The break-up of the Soviet leader of shipping and the rebirth of the Ukrainian shipping sector
We are pleased to share a recent interview with Gennadiy Ivanov, Director of the dry bulk operator company Kronos Bulkers DMCC, by the Ukrainian sectorial magazine “Ports Of Ukraine”, about the high international level and standards, reached today by the shipping companies from Odessa.
The Black Sea Shipping Company (BLASCO) based in Odessa in the beginning of the 1980’s was the largest shipping company in Europe and the second largest in the world. The Company played an important role in foreign trade and international aid initiatives of the Soviet government.
At the peak of the BLASCO operation (as of July 1, 1988), its fleet consisted of 302 vessels with a total deadweight of 5.2 million tons. As of January 1, 1993, the aggregate deadweight of the Ukrainian merchant fleet was 6.177 million tons. And in the rating of the largest maritime countries in the world according to this indicator, Ukraine occupied a quite solid 25th place. But the fall of the Soviet Union in 1991 caused the end for the Black Sea Shipping Company, as well as most other State-owned companies of the former Soviet Union.
Since that time, unfortunately, Ukraine lost the status of Maritime country and within the years Ukraine was famous in the world as mainly industrial, logistics, but in no case shipping country.
However, today, the entrepreneurs from Odessa successfully operate a dry bulk ships worldwide and carry annually 30-40 million tons dry bulk cargoes worldwide. And to do this, it is not necessary physically own ships, you need qualifications in marine commercial management, the ability to compete with global players and take deliberate risks.
Traditionally, there are two main directions in the operation of ships. The first is technical management, which ensures the proper technical and seaworthiness of ships. The second is commercial management associated with making management decisions on chartering and loading ships and this is exactly what the operators do.
Historically, the international market has developed in such a way that many dry cargo fleet owners are mainly engaged in the technical management of ships and do not deal with the commercial component. This requires separate trained personnel, since most of the vessels operate in the tramp market around the world.
Dry bulk commodities are usually divided into two categories: major bulks (iron ore, coal, grain) and minor bulks (bauxite and alumina, phosphate rock, cement, fertilizers, forest products, petcoke, salt, scrap, steels, sugar). Major bulks account for nearly two-thirds of global dry bulk trade. Minor bulks cover the remaining one-third of global dry bulk trade.
If a ship owner wants to engage in commercial management himself, then he needs simultaneously to track freight, economic indices, trends and a lot of other information literally all over the world. Therefore, many owners prefer to sublet their ships to operators on time charter basis (either for a single voyage, or for some period of time), because operators are more focused on the nuances of commercial use of ships in certain regions. In this way, they are allowed to maintain reasonable expertise in terms of assessment of the available cargo and tonnage book (supply and demand) and thus enable to reduce the cost of operating the fleet and provide competitive freight to cargo client.
Today, a significant portion of the world’s dry cargo fleet is operated by time-charter operators. They control a significant segment of the market, often specializing not only in regions, but also in types of ships, types of cargo, and so on. Operators occupy a large niche between freight charterers (traders) and ship-owners.
The origin of the operator business in Ukraine was the Odessa company “Diamant”, founded in 1991. Initially, the company was engaged in crewing, forwarding, agency services in Ukraine, but then turned its attention directly to the sea transportation sector. Later on, in 1999, they founded a company as a time-charter carrier in the dry-cargo segment was.
In 1999, Gennadiy was still a student of marine university, but absolutely sure that the people who started and developed that business could tell in more details about the difficult period of the formation of the operator business in Ukraine, which was done from the zero level.
Within two years since its foundation, the Company transported about 4 million tons of cargo and has gained a reputation as a reliable carrier. By the mid-2000s, it was a company with strong market coverage, solid background and skilled personnel in both the operations and the commercial (chartering) department. At the peak of its activity, the number of vessels in one-time operation reached 100 units. Company managed to built up very professional team including its own training system for young personnel.
At the end of 2008 there was a global economic crisis, and, unfortunately, the company could not survive in the conditions of a rapid market decline. As a result of company shutdown 30 highly qualified specialists appeared on the market, who possessed unique knowledge and skills of commercial management of vessels with deadweight capacity from 20 thousand to 200 thousand tons. And today we may assert that, as often happens, the crisis created the opportunity.
Later on, the market has gradually accommodated all these professionals, who joined several operators, being newly established by different investors. We can definitely call 2009 as the year of the rebirth of Ukrainian Shipping sector, namely dry-bulk operators. Today, Ukrainian controlled operators transport 30-40 million tons of cargo a year around the world. During peak periods up to total 350-400 vessels were under their operation at the same time. Companies traditionally have central offices and financial centres in traditional large shipping jurisdictions: Switzerland, Greece, Dubai, Cyprus, and Singapore.
This business is very competitive. We can consider at least 150-200 large, well-known operators in the world, who are constantly present on the market. Thus, competition is extremely high. Due to the complexity of the business, operator companies have very high requirements for staff qualifications. Odessa is lucky in this regard because there is Odessa National Maritime University, which educate the future captains and managers for the Ukrainian maritime sector.
In order to be successful the operator must have high-quality and professional expertise of global economic processes and markets, must have a clear risk management strategy, and so on. This is intense intellectual work, without which you cannot win the competition. Moreover, operator company should have very good reputation and background, strictly perform its to contractual obligations in order to get physical owner to accept the operator to manage his vessel worth tens of millions of dollars.
As above mentioned, Ukraine was practically not represented by its fleet in the international maritime arena. We must admit that a lot of Ukrainian companies as port operators, traders, brokers, fleet operators have done an incredible job in the last decade to recognize Ukraine as a serious and reliable player on the world logistics, trading and shipping stage.
Source and pictures: Ports Of Ukraine