“We should start a substantive discussion now on Ukraine’s integration with the EU single market,” said Maciej Witucki, President of the Lewiatan Confederation, during April’s “Ukraine’s Future Summit”, a conference in Brussels covering Ukraine’s reconstruction and the possibilities its EU integration could bring.
The general director’s opinion was also shared by Kateryna Glazkova from the Union of Ukrainian Entrepreneurs (SUP), who claims that not only Ukraine needs the EU, but EU also needs Ukraine.
“In the European Union, there is a great demand for military technologies, IT services, agri-food products, pharmaceutical products, and valuable rare earth metals, which Ukraine can provide” said Kateryna Glazkova, as quoted by the Wielkopolska Association of Employers. “After Ukraine’s victory, the price of entering our market will be much higher, so I encourage you to invest now,” she added.
From June 2023, the European Commission is increasing Ukraine’s integration with the European Union’s single market, using the Connecting Europe Facility (CEF) financial program to finance infrastructure. An agreement on the association of Ukraine with the program was also signed in Lviv.
The Commission states that under the agreement, Ukraine can apply for funding for projects of “common interest” in the areas of transport, energy and digital technologies that improve Ukraine’s connections with the EU. The agreement promotes Ukraine’s integration with the European Union’s single market and aims to have a positive impact on “economic growth, employment and competitiveness.”
The World Bank estimated that the cost of rebuilding Ukraine over the next 10 years could amount to $486 billion. In 2024 alone, the country will need about $15 billion for urgent reconstruction, both at national and regional level.
Infrastructure and transport are of course areas that the Ukrainian Government places special emphasis on. With this mind, today we’ll look into how supply chains in Ukraine are developing, the challenges different goods transport modes are facing, and what infrastructure projects represent the greatest potential for accessing EU markets, particularly Poland.
Read on to learn:
- what changes have occurred to Ukraine’s logistics after two years of war,
- what challenges currently make it difficult to conduct business in Ukraine,
- how the Ukrainian transport and logistics structure is developing,
- an analysis of the development of Ukrainian goods transport, by road, sea, rail and inland shipping, in the context of Ukraine’s cooperation with Poland and other EU markets
Maritime and inland shipping
According to a study by the European Business Association (EBA), one of the biggest challenges facing Ukrainian and European companies is the blockade of free commercial navigation.
This is reflected in the fact that the maritime transport sector has suffered the most from the war. Before Russia’s invasion of Ukraine, 60% of export and import operations were carried out by sea. Ships transported 90% of agricultural products. According to data from the Ukrainian Agrarian Confederation (UAC), 7.5-8 million tons of Ukrainian grain were transported through Black Sea terminals each month.
A great success in July 2022 was reaching a compromise in the form of the grain agreement, which was valid for a year. During the time the agreement was active, Ukraine could export 3 million tons of grain per month, or about 33 million tons per year.
After Russia withdrew from the grain initiative, and Moscow lifted its security guarantees regarding ship traffic, Ukraine managed to ensure cargo traffic on its own, without the consent of the Russian Federation. In 2023, the volume of transport of food products on the Black Sea routes even neared pre-war levels.
According to Oleksandr Kubrakov, Deputy Prime Minister for the Reconstruction of Ukraine, and Minister of Development for Local Communities and Infrastructure, in January 2024, Ukrainian exports of agricultural products by sea amounted to 6.7 million tons.
“In the shortest month of the year, cargo turnover in Odessa’s ports amounted to 8 million tons, of which 5.2 million tons were products of Ukrainian farmers. This is a record sum” said Oleksander Kubrakov.
For comparison, during the equivalent 7 months last year, 33.8 million tons of cargo were exported through the Ukrainian corridor, which is more than during the grain initiative. In March this year, a new grain initiative agreement was almost reached between Russia and Ukraine via Turkey, but Kyiv withdrew from the agreement at the last minute. It is not known why Ukraine did this – all parties refused to comment on the matter.
The collapse of this deal naturally entailed a need to create alternative routes. One such solution is to utilise the Danube river. However, due to hostilities, mine threats, and the destruction of the hydroelectric power plant in Novaya Kachovka, river transport on the Dnipro was suspended. Before the war, 75% of cargo transported by inland waterways was transported along this river and its tributaries – Desna and Pripyat.
At that time, the Danube ports were still in the shadow of seaports. However, after the blockade of the Black Sea, they began to develop actively. Currently, almost one third of Ukrainian exports go through the Danube port cluster, which consists of the ports of Reni, Izmail and Ust-Danubesk.
In 2021, the total transshipment of these three Danube facilities reached 5 million tonnes. In the first year of the war, this number increased to 14.5 million tons, and in 2023 it has reached almost 30 million tons, although previously it was believed that the upper limit of port capacity was 20 million tons per year. In the first two months of 2024, exports through Danube ports amounted to 3.7 million tons of cargo. Of this, 2.5 million tons were grains and crude oil.
In September, the national operator Ukrainian Danube Navigation Company (UDP) launched a pilot project to transport grain across the Middle Danube to Constanta, Romania. In February, the company proposed transferring cargo transported by trucks to river barges. The UDP fleet can replace from 2,000 up to 5,000 trucks – claims the carrier.
The river operator has developed three barge transport routes. The fastest route is Ukraine – Galach (Romania). Delivery time through this corridor is several days, and there can be 5 to 7 journeys a month. A slightly longer option is from Ukraine to Regensburg, Germany (or any port on the middle and upper Danube). The corridor’s capacity is 2.1 thousand. TEU. The third route is Ukraine – Constanta (Romania). Through this corridor, it is possible to export to any place in the world. The capacity of the route is 5.9 thousand. TEU.
Currently, the Ukrainian Danube Shipping Company supplies containers to Danube ports in Slovakia, Hungary, Bulgaria, Serbia, Austria, Germany and Romania, and the ports of Odessa and the Danube-Black Sea route are responsible for over 85% of the total exports of agricultural products. This route reduces Ukraine’s dependence on Polish railway infrastructure and opens new markets for Ukrainian agricultural products, especially in the Black Sea and Mediterranean regions.
At the same time, this route requires significant investments in port infrastructure. The threat comes from mines, missile and drone attacks on ports. Nevertheless, despite these threats, it is currently the most effective cargo transportation route in Ukraine. Kyiv, in fact, proposes further development when the Black Sea route is unblocked. According to the authorities, the Danube route will remain open to small shipments and niche cargo, such as minerals and fertilizers.
Rail freight challenges
With the beginning of the war, the decline in economic activity in Ukraine led to a decline in freight transport performed by the state-owned railway company Ukrzaliznytsia. In 2022, freight traffic in the country decreased by 65%. Freight rates have increased due to border congestion.
In 2023, Ukrzaliznytsia transported 147 million tons, of which exports amounted to 63 million tons. During the first three months of 2024, the company could boast an increase in transport. In March, railways transported a record 16 million tons of cargo in the last two years. Both imports and exports increased.
“Currently, one third of all rail cargo is handled by railway stations serving ports, which is over 60% of the amount loaded at sea ports. These are mainly export cargo, including Ukrainian grain. In March, we met virtually all shippers’ requests and continue to improve our operational efficiency,” said Yevhen Lyashchenko, CEO of Ukrzaliznytsia.
In March, Ukrainian railways transported 8 million tons of cargo, including 3.2 million tons of grain.
“Overall, 51% all loads that were transported were for export. This is an increase of 53.7%. compared to March 2023 and by 4.7% compared to the record-breaking previous year,” added Ukrzaliznytsia.
Before the war, rail transit took place through Belarus, which allowed avoiding double reloading or changing wagons from broad gauge to European and vice versa, for example when heading to Baltic ports. After the outbreak of the war, this route was closed by the Ministry of Economy for safety reasons. Therefore transit traffic began to go mainly through Poland.
The biggest challenge for Ukraine’s rail trade with the European Union is the difference in track gauge (European track gauge is 1,435 mm and Ukrainian is 1,520 mm) and the limited number of terminals. Therefore, Ukrzaliznycia began the construction of a wide track from Rivne to the border with Poland.
“The construction of a section of the railway line with a gauge of 1,435 mm from Mościska to Skniłów will start this year. Skniłów station will become an international railway junction,” he said Oleksandr Kubrakov in February.
Moreover, in April, Ukrainian Railways started work on a new railway line with European standard gauge connecting Chop, located near the borders with Hungary and Slovakia, with Uzhhorod. The project will provide Ukraine with new logistics opportunities in freight transport and relieve traffic control points. Half of the project costs (approx. €15 million) will be financed by the European Union from the CEF program.
“Uzhhorod is becoming the first regional centre connected to Europe by rail with a European standard,” said Denys Shmyhal, Prime Minister of Ukraine, during the inauguration of construction on April 11 this year.
In the future, it will be possible to extend the track gauge of 1,435 mm to Lviv, which will connect the city with the TEN-T Rhine-Danube and Mediterranean corridors.
Moreover, Ukrainian investors are ready to finance the construction of a wide track from the border with Ukraine to the ports of Gdańsk and Klaipėda in Lithuania.
“This will facilitate the supply of Ukrainian grain and give Poland the opportunity to earn money on its transit,” said Mykola Solski, Minister of Agrarian Policy and Food of Ukraine, in an interview for the Puls Biznesu daily.
He added that Ukrainian companies will guarantee suitable traffic intensity on the route for 10 years.
“I will say more: Poland will be able to build grain processing plants on its coast and export finished products,” which will of course earn more, said Mykola Solski.
In his opinion, Ukraine has many times more wagons for transporting grain than the entire European Union, so it makes more sense to build a track with a gauge of 1,520 mm from the Ukrainian border to the Polish coast than to invest in narrow-gauge wagons.
Ukrainian trucks on European tracks
At the beginning of December, Ukraine’s Ukrzaliznytsia carried out a pilot project involving the transport of trucks on railway platforms.
“This year, we carried out a test transport of a semi-trailer from Ukraine to Sławków and vice versa. After technical analyses, we decided to take up the challenge of searching for even more effective solutions,” said Zbigniew Tracichleb, president of PKP Linia Hutnicza Szerokotorowa, quoted by PAP.
Travel time from the border station was approximately 8 hours. After completing all customs activities, the cars arrived on the station’s front ramp. According to the company’s announcement, the target transport countries for cars are Germany, Sweden and Lithuania.
The company announced that the project will contribute not only to strengthening its position on the logistics market, but also to building an efficient supply chain, but also says that “further development of this project depends on the assessment of the test transport.”
Air freight limitations
The Ukrainian State Air Traffic Services Enterprise (UkSATSE) announced that Ukrainian airspace, closed after the outbreak of the war, will be reopened immediately after the end of hostilities.
However, the European Organization for the Safety of Air Navigation Eurocontrol in its report reported that civil aviation will not fly over Ukraine until 2029. 12 of the country’s 19 airports are closed due to damage to buildings and infrastructure. The damage is estimated at approximately UAH 200 billion (€4.7 billion). The reconstruction of airports and their return to use will therefore take time.
The situation is nonetheless different with air freight transport. Oleksandr Kiriliuk, operational director of the logistics company Zammler Ukraina, noted that cargo deliveries via air transport are still carried out, but through the airports of Poland and Hungary.
“From the airports in Warsaw and Budapest, cargo is loaded onto trucks and delivered to Ukraine,” Oleksandr Kiriliuk said in an interview for trans.iNFO.
Expensive road transport
Road transport is currently the most important branch of cargo supplies for Ukraine. After the outbreak of the war, road transport volumes surpassed that of rail, sea and air freight.
Before the war, routes of more than 300 kilometers were deemed unprofitable, but now drivers delivering goods over 1,000 km is considered profitable for companies.
However, road transport has faced a huge challenge – congestion at the borders. These are not new problems, the insufficient number of border crossings has already bothered carriers before.
However, strikes by carriers and farmers have added fuel to the fire, and have been effectively blocking truck traffic at the border crossings with Poland since October. In November and December, at the Dorohusk-Jagodzin crossing, drivers even had to wait 30-40 days to cross the border.
“Border crossings are the weakest points in the logistics chain between Ukraine and the European Union,” said Oleksandr Kiriliuk from Zammler. “This applies not only to road transport, but also to rail.”
In his opinion, there has been no investment in Ukraine for years to boost development of road border crossings.
“Border crossings were not ready for such large traffic volumes, which in 2022 increased twice compared to 2021,” added Oleksandr Kiriliuk.
Currently only 5% of agricultural products are exported through Poland. This corridor was the cheapest and fastest solution for Ukrainians, but the farmers’ protests effectively prevented traffic on this route. After roads to Poland were blocked, the corridor through Romania became the best but also most-expensive option for transporting agricultural products.
“Everyone is driving through Romania out of desperation. Honestly, this is the last country our company would choose to work in. Freight, cargo handling and deliveries are becoming more and more expensive, Dmitro Savenkov,” director of the forwarding company SavaTranslogic, told trans.INFO.
The Baltic countries, on the other hand, are too distant for Ukraine.
“The Baltic countries are close to us mentally. However, the detour through Poland significantly increases cargo costs. Even when we used transit through Belarus, this direction was profitable,” added Savenkov.