Why the Wehrmacht won't pass Ukrainian customs.
At least a dozen articles have been written about the problems of cargo transit through Ukraine in the last three years. There have been analytical publications detailing the situation in this sector, some critical, some motivational—calling on the authorities to at least listen to the experts on some issues. And the number of senior management meetings held on this topic is countless. But transit still left Ukraine—what we've been warning about since 2011 has happened.
Officials from ministries and industry research institutes did everything but create and implement conditions for attracting transit cargo flows, which are so beneficial to the national economy. First, we were forced to wring the last of it from corrupt customs and port officials, then Russia closed its borders—and that was the end.
Over the past year, the decline in transportation was: by ports in transit - 25% (in containers - 40%), the decline by rail - 50% in total in tons.
And given the specific nature of cargo flows, i.e., the fact that the main transit tons were provided by oil, coal, iron ore, and chemicals from northern neighbors, the lag in 2016 "in terms of tons" will be even greater.
If 15-20 years ago someone working in transit had told us there would be no work at all, they would have laughed. Steady, full-flowing rivers of transit cargo flowing from west to east, from south to north, from Turkey to Kazakhstan, from China to Moldova, from Cyprus, Egypt, Greece, and Turkey to Russia—it was a massive undertaking! By rail to Almaty, Mongolia, Samara, Moscow, Kazan, Nizhny Novgorod, and by road to Chisinau, Minsk, Moscow, Samara, Tolyatti, Chelyabinsk… And how the Ukrainians transported cargo arriving at our ports to Rostov and Krasnodar!
Anyone with even a basic understanding of geography understands that transit through Ukraine is possible in four directions: from south to north and back, and from west to east and back. For a specialist with a second-year transport university degree, solving the "transport problem" already requires an understanding of the sources of freight flows, i.e., where the goods we intend to transport are produced and consumed. But for a specialist with the now-fashionable title of "logistician," it's also important to understand how quickly and efficiently connections between different modes of transport and borders along the entire freight route will be overcome. Having assessed the geography and solved the transport problem, the logistician will then proceed to assess the final requirement: the speed and ease of freight movement.
A joke is appropriate here: "What were the Germans doing on the USSR border for two years if World War II began in 1939 and the Great Patriotic War in 1941? The correct answer: The Wehrmacht was passing through Ukrainian customs."
It is precisely because of obstacles artificially created for business, unthinkable in European practice, and the costs and extortions of our homegrown "forms of transit control" at border checkpoints, that Moldovan cargo has fled to a new and more expensive river port, Belarusians have turned their "vantages" away from our ports, and Turks are directing their vehicles to the north of the continent through Romania and Poland – just not through Ukraine.
By spinning fairy tales about our "highly sought-after transit opportunities," the authorities have stopped doing real work to create logistical advantages at the junctions of transit "rivers" and for those who can actually attract transit cargo—that is, Ukrainian private companies. These "new silk roads," while boastful and utterly pointless due to their high cost and time constraints, are just one example of transport officials' fundamental misunderstanding of the problem. In the area of transit transportation, the state's role is solely to enable businesses to resell logistics services through our territory—given our fortunate geography. In other words, to make it as easy as possible for private businesses to attract transit cargo and earn some money from it.
Reformers, if there are any in the Cabinet of Ministers, urgently need to understand that logistics companies trading in geography and logistics can only profit if they are provided with state services: state transport and logistics at checkpoints and transfer points—of the highest quality and competitively priced. Throughout the civilized world, this is the direct responsibility of the state and the responsibility (in our case) of the Ministry of Infrastructure, customs, and regulatory authorities. The task for port administrations, for example, is to coordinate the process of improving quality and service at ports and organizing the smooth operation of port and government services. They also need to understand that freight forwarders and logisticians are an essential, key link in attracting and servicing transit cargo, and that they too must profit from this process. Understanding this latter issue may enable us to recover what is still possible: Moldovan cargo, Belarusian cargo to the south and the Far East, Turkish cargo to the Baltic, and so on.
Incidentally, there aren't many options left for "etc., etc." Even geography is operating in a different mode. Technological innovations in the transport and information sectors are rapidly leading to a revolutionary breakthrough in service delivery, with long-term benefits in transport efficiency and productivity. With falling commodity and fuel prices, the cost of transportation around us is falling, as is the cost of providing information in this process. Consequently, the battle for logistics efficiency, whether cooperation or competition between global service providers and small local companies tied to our ports, is inevitable. It's impossible to predict where the transport services market will turn literally tomorrow. But it's absolutely essential to focus the work of relevant government agencies on creating competitive advantages for logistics at Ukrainian ports and cargo checkpoints.
Today's world is cyber-competitive (or hyper-competitive)—it depends on how you define it. And simply by knowing geography, it's completely pointless to extol the advantages of our transport and transit arteries. Especially when logistics are completely dysfunctional.
It's naive to think that replacing ministers will change anything. Our ministers don't understand and have never solved "transport problems," much less possess even the most basic knowledge of logistics. Otherwise, they wouldn't have opened "new silk roads." Unfortunately, our understanding of transit attractiveness is largely based on the postulates of our own propaganda—based on the constant mantras of officials and academics about our leading role in this industry, that Ukrainian transit routes are among the most in-demand in the world, and so on. But in reality, things have long since changed.
In recent years, under the guise of government regulation and targeted investment (dredging, construction of port terminals), as well as mindless customs experiments, the industry has effectively become rigidly dependent on the actions of a small group of individuals, rather than market institutions and competitiveness. In ports, for example, this has occurred under the auspices of so-called "port reformers."
In fact, during Viktor Yanukovych's presidency, the industry was deliberately twisted to suit their needs and handed over for "reform" for specific purposes and to specific oligarchs (we've mentioned their names repeatedly, but it's like water off a duck's back). Their activities continue today. How they will respond to new challenges is questionable, as these officials have never encountered the scale of problems we're seeing today in foreign markets. Plus, their inherent corruption hasn't gone away. And there's a very high risk that they'll find it easier to stick with the old regulatory model than to guide the industry toward change. After all, people usually do what they think they know and can do. These guys, however, only know how to "manually" manage, write fancy reports, "nag," and "work for their positions."
What are our authorities and competitors doing now in the area of attracting transit?
1. The Turks began paying extra money from the country's budget to every air carrier that flew to Turkey; a similar practice was followed in Georgia.
I wouldn't be surprised if all our neighbors are practicing the same, including for freight transit. Bulgarians, Romanians... Especially since buying a tractor-trailer from them and starting transporting freight in transit is much cheaper and easier than in Ukraine. Here, for example, upgrading our fleet to global, European, and transit standards is no longer even a possibility... The high cost of acquisition, the complexity of registration and use, and the vulnerability of such private investments to government action are the main reasons for the widespread aging of our transit fleet and the deterioration in the quality of transit services.
2. Meanwhile, in Ukraine, supposedly to attract transit cargo flows, top port officials (all in power and honorary titles, even heroic ones, dating back to the Yanukovych era) have orchestrated a gigantic "garbage dump" of public funds, building one of the world's most expensive container terminals (per unit of container capacity) in the Odessa port. It stands empty and only handles underloaded vessels a couple of times a month. The payback period for this "investment miracle" is at least 100 years... If even a small fraction of the public funds spent had been allocated to private transit companies to compensate for the cost of at least fuel for transit shipments, the transit situation could have been radically different. But...
3. In the last days of January 2016 alone, the cost of transshipping transit containers at the Odessa port increased by almost $100. How did this happen? Because the private company Euroterminal, without any tenders or competitions, gained exclusive control over opening the barrier at the Odessa port and, consequently, receiving a bribe for every empty and loaded container. The port administration, as usual, shrugs: "It's not up to us, we didn't do this, we understand, but we can't interfere in the affairs of a private company at the port gates, for which we are responsible to the state..."
4. Our ports continue to be entangled in a private information system with clearly Russian roots, extortionate pricing for imposed "services," and frankly questionable quality. The sudden departure of Belarusian cargo from our ports coincides with the implementation of this system, to the delight of Russian competitors. This same program will also support the "New Silk Road," meaning that all information about new users of Ukraine's transit opportunities will be in private hands, without oversight or government oversight. Even if these opportunities do emerge. Who is behind this? How does the state and the ministry allow this to happen? After all, the curators of Yanukovych-era corruption schemes in the ministry and the ports have never been rid of them—they control them, they allow them...
5. The only "bright spot of understanding" regarding transit emerged in the actions of the Odessa Customs Office in 2016. An order was signed: "Don't touch transit! Process it in 15 minutes. Don't bully or nitpick." Only here has there been an understanding that transit practices in Ukraine require a radical change in habits and approaches. Unfortunately, this initiative has been completely rejected by other customs offices and the central office of the fiscal service. There, it's all business as usual: "Flay anyone who's still moving."
Of course, it's very bad that Ukraine is left without transit cargo. But it was all predetermined: cargo doesn't go through countries with the lowest business freedom index in Europe. This is a diagnosis for the state and its top officials. And something needs to be done about them too...
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Alexander Zakharov, coordinator of the "NO Corruption in Transport" movement, a transit carrier with 20 years of experience; specially for the publication Argument
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