Monday, December 29, 2014

Russia needs Ukraine’s Ports & Pipelines

The International Economy Of The Black Sea Port Sector: Rivalry between Russia and Ukraine
 
Today, global seaborne trade totals nearly 8 billion tons, and sea transportation accounts for more than 90% of goods traded between countries. Shipping is the lifeblood of the global economy. Without it, export countries would falter and importers would face desperate shortages, much of the world would starve, societies would remain divided, and globalization would slow drastically. Within the international economy, the shipping industry affects a large number of upstream and downstream industries. It is also a crucial link between the world economy and the national and local ones.
The Black Sea region accounts for only 2,5% of seaborne trade, but this is an important area of development, due to its geographical size and resource base. Ukraine and Russia are two major powers in the Black Sea port sector. The ports of Russia and Ukraine together, account for almost ¾ of the total cargo handling in the region. [1] Another interesting point is that the amounts of cargo handled by the two countries are roughly equal. Russia used to be the leader up to the year 2006. In 2007 Ukraine became the champion for the first time in recent years, to retain the position in 2008. But in 2009 Russia came back to the top and still holds this place. Examining the power balance between the two countries in detail, one can clearly see that their patterns make a sharp contrast, although the total amounts are very close. On the Ukrainian side there are several middle-sized ports (Odessa, Mariupol, Illichivsk, Mykolaiv, Izmail etc), whereas on the Russian side cargo handling is highly concentrated in one port, i.e. Novorosiysk.
It must be pointed out, that Russia’s Black Sea port sector is in a sense “inflated” owing to a huge amount of oil transportation. The position of Ukraine’s port sector is superior to that of Sothern Russia, if only dry cargo is counted. Ukrainian ports also depend on the transit operation of oil. The operation structures of both Russian and Ukrainian Black Sea ports are characterized by a high proportion of export cargo and transit cargo, while that of import cargo is relatively low. That is mainly because we are exporters of natural resources and primitive commodities with low added-value, which are bulky and heavy. This also results in the underdeveloped level of containerization of Black Sea transportation compared to other regions of the world. In fact, container transactions at Ukrainian and Russian ports are more often import than export ones.
As a result of the collapse of the Soviet Union, new-born Russia became dependent on foreign sea ports. In the early post-Soviet era, more than half of Russia’s foreign trade cargo was handled at ports of Ukraine, the Baltic States and Finland. Russia’s policy-makers regarded this dependence not only as contrary to its own economic interests but also as threatening national security. This dependence is getting less year by year, but even today around 20% of Russia’s foreign trade cargo is still handled at Ukraine’s and the Baltic States’ ports. Southern Russia does not have special terminals to export coal and fertilizer along the Black Sea coast, thus passing these items to Ukrainian ports. Russian authorities pay much attention to the developing port sector of Southern Russia. They adopted the “Federal special program concerning the development of transportation systems in Russia for 2010-2015” in May 2008. [2] There are four port development projects in the Black Sea region listed on the agenda (Sochi Port - to reconstruct and newly build port facilities; Kavkaz Port - to build new port facilities; Novorosiysk Port - to expand port facilities, especially container terminals, terminals for petroleum products, fertilizers, alumina and so on; Taman’ Port - to build a new port on the Taman’ Peninsula, with coal and container terminals. Expected total investments ―more than 240 billion roubles). The mission of Taman’ Port is to regain Russian cargo from Odesa, Illichivsk and Mykolaiv, especially containers and coal, because the capacity of the Novorosiysk Port to handle dry cargo is not large enough. Russia’s grain export is recently shifting from Ukrainian to Russian ports, allegedly thanks to a discount railway fare initiated by the government. It is reported that Russia is planning to reduce further Russian cargo transited through Ukrainian ports at least by 40% until 2015.
Ukrainian ports heavily depend on transit operation, with transit cargo making up around 40% of the total. Transit business brings huge hard currency revenue to Ukraine. It is of vital importance for Ukraine to retain and even expand transit operation at its sea ports. One of the priorities for Ukraine now is making effective use of our transit capability. The Association of Ukrainian Ports presented policy proposals to the government, in which it envisaged that Ukraine should exert its geopolitical potential as a transit nation.
Over 90% of transit cargo in Ukrainian ports is from CIS countries, most notably from Russia. Russian exporters are forced to use Ukrainian ports, because the capacities of Russian Black Sea ports are not sufficient. Kazakhstan, Belarus and Moldova are inland countries, and that is why Ukrainian ports are used by them as export outlets. Anyway, cargo transit at Ukrainian sea ports is basically the operation, in which cargoes brought to the ports by land transportation are shipped for export to outside world, mainly to Black Sea and Mediterranean countries. Russia’s strategy to reduce transit through Ukraine is a great threat to Ukraine’s port sector. Despite the economic crisis, Russia succeeded in expanding cargo turnover at Black Sea ports in 2009, whereas Ukraine’s transaction went down, mainly because of a decline in transit.
As for the so-called “transshipment” of containers, a very prospective transit scheme, Ukraine is still not in a position to provide that kind of service because of a lack of necessary infrastructures and legal conditions. It is widely known that the importance of container transportation is growing in global maritime business. Black Sea region lags behind other regions of the world in the level of containerization of cargo. There are obvious benefits for a country to have international container hub ports. Hub ports gain money by transshipping containers and the country can shorten the time of transportation, which means a higher competitiveness of the national economy. Third, the country enjoys lower import prices thanks to hosting large container ships directly, evading the additional cost of feeder ship transportation. Thus, it is very natural that both we and Russia have been trying to develop capacities to handle container cargo for the last several years. Ukraine is catching up with Romania remarkably, with Illichivsk and Odesa together handling 1,242,700 TEU vs 1,380,900 TEU of Constanţa in 2008. [3]
The world economic crisis, however, revealed that overall container handling capacities of the Black Sea region were rather in excess, than in deficit. Container handling at Black Sea ports was severely hit by the recent economic turmoil. Ukraine suffered most of all. According to one forecast, the negative gap between supply and demand of container handling capacities at Ukrainian ports will widen further because it will take long for demand to recover, while investment projects to build new terminals will not be abandoned so easily. Ukraine therefore has no choice but to develop transit operations of container cargo, including transshipment, so as not to be reduced to a peripheral position in this business. Other Black Sea countries like Russia and Georgia, potential targets of Ukrainian ports’ transshipment, also plan to expand their own container handling capabilities. Russia in particular will try to avoid being subordinate to transshipment by our ports, and this is even one of the factors motivating Russian authorities to expand the Novorosiysk Port and newly built Taman’ Port. Undoubtedly, it will not be easy for Ukrainians to make our ports international container hubs.
Ukraine, however, does have prospective container transit projects. The “Viking” and “Zubr” schemas in particular deserve attention. Both of the schemas connect the Black Sea and Baltic Sea regions, so much so that they even remind us of the ancient road “from the Varangians to Greece.” The international transportation route “Viking” was opened in 2003 based on an agreement between the Ukrainian and Lithuanian governments (Belarus also being involved). It connects the Illichivsk/Odesa Ports of Ukraine and the Klaipeda Port of Lithuania by container train and provides clients with quick and reasonable cargo delivery. In September 2009 another international transportation route “Zubr” was agreed upon by the operating companies and railway companies of Ukraine, Belarus, Latvia and Estonia. “Zubr” connects the Illichivsk/Odesa Ports of Ukraine, the Riga Port of Latvia and the Tallinn Port of Estonia. These container transit schemas have the advantage of not infringing on the interests of third-party countries like Russia.
As we have seen, Ukraine and Russia are two big rivals in the Black Sea port sector, with roughly equal total amounts of cargo handled at their ports. Transit operations of Russian cargo at Ukrainian ports are a crucial factor. Both Russia and Ukraine are underdeveloped in terms of container transportation, the most important segment of contemporary maritime business. Ukraine in particular is expanding its container terminal facilities rapidly and even seems to claim a hub position in Black Sea container transportation in the future. But the world economic crisis revealed that Ukraine’s container facilities are rather in excess and the terminals cannot survive without developing transit services. Thus, there is much work to be done with respect to efficiency, developing infrastructure, and extending the capabilities of our ports to survive and win this competition.
 
Source:ksf.openukraine.org/.../The_International_Economy_Of_The_Black_Sea...


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