In the beginning of each season, all market participants are interested in estimations and any following adjustments to the forecasts of grain and oilseed crops production. To date, there is every indication that in 2019/20 MY the general harvest of grains and pulses in Ukraine will become one of the largest ones for 5 recent years, which will continue expanding the export potential of the country. At the same time, it will become a new challenge for all segments of the logistics chain.
Ukraine provides 95-98% of the exports of agricultural products through its ports, and mainly delivers the cargoes to the ports by railway transport. Taking into account the fact that for several recent years, the railway logistics of the grain market remained one of the most pressing issues, the success of Ukrainian traders will largely depend on the reporting factor.
So, APK-Inform Agency decided to ask logisticians and freight forwarders what mood do they have in the beginning of the new season, what challenges do they see before them, and what measures do they take to diversify the risks and provide better services?
Oleg Cheripko, Head of the commercial department of the agro-industrial company AP-GRUPP LLC
According to the expert, in 2018/19 MY the structure of the cargo traffic distribution by transportation means developed in the following way: railway lines — 65% (33 mln tonnes), motor ways — 28% (15 mln tonnes), and river transport — 7% (4 mln tonnes).
Despite the fact that the railway lines covered the lion's share of cargo transhipment, it is also the most problematic transportation mean.
Trends of the railway transportation market
In 2019/20 MY, the railway transportation market will face the following trends:
— Routing of grain shipments, and closing of the low-density railway stations. To date, the factor is causing the major difficulties and discomfort to the market participants, as the large-scale elevators are not located throughout the whole territory of Ukraine. Therefore, the Ukrainian Railway (JSC Ukrzaliznytsia) should launch the collecting and stepped routes to solve the reporting situation.
— Changing of the planning procedure of grain shipments. In 2019, Ukrzaliznytsia will continue follow the policy of the annual planning of grain shipments. At the same time, one of variants of development of the initiative covers appearing of the certain agreement between Ukrzaliznytsia and large-scale grain shippers, which own any routed and linear elevators, as well as their own rail fleet and grain terminals, about the annual planning of grain shipments. On the one hand, it will improve the efficiency of grain transportation, on the other hand, it can lead to monopolization of the market.
— Unitizing of the empty car run, which is planned to equalize the cost of railway tariffs for empty run of all types of cars.
— Increasing of the supply of Ukrzaliznytsia rail cars through the PROZORRO trading system, which should reduce the corruption component in its distribution.
— Providing of 20% discount on the railway tariff to the seaports of Mariupol and Berdyansk, which should allow to the ports of the Azov Sea region to compete with the deep-sea ones.
— Increasing of the railway tariffs and drawing together of the rates. In 2019, the growth of tariffs will total nearly 30-35%. At the same time, in the first half year the general railway tariff already increased by 14.2%. In March 2019, the Cabinet of Ministers confirmed the automatic indexation of the general cargo rates and other related services (since May 1 — up 2.5%, since August 1 — up 5%, since November 1 — up 7.5%). In addition, since May 20 the daily fee for using of grain rail cars increased by 5.9%.
Experts forecasted the transportation volumes of grain cargoes by rail in 2019 at nearly 35-37 mln tonnes, which will exceed the last year figures.
Trends of the vehicle transportation market
According to the statistics figures, in 2018 Ukraine increased the volume of goods transported by road by 1.6 mln tonnes — to 15 mln tonnes. First of all, the current situation developed, due to increasing of the cost of grain transportation by railway transport, and limitations in grain shipments, due to closing of the low-density stations.
We can stress the following key trends of the vehicle transportation market:
— Increasing of the fleet of specialized vehicles for grain transportation. In addition to the annual increasing of grain production in Ukraine by 6-9% and difficulties with railway transportation, the excessive demand for such type of transport in September-December of 2018, as well as the rising prices for motor transport in the reporting period by 30-50%, became the major reasons for such trend development.
— In 2019, Ukraine will tighten of the weight-size control for heavy trucks on public roads.
— Limitations for movement of heavy-truck transport ("temperature requirements").
— Seasonal feature of motor transport work: increased demand in the period of July-December, its decline in the second half of the season, and reorientation of the shipments from "field-elevator" to "elevator-port", as well as increasing of the tariffs by 35-50% in the peak season, and the following gradual decline.
In 2019, the annual increase in the cost of motor transport can reach 20-25%, and the volume of transported goods — 16-18 mln tonnes.
Trends of the river transportation market
In several recent years, Ukraine increased the volumes of goods transported by river transport.
In 2018, the figures increased to 4 mln tonnes, and the current expectations of the Ukrainian grain market in thr segment are also quite optimistic.
At the same time, there are still several factors, slowing down the further development of the river logistics:
— Absence of the law on inland water transport.
— Technical wear-out of the gateway facilities.
— Deficit of the coastal fleet.
— Reduction of the length of river waters accessible to navigation.
— Reduction of the depth of the main waterways of Ukraine.
Also, the river transportation is limited by the fact that to date only five companies are working in the sphere, because they have their own coastal fleet.
According to experts, in 2019 the volumes of cargo transported by river transport along the Dnipro and Southern Buh rivers will total nearly 5-6 mln tonnes, and the growth of freight rates can reach 20-25%.
Roman Pevnev, Commercial Director of the agro-industrial company AP-GRUPP LLC
Vertical integration as the way to diversify the risks
In March 2019, our company celebrated its 10 years of work. The company mainly focused on vertical integration, which allowed us to achieve the significant success and take the leading positions on the market of freight forwarding services, as well as services for transshipment and storage of agricultural products.
Last season, we started processing cargoes in such ports as Pivdennyj, Odessa and Chornomorsk. Our company provides the full range of logistics services, including the exports of agricultural goods, the company owns the modern grain terminal and the fleet of grain rail cars. Also, we are actively developing the trading direction.
In 2018/19 MY, we processed nearly 300 thsd tonnes of grains and oilseeds, as well as sunflower oil. We purchased and exported more than 50 thsd tonnes of grains, and transported over 130 thsd tonnes of agricultural products.
Ways of resolving the logistical problems
In 2015, the specialists of our company developed and patented a self-discharge container 103440 for the transportation and transshipment of products in bulk. This container has the automatic discharge system, it is easy and reliable in operation, and can be used for a wide range of cargoes.
Thus, with our own terminal 8 km close to Mariupol Sea Port we have received an opportunity to deliver the cargo to the vessel directly without the additional accumulation.
This invention is used during the loading of the argiproducts in the seaports in Mariupol, Odessa, Pivdennyj and Chornomorsk and it successfully recommended itself in work.
Prospects of development in the Azov Sea ports
The new 2019/20 MY will be more interesting than the previous one. Despite the continuous drought and the high temperatures, the production of grains in Azov region is expected to be 40% higher compared to last year. It means, that we will have to handle 40% more cargoes.
With this aim our company increased the car fleet and used the additional laboratory for the certification of products.
Because of the decline of the transshipment rate in Mykolaiv to 9-10 USD/t, and in Mariupol and Berdyansk — to 7.5-8 USD/t they port will have to operate in terms of the severe competition with the deep water ports. Herewith, in the Mykolaiv seaport the price of grain is higher and the volumes are also higher, which average seaport can transship. So there is a risk of the reorientation of the freight traffic to the deep water. In such conditions it would be difficult for small water ports to cover their expenses.
Herewith, the stabilization of the political situation and the renewal of the convoy transit though Donetsk can profit to Azov region market. It could help to attract up to 1 mln tonnes of grains from the northern territories. In peacetime it worked this way and these volumes was transported for export through Mariupol.
Prospects of development in the Black Sea ports
If we speak about the deep water and our containerized program, we increased the fleet of containers and organized additional training for our workers. We continue negotiate with the possible clients, expeditors concerning the use of our know-how. All these actions are aimed at the increase of the transshipment volumes. Because with the implementation of the new port capacities the transshipment rate declines and the expenses of the enterprise not, unfortunately. It is even vice-versa, the expenses increase together with the increase of the labor costs and the rise of the tariffs for electricity. So, the marginality of the ports and terminals can provide the increase of the volumes of the cargoes handled.
Moreover, now Ukraine has a problem of the skill drain to the countries of East Europe owing to the higher salaries for the same work. In such conditions we have to increase the wages and find the ways to increase the profitability of the enterprise.
The money must work and the investments pay off. With the marginality at 2-3% the further investing of the industry makes no sense. So I’m convinced that shortly the market should stabilize. If not this season than next one definitely.
Also, we plan to continue active work in export, herewith there are some concerns over railway logistics.
Andrei Vorontsov, Deputy Director of forwarding company “Vetical”
The main peculiarities of the end of 2018/19 MY and before the 2019/20 MY is the fact that this period is of so-called inter season was more active compared to the previous years in terms of the deliveries and consequently our own rail cars fleet worked without down time. Albeit the most profitable conditions, but still…
This allowed our rail cars to operate.
Moreover, Ukraine started the new season with high stocks and conditioning the expected high production of grain in 2019/20 MY, the season is going to be interesting.
Of course, there are some concerns over the further growth of the tariffs for railway. And this issue equally concerns all market participants — from the small farmer to the large international vertically integrated company. Everyone clearly understand that the further increase of the tariffs by PJSC Ukrzalisnytsia will inevitably lead to the loss of the income of all marker players.
Rail cars fleet vs private connection rod
The management of Ukrzalisnytsia takes some definite steps to resolve the backlog of problems concerning the railway logistics of the grain market. They build and purchase new rail cars. But in this aspect the role of the private sector must not be underestimated! Even now we understand that Ukrzalisnytsia is not a monopolist anymore. In recent years the ratio of the private and inventory fleet of grain cars changed drastically and now it is 50:50. Moreover, by the end of the year Kernel will enter the market with their own grain cars, Nibulon will continue increasing their own fleet and other market players will step in.
If we speak about the implementation of the block train shipment, the market participants have somehow adjusted. Everyone understand their strengths and weaknesses, the Achilles' heels are defined and they take positive measures to overcome this situation. However, the important issue of railway transportation is the compliance with the speed stated by Ukrzalisnytsia (UZ).
In terms of the rail cars load, the speed stated by UZ in not implemented. Herewith, the speed of n-step work must be 200 km/h and of block-train shipment — 300 km/h, but in practice we and Centre for Transport Strategies found that the average speed of 1 grain car of our company is 85.1 km/h!!! this project was discussed in European Business Association with the market players and I hope that by joining forces we would be able to influence the attitude of UZ management to this problem that worries all market participants, including the investors.
It was not until fairly recently that UZ reported about the purchase of 120 locomotives, whereas today the issue of the private connection rod is still essential and open. Ukrainian business again still wait for the serious measures to resolve the questions that must concern not the business only.
The next step is the active development of the river logistics which will unload the railways and motor transport.
Relevancy of the online platform implementation
Recently large grain trading and IT companies started to launch online platforms aimed to resolve the issues of planning the transportation, forming the composed routes etc. This is a good step to the future of the infrastructure but everyone works disjointedly. Because the strengthening of the communication among the market players and the provision of any type of information in services such as Ukrzalisnytsia is good but it is unclear how to centralize these services.
It would be perfect if the centralized unified platform will be launched, that will unify all the elevators and all the senders with the unified “server” of data processing that would control not the shipment operations but the volumes, and the Ministry of Agrarian Policy and Food of Ukraine to record the stocks, and if it will work on-line. Such a mechanism would be definitely useful to all market participants and to the government in general.
In present time the volumes of the cargo flow and the load on the different infrastructure chains are difficult to regulate and forecast. So, there are failure in supplies, contracts and market players image, and as a result the government suffers in general.
Motor transportation and overload
On my own personal observations, recently the situation of compliance to mass-size restrictions on the public roads has improved. I believe that first of all it is connected with the fact that our clients are interested in honest work and compliance with all the norms. The personal civil responsibility takes place. I do not exclude that not everyone is so respectable… The grey market and unfair players on the market of Ukraine are still in place, unfortunately. But the situation in recent years improved and it is a fact. The market becomes more transparent and civilized.
Diversification of the risks
Our company actively develops the motor transportation course. And this type of cargo deliveries for now will be used as an alternative in case of the possible problems and delays of the rail cars fleet placing.
If necessary, the specialists of our company can offer to deliver the cargo to our mobile “Kovcheg” (ark) and to transship the grain to grain cars or to deliver it by motor transport directly to the port.
Moreover, now we have partners that have the modern fleet of combines.
Jointly we can offer to our clients the full range of agricultural logistics, that will include the prompt delivery of combine fleet to the field.
The next is a complex continuous servicing of the elevator by railway or motor transport or of tankers for oil extracting plants in terms of the cargoes delivery to the port or to the final recipient.
This decision in complex will allow to cut the client’s expenses significantly and will provide the timely terms of the delivery.
This is a new option that allows us to “fill” the bottle necks of a whole chain of the logistics of the grain market to the port and to guarantee the client the delivery of the cargo in time and in proper volume, and of elevators to ensure the increase of its turnover.
Moreover, now we work on the project of container shipment and I hope that in a short time we will be able to share the reports of the new results.
Prepared by Anna Tanskaya, APK-Inform Agency