The Transinvestservice group of companies (TIS) is the largest privately owned dry cargo port in Ukraine with a cargo-handling capacity that is comparable to the capacities of some harbors and significantly higher than the capacities of state-owned ports. In 2012, the cargo turnover of all its berths totaled 19 million tons with a growth dynamics of 2.5 times. The company consists of five specialized terminals that constitute its respective divisions – TIS Fertilizers, TIS Grain, TIS Ore, TIS Coal, and TIS Container Terminal.

However, TIS prefers describe itself as "a group of terminals" but rather as a "transport hub." What entitles the company to call itself a transport hub is a concept that provides not only for development of transshipment facilities, but also transport infrastructure and, in accordance with its plans for the near future, creation of an entire industrial park.

Realization of these plans will possibly require a little more time than the company expects because the industry is on the verge of almost profound changes (at least in the legislative area). Within TIS, they are aware of the new challenges posed by competition, tariff policy, and the market environment, but they emphasize that the company began preparing for them long before the Law on Seaports became a topic of discussion within the industry. According to TIS’ General Director Andrii Stavnytser, this is because the company originally took a more complex route – to be as less dependent on the state as possible and rely more on its own strengths. Now that the industry is moving collectively to the new format for relations dictated by the Law on Seaports that was adopted nearly a year ago, this experience will enable the company to adapt faster.

In your opinion, how will implementation of reform in the maritime industry affect the value of stevedoring businesses in Ukraine and the value of TIS, in particular?

TIS is not a public company, and we are not selling anything. Therefore, it makes no sense to speak about our capitalization in this context. If we are talking about certain infrastructural assets, i.e. about terminals that are not full or terminals with insignificant cargo base, the values of these assets are likely to fall. The fact is that there are no additional cargoes today, and the potential investor will not consider the cash flow and profitability of this business when investing. For the investor, it will only be in the form of "warehouse-leased berth-10 loaders." Such offers are quite many today at the Illichivsk, Odesa, Mykolaiv, and small ports. I think that their values will fall compared with the expectations of their owners.

Can anyone win in terms of value?

Those businesses that are relatively full today or at least two-thirds full are most likely being capitalized more. This is because any investor that is involved in an existing business that works with freight traffic will have guarantees that a berth will not be taken from him with the arrival of the next minister. Although, nobody provides guarantees in our country, one wants to believe that the concession mechanism will be more reliable than joint operations. We all remember the situation involving the Ukrtranscontainer company, so let us hope that such incidents will not be repeated. In any case, a concession contract for 50 years will inspire more confidence in an investor than an agreement on joint operations that can be terminated at any time, as has often happened here.

How much value can small businesses lose?

It is difficult to calculate because we have no market or, to be precise, the market is very narrow and small. Each terminal owner has his own idea of the value of his business. It is like an anecdote in Odesa: a seller is asked upon arrival, “How much is this chicken?”

“Five hryvnia.”

“What about this one.”

“80 hryvnia!”

“Why so?”

“Because I need the extra money so much.”

It is the same with terminals here. For someone, it will be worth X and for another 3X. However, when it comes to purchasing, the values of small assets will fall.

The Ministry of Infrastructure is now actively promoting the idea of specialization of ports. How do you feel about this?

In my opinion, specialization of ports is something similar to state regulation of tariffs for transshipment at ports. Here we must proceed not on the basis of the ministry’s opinion regarding which goods should go where, but on the basis of what is best for the country and for the populations of the cities in which these ports are located, what is more environmentally friendly, and what affects other sectors such as tourism and what does not.

But the ministry says that it is guided precisely by these criteria

You know, it is hard for me to say what guides them, but to direct cargo flows to where the Ministry of Transport wants is wrong and not market-based. The market itself will determine where cargoes should go. Is it necessary to set some large scopes and limitations? Yes. For example, coal and dusty cargo at the Odesa port is nonsense. That should not happen. This is a limitation that is dictated by the tourist appeal of the Odesa region, and it is right. However, to say that you and your ore should go here and that you and your coal should go there should not happen.

"For an investor, a concession contract for 50 years will inspire more confidence than an agreement on joint operations that can be terminated at any time, as often happens here."

Has this debate already gone beyond hypothetical assumptions and is there specific distribution of cargo among ports?

As far as I know, there is. Anyway, government regulation and administrative direction of cargo to ports should not exist. Ports themselves will attract freight and cargo to themselves and cargo owners themselves know where it is more convenient for them to perform transshipment. In addition, this changes constantly in a "convenient" way - for reasons beyond the control of Ukraine, one cargo goes in one direction and the other goes in another direction. Everything could change in one year. On the other hand, environmental requirements and the needs of the residents of specific regions should be taken into consideration. That is the main thing. There should not be dusty cargoes, iron ore, and coal in Odesa.

For you, as their competitor, it is of course more profitable for goods to go to the Pivdennyi port

No, it is not because we are competitors. Under no circumstances. I am in favor of healthy competition because it only boosts people and it does not allow them to relax. We believe that the stronger our opponent is, the stronger we will be.

You drew an analogy between distribution of goods and state regulation of tariffs. In your opinion, it is equally bad. How exactly does TIS benefit from tariff liberalization?

The market will tell. You know, it is a double-edged sword. In my view, transshipment of coal and ore cargoes is undervalued on the tariff scale. Transshipment of containers is significantly overvalued. Therefore, if I were asked as a representative of the TIS company, I would say that everything was excellent, no need to change anything, and containers are excellently tariffed by the Ministry of Transport. However, although TIS benefits from these fees, they are far from being market fees. If you go to a European, American, or any civilized port, you will see that the rates for transshipment of containers are three to four times lower than the rates in Ukraine.

What about port charges?

The same applies to port charges. It is a very serious problem today. Ukraine has the highest port charges on the Black Sea. Because of this, we are not competitive. How can we attract transit cargo if we are 40% more expensive than Constanta? How can we attract additional cargo if we rob people at the ports? I am not even talking about other levies, both formal and informal – I would not want to go deep into it. There is work to do here.

Do you expect the revenues of TIS in general to rise or fall after deregulation of tariffs?

I think they will fall slightly. When we have market rates, we will have to lower prices, particularly for containers.

Are we talking about the short-term future?

Why? We are talking about market relations, and there is nothing more lasting than the market. Therefore, the market will tell us what the rates should be and I can assure you that they will be lower than they are today.

Not so long ago, there were reports - which TIS did not confirm - of possible acquisition of some shares in the Novorossiysk port. You have denied it, but we know that there is no smoke without fire. Perhaps the company is still considering purchasing certain assets and expanding its business

You know, we have no time for other ports. We have considerable experience in construction and management of terminals. Today, TIS is the largest group of terminals in Ukraine. We closed last year we with a result of 19 million tons. In terms of dry cargoes, TIS is more than any state-owned port in Ukraine, and we can see at least 10-12 million tons in additional cargo that we can attract.

Within what period?

I would say 6-7 years.

Is the project involving railways continuing?

Yes, we are presently constructing the 12th kilometer of a siding, all the documents have been signed, and it will be completed soon. TIS is also beginning the construction of the Pivdennyi park - our station. We are calling it a "station," although it is actually a park that will allow us to create complete train consignments and unit trains. There will be electrified tracks (a total of around 24-26 tracks in width) - a huge station with an area of more than 40 hectares. Investment in the project is about USD 60 million.

"In my view, transshipment of coal and ore cargoes is undervalued on the tariff scale. Transshipment of containers is significantly overvalued."

At what stage are the plans for construction of the Pivdennyi industrial park?

The industrial park is in development. We had one major client - perhaps the largest beer producer in the world - but I cannot name it. Unfortunately, they have curtailed their plans for development in Ukraine: their assessment of beer consumption in this country is falling, so they have completely left the market. We are now attracting other clients, and one of them is an oil and fat plant, construction of which will literally begin in 2014. We are also launching two bulk oil terminals - the first at the beginning of June, the second in late July. The investors are the companies Risoil and Allseeds, each with 500,000 tons of oil per year.

Which of TIS’ terminals currently account for the largest share of the company’s revenue?

The coal and ore terminal and, as usual, the grain terminal.

How are things going with containers?

The container terminal is the most underdeveloped of our businesses today, and we do not hide this. However, we are doing our best to make it work. By the way, I have news for you - a new container line, the CMA CGM company, will come to us in the middle of June and provide regular service with its own steamboat.

Will this be the second container service at TIS?

One can say it will be the third because until now, there was Maersk together with MSC. Now, we are talking about CMA. The service will be provided on the Constanta-TIS-Taganrog route. It will operate once every two weeks during the first phase, but it will depend on occupancy in the future. Imported electronics and some small exports will travel on it. Unfortunately, it is thus far a small steamboat. By our standards, it is more of a junk, with a length of only 95 meters. In any case, it is a good sign that the container terminal is coming alive.

How would you assess the situation on the container market as a whole?

The container turnover in Ukraine is falling. By the way, this is a serious problem. There are two reasons for the fall. First, problems with the customs, because of which fewer imports come to us in containers. The second is more global, and it is the fact that the Turks are paying a lot more freight. If you take an empty vessel to Turkey and fill it will cargo to China from there, the difference between Ukraine and Turkey today in terms of freight rates to Asia is almost USD 300-350 for almost all lines. This is a situation that has been developing literally for the past two weeks, and it is very bad because export of timber has stopped, export of grain in containers has stopped, and export of ferroalloys and pipes is slowing down. Export of hazardous goods - nitrate and so on - feels more or less fine. However, the situation involving empty vessels is very difficult.

What volume of losses are we talking about?

I think it is 7,000-8,000 containers per month for all ports. This is already evident from the operational statistics: minus 20% at the Illichivsk seaport and minus 10-12% at GPK in April. Those are significant volumes, although it is possible that it will be a short-term trend that lasts for a maximum of two or three months. It is presently the stone season in Turkey: they are exporting huge quantities of granite. The situation will possibly improve by the autumn, as soon as it is over.

One of the first projects prompted by the reform of ports - the construction of a coal terminal by the Portinvest company - is already being implemented near you at the Pivdennyi port. Does TIS see any threats or benefits from this?

Yes, it is a big, ambitious, and heavy project. Their plans include major dredging, which is already being performed. For the first time in the history of Ukraine, their management at the port is very professional, and it is comfortable to deal with them. Yes, it is quite hard, but they have a business logic, and this is the most important thing. As for competition, I repeat that competition is always a good thing. Although, of course, I will not hide the fact that we are afraid of this project. However, if the reform of Ukrzaliznytsia and tariff policy is successful and the Portinvest project arrives by that time, there will be enough cargoes for everyone.

Will TIS benefit from the dredging taking place at the port?

We are not benefitting directly at present. The depth of our berths is presently 15 meters. We will benefit someday when the dredging reaches our part of the water body, and the maritime administration will receive substantial additional charges.