How logistics adapted to war

How much the prices for logistics services have increased and how freight flows have been reoriented over more than one and a half years of war, writes the president of the Association of International Freight Forwarders of Ukraine Viktor Berestenko for epravda.com.ua.

Illustrative photo

Logistics is a vital system of the economy, which was fundamentally changed by the armed aggression of the Russian Federation. The invasion practically paralyzed Ukraine's export capabilities, and attempts to transport grain by land transport led to a logistical collapse.

The physical volumes of exports in 2022 decreased by 38,4%. But the results, as for wartime conditions, can be considered positive.

Let's try to figure out how it was possible to stabilize the country's export capabilities and what the current situation is in terms of logistics.

How logistics routes work during an invasion

Sea transport

Before the war, sea transportation and ports of Ukraine were the main way to export products of the agro-industrial complex, which brought in $2021 billion in 27,9. In addition, they were the main export routes for metallurgy ($16 billion), chemical industry ($2,7 billion) , mineral fertilizers ($8,42 billion) and other products.

By blocking Ukrainian ports, Russia dealt a powerful blow to Ukraine's economy. Before the full-scale invasion, a significant part of imports and about 70% of exports were carried out by sea (approximately $47 billion), and for agricultural products this figure was almost 90%.

Currently, Ukraine controls the largest ports, which accounted for more than 85% of sea freight traffic: Mykolaiv, Olbia, Odesa, Black Sea, and Southern.

Three small ports at the mouth of the Danube are fully operational and increasing cargo handling: Izmailskyi, Reniyskyi and Ust-Dunaiskyi. In peacetime, they accounted for slightly less than 5% of exports.

There is great potential in this direction, given the situation with other ports. Before the opening of the grain corridor, the country's export logistics were held on it.

Currently, the Danube ports are not able to fully replace the throughput that went through the sea ports, because:

• physically, they can process up to 10 million tons per year, while marine - up to 250 million tons;
• small ships and barges can enter ports on the Danube, that is, the consignments will be small, which physically limits the geography of cargo delivery and increases the cost of delivery;
• the throughput capacity of river ports is lower, which physically limits cargo flow.

Despite this, Ukraine plans to increase the efficiency of the Danube ports by building more warehouses, berths and transshipment equipment.

Railway

Freight transportation by rail in 2022 decreased by 65,3%. In fact, transit transportation through international corridors between Asia and Europe was interrupted.

In addition, it should be taken into account the existing significant problems with the export of products, which have arisen due to the congestion of the railway connection and bottlenecks. The reason was:

• capacity limitation at checkpoints;
• restrictions in conducting control procedures by border guards, customs and phytosanitary inspection both from the side of Ukraine and neighboring countries;
• technological limitations associated with changing carriages to a different track size (from the Ukrainian 1520 mm to the European 1435 mm);
• limiting the capacity of railway infrastructure of neighboring countries (sorting stations, capacity of tracks and routes, number of rolling stock);
• restrictions at the intersections of the interaction of different types of transport: European ports are unable to process such a quantity of grain in wagons;
• limitations of warehouse infrastructure: physical absence of warehouses for processing/storage and accumulation of grain, etc.

In 2022, queues at border crossings sometimes amounted to almost 40 wagons. Thus, about 20% of cargoes waiting to cross the border stood in queues for more than 30 days.

Because of this, entrepreneurs often lost money, because customers refused to receive consignments of goods, because an increase in the delivery time to the final consumer could lead to spoilage of the cargo.

In addition, charges were levied on the cargo owner for each day of idleness of wagons, and fines could be imposed according to the terms of the contract.

Due to the losses that the full-scale war caused to Ukrzaliznytsia, the Ministry of Infrastructure of Ukraine increased by 70% the tariffs for railway transportation of goods within Ukraine and related services.

Currently, they have been reduced to 30%, but this option is still unprofitable for agro-entrepreneurs. Their profit is decreasing, the deficit of working capital is deepening, they are starting to save on cultivation, giving up, for example, fertilizers and other technologies to increase productivity. After all, it is most likely that in 2023 we will see a decrease in the grain harvest.

Air transport

In 2021, mail cargo flows through the airports of Ukraine increased by 21,1%, compared to 2020, and amounted to 63,2 thousand tons.

Currently, the airspace over Ukraine is closed for civil aviation flights. This makes operational activities of both Ukrainian and foreign airlines impossible, in particular for cargo transportation.

In total, there are 19 civilian airports in Ukraine, 12 of them have destroyed airfield complexes (runways, buildings and other structures). Estimated losses due to damage to airports and aeronautical equipment amount to about UAH 200 billion.

Automobile transport

Since the transportation of goods by sea and rail transport has its limitations, the domestic market of transport services began to give priority to road transport for the transportation of goods, and shippers and carriers were forced to change the logistics of export transportation and direct the goods to the western border crossings.

The organization of transportation by road transport has become a difficult task due to the low capacity of border crossings in the west of Ukraine, and the cost of logistics has increased significantly, because the distance of transportation to EU ports has increased many times.

In addition, business began to encounter problems in European ports en masse. This also applies to the work of customs and other regulatory authorities, the working hours of terminals and the quality of service.

Ukrainian shippers are used to receiving information 24/7, so they felt a big difference when they started working with logistics companies in Romania, Poland and Turkey.

As a large number of cargoes were diverted to land routes, the checkpoints were blocked. For example, in August and September, the situation on the Ukrainian-Polish border in the direction of the "Yagodin" checkpoint was catastrophic.

Thousands of trucks stood in the lane for one and a half to two weeks. Goods were spoiling, as a result of which exporters and carriers suffered millions of losses. At the beginning of September, the queue reached record levels of more than 2 trucks and stretched for 600 km, almost reaching Kovel.

Although there are still traffic jams in places, the situation has now been stabilized. First of all, this was facilitated by an increase in the number of personnel in the control bodies, in addition, the work at all checkpoints stabilized, because among the carriers there is no longer a chaotic chase from one place to another.

During the war, there were also positive developments in the field of road transport. The state introduced the so-called transport visa-free or abolished the administrative barrier in the form of permits for road transport, which was a restraining factor for the free market.

It was a huge pain for truckers, logisticians and freight forwarders: every year there were not enough permits and negotiations were held to increase their number. The abolition of this administrative barrier intensified international road transport and economic processes in general.

Instead of conclusions

Today, business has adapted, reoriented itself and started developing new export routes through land corridors through European countries. They can be conditionally divided into two global directions: the western transport corridor to Poland, Germany and the Baltic countries and the southern transport corridor mostly to Romania.

While on the western border there is a struggle with traffic jams on highways, the capacity of checkpoints, the difference in the width of the railway track and other challenges, on the southern border the situation is somewhat different, but no less interesting: it is corruption at the customs, and not only from the Ukrainian side, but and Romanian.

Despite all the troubles, it is necessary to note the great help from the colleagues of the forwarders from neighboring countries. From the beginning of the war, Ukrainians were strongly and practically helped by the associations of freight forwarders from Turkey, Romania, Bulgaria, Poland and Slovakia, colleagues from the Hungarian Association took an active position.

It was they who helped solve problems with containers in Turkish and Romanian ports, explained issues related to Turkish customs and the admission of Ukrainian truck carriers to work in Turkey, the issue of removing containers from terminals in the port of "Constanța" in Romania and paying crazy bills for searching and the movement of containers at the terminal, issues of customs operations in Poland and Romania, etc.

Adaptation is one of the essences of logistics, which cannot stop, because a stop is the absence of trade and exchange of goods, practically the absence of consumption, which in the modern world is equal to the absence of life.

Despite the great shock that the Ukrainian transport and logistics system experienced at the beginning of the war, it coped with the challenge and was able to ensure the transportation of necessary goods to and from Ukraine.

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