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Results of EBA expert talks "Danube - Logistics in a new way"

10 Apr, 2023
Results of EBA expert talks "Danube - Logistics in a new way"

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As the seaports closed last March, companies started to export actively their products via the Danube. Cargo flow has increased several times across this region. And even after the opening of the "grain corridor" in the "Great Odesa" ports (Pivdenny, Odesa, Chornomorsk), the demand for transhipment in the Danube ports did not decrease and remains very high. 

On March 23, 2023, the EBA Southern Ukrainian Office in partnership with Interlegal held the discussion EBA Expert Talks: "Danube - Logistics in a new way”. We talked about the peculiarities of maritime logistics on the Danube, the current state of export transportation by rail, the practice of maritime arrests on the Danube, privatization of ports (Ust-Dunaisk, Bilhorod-Dnistrovskyi) and leasing at the Reni and Black Sea ports, the case of cooperation in the Izmail port as well as challenges for business in leasing the state property. 

The event was opened with a speech by Kateryna Morozova, Head of the EBA Southern Ukrainian Office. 

Mrs Morozova told the participants about the EBA latest activities in the logistics direction, which will contribute to the economic growth of the region and Ukraine as a whole. Thus, the other day, the Logistics Committee discussed with the Ministry of Infrastructure the issue of construction on the water fund lands. And the draft law developed by the EBA Logistics Committee aims to improve the legislation in the field of construction, considering the peculiarities of economic activity within the seaport and its legal regime, as well as to approve the procedure for the allocation of lands of the water fund (occupied by the territorial sea, internal sea waters) as the water area of seaports. It was also noted the importance of implementing and extending the "grain initiative" for another 120 days and the active appeals of the EBA business community to the UN and the Embassy of Turkey with a call to do everything possible to continue the operation of the grain corridor, including joining the Mykolaiv seaport node to this corridor, and as well as an increase in the number of inspections per day of ships with Ukrainian agricultural products. Also during the last EBA meeting with Mustafa Nayem, the Head of the State Agency for Reconstruction and Development of Infrastructure of Ukraine (Recovery Agency), the EBA member companies were able to familiarize themselves with the work of the newly established body and expressed their readiness be involved in the urgent reconstruction of important objects of critical and social infrastructure. 

The event was moderated by Arthur Nitsevych, Chairman of the EBA Odesa Legal Committee, Partner at Interlegal. He noted that the blockade of ports caused huge problems for the region and Ukraine as a whole, but always when problems arise, solutions and new opportunities appear. And precisely because of the blockade of the ports of "Great Odesa", the ports of the Danube region significantly revived their activity. After all, even before the war, the share of the total transhipment of the Danube ports was up to 4%. And with the beginning of the war, the ports of Izmail, Reni, and Ust-Dunaisk remained operational, so agricultural, logistics, and trading companies were forced to direct their logistics flows in a new way. Some companies have completely moved to this region. Thus, the Danube region, on the one hand, has saved business, but on the other hand, there are still certain difficulties and obstacles to business development. 

How did business adapt its work in this region? And what to expect from the Danube ports in the future? That was discussed with representatives of regional businesses and authorities. 

Anton Shapran, Director of Maritime Logistics, spoke about the peculiarities of maritime logistics on the Danube. 

Since March, the Danube ports have become a "lifeline" for many companies. However, when the work of the "grain corridor" was established, the situation in Ukraine gradually began to improve. The analysis of grain export distribution in 22-23 MY by types of transport (railroad, automobile, sea transportation) showed that 52% or 25 million tons of grain had been exported through deep-sea ports. Also, 21% or more than 10 million tons were sold through the Danube seaports, and collectively the last 27% were exported by road and rail transport to Europe, mainly via Poland and Romania. According to USDA forecasts, the planned volume of annual grain exports in Ukraine has already been almost fulfilled and is 34.8 out of 39 million tons (or 89.2%). There would be no export rates that allowed shipowners to raise their freight rates on hype. 

More detailed statistics were also provided on the downtimes in Sulina and their impact on rates for Danube ports. Accordingly, since the start of the "grain corridor" in Ukraine, freight rates have declined, idle time in Sulina has decreased, as well as the average number of vessels that were waiting for the load. For comparison, the average waiting time on the Bosporus, from August to December 2022, freight rates were at the level of the port of Reni ($58-65/ton), and already from January 2023, they began to decrease to $46/ton. So, we can summarize that the factors affecting the Danube ports' freight rate include downtime in the Sulina and Bosporus, the mood swing associated with the "grain corridor" situation and rates proposed by ports of the Azov Sea. 

Valery Tkachev, Deputy Director, the Department of Commercial Work, Ukrzaliznytsia (UZ), talked about the current state of export transportation by rail. 

Thus, in the pre-war year 2021, UZ transported 314 million tons of cargo per year. This is 25-27 million shipments per month. When the war began in 2022, about 90 million tons of cargo were lost due to the blockade of seaports, which were travelling in the export connection of the UZ to the ports. Domestic transportation also decreased, as 60% of companies stopped. Moreover, transit cargo from russia and belarus was lost. 

As the full-scale war broke out, two life-saving alternatives for the UZ came up, namely the transportation of export goods to the western borders, as well as through the ports at the mouth of the Danube (Kilia, Ust-Dunaisk, Izmail and Reni, of which only the ports of Reni and Izmail have railway connection). Thus, the port of Izmail is small, there are about 30 port operators, but they do not have enough capacity for large volumes of transshipments. And the port of Reni is currently underloaded due to the need to transit through Moldova, so there are queues. Port operators in the ports of Reni and Izmail have to invest in the technical equipment of these ports, as the existing equipment cannot cope with the load. 

Taras Dragan, Associate Attorney, Interlegal, focused on the peculiarities of maritime arrest on the Danube.  

In general terms, an arrest is a court-ordered detention of a vessel to secure a maritime claim but does not include confiscation of the vessel to enforce a court decision. And the ship can be arrested only upon maritime claims. In turn, according to the International Convention on the Unification of Certain Rules for Arresting Maritime Vessels, a maritime claim is a claim arising from the ownership and other property rights of a vessel, the construction of a vessel, the management, operation or commercial use of a vessel, a lien on a vessel or implementation of measures related to the rescue of the ship. 

Therefore, the arrest on the Danube has 3 main features that have to be carefully handled. Firstly, the Danube is a river, and the above-mentioned convention refers to maritime arrest. Secondly, the commercial port of Reni is a seaport. Thirdly, river-type vessels are more likely to enter the port. Therefore, there is much more legal work than usual, but Interlegal specialists have successfully resolved all cases of maritime arrest on the Danube. 

Roman Koloianov, CEO of Maersk Ukraine, shared his experience of setting up container logistics on the Danube. Thus, the speaker noted that after the closure of Ukrainian seaports, the company had to look for alternative ways of delivering goods in containers to and from Ukraine. As other countries joined this process, particularly Romania and Poland (using the ports of Constanta and Gdansk), the situation was somewhat improved. However, container transportation is much more complicated than grain export, as issues of cargo transit through the EU arise along the way. Also, since the beginning of the war, everyone used road transport for the delivery of goods, followed by rail. However, over time, due to the increase in queues at the border crossings, rail traffic also stopped. Therefore, at that moment, specialists began to look at the transportation of goods by barges in July 2022, they tried to carry out the first such transhipment from the port of Constanta to Izmail. The company also tried to open logistics from Constanta to the Danube by river and sea. Besides, the port of Reni has an area where you can work with container cargo. It was also possible to achieve that container ships and barges go according to schedule. "The Danube was completely unprepared for large-scale transportation, but the development and adaptation of new logistics routes were successful. To date, we have reached such a format of work allowing a vessel to operate, go from Constanta to Reni by sea and enter the Sulina Canal. And we have two river vessels going from Constanta along the Danube up to Reni". 

Oleksandr Slavskyi, Head of the Regional Department, the State Property Fund in the Odesa and Mykolaiv regions, spoke about the privatization of ports (Ust-Dunaisk, Bilhorod-Dnistrovskyi) and leases in the Reni and Black Sea ports. During the privatization of Ust-Dunaisk port, 8 participants took part in the auction. As the result, UAH 201 million was paid to the budget + UAH 40 million VAT. Regarding the privatization of the Bilhorod-Dnistrovsky seaport, 3 participants took part in the auction, the highest bid at the auction was UAH 220 million + UAH 44 million VAT. Verification is still ongoing to ensure the compliance of the winner with the law. 

The speaker noted that investments are an impetus to recovery and growth, and they announced plans for privatization in the Odesa region. 

Therefore, warehouses and sites in the Black Sea and Reni ports regularly appear at rental auctions. 

At the same time, the upcoming privatization plan includes such facilities as the Regional Research and Experimental Complex, the Izmail winery and several other wineries in the Odesa region, etc. 

Dmytro Falko, Co-founder of UPSS Terminals, highlighted the experience of the company's interaction in the port of Izmail, as well as the lease of state property. 

"On February 24, 150,000 tons of oil were stored at our terminal, and 2 vessels were under load. However, already on February 25, the first missiles hit the port, so the passage was closed. Someday in May, it was already possible to return to work and resume business. Thus, there were a lot of discoveries for me on the Danube about how cargo is transferred to floating berths and how they are designed. 

What did we do? We had a cooperation agreement with Izmail Port. Since we had our small team and our engineering solutions, in a short time we managed to arrive and assemble trestles for unloading cars and rail transport, and thus, at the second cargo area of the Izmail port, we were able to organize the transhipment of bulk cargoes by sea." 

The speaker also noted that during this time the cargo flow in the Danube ports increased by about 400%. However, no one can predict how long this demand will remain at the same level, how the "grain agreement" will work, whether Mykolaiv will be included in the "corridor", etc. Therefore, today it is not advisable to make any significant investments in the transhipment complexes of the Danube. 

Besides, it was noted that the wineries are quite interesting for logistics, as some of them were used as dry ports for the transhipment of oil. 

The war continues, and the European Business Association is doing everything possible to keep businesses operating and making profits. We are especially proud of companies that not only did not stop but were able to open new routes and relocate to continue their activities despite all the obstacles. Many thanks to our member companies for their courage and endurance, as well as their willingness to share their expertise with others! 

EBA Odesa

EBA Odesa

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