Despite its importance, performance of the transport and logistics sector in Ukraine is still below par, and the available infrastructure is substandard. Chronic underinvestment in Ukraine’s transport sector has led to insufficient modernization of legacy infrastructure inherited from the Soviet Union. A lack of appropriate maintenance has reduced the value and capacity of assets (e.g. in infrastructure, transport fleet). High wear and tear due to inappropriate enforcement of regulations has worsened this issue in some sectors, most notably in the road sector due to lacking enforcement of axle load restrictions.
The transport industry of Ukraine has a low level of development of transport and logistics technologies and multimodal transhipment facilities, which decreases its competitiveness and imposes constraints on allocation of Ukrainian products to the world transport market. According to the competitiveness rating, Ukraine holds the 85th place in the world, and 66th place on logistic efficiency.
Freight transport has reduced significantly over the past decade. In 2017, 636 million tons of cargo were transported in Ukraine, which is 30 percent less than 10 years ago. For the last 10 years, the decrease of cargo volume was observed after the crisis of 2008 and from 2012 to 2015, in 2016 it started increasing together with the economic growth.
Troubles with tariffs on railways
More than a half of all cargo transported in Ukraine is carried by railways. The railway system is the backbone of long-distance freight transport, accounting for 58 percent of freight turnover all over Ukraine in 2015. The railway system is crucial for the transport of Ukraine’s exports such as grain and steel to the Black Sea ports, and for the supply of intermediate products (coal, coke, iron ore and fertilizers) to industrial facilities and farms. Ukraine has an extensive railway system, yet despite a number of advantages that it offers, such as low transportation costs and absence of weight limitation, each year increasingly more cargo senders prefer road transportation due to non-transparent and unpredictable tariff setting system; high level of capacity deterioration; delays and low speed.
In the railway transport sector, the major recent changes are related to liberalization of the wagon component in the rate system. As a result, the rate of using Ukrzaliznytsia’s rail cars has increased, for example, in case of grain hoppers, daily rate has increased by around 9 percent. This is likely to have an attracting effect on inland waterway transport.
In multimodal logistics, road transport remains a key in the first stage of transport, yet it is also able to compete on longer distances, partly due to poor enforcement of road freight rules. As it typically covers for the first and last mile of rail transport and inland waterway transport, road transportation can possibly even benefit from future growth of rail and inland-waterway cargo. Ukraine’s road network is well developed, but almost 90 percent of public roads have not been repaired for 30 years.
Overloaded roads
Major developments in road transport are related to the introduction of the weight-in-motion (WiM) system. At the end of 2018 Ukravtodor concluded a contract on the installation of WiM facilities in Ukraine. It is planned to install six WiM facilities on the main roads of Ukraine during 2019, and in the following 2-3 years the plan is to establish in total 200-250 WiM facilities in Ukraine. Introduction of WiM will potentially shift grain cargo to inland waterway transport and railways, since it will not be possible any more to overload trucks and to cut costs in such a way. A European Investment Bank market study demonstrated the positive effect on the inland waterway transport potential.
Currently, grain is often transported by trucks, which tend to be overloaded, and one of the reasons of such a trend are the inefficient operations of Ukrainian railways. One of the factors affecting efficiency of railway transportation is the lack of equipment. Though Ukrzaliznytsia purchased 30 locomotives in 2018, this number is not sufficient to solve the problem of deficit; around 150 new locomotives are believed to be needed to improve the situation.
Infrastructure obsolete at 13 seaports
An overwhelming majority (80 percent) of the infrastructure in Ukraine’s 13 seaports is either obsolete or in a depreciated state. For instance, 11 percentof berths are not functional. Ukraine has a fairly limited number of deep-water facilities and restricted depths at approach channels; this sets technical limitations on many modern large ships (Ukraine Transport Policy Note, 2016). The lack of multimodal logistics infrastructure and the underdevelopment of container facilities raise the cost of container shipments.
Only 1 percent on inland waterways
Inland waterway transportation accounts for a very tiny share; in 2017, it was 1 percent. According to official data, in 2015 the river freight transport reached approximately 2 million tons (62.3 percent) of domestic transport, and 1.2 million tons (37.7 percent) of international transport. The river freight turnover estimated at 0.3 billion ton-kilometers (18.1 percent) in domestic transport and 1.3 billion ton kilometer (81.9 percent) in international transport. River passenger transport is solely entitled for domestic market: 549,300 passengers (99.7 percent). Such uneven distribution of cargo among the transport modes is determined by the quality of infrastructure and cost of transportation.
According to information of UkrVodShliakh, the waterway manager, the volume of transport on the inland waterways is now steadily increasing. In 2017 a significant increase to 6 million tons was reported by UVS in the ship locks, USPA/UkrRIS reported even higher volumes. New operators have entered the market, and interest in the trading companies in using the waterways is increasing. Due to increasing demand, UVS has been requested by the industry to extend the range of navigation in the winter period to be able to cope with the growing transport demand. Developments in railways and road transport will further lead to a growth in traffic.
Ukraine possesses a high potential of navigable rivers, with an extensive network of waterways suitable for inland waterway transport. The Dnipro (with its tributaries: the Desna River and the Pripyat River), the Danube River, and partially the Southern Bug River, remain the main shipping routes. Along with its tributaries, the Desna River, 520 kilometers, and the Pripyat River, 60 kilometers, the Dnipro River with 1,205 kilometers constitutes one of Ukraine’s key international waterway arteries that are operated now (Kiev and Kaniv sections for cabotage and Zaporizhzhia/Dnipro-Kherson section for river-sea transport).
Trouble on Dnipro River
The Dnipro River navigational structures were evaluated by the U.S. Army Corps of Engineers team during the period of May 30, 2016 to June 10, 2016. An overall condition assessment having a high risk of operational failure was given to the Dnipro River system infrastructure. A failure of these systems would result in a navigational closure of the river system with an unacceptable time duration.
There are six locks and two movable bridges along the Dnipro River that are in poor technical condition and would require repair. Poor maintenance of locks hampers navigation and constitutes an environmental risk. In addition, movable bridges open at a prohibitive cost.
With its six locks and reservoirs, the Dnipro is a fully regulated waterway, not only important for transport, but also, for example, for hydropower generation. Water levels in the river are therefore critical for transport needs, but also for other uses of the water. However, a minimum depth is guaranteed.
Nevertheless, portions of navigable channel currently do not comply with the government regulated and guaranteed channel depth of 3.65 meters. According to the RoyalHaskoningDHV study, water levels in the upstream sections may change rather quickly by a couple of decimeters within a few hours. As a result, ship operators must choose between two options: charge the barges less than full capacity to maintain a lesser draft in order to keep clear from obstructions or wait until water discharge releases from the upstream hydropower facilities artificially raise the channel depth for vessel passage.
The operating maintenance fleet and equipment used by UkrVodShliakh to maintain the locks and the channel generally consists of older equipment and applied technologies. Floating plants and equipment is old and suboptimal for conducting repair and maintenance. Maintenance equipment and vessels will need to be right sized and modernized.
Navigation on the river is closed during some of the winter months, and the capacity of the ice breaker fleet along the Dnipro River is used to keep the river longer open for navigation. The upper locks are closed from November to the end of March; navigation in the southern part of the Dnipro lasts longer but is also closed from December to beginning of March. UkrVodshlyakh decides on a daily basis which river sections are to be closed for navigation.
High tariffs, service problems with single state-owned company
There are dangerous navigation areas along the Dnipro River where piloting is necessary to ensure safe passage for the vessels. At present, pilotage services on inland waterways are only provided by a single state-owned company. Its clients report problems due to rigid service provision and high tariffs.
The overall condition and lack of proper aids to navigation provided on the waterway is an issue of concern. The current types, age, number and condition of navigational buoys provided along the river affect the ability to have night-time navigation on large sections of the river. Their age and condition also affect the usability of the river buoys due to the large amount of time required and the insufficient levels of funding provided to maintain the aged buoys in a usable condition.
The navigation information on the Dnipro River is presented by Ukraine River Information Services, or UkrRIS, on a series of navigation charts, which are regularly updated. According information of UkrRIS, the software and hardware does not meet the standards as described in the European Commission directives in this field and require updating.
10 ports, 40 terminals for potential 50 million ton capacity
The existing port infrastructure on Dnipro River covers 10 river ports and 40 terminals, potentially providing capacity for up to 50 million tons of cargo for transport and processing. Although the cargo throughput of Ukrainian river ports increased since 2008, it still merely reaches about one fifth of total river port design capacity. Major port infrastructure belongs to private companies (Ukrrichflot, Nibulon and HermesTrading).
Despite the decline in transport volumes and the poor quality of infrastructure, there is a firm belief that inland waterway transport has clear development potential.
Several studies show a growing demand for water transportation capacity, approaching 40 million tons per year by 2025 according to the U.S. Army Corps of Engineers in 2016. In addition, the Dnipro River Market Study initiated by European Investment Bank concluded there is already clear demand for inland waterway transport; demand that could further be developed when appropriate actions are taken. Growth in inland waterway transport could result from:
Recapturing lost cargo flows. Lost cargo is closely related to the history of Ukraine. In Soviet times, 11 Ukrainian river ports used to handle up to 100 million tons of cargo annually, primarily mineral building materials. It would require measures to restore quality of services, (cost) competitiveness and promoting inland waterway transport as an attractive and viable mode vis-à-vis rail and road transport.
Increase of existing cargo flows. Inland waterway transport can attract a much larger share in Ukraine’s export-import markets than currently realized. For cereals, this is estimated at some four million tons in 2015, of which some 65 percent is generated from the Lower Dnipro Corridor region. In addition, minerals (coal and iron ores) and processed steel products could be promising cargo, all generated from the Lower Dnipro Corridor region (i.e. Dnipropetrovsk, Zaporizhya and Kherson oblasts).
Attract new cargo. There are three basic opportunities to attract new cargo. These are:
- Diverted cargo: In total, some 14 million tons could potentially be diverted from rail and road to inland waterway transport, according to the European Investment Bank-funded international waterway market study;
- Diversified cargo, being:
- Existing internal waterway transport on the Dnieper River mainly consists of grain, fertilizers, metal and some container transport. Opportunities to diversify could stem from transport of cargo that traditionally uses inland waterway transport (e.g. coal, sand, gravel, fuel, etc.).
- New inland waterway transport cargo that has emerged along with the appearance of new commodities and transport concepts in IWT. This cargo mainly relates to general cargo (convoy exceptional; constructions with odd sizes), palletised cargo by barge (Pallet Shuttle Barge), Roll on roll off (shipment of unaccompanied trailers, the water truck concept and last but not least containers.
Based on the current state of the river system, already the current demand, let alone autonomous growth of this demand, places significant risk to the nation’s commerce and can stifle future continuing economic growth potential unless something is done to improve the existing infrastructure, service levels and costs. Nevertheless, new companies are entering the market and volumes are growing.
The available statistics on the transportation of cargo along the Dnipro River show that 9.9 million tons of cargo were transported in 2018, which is 22 percent more than in 2017.
The key types of cargo transported along the inland waterways in Ukraine are grain, ferrous metals and construction materials. In 2018 grain accounted for 32 percent of all cargo transported on the Dnipro River, construction materials and other type of cargo constituted 54 percent, the share of ferrous metals was 13 percent, oil products accounted for the very tiny share – about 1 percent.
So, in summary, here are some very important priorities for Ukraine’s infrastructure:
Development of a sustainable national transport policy covering all modes of transport, particularly with a view to ensuring efficient, safe and secure transport systems and promoting the integration of transport considerations into other policy areas;
Development of sector strategies in light of the national transport policy (including legal requirements for the upgrading of technical equipment and transport fleets to meet the highest international standards) for all modes and intermodality, including timetables and milestones for implementation, administrative responsibilities and financing plans; and
Improving the transport network, through:
- Development of the multimodal transport network connected to the Trans European Transport Network (TEN-T);
- Improvement of infrastructure policy in order to better identify and evaluate infrastructure projects in the various modes of transport;
- Development of funding strategies focusing on maintenance, capacity constraints and missing link infrastructure;
- Activating and promoting the participation of the private sector in transport projects as set out in Annex XXXIII to the association agreement;
- Accession to relevant international transport organizations and agreements including procedures for ensuring strict implementation and effective enforcement of international transport agreements and conventions;
- Scientific and technical cooperation and exchange of information for the development and improvement of technologies, such as intelligent transport systems;
- Promotion of the use of intelligent transport systems and information technology.
