Interview with the President of Containerships: the Role of the Black Sea will Increase Substantially

The general director of the Finnish container operator Containerships, Kari-Pekka Laaksonen, on the share of the share of the Black Sea region’s market that his company is aiming for and why working in Ukraine is interesting and profitable.
Kateryna Hrebenyk 27 February 2013 10:12

The arrival in Ukraine of new players on the transit market has been a rare phenomenon in recent years. The country lost 10 million tons of transit cargo last year alone, certainly characterizing the previous negative phenomena as a sustained trend. The global players on the market of transport services argue that the problem is high railroad rates at ports. For example, this was stated recently by a representative of the Danish company Maersk Line, Jesper Pedersen, who complained that port tariffs in Ukraine were three times higher than port tariffs in Romania and 2.5 times higher than port tariffs in Russia. However, it is obvious that this is not the only problem because the Ministry of Infrastructure and Ukrzaliznytsia regularly offer discounts for transit tariffs, which does not particularly change the situation. The general director of the Finnish company Containerships, Kari-Pekka Laaksonen, shared his expectations regarding the benefits of working in Ukraine and the possible risks in an exclusive interview with the Center for Transport Strategies. The Finnish company has noted the high transit potential of Ukraine and recently opened an office here.

Recently, Ukraine has been losing rather than gaining new "transit" customers. Why did your company choose our country?

The reasons are several. First, the choice was obvious because of the geographical location of Ukraine. We have been operating in the Baltic Sea and the North Sea, as well as in the Mediterranean for 45 years, and we have our own fleet of 13 container vessels. Eight of them are operating in the north, linking Britain, Ireland, Western Europe, Russia, Finland, and the Baltic countries. The other five are operating in the Mediterranean, on the Turkey-Tunisia-Algeria-Libya market. Therefore, one of our goals is to connect these two fleets through Ukraine, which is in the middle of these markets.

Why was the decision made specifically now? For example, you entered Russia as far back as the 1990s

That is the second. It should be remembered that the European Union’s new rules on protection of the environment will come into effect in 2015. They will strongly influence the rules of the game in the Baltic and North seas, and this will generally change the entire logistical chain for our customers. In short, they will have to install expensive equipment for filtering fuel or switch to diesel. Both options will result in increased costs for carriers. The alternative option for them is to direct traffic to the Mediterranean Sea, where these rules will not yet come into force by 2015. Therefore, we believe that the role of the Black Sea will grow substantially.

We expect a growth of at least 10% in the Black Sea region

Repeating the general economic trends, it is obvious that the transport market is currently not in the best condition. Is the expansion of your business geography timely?

The current growth rate in Europe is very low indeed, ranging from 0% to 2% in most countries. We have a number of forecasts for the market in the Mediterranean, the Baltic, and the Black Sea regions. They imply that it is specifically in Ukraine where growth will be faster than in any other European country. We expect at least a 10% growth in the Black Sea region.

What volume of new cargo traffic will your entry onto the Ukrainian market help you to attract and what traffic do you expect through Ukraine?

At present, the total container traffic in the Black Sea is about 2.5 million TEU of empty containers and about 1.7 million if you count only loaded containers. For us, it will be a good result if we can take 1% of this market, which is about 17,000 TEU. Speaking of the northern region, where we have been working for a long time - the England-Finland-Russia market - about 800,000 cargo shipments take place here per year (including automobile runs). Our share here is 5%, and we would also like to maintain it with the addition of Ukraine. We estimate the potential of the entire region in the broader sense, including transit between the Black Sea, the Baltic Sea, and the North Sea through Ukraine, at about 40,000 TEU per year. This is what we can transport through Ukraine. Of course, not in the first year but after some time. That is our goal.

You have already announced services from Ukraine, using the Viking trains. Tell us more about it.

Yes, it is a regular container service for delivery of goods from Britain to Ukraine. Goods arrive at one of the two British ports with which we work - Portsmouth and Sheerness - then they travel by sea to Klaipeda, from where they are delivered by Viking trains to our dry port in Kyiv. It will be a weekly service. The periods of delivery are 4-7 days from Klaipeda to Kyiv and 7-10 days to Dnipropetrovsk. The total delivery time from England is about two weeks.

Do you have an agreement with Ukrzaliznytsia on ensuring the security of specific volumes?

No, there are no obligations regarding volumes. However, we expect the cargo traffic between Ukraine and Britain via the Viking train to be about 5,000 TEU in the first year. This will be a good result.

What are the plans for the Zubr container train?

Our ships call at Klaipeda, as well as at Riga. Therefore, we do not make much distinction between the Viking and Zubr trains. We will use both trains for the same service, depending on schedule.

What else is in your plans for the nearest future? There was also talk of a service between Istanbul and Illichivsk.

Yes, we hope this service will be launched in the nearest future. It is presently at the stage of negotiations, but we believe that we will be ready to talk about it in greater detail in a few weeks, maximum in one month.

Why is your business betting specifically on the railway? From your colleagues, there has been a lot of criticism of the tariff policy and Ukrzaliznytsia’s services in general.

Our work with Ukrzaliznytsia is only just beginning. Therefore, it is too early to talk about tariffs or other conditions. These issues are not yet subject to comments because we do not yet fully understand them. Yes, there are different feedbacks about the railways, including about security. However, the risks are minimal when we use container trains because it travels to Kyiv without stopping and it is not broken up anywhere and not delayed for long. In any case, it is safer than road transport, especially since there are a number of goods that cannot be transported by road at all. In addition, this is the most profitable option.

Recently, owners of container fleets have been experiencing a lot of pressure on their businesses from low freight rates. Is your company also feeling the crisis?

One cannot say that this situation is anything new because this pressure has been on for the past 10 years. Yes, prices are going down. Therefore, the only thing that can be done in this situation is to be more efficient, to try to operate at maximum capacity, and, possibly, to find niche markets. Well, we cannot be compared with those companies that operate global container fleets, delivering ships on longer routes, for example, between Europe and Asia. We engage in door-to-door delivery. Therefore, the bulk of our expenses are related to the overland leg. In Europe, our main competitor is cargo transportation by road, so we orient toward this category when formulating pricing policy.