How high port charges hampering Ukraine’s export (Opinion)

Andrey Smirnov, Metinvest Group's head of seaborne shipments, about how high port charges are hampering the development of Ukraine’s export potential.
10 June 2016 13:14

Port charges have never been low in Ukraine. They have been increasing gradually since 2001. The most significant increase was in 2007, when charges were raised by 58%. One of the most expensive ports in Ukraine is the Yuzhny port, where port charges for large-tonnage vessels of the Capesize class were set at the maximum allowable level after dredging operations in 2014, as a result of which the cost of a ship call at the port rose to half a million dollars.

In general, the costs of ship calls at Ukrainian ports are 3-4 times higher than the costs of ship calls at similar ports in China, Brazil, Australia, the Netherlands, and Turkey. For example, the cost of a call at the Yuzhny port is USD 420,000 for a Capesize vessel, compared with USD 112,000 at the Romanian port of Constanta and USD 64,500 at the Turkish port of Erdemir. Ukraine also surpasses many countries in terms of the number of charges: there are about 12 charges in Ukraine compared with 2-4 in other countries. Most of the costs in Ukrainian ports consist mainly of state-regulated port charges - ship, canal, light, administrative, berth, and sanitary charges.

Related Why Vessel Calls at Ukrainian Ports are the Most Expensive in the World

The government’s inconsistent policy on port charges is reflected in the establishment of different rates for export and transit goods. The latter enjoy a preference in the form of a 50% discount on ship and canal charges, which amounts to direct discrimination against Ukrainian exporters. Why is the cost of ship calls for vessels carrying iron ore on transit from Russia 36% lower than the cost for domestic producers of similar goods? Why is the Ukrainian Ministry of Infrastructure creating an artificial competitive advantage for Russian iron ore?

The Ukrainian Port Authority attributes the high charges to the need to finance dredging works. It is true that the draft in the waters of the Yuzhny port has increased from 14 meters to 18.5 meters since 2014. Taking into account the costs of all the major exporters that pay port charges, the Ukrainian Port Authority must have recouped its dredging costs a long time ago. Nonetheless, the harmful policy of unjustified exactions continues. There is no logic in the setting of ultra-high tariffs because the investment in dredging operations were recouped in less than two years despite the fact that the economically justified period for recouping investment in infrastructure projects is 7-15 years. Apart from the draft, the Yuzhny port has no other advantages. The loading rate at the port is 2.5 times lower than the loading rate in Constanta (Romania) and the rate of coal unloading is 4-5 times lower than the rate in Turkish ports.

The ultra-high port charges, which are essentially fixed costs for domestic exporters, coincided with the global financial crisis and the catastrophic fall in the prices of key Ukrainian export goods. The price of iron ore fell by 67% and the price of grain by 30% during the period of 2013-2016. The quarterly dynamics for the first quarter of this year only confirmed this negative trend.

Prohibitive charges during a global crisis impose a heavy burden on producer/exporters. Continuation of the practice of setting unreasonably high tariffs will lead to destruction of the competitiveness of Ukrainian exporters, with all the attendant negative macroeconomic and social implications.