Diana Stamikova: Will Transit Cargo Be Transported Through Ukrainian Container Terminals?

Diana Stamikova Commercial Director of TIS Container Terminal 21 October 2013 16:38

Transit of cargo through ports remains the obsessive idea on which fighters for maritime cargo traffic put their trust and a lot of hope. The TIS Container Terminal’s Commercial Director Diana Stamykova discusses the issues that shape a country's reputation as an attractive transit route, as well as the current state of these issues in the Ukrainian maritime industry.

The answer to this question today is that it is 50/50 – transit cargo will either be transported through Ukrainian ports or not be transported. All the market participants who are in their first year of operating on the market understand that there were definitely reasons for such skepticism. Those reasons probably remain. In my memory, we have been saying since 2007 that transit goods are leaving, that it is necessary to attract transit goods properly, and that it is necessary to fight for it, and we have been discussing the steps that we need to take, and so on. We are also talking about it today. The replacement of the pessimism in this regard is facilitated by the information that the Ministry of Infrastructure and the Administration of Ukrainian Seaports have outlines for themselves a range of activities and a number of projects aimed at increasing the volume of transit goods. I think there are prospects for Ukrainian transit if these measures do not remain only at the level of plans or draft laws but transform into real action.

For cargo owners, the attractiveness of a port is determined by a very simple set of parameters. The first is the speed of delivery, the second is the predictability of the delivery time, and the third is the cost. Let us see what the Ukraine has to offer in these areas. One of the most important factors that we cannot influence but with which we are very lucky is geography. Ukraine has a great location - at the intersection of many corridors. Speaking of container traffic, it is the Europe-Caucasus-Asia corridor. All the prospects for development of transit traffic exist here. Our transit partners are member-countries of the Customs Union of the Common Economic Area (Russia, Belarus, and Kazakhstan), Poland, Slovakia, Romania, and many others.

Probably, it would not be quite right to rely on geography alone. At the very least, that would be shortsighted. Let us consider what we have in terms of infrastructure and availability of rolling stock.

Infrastructure, storage, and terminal facilities have all changed significantly recently. The situation has undergone development from an acute shortage of terminal facilities to the abundance that we have today. Of course, we were largely helped in this by the economic crisis, which has reduced the volume of cargo passing through Ukrainian ports, including transit cargo. At the moment, taking into account the existing terminals and the Quarantine Mole that is under construction, I estimate the capacity of our container transshipment market at approximately 3 million TEU. At the same time, you can judge the workload of terminals for yourself. Ukrainian terminals handled about 300,000 TEU of loaded containers in the first six months of this year, and the market will reach about 700,000 TEU in the entire year. There is room to grow and things to aspire to.

For cargo owners, the attractiveness of a port is determined by a very simple set of parameters. The first is the speed of delivery, the second is predictability of the delivery time, and the third is the cost.

From the viewpoint of availability of rolling stock, there are also no special obstacles to growth and attraction of transit cargos. Railway container platforms are available. I am one of those dinosaurs of the market who remember how containers were transported in gondola cars due to lack of container platforms. Now, fortunately, we no longer have to resort to that. It is also nice that thanks to the existence of rolling stock and, in particular, railway platforms, we can create container trains.

Container trains are very important to our potential and the few existing transit customers that transport goods that are used in assembly-line production (these could be knocked-down sets of parts for automobile assembly or household appliances). That is, the cargo traffic in which regularity, predictability, and delivery time are important. Of course, block-train shipments can also significantly reduce the cost of such transportation. However, it is true that there are some difficulties and problems involving formation of container trains at Ukrainian terminals. Not all terminals can form container trains and send them. TIS is one of the few that can do this. We form a train consisting of 56 platforms within 20 hours, including the time for loading containers and completing the paperwork.

Therefore, the issue of transit can be considered closed from the viewpoint of railway rolling stock. Regarding delivery by road, everything is also more or less clear. in principle, those investments that our road transport companies made in development of their transport fleets at the peak of the boom in container transportation during the period of 2007-2008 allow us to also count on road transport today without experiencing any shortages.

I am one of those dinosaurs of the market who remember how containers were transported in gondola cars due to lack of container platforms.

What then are we lacking if everything is so fine?

In terms of paperwork, tariffs, and the cost of container handling, we still have something to strive for. Customs clearance of goods now takes 10 times more time at Ukrainian ports compared with European ports. Moreover, the cost of ship calls to any Ukrainian port is 2-3 times higher than the cost of calling at any other port in the neighboring countries of Russia, Romania, and Bulgaria. In addition, it is no secret that for many cargo owners, conditions are created involving deliberate delay of customs clearance of cargo. The aim of this is to create a corruption schemes, but this situation is, unfortunately, not exceptional and not exotic in our country, and this is something that should be taken into account. The amount of time on paperwork for transit cargo is almost the same as that for import cargo. Not surprisingly, this hardly encourages anyone to send transit cargo through Ukrainian ports. The percentage of inspections is about 50% of all goods in transit. This figure does not exceed 2-3% at European ports. In addition, physical inspection of containers at European ports is very rare. X-Ray machines are mostly used there. We have one such machine at the TIS terminal. It allows significant acceleration of customs clearance.

Very often, we are faced with a situation in which control over the processing of paperwork for transit cargo - quarantine, veterinary, environmental, etc. - is transferred to private commercial entities. Again, this leads to increases in the tariffs for cargo handling at ports. If one looks at all the above through the eyes of a cargo owner, the picture that is painted is not a very rosy one. In addition, it is clear that the costs incurred by the cargo owner when transporting cargo on transit through Ukraine will be significantly higher than when transiting cargo through neighboring countries.

For transit of cargo through Ukrainian ports to be the first choice of a cargo owner, we need to achieve the optimum balance of cost and speed compared with our competitors and counterparts in Russia, Romania, Bulgaria, and the Baltic States. Very often, we find ourselves in a situation in which transportation of cargo on transit through Ukraine in absolute numbers – i.e. sea freight and the overland component – is cheaper than in neighboring countries. However, the unpredictable processing periods and various additional charges and fees often force cargo owners to avoid using Ukrainian ports.

It is great that the Ministry of Infrastructure and the Administration of Seaports are now jointly implementing a number of measures aimed at liberalizing the cost of transshipment at ports and port tariffs, as well as simplifying customs clearance of transit goods and eradicating corruption. Together with the introduction of an integrated transport information system, it will lead Ukraine to the desired result - our country will be one of the first choices of cargo owners as a transit country.

Another issue remains slightly behind the scenes – it is the political issue. The volume of transit of cargo through Ukrainian ports is 90% dependent on the volume from member-countries of the Customs Union, and Russia plays a major role there. Therefore, if Ukraine chooses the Customs Union over the European Union, it will be much easier to attract transit cargoes.