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What biggest grain traders say about port logistics of Ukraine

18 June 2019   Maxym Bazhenov

What challenges are encountered by operators of port grain agroterminals in Ukraine. Top managers of COFCO, Louis Dreyfus, Posco, Kernel, NIBULON tols in the course of the Ukrainian Ports Forum 2019

What biggest grain traders say about port logistics of Ukraine

Deputy director for COFCO Black Sea region Dalian Sun:

I would like to say Thank you to the Ministry of Infrastructure of Ukraine, AMPU and local authorities of Mykolaiiv for all the support that we have received and which we needed on all stages of the construction works of our terminal in the Mykolaiiv port. Now our project envisages reloading of 2.5 million tonnes but according to statistics we have processed more freight, and this is a very good indicator of efficiency for us. And for this efficiency, we would like to say Thank you to the Ukrainian companies who work with us and provide us with the best specialists.

But there also exist a few problems that our business encounters in Mykolaiiv when working with the Mykolaiiv elevators. For example, now the elevators work at the bigger capacity than we planned at the very beginning, and we also lack railway logistics between the zones where goods are grown, and terminals. We will need here help in the near future.

We also have an oil-extracting plant in Mariupol with the annual capacity of 0.5 million tonnes. For the last years our team was very disturbed by the Mariupol situation and this plant in particular. The plant itself is located a few kilometres off the Mariupol port and we need to deliver our product from the plant to the port, and then to ship it to external markets. Work of the Mariupol port is organized in a very efficient way and we are pleased with the work of its terminals. And I think that in future COFCO International will continue developing business in Ukraine and extend investment in Ukraine.

In China the demand grows constantly and the number of consumers of high-quality agricultural products also grows, including consumption of sunflower oil. Within the system of COFCO companies there are oil-pressure facilities which at the moment correspond to 23 million tonnes of processing per year. We also work with soya. And now we do not only see a growing demand for soya, but also for sunflower oil, while our population considers it to be a healthier food than soya oil. That is why we will continue investing into the sunflower business.

Narrow places that we have are the internal logistics in Ukraine, especially when speaking about transportation by rail

We currently have some problems with our plant in Mariupol -  we lack raw materials for

our production. Today we have to switch to other sources of raw materials from other regions, while there is not enough raw materials in the region. And we also have some problems related to delivery of raw materials from other regions to the plant, while there are certain losses during raw materials delivery from other regions, or from external markets, to the plant. And today we do not see high efficiency of transportation. We will hope that peace and stability will return in Ukraine and then every problem will be solved.

Now we are getting focused on the narrow places. We know that the narrow places that we have are the internal logistics in Ukraine, especially when we mean transportation by rail. There exist certain speed limitations. One more problem is the lack of locomotives. We would very much like that this situation gets better. I would also like to wish you’re your Government pays more attention to development of the industry itself. For example. If we take Mykolaiiv, we mean a non-harmonized policy of receiving ships via the Dnipro-Buh channel: the attention isn’t  paid to all players but only to some of them. And I think that such a practice should be discontinued and we should switch to a more large-scale one. Besides that, the resolution of railway problem would be very important for all players.

Industrial director for the countries of Europe and AsiaLouis Dreyfus Company B.V. Rakhman Daniel:

We have a grain terminal in the Odesa port, this is a joint project with the Ukrainian company “Brooklyn-Kyiv”. Now we have signed a memorandum in order to finish this construction. Having our own quay, we will be able to extend our capacity to 4,5 million tonnes per year. Now we process only 800 thousand tonnes and we can only receive trains but cannot receive trucks. We want to build a hub for cargoes which is not ready yet. If we have a fully ready quay and warehouse facilities, then the next question is about the depth on the quay. Now it is 12.5 meters and we think about dredging to be able to dream about “Panamaxes”. Then we would be able to realize our planned capacity.

Besides Odesa we also work in two more ports. The port “Nika-Tera” in Mykolaiiv is more flexible for access, it is located close to the source of harvest. But there are also minuses: we can receive there “Handymaxes” but no “Panamaxes”. We also work with “TIC” terminal.

There is a lack of locomotives and logistically this is a narrow place

We are fully dedicated to business in this state for a long time. The company Louis Dreyfus now owns four bunkers and we started investing into the railway cars. We are aware of the problem with railway and understand that it is strategically important to have our own cars. Starting from the previous year, we own over half a thousand railway cars. But there is also a lack of locomotives and logistically this is a narrow place. And we want to invest now in order to have all the structures in place which would enable us to transport the harvest. We can possibly build warehouse facilities somewhere on the territory of Ukraine closer to the source of harvest.

As for our recommendations for the Government of Ukraine, I would name a suggestion regarding railway. We need an improved infrastructure. If we buy our own railway cars and there will be privately owned locomotives, that would be a great input.  But it is also needed to change the rules of setting tariffs and the work of ports, so as it results in speeding up of processing the ships.

Vice-president of Posco International Corporation Kho Songyong:

Our company is a new player from the point of view of infrastructural projects in Ukraine but we have experience in the world. Before entering the Ukrainian market we made a research and studied all Ukrainian ports. Our main goal is the market of “Panamaxes”. And we decided then to continue our work with the Mykolaiiv port. It seems to me that this is a very good hub of the agricultural sector of Ukraine and this is not only that we want to work with “Panamaxes” and “Handysizes” which are now widely spread.

We have not yet communicated with AMPU directly regarding dredging in Mykolaiiv. We are studying how the potential will develop in Ukraine. I spoke with the Minister of Infrastructure of Ukraine Volodymyr Omelian, we spoke about long-term plans, about improvement of infrastructure as a whole. Of course, this will not happen tomorrow. But we think that facilities of the Mykolaiiv port will sooner or later improved.

General director of Kernel Trade Ievhen Osypov:

We are building a terminal in the “Chornomorsk” port. The capacity of our existing terminal “Transbalkterminal” is 4 million tonnes, we are going to double this capacity by mid season via the launch of “Transgrainterminal”. That is, we plan reloading over 8 million tonnes in Chornomorsk. We all exist in the environment of the global competition. The competition is very simple – the world wants to consume more products, they should be of quality ones and cheap. There was a thought voiced here that the Ukrainian farmer should get a higher price and so on. We as the company which produces quite a lot of products like this idea but we understand that we cannot influence that. We believe that creation of value lies in the maximum efficiency of the chain from production of a product in the field and to its delivery to the elevator, transportation to the port, its reloading in the port and delivery to the end user. This is a value chain. And we see our task in making us more efficient in each element of that chain. The efficiency here is very simple: minimum expenses under maximum productivity.

The product that you and we are producing is referring to exchange, it can’t be sold at a higher price. Price for these products is quoted on the world stock exchanges, we open Chicago, we understand the price and this is the price that we will sell at. Currently we process 3,4 million tonnes of sunflower, we reload ca. 7,5 million tonnes of grain, oil seeds and other crops. And we believe that studying each segment, lowering self-cost on each stage is the future. We cannot control the price in any way. Our task is to only go lower in self-cost.

Ukraine produces the product, it should export 50 million tonnes and irrespective of price the 50 million tonnes will leave the country. We exist in conditions of the global competition and should beat it. Our main competitors today are the countries of Southern and Northern America. Brazil has a high rate of production and the self-cost of farming on field there is very low. But Brazil is being killed today by logistics. With the growth of logistics efficiency in Brazil, this is a big question whether Ukraine will have any more place in the market. If we continue moving with the same pace as today, then tomorrow there will be no place left for us in the world competition, we will fail due to self-cost. And we can continue saying nice words but it will not bring us anywhere.

Today the depths in the Ukrainian ports do not comply with the requirements of the market

We see that the terminals, development of the projects move forward. Today there are terminals of Posco. Louis Dreyfus grows its capacity. “Nibulon” moves forward. Cargill together with “TIC” launch a project this year. We are launching our project. There exist many projects which means that the climate in this country allows to develop this industry. This is a fact. Alongside with that railway started working better from the beginning of the year. We have actually transported more cargoes and the decisions which seemed to be difficult at the beginning – in terms of route transportations and the closure of some stations – allowed us to export the same volume of product which was produced. In this area there is a positive move.

And the problem we have is that today depths in the Ukrainian ports do not comply with the requirements of the market. Or today they comply but tomorrow they will not comply for sure. All the market moves to “capesizes” and bigger vessels. There’s a question – what sort of vessels would our terminals and ports be able to receive? They cannot receive those ships. And tomorrow the market will be there. And here, of course, there should be cooperation of enterprises in the person of AMPU, ports, Ministry of Infrastructure and on our and your part. And it is necessary to increase depth, stimulate those projects in order that tomorrow everybody could compete. Otherwise everyone will tomorrow lose in competition, we will not be able to export from here, because our products will not be competitive in the world market.

The difference between the state-owned and private terminals in ports can be clearly seen – in terms of the attitude, condition of assets, turnover of assets. I think that we, from the point of view of the state, should not keep those assets in hand but we should find ways to transfer them into the hands of the private business. Whatever is the way – concession, lease or any other, it is not that important. The main thing is that the conditions should be stable, fixed for a certain period of time, and each of us should think of our own efficiency on every stage and what sort of input can be made by each of us into the general system to enable us to compete in future.

Deputy general director of LLC “JV “Nibulon” Volodymyr Klymenko:

If we take in complex: hydro-technical facilities, approach ways, then our terminal for 60-70 tonnes costs ca. $20-23 million. On the territory of Ukraine many similar complexes can be built. We have 25 complexes – they are river based and railway ones. Our terminals are created in such a way that they all process route shipments. We build a terminal in the course of 1000 days. But in order to build a terminal on the Dnipro or Pivdennyi Buh, we work for 7 and sometimes even 10 years to execute all the formalities and prepare for construction. This work is done by the company in a systematic way. We have enough sites on the territory of Ukraine to be in the position to continue this work. They are ready for the start of construction.

 For our elevator with the capacity 76 thousand tonnes to pay off, we need to make four turnovers for the year. The ships that we build for our fleet pay off during not less than 15 years.

You know that 15 years ago, if you needed to reload grain in the port of Mykolaiiv or Odesa – and two elevators were state-owned – one had to pay no less than $20 per tonne. Today the situation is quite different. Such a service costs today $6-7. Therefore it is not profitable now to build as it was before. And everyone calculated one’s economy.

We are not focused on bringing grain into ports. That is why we have built the whole line of realoading complexes. We have also built two “Mykolaivets” which load on raid 5 thousand tonnes each, and “Saint Mykolai” which loads 10 thousand tonnes on the raid. And on 20 September we are putting into operation “NibulonMax” which can reload 20 thousand tonnes of grain per day on the raid. Therefore, our logistics allows us from 1 October to reload on raid 40 thousand tonner per day. That will exclude any weather caprice, any demurrage of the river transport. We will exclude problems with demurrage and non-rhythmic arrivals. We will create a stock in the grain market and along with that will give other subjects of the market fulfill their services.

Our “Nibulon Max” is a floating elevator. And we see that right now it is a prospective direction in logistics of Ukraine. We think that for now a wave of construction of port terminals will pass and everyone should think of a timeline when the port elevators will pay off.

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