In terms of the consistently growing grain production in Ukraine, the load on logistics and infrastructure in Ukraine also increases. The reorientation of the delivery flows to the low water ports can be one of the ways to lower the competition in deep water ports and following demurrage and expenses. Moreover, there has been a terminal in Berdyansk launched and it is planned to launch a new terminal in Mariupol Sea Port, and also there are new investment projects to modernize the ports. The companies working in this region widen the assortment of the crops production, and ports and terminal widen the list of the products transported.
The main features of the Azov Sea region functioning in terms of infrastructure and logistics, and the use of international practice to improve the process of transportation and transshipment of agriproducts were the main topics of APK-Inform Agency interview with the General Director of the terminal “UkrTransAgro” and the Director of “UTA-Logistic”, Pavel Plotnikov.
— Pavel, You were a participant of the project to study logistics in Europe and the USA. How is the transportation set up there?
Yes, I was a participant. Every country uses its infrastructure depending on the peculiarities of the geographical position and ports location. Every country also has auto transport, railways and rivers. The different types of transport are used based on the effectiveness priority. In Europe it is usually rivers and auto transportation, whereas railways are mostly used for passenger services.
Europe and the USA as well as Ukraine have the weight restrictions for transportation. The USA effectively use the routes, but there they are much bigger in number of wagons. For example, in the EU in terms of the maximal authorized truck weight at 40 tonnes the length of the transportation is up to 200 km, so long-distance transportation of goods is provided by rivers. In Ukraine the situation is totally different: owing to the problems with wagons filling the trucks are forced to transport the goods for 400-500 km which is not logical and ineffective taking into account the well-developed railways. The European countries use the unified transport, the semi-trailers only, and all the movements are strictly planned and negotiated to avoid the down time, and the process of testing and unloading of cargoes is far more rapid and it is automatized as a rule.
— According to Your observations, how does the supply chain work in Europe and the USA? How the do terminals work there, and what services they provide?
If we speak about the similarities, the terminals perform the same role of accumulation and transshipping of cargoes as in Ukraine, but they work more effectively. There are fewer workers and the terminals widely use outsourcing and outstaffing. The delivery of the new products is planned thoroughly. Moreover, considering that all the transport is unified, the body of a truck is set in the form of hoppers, the terminals do not have the tippers for trucks loading.
In France and Germany, the average size of farms totals 200-400 ha. Usually it is organized in the way that the farmer harvests the crop and stores it in his own facilities, and then the traders help to define the quality of the crop and understand the price dynamic and levels. Then, in the trade for short distance up to 200 km the products are loaded by trucks, and by rivers for longer distances. Thus, there is an accumulation of the cargoes consignments. Everything works by the predetermined rules and no one breaks them. There is no stealing. Everything is based on the full confidence and everyone value their reputation.
In the USA, in general everyone turns on line track grain silos which can load 100 wagons per 16 hours (requirements of rail operator). The terminals of the old design are of no use. Ukraine now has the same. The supply chain works in terms of truck-port for short distance and auto-railways-port or truck-river-port if the distance is more than 200 km.
— These trips give You a spur to revise the organization of work of Your own company, didn’t they? What have actually changed in company’s work after the reorganization of grain business?
The experience of France, Germany and the USA showed us that owing to the high competition and efforts to capture the markets these countries had to work on their effectiveness, to optimize the production processes, to launch automation. It was a necessity for them.
For us it was a spur to start doing the same: to make the production more effective, optimized and automated. We believe that in the future, there will be more effective terminals on the market, able to compete and meet international standards.
— Earlier, You mentioned that You started a project aimed to implement new automation system on the terminals. Did it help to optimize the working process and to decline the production cost of the services?
Indeed, we work on the analysis of all the processes of group of companies UTA. Without the use of IT-decisions it is impossible to provide the effectiveness increase of all the processes and consequently the company’s activities productivity growth. Now in separate blocks we test the software package and we have already achieved the cost decline.
— Every year Ukraine increases the transshipment capacities including a new grain terminal in the Mariupol port and the terminal “Agria” in the Berdynsk port. How did it change the “rules of game” in the Azov Sea region and in industry in general?
Our company works on the grain market for a long time and we get used to compete. We consider that the health competition is useful for the business, it forces changes, growth and improvements. We liked the approach of our French partners of construction of additional terminals in French ports. Before the construction they conducted a research of the market and estimations whether this terminal would attract the additional volumes to the port. If the construction of the terminal will bring the redistribution of the current volumes and will not result in the increase of transshipment volumes, the construction of the terminal will not be allowed.
Thus, 5% of the total export of Ukrainian agriproducts are shipped from the ports in Mariupol and Berdyansk. Our terminal UkrTransAgro is loaded for 70% and respectively we still wonder why the government builds the terminal with the loading capacity 3 time higher to ours having no respective throughput. There is a question why this money cannot we used to build roads that are in an unsatisfactory condition, or to reconstruct railways or for dredging.
Berdynsk Sea Port is not our competitor because everyone has its own historic regions from where the products are exported. Moreover, it has the same infrastructural problems as we have.
— Together with this Ukraine lacks the capacities for the handling of the import throughput, doesn’t it? Do You plan to develop this area?
Yes, the capacities of Azov Shiprepair Yard (which is a part of “Mariupol Investment Group”) allow to work with imported products and now we consider the possibility to develop the import of fertilizers to farmers in Donetsk and Lugansk oblasts.
— The port taxes in Ukraine decline owing to the active development of the infrastructure and capacities improvements, and also thanks to the initiative of Ukrainian Sea Ports Authority. How do You estimate the competitiveness of the Azov seaports taking into account the fact that now the cost of transshipment in deep water ports decreased significantly?
The competitiveness of Azov seaports for now remains the same. We also lower the rates and work on improving the effectiveness. We work with different market, so called coaster line ports market. Our activities are affected more by Kerch Strait Bridge, infrastructural problems, ice dues (which literately “kill” the cargos’ flow in winter period), problems with railways.
— The cost of the transshipment in the European ports is 4-5 euros and, maybe in few years Ukrainian terminals will have to use European rates. Should Ukrainian grain terminals transfer to European form of management? Why and what is necessary to do it? How difficult is it to use European experience in Ukrainian reality?
I believe that the rates fall will slow down in near term because today the transshipment costs are almost minimal. I think that in the future most of the terminals will be owned directly by the trading companies having the whole chain from field to the terminal. Also, it is necessary to develop the outsourcing and outstaffing, to change the labor legislation and the mentality, and maybe than we will step closer to the European operating model and as a consequence to the rates totaling 4-5 euros.
— In general, how do You estimate 2018/19 MY for You group? What indicators of shipping and transshipping have You managed to reach by the end of the season? What challenges did You face?
For now we estimate the MY for our group as rather difficult because of the unfavorable weather conditions and as a consequence the crop failure, than putting into operation of Kerch Strait Bridge, delays in passing the bridge and finally the imposition of martial law. Despite all of these, thanks to the confidence of our clients and partners we managed to reach the goals of transshipment and shipment by own transport that totaled 440 thsd tonnes and 30 thsd tonnes respectively.
But the grey market remains the main obstacle for company development, because it plays by different rules. Many different business models do not allow us to compete fair.
— The logistics is being the key challenge for the Ukrainian agribusiness for many years (especially railways) which is less notable in Azov region where the main share of cargoes is transported by auto transport. How have You passed though the peaks of the season and are You ready for the start of the new grain season?
This season we more than any experienced the effects of changes adopted by JSC "Ukrainian Railways". As a result, the share of products transported by railways decreased by 30% to 1%. All the volumes are mostly imported by auto transports. Today our company is involved in receiving the status of route terminal. Also, I should note that in the passing season because of the crop failure in eastern region there was no peak period which slightly offset the logistical problems.
— Do You plan to widen the list of crops shipped and their products of processing, and also to widen Your fleet of auto transport?
The widening of auto transport fleet is only in plan. For now, we work on the increase of the turnover and effectiveness of the current fleet. Speaking of the list of the products shipped, for today we cover all the types of agriproducts for export (wheat, barley, corn, soybean and sunflower meal, peas, lentils and rapeseed).
— We cannot help but mention the issue of putting into operation of bridge though Kerch Strait and the following problems. How did You manage to work in such conditions? How seriously has the search of ships by Russian border force influenced the deadlines and the cost of cargos transit? What is the situation in the region now?
Owing to the weight limitations for the crossing of Kerch Strait the fleet declined by 30%. In the beginning of the season, the demurrage of the ships lasted for 7 days for entry and 7 days for exit that led to the freight cost increase. Some clients stopped selling in terms of CIF because of the impossibility to plan the placing of ship for loading.
Now the ships pass through under normal conditions without any delays and the situation has stabilized.
— Despite everything mentioned above, for the last several years the number of companies exporting agriproducts via small water increased. In Your opinion, why?
Despite all of the obstacles and problems connected with the export of agriproducts from the Azov Sea region, traders can earn here if they have the correct strategy. We have fewer companies here comparing with deep water where nearly 50-60 companies compete with each other.
I should note that since the outbreak of hostilities in Eastern Ukraine the number of companies working in Azov region declined, but as the situation stabilizes this number increases.
— What are Your anticipations concerning the further functioning and development of the ports and terminals in Azov sea waters, and the start of the new grain season?
Considering the good prospects of crops in the new season I believe everyone will have the job to do. We expect for the high trade volumes in July and August because of debt commitments of farms (as a consequence of crop failure in 2018), that must be returned. For our part, we prepare the terminals to the new season. Now we have scheduled repair works. In 2019/20 MY, there will be a distribution area for the transport at the entrance to the city and also we plan to use our storage capacities for accumulation apart from the terminal.
— In conclusion, I want to thank You for the interesting conversation, and ask You about Your plans for 2019/20 MY.
In the new season, we plan to break the record of transshipping and deliver more than half a million of tonnes of products, and also to develop the services for the farms thus helping them to form logistics and trade effectively.
Interviewed by Anna Tanskaya, APK-Inform Agency
