The resumption of activity at the ports of Mykolaiv and Olvia would significantly boost Ukraine's export potential. The port operators themselves are ready, but the military is currently against it due to military threats. Is it still possible to reopen these ports, and when?

Since the beginning of the full-scale invasion, Mykolaiv ports have remained blocked. The enemy is close to the Bugsko- Dnipro-Limanskyi Canal (BDLC) on the captured Kinburn Spit, and controls the access to the sea. So, as the head of the Ukrainian Sea Ports Authority (USPA), Yuriy Lytvyn, noted, these ports are ready to resume work, "but for security reasons the military does not allow (them) to start." Although, according to him, the USPA pays a lot of attention to this issue, consults with the military and is working on various options. What are the chances that the ships will leave Mykolaiv ports with export cargo, for example, this year?

Second only to Greater Odesa

When it comes to why it is important to restore the full-fledged operation of Mykolaiv ports, market participants emphasize the reduction in logistics costs. This, in turn, increases the competitiveness of Ukrainian exporters and impacts on the Ukrainian economy as a whole.

This mainly concerns agricultural products. In 2021, according to the USPA, Mykolaiv seaport retained the first place among Ukrainian ports for transshipment of vegetable oil (2.8 million tons) and the second place for transshipment of grain (12.9 million tons).

"Yes, today grain is exported through the ports of Greater Odesa, with the Danube as an alternative. But most of the agro logistics is focused on Mykolaiv. According to my pre-war estimates, 70% of Ukraine's elevators are located in such a way that it is most profitable to transport grain there. Of course, if this logistics is restored, it will reduce farmers' costs," Mykola Gorbachov, president of the Ukrainian Grain Association, tells CTS.

"We are talking about restoring competition in grain transshipment, which means returning to pre-war transshipment prices from $25 to $15 per ton of cargo. Shipping on the Southern Bug will take cargo off the roads, and according to the Ministry of Infrastructure, every 1 million tons of cargo means a billion in savings on road maintenance. In addition, the launch of Mykolaiv as a grain export leader will allow the resumption of terminal operations, which means more than a thousand jobs. It will also revitalize the shipbuilding cluster," says Mykhailo Rizak, Nibulon's Director of Government Relations, listing the advantages.

"Before the full-scale invasion, Mykolaiv and Olvia ports were growth drivers not only for the region's economy but also for the entire grain business in Ukraine. Such logistics is more convenient and cheaper than the ports of Greater Odesa. Specialized grain terminals provided traders and producers with a significant advantage, making Mykolaiv the fastest growing port region," Dmytro Manoliuk, Commercial Director of EVT Grain Terminal, told CTS.

"The opening of the region's ports has definite advantages: cheaper logistics, increased export capacity, which will make Ukrainian grain more competitive on the global market, increased tax revenues to the state budget, an increase in the number of jobs, accelerated regional reconstruction, and unloading Odesa ports to handle other cargoes," he adds. He assures that as soon as the government provides an algorithm for operation, EVT is ready to intensify its activities as soon as possible.


One cannot live by grain alone

The reopening of Mykolaiv and Olvia ports is important not only for agricultural exports. Their work could also facilitate the export of metallurgical goods. Back in 2021, the operators of the terminals in Mykolaiv's water area transshipped 1.7 million tons of rolled metal, 1.2 million tons of pig iron, and 5 million tons of ore.

Mykolaiv port was of particular importance to ArcelorMittal, which shipped its billets, wire rod and steel rebar through the port. Ten years before the Russian invasion, in 2012, the company became a stevedore itself and gradually increased transshipment at its terminal. "At the best of times," it reached two million tons. Ambitious plans called for increasing transshipment to three million tons in the future. A covered warehouse was built for the sensitive rebar, and the company purchased cranes and other equipment. It is closer to Mykolaiv from Kryvyi Rih than to Odesa. The depths in the water and in the canal are less, but nothing much, and the company eventually started to practice loading larger vessels at the roadstead.

If anything suddenly...

But the issue is not just about convenience or cost of logistics. Communication with representatives of various industries shows that businesses are concerned that the existing ports will eventually be unable to cope with the growing volume of cargo. Currently, 75% of maritime exports go through the ports of Greater Odesa. The situation in the energy sector is not encouraging, and some even suggest that it could overload the ports.

"This risk is significant because of the limited capacity of ports and railway stations, as well as the risk of additional capacity reduction due to damage caused by shelling. Another risk of reduced capacity is a shortage of specialized workers due to mobilization processes," the Metinvest Group's press service commented on the CTS.

Metinvest emphasizes that the opening of Mykolaiv ports "will significantly help diversify cargo flow and reduce such risks." And specialized grain transshipment terminals "allow us to maintain product quality and, accordingly, can ensure higher product prices and foreign exchange earnings for the country."

But such a scenario is realistic "provided that certain territories of the Kherson region on the left bank of the Dnipro are de-occupied by the Armed Forces of Ukraine," Metinvest adds. This means safe passage of BDLC vessels to the Black Sea.

Global Ocean Link, which represents the container segment, reckons that the ports are not at risk of power blackouts. "According to the information we have, the ports of Greater Odesa are ready and adapted to work in blackouts. Therefore, this should not affect the operation of the terminals in the context of container handling," Pavlo Lynnyk, Director of GOL, told the CTS.

"These ports used to handle much more cargo than now. Therefore, even seasonality will not bring them to a deadlock. Diversification of the flow is still maintained, so there is a division into Poland and Romania, Baltic ports, Germany, Koper and Rijeka. This, in turn, makes it possible to smoothly distribute the volumes," he emphasizes with regard to containers.

"When transportation volumes began to increase, the existing infrastructure fully demonstrated its readiness to receive them. Ukrainian logistics companies have built large warehouses for the accumulation and temporary storage of cargo in the ports of Pivdennyi and Chornomorsk. Therefore, it has become easier to work with cargoes in the "accumulation" format. The infrastructure is robust enough to process cargo," adds GOL Commercial Director Volodymyr Huz.

Mykolaiv port handled a small volume of cargo in containers. But container players still consider it an alternative to other ports. "Perhaps in this context, there is a prospect of resuming shipping to this region, taking into account security risks. We are trying to diversify our cargo flows in order to be aware of the problems of each direction in case of market changes. It is important to be ready to quickly redirect cargo flows," says Mr. Lynnyk.


Should we push our way through?

Even if it were possible to at least remove the blockaded fleet from Mykolaiv and Olvia, this would be a positive aspect, the shipowners say. And this looks like a more realistic prospect for them.

"If one hundred vessels are evacuated from the Mykolaiv port hub, 70% of this fleet will be able to operate effectively on the Danube River, provided that the state makes the Danube competitive with deepwater ports by providing discounts on monopoly rail transportation," says Mykhailo Rizak, a representative of Nibulon.

Some are even ready to try to withdraw the fleet, even at their own risk, if the government and military give the green light. "It seems to me that the chances of this are greater now than they were two years ago or a year ago. Personally, I am ready to withdraw my fleet from Mykolaiv. At least to work on the Danube. We are not afraid of competition. We have invested a lot in creating our own fleet. Today we are doing everything to maintain the good condition of the surviving units. But this fleet needs to start working right now," Oleksandr Grigorenko, Director of Green-Transportation, commented to CTS.

"I don't think there will be many companies willing to risk their fleet. I know an example when a large company tried to withdraw two of its units. One of them was destroyed by the Russians. They decided to do it afterwards: 50-50 is too big a risk," says Mykola Gorbachov, President of UGA.

...Or a dialog with the authorities?

"There has to be someone who sets an example. On the one hand, there are really reasonable risks. On the other hand, we need a more active dialog with our military. To understand the weapons Russia has in the area of Ochakiv, the weapons we have to counteract it, and so on. To understand the extent to which the commercial fleet can become a target. It is clearly not as "attractive" as the port infrastructure that the enemy is hitting with ballistic missiles. It is hardly correct to assume that the situation that existed two years ago has not changed at all. I think that there is a lack of such a dialogue where the business community and the military would receive more information from each other," says Viktor Berestenko, President of the Association of International Freight Forwarders of Ukraine  (AIFFU).

Industry representatives interviewed by CTS confirm the need to organize a closer dialogue with both the military and the relevant government agencies. "Here, even if you need to move a vessel from one side of the water to the other, you have to wait for permission for three days," said the head of one of the terminals.

"We do not see the desired activity either at the level of any structures directly responsible for this sector or at a higher level. Even today, it would be possible to look for mechanisms at the international level that would compensate shipowners for their losses and ensure the recovery of the shipbuilding industry. But we see no movement in this direction. Business is trying to do something on its own and alone. This is not a strategic approach," complains Oleksandr Hryhorenko.

However, in addition to the immediate threat from the Russian military, there is another. After all, before the commercial fleet can go, the canal needs to be dredged. This requires appropriate conditions. And in addition, the passage through the BDLC will require pilots, who in Ukraine are employees of the state structure.


Turkey is (not) in the game

Business believes in the Armed Forces of Ukraine, that sooner or later they will liberate the occupied territories, which will make Mykolaiv an export gateway again. But this will take effort and time. But at the same time, market participants do not lose hope for a quicker diplomatic solution to the problem.

Particular expectations were set on Turkey. After all, even at the stage of negotiations on the extension of the Grain Agreement, the Turkish side raised the topic of opening the Mykolaiv port within its framework or at least discussing the possibility of withdrawing the fleet of Turkish shipowners from there. Turkish President Recep Tayyip Erdogan stated that Russia had expressed its readiness not to create obstacles for Turkish ships to leave the ports of Olvia and Mykolaiv. As explained by Deputy Minister of Infrastructure Yuriy Vaskov, Turkey was ready to act as a guarantor for its vessels and agreed to act as an intermediary to unblock and exit other vessels. But the shelling in the region continued, Russia did not fulfill its obligations to its partners, and no one left the port. About a year ago, Erdogan complained that Russia was blocking the process.

Already at the beginning of this year, a new spark of hope was ignited by Ukrainian President Volodymyr Zelenskyi. It was about Turkey's negotiations with the UN Secretary-General. It was reported that this issue "may be resolved at the upcoming inaugural UN summit."

"As for the new grain agreement, as I told President Erdogan, we are in favor of expanding these corridors," Zelenskiy said in late February. He also noted that Ukraine is not looking for a format to replace the grain corridor, but rather seeks to expand the corridors. "We talked about opening the sea. The Mykolaiv region is also very important for us. And now I know that Turkey has discussed with UN Secretary-General António Guterres the possibility of free navigation, shipping in the Black Sea. We are ready for such a conversation," Zelensky said at the time. There have been no new statements on this issue. Even if something is happening on the diplomatic front.

Ukrainian diplomat Vadym Triukhan believes that at this stage, there is no reason to expect a secure corridor from Mykolaiv port to the sea.

"In fact, Erdogan's influence is exaggerated. Of course, he himself wants to look like an influential figure, including for his domestic audience. But Putin will not be in his leading strings and will not abandon his plans or positions. And no one trusts Russia's guarantees anymore," he told CTS.

He advises patience. "We see the successes of the Armed Forces of Ukraine in the Black Sea, and there will be new successes. Ukraine is increasing the production of drones that destroy the Russian fleet and infrastructure. The Black Sea will be internal in general," he believes.

"The grain corridor started to function because Russia no longer had the capabilities it had before. If you recall, there was a time when their warships were 12 miles from our coast. Then the Ukrainian Armed Forces drove the Russian fleet away with systematic strikes. In fact, Russia will not look in the best light if it signs any new agreement after such a disgrace," says military analyst Ivan Kirichevskyi (Defense Express).

"The situation with BDLC is more complicated than with the ports of Greater Odesa. There is an intense combat zone there. And the adjacent occupied territories may have 130mm guns, which is a threat to the fleet. There may even be anti-ship weapons there. At least, there were such statements from the Russian Federation earlier," he said.

"Therefore, if we can hope for diplomacy, it is not for Turkey's mediation, but for help from our Western partners. That is, to make even more efforts to provide us with appropriate weapons. We lack both coastal assets and aircraft that could operate in this region, that could detect surface and underwater targets. We need F-16s and appropriate weapons for them. We need hydroacoustic means," the expert lists.

"So, perhaps at this stage, the Russians will not risk attacking the commercial fleet directly. Earlier, they stated that they would consider any ships as legitimate targets, but they realized that their commercial fleet would also be under threat and did not follow through on their threats. However, the Ukrainian military and relevant structures clearly do not want to take responsibility "in case of emergency," even if the business itself is willing to take risks. Moreover, not all players are really ready to take risks even in the case of a one-time evacuation, not to mention the constant visits to ports," Kirichevsky says.

"Not all cargo owners will be ready to transport their cargo to such a risky region," agrees Volodymyr Huz of GOL. He notes that the security issue is compounded by the financial issue. He recalls that even before the full-scale invasion, Mykolaiv port was characterized by the fact that more costs were spent on berthing ships. For this reason, the freight itself was growing. Although the rates for loading vessels were lower than those from the ports of Greater Odesa. In any case, the situation has no tendency to change in the 2024-2025 season, he summarizes.