Ukraine’s transport challenge
As Ukraine moves to realign trade, its transport and logistics become a major focus, and a major concern. Roads are decrepit; airports lack capacity and rail is outdated. Ports are improving, but still require substantial work to be competitive. Intermodal bottlenecks remain chronic. Safety records are dismal. Just as importantly, Ukraine needs to streamline regulations and procedures, a country where “customs” is synonymous with “corruption.” “With rising demand, there is a great need to modernize all modes of transport [and] integrate them better with each other,” wrote the World Bank in an exhaustive report on the state of Ukraine’s transport system and environment in 2010. The World Bank concluded that while Ukraine has little chance of becoming a regional logistics hub in the next decade, improvement at even the national level is crucial. Ukraine’s economy, skewed toward commodities and basic industry, is highly transport-intensive, so gains in infrastructure have a disproportionately greater effect on GDP than, say, countries in Western Europe. The report highlighted one difficulty Ukraine will face as it turns West for trade: Reflecting its Soviet past, the country’s transport system has been much more geared to and oriented toward Russia. That includes everything from rail gauge size to border facilities. Transport inadequacies are especially glaring when it comes to links with Europe. Hard-pressed financially, the new Ukrainian government must ease restrictions, simplify processes and open up more infrastructure development to private investors, domestic and foreign, argues Aleksandr Kifak, an Odessa-based transportation lawyer. Here’s a brief look at each mode of freight transport: Rail Some 80% of freight traffic in Ukraine is carried by rail and the country boasts Europe’s second largest network after Russia. However, a majority of rolling stock is obsolete and a significant portion of the country is saddled with a single-track network. That system is heavily slanted toward Russia and Central Asian countries. Rail remains a state monopoly and passenger traffic is subsidized though artificially high freight rates. At the same time, the railway, Ukrzaliznytsia, has received a fraction of its maintenance and development funding needs over the past decade. This year, the state railway says it will spend 3.04 billion hryvnia ($329 million) on infrastructure - half of what it says is necessary to maintain the system. Roads Trucking is growing quickly, although it still accounts for only about a quarter of transport volume. A scant 280-Km of roads meet EU trans-European standards. Traffic is increasing at double-digit rates, exacerbating the poor conditions of roads and bridges. Ukraine has one of the worst traffic safety records in Europe. Border delays add anywhere from 12 to 18 hours for trucks entering Ukraine. Significant improvements will be necessary to begin to integrate Ukraine with the EU via highways and the country will be pressed to open up investment to private capital as well as rely on multilateral assistance. Air Air cargo is hardly big enough to warrant mention. That’s good because both EU and American authorities have banned Ukrainian air carriers because of poor safety records. Seaports Ukraine’s Black Sea access represents a huge trade advantage. Its coastline is far more conducive to ports facilities than in neighboring Russia. Losing control of the Crimea would deal a blow to its military facilities, but Ukraine’s major civilian ports lie to the west of Crimea. Kifak, for one, dismisses the possibility of Russian interference and explains that historically, the Odessa region has always been part of the Ukrainian west. The biggest complex constitutes the twin ports of Yuzhny/Odessa, plus Ilyichevsk, which is 20 kilometers away. Together, they account for about 70% of the country’s seaborne cargo. Not surprisingly, Turkey is the single biggest destination. However, a significant portion of freight through these ports is historically transshipped to and from Russia. Deteriorating relations may well cause a drop in these flows, Kifak says. The government owns all the seaports and a majority of the cargo handling facilities. However, private operators have begun to move in with greater force and are capturing a growing percentage of traffic. Berth capacity has already increased by about two-thirds since 1998, as has cargo-handling volume. Over-capacity, however, has hit some facilities hard, especially after the 2008 financial crisis, and competition is fierce. Still, that hasn’t resulted in significant streamlining. According to the World Bank report, it took an astonishing 10 to 11 days average to move a container from shipside to the port gate in Odessa. Yuzhny, which handles bulk cargo, is deepening its port channel from 15 to 21 meters, the deepest on the Black Sea. This will allow Capesize vessels. (Now, with few exceptions, Ukrainian ports can handle no longer than Panamax-sized ships.) Germany’s Moebius Construction won the contract. Work began last year and the port project is scheduled for completion next year. Other projects are in various stages of planning. One involves Ukrlandfarming, Ukraine’s largest agri-business concern, which now owns enough land in the Yuzhny area to build a major grain transshipment terminal. Global grain traders such as Louis Dreyfus and Alfred C. Toepfer International also are investigating their own grain terminals. However, one project that could well fall prey to Russian machinations is a new deep-water port Chinese interests have touted to export Ukrainian grains. Wang Jing, the colorful Chinese billionaire, claimed last December he was ready to spend $10 billion for a new port and economic zone. The location: Crimea.