian sea ports has become more political than commercial. What is going to happen on the western border will mean Ukraine’s integration in the European Union. As President Duda said, the border between Ukraine and Poland will practically dissolve. There is more dynamics in the indicators of trade with Romania. All this will lead to a situation when it will be much more convenient and lucrative to place EU-oriented production facilities and companies in Ukraine. This will also make the foundation of our strategy.
– The European Business Association has initiated a Ukraine’s address to the UN to establish a specialised exclusion area. How is this possible and what is currently being made in this direction?
Taras Kachka
Lot is being done. It is not only the matter of ports open but also that of risks involved. A commercial vessel will have to be routed and a decision made to ensure it safely reaches Odesa, Chornomorsk or Mykolayiv. There are examples from a special operation near the Horn of Africa when the military presence reduced piracy-related risks. There is a discussion currently developing, it is going at the level of heads of state and international organisations, about the measure potentially being the only way of ensuring food safety.
– Regarding borders with the EU: the customs infrastructure cannot cope with current flows. What are the most frequent problems at the border? What is happening to the Customs? Are these the problems for both sides and can they be resolved?
Mustafa Nayem
Before the war, 66% all the national exports expressed in money terms were going via the sea ports. Now other transportation modes are used instead. The railroad company is maximising its exporting capacity but the heaviest load is still borne by the road transport as it is faster and poses less technical and infrastructure questions.
Then there are two factors that have also become critical: the fuel and the agroindustrial produce. The number of hauliers looking for the license has grown by 30%. The procedures of obtaining licenses and international carriage permits for grain and fuel traders have been simplified to the maximum. When before the war there were 1,100 fuel carriage licenses, now their number stands at 1,400. 300 licenses were issued in just one month – a huge increase. Given that previously the license processing time was three to four weeks vs. just a day or two now, the number of licenses issued within one month now equals that of licenses that would have been issued within a year or two before.
There are problems with the lack of experience among the carriers. They do not know all the regulations in force on European markets and roads. This includes the ecology certificate and authorisations. Because of this the border crossing points towards Poland and Romania, but for the most part, on the Polish border, also including the Polish border crossings, are facing huge workload.
What is happening at those border crossings now? First of all, objectively there are only so many vehicles that can be processed in 24 hours. It is linked to the staff number and the time. E. g., agroindustrial and food products mean phytosanitary control measures that are taken by both sides. There are agreements between the services, and all the services on the Polish side operate round the clock, which greatly simplifies the procedures. Secondly, the Ministry of Economy has initiated a discussion on the transfer of customs control measures inside the country wherever it is possible. The problem is not only with Ukraine being unable to export its produce; it is also about the EU and the countries receiving cargoes – primarily, Poland and Romania – having not enough infrastructure to handle the volumes. Constanza is now clogged, and Gdansk is overwhelmed too. As regards fuels and lubricants, there is a problem with cargo shipment locations and batch size: contracts have been signed but finding free berths at ports is a challenge.
Concerning the lines at border crossing points and everything happening there now: it is a disaster. There are currently up to 3,000 vehicles lined up at the border to leave Ukraine and about 1,200–1,500 them trying to enter Ukraine. The border crossings have not been equipped to process that many vehicles – particularly, the long-haul ones. There are only four border crossings on the border with Poland – Yahodyn, Krakivets, Shegyni and Rava Ruska – able to handle 20-ton lorries. There are special areas arranged for military shipments and we try to see at least these goods going non-stop across the border.
It has been agreed with the border guard service to let empty tankers going outside the country for fuel imports skip the lines. However, the width of the roads sometimes prevents this from happening. In the coming days a separate lane to only allow fuel tankers will be established at a certain specific border crossing. It is also necessary to make some crossings at the Polish border only available for cargo lorries re-routing passenger transport and private vehicles to other crossing points. This primarily concerns Yahodyn and Krakivets, the traffic from which can be routed towards Ustiluh and Shegyni.
– What is the time frame for such plans?
Mustafa Nayem
This is going quite fast. I cannot judge the work of the border customs service – it is their area of responsibility – but we can help with fitting infrastructure on approaches to these border crossing points. We are currently working on the opening a cargo and a passenger sectors at Krakovets. It will be possible to make it happen in Medika in a week or two. In the meantime, temporary facilities will be available and the permanent ones will be ready within three months.
A comparison of the designed and the actual throughput capacity on the border with Poland shows even with all border crossing points working at 100% capacity the number of vehicles leaving the country will grow by 30%; add here the fuel imports that have grown 15 times. The scale is incomparable. The country is fully blocked in the east and the south; the only thing left are the western borders. We need new border crossings opened. These are now opened in Romania: Krasnoilske, Dyakivtsi. Hopefully, there will be, at least, one cargo terminal there. Nyzhynkovych, Budomezh, Varezh; these three points could be opened if for empty vehicles. The Poles are sceptical about it as their local governments are reluctant to allow that many vehicles via the unfitted crossing points.
– How long it might take to prepare such a border crossing point from scratch?
If it is simply about placing a boom gate and opening it, then we will have to agree on legal aspects with our peers on the other side. However, the measure itself will not solve the issue because a causeway to the border crossing point cannot handle long-haul vehicles.
But there are border crossings ready to be expanded. Opening a new border crossing with road and infrastructure, even if ASAP, will take, at least, three to six months. The estimates made for Krasnoilsk showed UAH300 million will be needed to open a lorry terminal. The question is, if another party is also ready to invest this much in a given timeframe: they are yet to see some benefit of it. For the Polish side specifically, what it will get from the opening of three or four more border crossings? Investments are necessary. We do hope to have a vision of expanding all the border crossing points to enhance their performance and we will bring a proposal with a specific figure to the government, but the amount will be large enough.
– A question from the Association of Carriers: There are complaints about problems with the Polish side demanding permits as per the approved list of means of transport even in spite of preliminary registration of fuel carriers.
Mustafa Nayem
This is not true. We have a dedicated task force working solely on this matter. Fuel is a critical story for us; all those licenses, permits, certificates we issue them within an hour. The was a problem with the Polish side: it was a crisis for them, they were not ready to issue additional permits but agreed about the fuel. The lists of transport vehicles we prepare and submit to the Ministry of Infrastructure and from there, to the Customs Service, may not reach destination in an instance. We have a special group, a chat on the WhatsApp, where many people post and we resolve matters as soon as possible. I hope we will be able to sort the matter of Polish permits within three days and there will be no more problems.
– To which extent is European infrastructure ready to process cargoes carried by railway?
Vyacheslav Yeriomyn
The principle that works on the railroads of Europe is the open market one. The reloading is not regulated; therefore, all businesses leaving for abroad makes agreements with the European one and independently sets up and coordinates the facilities. We are for the most part having the role of a signpost showing where to go, where to develop opportunities; then other mechanisms come into play. Therefore, the key task for Ukrzaliznytsia is to show our domestic and European businesses those options they don’t see or understand.
– How many years will it take to replace the Ukrainian gauge with the European one? How much it will cost and what are the priority directions?
Vyacheslav Yeriomyn
First, the Ukrainian businesses are not fully prepared for this. We are not a self-sufficient structure with separate gauge disconnected from the rest. To make this transfer, we have to understand our clients (plants, factories, silos) need to redo the railways they manage. It is about not just public but also private investments. Are our businesses ready to pour the money? We cannot bring clients to only tell them: ‘We are not going to provide wagons unless you make your tracks’. On government matters: it is about organising and implementing projects related to the carriage of passengers. Here the infrastructure is fully in the domain of Ukrzaliznytsia. However, when talking about the carriage of cargo, we, first of all, need to start creating a working group – a round table – to discuss who is ready to do it and move on.
Second, what should we do with this number of wide-gauge railcarriage? There are many private ones besides the wagons owned by Ukrzaliznytsia. The European Union also has other technical specifications on brake types, coupling devices, the bogie type and the whole principle of the car are different. Then we will have to tell those legal entities or economic agents they should sell their railcarriage for scrap and buy new ones for the narrow gauge. It’s a comprehensive issue that requires a careful consideration. There are positives and negatives that have to be weighed to see how to resolve them.
Taras Kachka
Technical aspects make for only one and not core component of this barrier to trade. It is not only about changing cars from the wide gauge to the narrow one; it is also the matter of commercial coordination in huge corporations. Ukrzaliznytsia has considerably developed to meet sea port requirements. It is also the matter of the system, even of commercial contracts: what if we supply a commodity to only find a port there being completely different and suited for other types of cargo? It will mean the need to push others; it is a competition, which exists everywhere. This will be a huge explosion indeed. There is no magical solution; one cannot say: let us have the wide gauge, it will simply require rebuilding the whole army of our manufacturers, traders and logistics managers. It took 15 to 20 years with ports; it would be unrealistic to expect something like this done in three to six months on the western border. We can reach maximum capacity by resolving issues on a case-by-case basis but strategically it will take years to settle everything.
– How much grains can be currently transported by rail? Is there a chance to increase the volume?
Vyacheslav Yeriomyn
Ukrzaliznytsia can transport the same volumes it transported before the war. The question is if Europe is able to handle this? We have already received the answer: No. Therefore, we increase the volume of transportation as far as Europe is ready to process it.
– The European Commission has presented an action plan for establishing corridors with short-term, midterm and long-term sections in it. What is in the plan, what key directions can be implemented and what key decisions can be expected from the EU?
Taras Kachka
Even if we take down all the regulatory things, the matters of physical capacities and infrastructure will remain. What the European Commission can offer is the coordination of all the routes and way to assist businesses with faster rebuilding of trade channels. Danube navigation and our daily work to solve technical issues create conditions for faster fostering of the ties. For example, now we have a 1 million-ton quota for wheat trade with the EU. There are import quotas for customs-free imports of Ukrainian wheat we have been provided with every calendar month. It can be done now but not all of the traders are happy to mess with it for it takes time and is rather bureaucratic. Therefore, EU decision to abolish tariffs, which is about to enter in force, will simplify the administration.
– Already in summer the exports may face problems with Danube port infrastructure due to their logistics capacities being traditionally loaded with Romania, Bulgarian and Hungarian wheat and barley. Have you heard of such risks?
Taras Kachka
Clearly the new harvest is coming and the wheat from Romania, Serbia and Bulgaria will go there. Constanza has never been idle as a reserve port. One component of our work is to assist with simplifying bureaucratic burden, to provide information and also to re-wire the brains of business decisions-makers. Everyone is now in a situation when new business solutions have to be sought, new strategies developed. The guys are reviving their knowledge of geography. There are lines at ports; there are issues of channels full of barges. Certainly, there is some competition there because some companies would adopt a new business strategy while some others have discovered a new opportunity and are thinking strategically years ahead developing trade via German ports. Therefore, when issues of the Danube arise, they mean a challenge for both the government and businesses as no one has a lead role in it.
– What is happening in Adriatic Sea now? Are there any agreements with ports there? Is it possible to develop this direction?
Mustafa Nayem
The situation is not easy there. First of all, it is harder in terms of logistics; secondly, they are overloaded themselves. This cannot be a cure in terms of neither economic viability nor physical results achieved via available port logistics (though these are being considered too). I cannot be more specific on that now.
– Onto the story about Belarus and Lithuanian Transport Minister. One solution to deblock exports could be a humanitarian corridor via Belarus with further shipments by se via the Baltic ports. Is theoretically possible at all?
Taras Kachka
The Baltic ports of Lithuania, Latvia and Estonia have most commodity-handling capacities among the sea ports of Europe. The interconnectivity between railroad networks of Ukraine, Belarus and Lithuania makes it technically possible to transport commodities in absence of access to normal operation of our ports in Odesa and Mykolaiv. Concerning the matter of deblocking sea ports, the deblocking of humanitarian corridors via Belarus can be seen as a forced move in time-critical situation. If we are not able to provide necessary exports, particularly, of grains in summer-early autumn, this may lead to a comprehensive food crisis in the world. Consequently, we have addressed all the governments and partners with a need to resolve the problem with ports around Odesa or alternative supply option via Belarus. Still, the risks do not go anywhere. No one can guarantee the Belarus route will be safer than the maritime one; it is hard to predict it. We have addressed the World Trade Organisation and the UN requesting to provide guarantees for shipments either via Belarus or the Black Sea. Going the evolutionary way through the western border will not achieve it in the coming months, rather in some years. Hence, if we want to avoid a global crisis, we will have to find a political solution to it already this year.
– About 1.1 million tons of grains, oil and grist were exported in April, way more than in March when less than 200 thousand tons had been shipped. Could this mean the May figures may be greater?
Taras Vysotskyi
From the perspective of agrarians, this is surely possible. It is rather about shipments being processed abroad. Our preliminary estimates showed 1.5 million tons is the maximum that can be transported via corridors. We can count on that in May with only alternative ways further on.
– How logistic routes are being changed inside the country? How is it working now?
Taras Vysotskyi
For the past ten years, everything inside the country was market-based: the only state operator was Ukrzaliznytsia with all the rest – brokers, traders, railcarriage owners, service providers, rail and road logistics companies – being private market operators. There was a clearly visible correlations between the supply and the demand. Presently, in the war time, practically nothing has changed. No governmental brokers, logistics managers, road carriers able to work under certain regulation, have appeared. The same principles apply but the circumstances are much more complex, from the cost of fuel to possibilities of logistical access to European countries to the need of search for railcarriages. It should be specifically remembered there is such a thing as mobilisation of males, lorry drivers inside the country. All these factors have contributed to substantial price hikes though one would not call this a monopoly for there are dozens of service providers.
– A case of a vessel that travelled to Egypt, then to Syria; there were reports of grain, from 400 to 500 thousand tons, smuggled from the occupied territories. What is happening now on the occupied territories? Are the invaders trying to take the grain away and sell it to other countries?
Taras Vysotskyi
It should be noted there is no strategic stock there. There is at least 25 million ton left for the internal consumption before exports. There are 1.4 million tons left on the temporarily occupied territories that we had not been able to evacuate before the occupation. Therefore, there can be no million tons-worth of exports; actually, everything has been offloaded from the biggest silos, it is about 500 thousand in total. There are no more mass-storage facilities there to steal and take away fast and in large quantities.
– Seed association chair has told the Ekonomichna Pravda about the three vessels laden with corn that left Kerch for Turkey in May. Do you know anything about it?
Taras Vysotskyi
I know nothing about these vessels, cannot confirm or refute anything. But it is known for a fact there are vessels going from there and Russia continues exports despite the sanctions.
– Is it possible to quickly expand the storage and processing infrastructure for agricultural raw products we are not able to export on time?
Taras Vysotskyi
Here the situation is less critical than with exports. The export rates are not growing fast; they will be as per the prospective forecast. Even if all the next marketing year will see exports of 1.5 million tons a month, for us to keep it at 10 million tons – and we actually hade 50 to 60 available, some left on the temporarily occupied territories – this will make 15–20%. As regards grains, it will be easier to cover these volumes, there is a full storage with losses incurred for the wheat but it still works. They also actively work with corn placing orders for it. It is harder with oil – they need some rather specific storage conditions. However, with force majeure conditions taken into account, the oil crops will be taking primarily classic silos and the grains will be sent to alternative ones. Yes, it may be a challenge, but eight to nine million tons are just a challenge, not catastrophe. It may still be possible to restructure it, if with difficulties, to end the marketing year.
– Is it possible to store them? Will it make sense? Will it be possible to potentially use overseas facilities?
Taras Vysotskyi
We will not be able to move them. There is no problem with everything that passes the border, the problems are with crossing it. Then dispersion and distribution will take over. The limitation is in the volume we transport outside the country.