EBA Expert Talks : “Danube – Logistics in a new way” 2.0. Results 2023
Six months ago, we met at the first EBA Expert Talks event: “Danube – Logistics in a new way.” During this time, there have been changes in shipping and logistics. Throughout the year, the Danube hub developed at a rapid pace. But the last two weeks were very stormy, with the opening of the Ukrainian sea corridor, many companies from the Danube immediately returned to the ports of “Big Odesa”, so this is quite sensibly felt on the economy of the Danube region.
On November 22, 2023, during the EBA Expert Talks: “Danube – Logistics in a new way” 2.0. The results of 2023, organized by the Southern Ukrainian office of the European Business Association in partnership with Interlegal, we talked about: the main challenges of the transport industry in 2023, the current state of export transportation by rail, the experience of interaction in the ports of Reni and Izmail, a general overview of the container business in the region, the peculiarities of maritime logistics in Danube, what difficulties business faces, the practice and peculiarities of maritime arrest on the Danube, the development of the export and logistics hub in the area of the “Orlivka – Isakcha” ferry crossing.
The meeting was opened by Kateryna Morozova, Head of the EBA Southern Ukrainian office. She noted that the full -scale war in Ukraine had a significant impact on supply chains. The closure of Ukraine’s airspace, the blocking of part of Ukraine’s sea and river ports, significant damage to the railway network and the country’s infrastructure led to the fact that business calls to focus first on the restoration of infrastructure, transport hubs and connections. And the Russian attacks on the infrastructure of the Odesa region only increased the logistical and infrastructural challenges for the south of Ukraine. And despite the fact that in recent days, considerable attention has been focused on the dialogue to unblock the Polish-Ukrainian border, we are convinced that the development of the cross-border infrastructure of Bessarabia is also extremely important. The development of infrastructure should be in the focus of the post-war reconstruction of the Odesa region – this is the main message according to the results of a survey of regional companies in the summer of 2023.
The event was moderated by Artur Nicevych, Chairman of the EBA Odesa Legal Committee, a partner of Interlegal, who noted that the consequences of the port blockade in the context of the Danube region and Ukraine in general should be recognized as causing great difficulties and problems. However, it is important to note that where difficulties arise, solutions and new opportunities appear. As a result of the blockade of the ports, in particular “Big Odesa”, the ports of the Danube region experienced a significant revival of their activity. Before the war, the share of total transshipment in these ports was up to 4%, but with the beginning of the war, the ports of Izmail, Reni and Ust-Dunaisk remained active. This forced agricultural, logistics and trading companies to reorient their logistics flows and even move part of their business to this region. So, as in many cases, the crisis became an incentive for rethinking and searching for new opportunities. The Danube region, on the one hand, saved enterprises from the consequences of the blockade, on the other hand, there were difficulties and obstacles in the development of business, which require balanced strategies and adaptation to new realities.
How has the business adapted to the intensity of change and to working in this region? But what conclusions can we draw from almost two years of intensive work
Darya Sichkar, manager of the EBA logistics committee, shared the results of the Infrastructure Index 2023 and the main challenges of the transport industry in 2023. Rising costs, lack of personnel and blockage of shipping – the TOP-3 challenges of the transport business in 2023, these are the conclusions of the industry research Infrastructure Index 2023, conducted by the European Business Association. Many surveyed companies, namely 84% of companies, are ready to resume logistics via sea routes after the unblocking of ports, and most are ready to do so as soon as possible. At the same time, 29% say that it will be necessary to attract additional funding, including state support. It is about the need to finance the restoration of damaged port and railway infrastructure. Over the past year, the number of respondents who consider it necessary to develop a network of strategic universal transport hubs in the western regions of Ukraine, which can act as a capacity reserve, has decreased from 79% to 70%. At the same time, 26% believe that these will be unnecessary investments after the restoration of navigation in the Black Sea. Similarly, from 76% to 61%, the number of those who consider it expedient to develop transport infrastructure development projects (sea terminals, railways) of neighboring European countries at the expense of Ukrainian investments has decreased. Currently, 36% believe that such infrastructure will be redundant and unprofitable after the opening of the ports. So, in order to stabilize the transport and logistics market, according to the business, the government should focus on the unblocking of maritime commercial transport and the opening of Ukrainian ports for all types of cargo, security risk insurance for investors, as well as the construction and modernization of tracks in the direction of the border with the EU and the Danube ports.
Anton Shapran, Director of Maritime Logistics, spoke about the peculiarities of maritime logistics on the Danube. Maritime logistics on the Danube during a full-scale war against Ukraine is no exception and brings its own unique challenges for companies. One of the biggest challenges is ensuring security in the conditions of military operations. Places for storing goods can become the object of attacks, and logistics routes can be blocked, a striking example is the blocking of sea routes. This leads to the need to find alternative routes, which can increase costs and delay delivery. In the conditions of the war, the complexity of customs formalities increased. It is important to take this into account when planning routes and preparing documentation to ensure correct and fast delivery.
Valery Tkachov, Deputy Director of the Department of Ukrzaliznytsia Commercial Work announced the current state of export transportation by rail. Throughout 2021, «UZ» actively carried out cargo transportation, reaching a significant amount of tonnage every month. However, the outbreak of war in 2022 and the subsequent blockade of seaports became a challenge for logistics, resulting in serious losses. As a result of the blockade of the seaports, Ukrzaliznytsia lost the ability to transport a significant amount of cargo, in particular the export direction to the ports. The decline in domestic transportation was the result of the shutdown of 60% of enterprises. In such difficult moments, «UZ» had to take measures to preserve logistics flows. The two main alternatives included moving export cargoes to the western frontiers and using the ports at the mouth of the Danube. However, both those and other options were not free from difficulties and limitations. Ports in the Danube turned out to be an opportunity to increase the volume of exports but could not fully satisfy the needs for the transportation of ore cargoes and grain due to the lack of Euro-track and other technical equipment.
Taras Dragan and Oleksiy Bannih, Interlegal’s senior associate and Interlegal’s claims handler focused on the practice and specifics of maritime arrest on the Danube.
In general, the arrest of a vessel is its temporary detention by a court decision to fulfill maritime requirements, it is not accompanied by confiscation. Such a measure can only be used to satisfy maritime requirements.
In the context of the Danube, the arrest of a vessel has three main features that require attention. First, the Danube is not a sea, although the convention specifically concerns maritime arrest. Second, the Reni trade port is technically considered a maritime port. In addition, the subject of agreement of the contract when using the messenger was discussed, the agreement of all the details in any social networks in the future may be considered a valid contract by the court, therefore, colleagues recommend that everyone pay more attention to the process of discussing the conditions in messengers, and the submitted emoji can serve as confirmation of the terms of the contract. Consequently, working with legal issues becomes more difficult, but the Interlegal team has successfully handled all cases of maritime arrest on the Danube.
Rashid Buda, director of MSC Ukraine, spoke about the Ukrainian container business in 2023, he noted that this direction faces great challenges in the context of the war situation. Restrictions on transport routes, blockade of seaports and disruption of logistics chains call into question the usual order of business. War conditions force companies to review their strategies and actively diversify routes. By looking for alternative ways and balanced logistics solutions, businesses minimize risks and ensure sustainability of supplies using technology and innovation. Implementation of monitoring and automation systems is becoming an important element of risk management strategies.
Pavlo Konovalov, director of the Danube office of UPSS Terminals, shared the experience of interaction in the Reni and Izmail ports.
“An interesting fact: the Danube determines its length not from the source, but from the mouth, making it the second largest river in Europe. We encounter the specifics of this region every day. The ports of Izmail and Reni, equipped with the technical potential for transshipment of up to 15 million tons of cargo, play a key role. A recent report by the Ministry of Infrastructure of Ukraine indicates plans to increase the throughput capacity of Ukrainian ports on the Danube to 25 million tons annually.
Modernization of ports, construction of new terminals and infrastructure development are expected. Ukraine and Romania have also joined forces to improve export capacity through the Ukrainian and Romanian Danube canals. Despite all the possibilities, the military conflict with Russia imposes serious challenges on the development of the region. The opening of large ports in Odesa also necessitates the regulation of cargo flows and the provision of support to maintain stability on the Danube. A responsible position of the state regarding the protection of business and the development of the region is necessary because ports are not only economic catalysts, but also key means of ensuring security and stability,” said Mr. Konovalov.
Yuriy Dimchoglo, founder of “Orlivka Ferry Complex” LLC, drew attention to the development of the export and logistics hub in the area of the “Orlivka – Isakcha” Ferry Crossing. War always leaves its mark on the economy and transport. In the case of his company, the situation is complicated by the unpredictability of military operations. But it is precisely in such conditions that it is important to develop logistics and export hubs to support the economy and ensure national security. Hubs such as “Orlivka – Isakcha” can become a key element of economic stability during wartime events. The development of such points contributes to the increase of export volumes, ensuring the stability of economic flows. Despite the war, the state needs to take measures to preserve the infrastructure and ensure the safety of transport routes. One of the key factors in improving the work of the hub is increased investment and state assistance in development, which will continue to ensure its stability and recovery after the end of the war. To summarize, the conditions of the military conflict should not put an end to the development of export and logistics hubs. On the contrary, it can be an opportunity for the country to become more sustainable and competitive in the international market. Careful planning, innovation and collaboration ensure effective development in the most difficult times.
Conditions of war are always characterized by unpredictability. Business must be ready to respond quickly to changes in the situation and constantly update strategies to ensure the most effective functioning in conditions of instability. In this difficult time, business must show flexibility and firmness, and seek and implement new approaches to ensure the most efficient logistics on the Danube.