Source:  International Maritime Magazine «SHIPPING»

What potential do Ukrainian companies see in the post-war transport industry? What will be the key drivers of the development and formation of new infrastructure? How is the border infrastructure currently operating and how to increase the volumes of Ukrainian goods transported to Europe? We discussed all this with Valerii Andrianov, Director of Strategy and Development of Levada Cargo.

In your opinion, what is the current efficiency of the border infrastructure?
The first and most important point is that neither our nor the European border infrastructure has ever in its history worked the way it has been functioning for the past 11 months. We should keep that in mind when giving any evaluations.
That is, it is very difficult to objectively assess the effectiveness in the current wartime conditions. You might as well be evaluating the effectiveness of the seismic resistance of a building designed to withstand an earthquake of magnitude 3 after a lasting magnitude 9 earthquake.
Indeed, the railway infrastructure at the western border crossings, which was not designed for the resulting cargo traffic, took on the greatest challenge and loads. And with this in mind, I believe that the infrastructure has been handling today’s challenges admirably. Therefore, given the current operating conditions of the infrastructure, you can call its functioning effective.
The processes taking place in the border infrastructure are not static, and many local and systemic problems are gradually being overcome:
– Market participants invest in the development of transshipment capacities, in transportation technologies; they invest in Ukraine. For instance, Lemtrans Group, which includes Levada Cargo, jointly with a partner this year launched the cargo terminal Mostyska (The Container Terminal Mostyska) on the Ukrainian-Polish border, which has the capability to additionally process up to 5 million tonnes of various cargoes annually. We adapted to the needs and, jointly with our partner, completed the construction of another grain terminal that can handle 60,000 tonnes of grain per month.
– First and foremost, we should focus on the quality of processes and speed of control procedures. We spent quite a lot of time at the border facilities and came up with ways to increase the transportation of Ukrainian goods to Europe. These are various measures that do not necessarily require significant investment.
Levada Cargo is a member of the Logistics Committee of the European Business Association, which enabled us to propose an action plan to improve work efficiency.
And last but not least is the capability of European infrastructure to handle this freight flow, and here we are talking about the functioning of traffic corridors running towards EU ports, about large consignees rather than about border infrastructure. The entire situation has revealed serious problems in the EU transport system, even aside from Ukrainian cargoes. We do hope that a collapse can be avoided and that our partners will be able to take advantage of the situation and make changes and improvements in the operation of their transport system.

As for the EU integration projects, how, in your opinion, will this affect the competitiveness of the Ukrainian transportation services in the future? Why?
While the war is ongoing, it is not the time to talk about any specific projects, so let’s outline the direction of projects that will have the greatest impact on:
– successful EU integration;
– quality recovery;
– effectiveness and competitiveness of Ukrainian transportation services.
Firstly, all projects must be reviewed taking into account the current situation, namely the needs of post-war recovery of energy, transport and civil infrastructure. The main approach here should be the formation of a completely new, modern and energy-efficient infrastructure rather than patching up the old one.

Secondly, for the most integrated and globalised sectors of transport services such as water (sea and river ports), road and air transportation, development and integration at this stage depend mainly on legal aspects, liberalisation of markets, adoption of unified regulations, etc. We must bring our legislation as close as possible to the EU legislation in these areas, adopt all possible directives for market liberalisation and openness, adopt all possible anti-corruption and other laws that will guarantee the protection of investors, etc.

Thirdly, for transport systems that are less integrated and globalised due to significant technical and infrastructural differences, further integration requires not only the adoption of regulations, but also significant investment. This is the case primarily with railway transportation services, especially freight transport. Here I want to emphasise that, in my opinion, we need to exclude global construction projects such as constructing the 1.435 gauge track network in Ukraine or constructing the 1.520 network in the EU right away. Such projects can only be targeted ones aimed at the development of, say, passenger transport. In this context, the situation is as follows: generally, the Ukrainian 1.520 network is much more developed than, for example, the Polish 1.435 network and has more extensive capabilities and features, so changing it on a system level is not a very good idea.

Fourthly, every possible project should contribute to the development of Ukraine’s foreign trade. That is, all European integration and other projects capable of affecting the competitiveness of Ukrainian transportation industry in the future, in my opinion, should be implemented with these four considerations in mind.

Which projects and transport capacities are worth investing into at the moment, in your opinion?
In short and based solely on the perspective of our company (we at Levada Cargo are fans of containers and containerisation), the projects I would invest into now are the ones aimed at the development of Ukrainian foreign trade and the containerisation of freight flows, which, in fact, are inseparable parts of one chain. Such projects include, in particular, the development of a network of container terminals within Ukraine.
To be clear, the availability of such a terminal in any region means access to global logistics for cargo owners in that region. Moreover, the owner of the cargo — exporter or importer — does not need to be bound by the volume of the consignment or depend on global trading companies. For example, a small or medium-sized farmer can find a buyer for their 500 tonnes of product and sell it at the maximum price, without any logistical problems. The farmer just needs to order a container, and it will be brought to them by road at a convenient time, or they will bring their goods to the terminal to be loaded into the container, and the container will be sent to any part of the world. At the same time, the price of logistics will be acceptable and affordable both for sending to Africa and to China or Australia. A container is one of the key tools of effective global logistics and trade.
To date, our company has already prepared land plots and has been developing projects for building a network of domestic container terminals in Ukraine. We believe that this infrastructure will be relevant both in the current situation and after the victory of Ukraine.
Yet another relevant investment direction is the development of river transportation, such as transportation across the Danube. It is about the development of the existing ports of the Danube region, the creation of a river port, a multimodal terminal in the Danube region.

What prospects does Ukraine have as a logistics hub?
After our victory, Ukraine will be a key transit country for the China-EU-China rail freight flow via the Silk Road. This trend was already noticeable in 2021 and even in January 2022. In fact, more containers were transported through the territory of Ukraine in 2021 than in the previous 5 years. And in January 2022, one container train passed through the territory of Ukraine every day to Slovakia alone. The trend to increase this flow is massive, especially in light of the processes of development of the terminal infrastructure.
– Freight turnover of Ukrainian ports will increase. Ukrainian ports will undoubtedly be leaders in the Black Sea region. This will be facilitated by a long-term flow of imported goods for the recovery of Ukraine; increase in productivity in the agricultural sector; inflow of investments in processing and transport infrastructure; development of the domestic terminal transport network; increasing energy efficiency.
At what pace is intermodal transportation currently developing in Ukraine? What is being done to advance this?
Firstly, the container transportation market has shown steady growth since 2015, CAGR of 15%. Even at such rates, the level of containerisation of freight flows, say, in rail transport, is up to 5%. That is, there is significant growth potential.

Secondly, the network of container terminals is actively developing and the market is at the beginning of the consolidation process. The market has already produced an active network and regional players.

Thirdly, in addition to the terminal network, private container transportation operators are actively forming on the market. Compare this to 5-7 years ago when hardly anyone but Ukrzaliznytsia (Ukrainian Railways) (represented by LYSKY Transport Service Centre) offered container transportation services by rail.
The market will develop actively in the near future and even more actively after the victory of Ukraine. Key factors and drivers of development will be:
- active development of the network of container terminals;
- increase in freight flow with the recovery of the country;
- growth in agriculture and processing industries;
- European and other transport and production players entering the Ukrainian market;
- recovery and active development of the Silk Road through the territory of Ukraine and other related factors.

What are the problems in the legislation regarding freight transportation that are worth pointing out?
Firstly, the operation of road carriers should be fully regulated. As long as it is possible to order transportation services for cash, avoiding paying taxes, the market will not be balanced and completely transparent. But at the same time, a lot has been done in the field of road transport in recent years, including weight control and liability, and we no longer have to think about permits in the EU. We need to keep up all this and increase the results.

Secondly, we need to develop, together with the neighbours, regulations and processes that will facilitate simplifying control at the borders, speeding it up and ensuring joint control.

Thirdly, railway tariffs and railway transport regulation. All market players should be able to forecast their expenses based on the cost of rail transportation services, and the process of forming the tariff policy should be as transparent and clear as possible. The Law on Railway Transport must be adopted, and Ukrzaliznytsia (Ukrainian Railways) must be reformed in accordance with the EU acquis.

Fourthly, the procedure for the preparation and implementation of public-private partnership projects should be developed and enshrined at the legislative level.

What are the plans of Levada Cargo for this year?
The issues of supporting the army, the national economy and the logistics front of the country are still essential for us. Our main task is to continue working and investing in Ukraine. We will focus on projects that will be able to increase the share of cargo containerisation in the future. That is why we, and Lemtrans as an investor, have plans to start the further construction of intermodal terminals.