Despite Ukraine's potential as the ideal inland trade corridor between Europe and Asia, transport shippers are doing everything they can to avoid Ukraine – and it's costing the country millions of dollars.
That was the depressing conclusion reached by a group of transportation professionals who gathered in Odessa last week to discuss just why Ukraine has such a bad reputation as place to ship transit freight.
Speaking at the Odessa-98 Transportation Forum, Yevhen Marchuk, who is president of the Ukrainian Transportation Union, parliament deputy and former prime minister, laid out the depressing numbers.
'Currently the single Romanian port of Constanza handles more than 40 million tons of freight a year,' Marchuk said. 'At the same time, all of the ports of Ukraine together transfer only 55 million.'
That disparity costs the Ukrainian economy $1.5 billion a year, according to Marchuk's calculations. Were Ukraine to snare only half the transit freight moving to and from Russia via Romania, he said, turnover at Ukrainian ports would increase by $250 million annually, the shipping industry would benefit to the tune of $750 million, and the railroad business would raise an additional $500 million.
'And that's not even working to our infrastructure's capacity,' he said. 'Were we to do that, the sum would be around $4 billion.'
That is a very big number indeed for cash-strapped Ukraine, a country that plans to generate just Hr 23 billion ($6.6 billion) in revenues for its entire budget in 1999.
Besides government bureaucrats, geography also presents a case that Ukraine should be doing more business moving goods between the Black Sea and the Volga basin.
'The fact is that we are located at the north shore of the Black Sea, which gives Ukraine sea access closer to Russia and the Caspian than any other country,' said Valery Shuliko, spokesman for the Ukraine State Gas and Oil Pipeline Committee.
Conference attendees unanimously agreed that the main reason Ukraine is failing to cash in on its potential as a freight transport hub is that shippers are specifically avoiding the country and its rapacious customs officers.
'It is not a problem to go around Ukraine, which is what is happening today,' said Yuri Vorobev, transportation professor at Odessa State University. 'Until Ukraine wakes up, it can't expect the freight to come back.'
'In Belarus, I get asked which Ukrainian most warrants a monument in his honor for sending all the transit freight their way,' Marchuk said. 'In Bulgaria, they ask the same thing.'
Horror stories revolving around corrupt Ukrainian customs officials abound (for one of the best, see 'So you think you have trouble with customs' on page 16 of the Sept. 29 edition of the Post).
But a swarm of customs officers is just one snag in the veritable obstacle course that is the Ukrainian customs process. Besides customs officers, up to 15 additional government bureaucrats must sign off on shipments passing through Ukraine. For instance, the radiological inspector, using a Geiger counter, checks each box of Israeli cookies going through Ukraine for gamma ray levels. A toxicologist, meanwhile, inspects that same box for bacteria.
All that inspecting takes time. Ukrainian customs typically holds up containers sent by first-time shippers for two weeks at the port of entry. In Constanza, the wait is only three to five days, Marchuk said. In Houston or Hamburg, cargo is held for about 48 hours.
Of course, there is a way to speed up the process – pay a bribe. However, freight forwarders say bribes do not speed up the process so much as they simply enable the process to proceed at all.
'For a typical container, you have to pay about $200 in bribes,' an Odessa-based Western freight-forwarder told the Post. 'No way you can get around it. And if your product is something valuable like liquor or cigarettes, the prices go up.'
Worse, unofficial payments are not the only ones harried Ukrainian transportation professionals have to make. Ukraine's state railroad company, Ukraliznytsia, has some of the highest freight charges in Europe, charging an average $750 to haul a 20-foot container across the country. A similar distance in Romania or Russia costs about $450 to $530, depending on the freight.
At those rates only bulk items, like steel and coal for export, can be shipped affordably. Consumer goods shippers seek alternatives, like the private trucking business.
But trucking, too, has become more burdensome of late. The price of hauling a container from Odessa to Moscow by truck has effectively doubled in dollar terms over the last three years. And, according to a recent report in the Kyiv weekly Zerkalo Nedeli, Ukrainian law sets the maximum cargo weight allowable on Ukrainian roads at about 20 tons per tractor trailer. By contrast, the maximum for most European roads is 25 to 40 tons, and that is typically how much truck containers weigh when they reach the Ukrainian border.
'That doesn't mean the shipments can't go on our roads,' the Zerkalo Nedeli article said. 'But it naturally costs the shipper extra to use them.'
Freight shippers' reaction to all the snags has been clear: They avoid sending freight through Ukraine.
'We are losing huge amounts of business to the Baltic ports,' Odessa Port Director Oleksandr Pavliuk said. 'It doesn't have to be that way, but with our government inspectors and expensive transportation rates, we're giving freight holders no other choice.'
'Our ferries are about half-full these days,' said Oleksandr Kurlyand, president of Ukrferry. 'The freight volumes just aren't there like before.'
'We used to send 100 containers of freight to Russia off of each ship that arrived in Odessa,' said the Odessa-based Western freight forwarder. 'Now we send 20.'
Ukrainian officials are finally moving to address the problem – somewhat. After indexing its rates to dollars in early October, Ukrzaliznytsia slashed its freight tariffs by 30 percent on Nov. 2. Interfax reported that the move was a response to a statistic that listed haulage volumes at 70 percent of 1997 levels.
In addition, the Ministry of Transportation has reduced port transfer fees by some 12 percent in real terms since beginning of the year, freight forwarders report. That has yielded an actual increase in port volumes of 7.5 percent over the first eight months of 1998, according to Deputy Transport Minister Viktor Sevriukov.
But price reductions fail to address the broader problem of Ukraine's reputation for corruption. Before that reputation is improved, substantial increases in volumes of goods shipped through Ukraine are a long way off.
As Leonid Kostiuchenko, Ukraine's assistant transportation minister, admitted at the Odessa conference, 'Without legal guarantees, no one is about to give us a kopeck.'
