Rising costs, personnel shortages and blocked shipping – TOP 3 challenges for the transportation business in 2023
These are the conclusions of the Infrastructure Index 2023 industry research conducted by the European Business Association together with Arzinger and Sayenko Kharenko. In addition to the above factors, respondents named queues at border crossings and restrictions on Ukrainian exports by the EU’s neighboring countries as the biggest challenges of wartime.
Last year, the biggest challenges for companies were changes in logistics due to the blockade of ports, reduced demand for goods or services, and problems with energy supply.
The majority of respondents, namely 84% of companies, are ready to resume logistics by sea routes after the ports are unblocked, and most are ready to do so as soon as possible. At the same time, 29% say that this will require additional funding, including government support. In particular, this refers to the need to finance the restoration of damaged port and rail infrastructure.
For the second year in a row, respondents named the development of highways connecting Ukraine and the EU as the most relevant investment project in Europe and Ukraine for the logistics market (66% of respondents agree), the development of the European gauge railway in Ukraine (62% of respondents), and the construction of strategic universal transport hubs in Ukraine (61%).
Over the past year, the number of respondents who believe it is necessary to develop a network of strategic universal transport hubs in the western regions of Ukraine that can act as a capacity reserve has decreased from 79% to 70%. At the same time, 26% believe that this will be an unnecessary investment after the resumption of shipping in the Black Sea.
Similarly, the number of those who consider it expedient to develop transport infrastructure projects (maritime terminals, railways) in European neighboring countries at the expense of Ukrainian investments has decreased from 76% to 61%. Currently, 36% believe that such infrastructure will be unnecessary and unprofitable after the ports are opened.
We asked companies whether they consider it appropriate to privatize port terminals in wartime. Almost half of the respondents, namely 46%, consider it appropriate. Of these, 53% believe that it is worth increasing the number of existing privatization objects at the expense of other port assets. The most effective approach to the privatization of port assets, according to 52% of respondents, is object-by-object (terminal) privatization, in which individual port terminals can be separate objects of privatization.
Experts say that the priority areas for development in the road sector are increasing the capacity of road border crossing points (78% of respondents), developing roads within the framework of the TEN-T Trans-European Transport Network (73%), and implementing international standards in road construction – FIDIC, independent engineers, etc. (46%).
To stabilize the transportation and logistics market, businesses believe that the government should focus on unblocking commercial maritime transportation and opening Ukrainian ports to all types of cargo, providing risk insurance for investors, and building and modernizing railways to the EU border and Danube ports.
Among the survey participants in 2023, 79% did not stop their operations and continue to work, 13% stopped work but have already partially resumed, and 6% stopped work but have already fully resumed. The work of 2% of companies is currently suspended.
The number of companies in the transportation sector that suffered direct losses as a result of hostilities is 47% in 2023. Of these, 43% assess the level of damage as significant, and 2% consider recovery impossible or inexpedient.
At the same time, 41% have already restored damaged facilities, and 11% will restore them shortly. Another 34% plan to restore after the war is over and 14% do not plan to restore.
Only 31% of the companies we surveyed have plans to recover losses. Last year, the number was 50%. Among those who have such plans, 32% have recorded damaged/destroyed property and collected evidence, 27% have assessed losses, and 10% each report filing a lawsuit and opening criminal proceedings. Another 10% are looking for consultants to carry out the above activities.
It is interesting to see the implementation of international standards, in particular, FIDIC contracts, among the top 3 priorities for road sector development. This is a tool that can significantly help Ukraine in general in infrastructure development and post-war reconstruction projects. This is not a panacea in itself, but the use of familiar standards increases the comfort level of foreign investors and donors when working in our country. It is worth noting that over the past few years, quite a few changes have been made to the legislation to enable the use of FIDIC contracts. As practicing lawyers, we have also seen an increasing interest in this topic among our clients and are pleased that our routine work contributes to the dissemination of the best international practices in Ukraine.
Despite the ongoing war and the old and new challenges associated with it, the survey results show that the business community has generally adapted to the new realities and the prolonged martial law. In particular, 84% of respondents are ready to resume logistics through seaports immediately or within a few months. These figures show that the transportation industry still retains its pre-war potential. The solution to the top 5 challenges of martial law cited by respondents mostly depends on effective government policy. This applies to agreements with our western neighboring countries on the transit of agricultural products, a policy to encourage able-bodied Ukrainians to return to Ukraine, and a balanced tariff policy of transport monopolists that will stabilize logistics costs (rising logistics costs are one of the biggest challenges of martial law, according to respondents).
The Infrastructure Index has been conducted by the European Business Association since 2020.
In this year’s wave of the Index, we sought to assess the state of the transport industry, the impact of military operations on the functioning of transport infrastructure, and identify relevant initiatives to stabilize the transportation and logistics market.
The survey involved 62 transportation and logistics professionals from EBA member companies. The main partners of the survey were Arzinger and Sayenko Kharenko.