ANALYSIS: Ukrainian export outlooks hinge on cross-border EU logistics

The Russian invasion of Ukraine has struck at the heart of some of the best exporting logistics in the Black Sea, cutting off Ukraine's vital productive regions from their route to the sea and to international export markets.  

Ukraine's grain exports pace has dropped significantly over the last month as a direct result of the invasion, but with big stocks of key commodities and spiking international prices, the country's trade has been searching hard for alternative opportunities to continue exporting.

Around 98% of grain exports used to go through the country's seaports, with most of the volume moving through the Black Sea deep water ports like Odesa, Mykolaiv, Chernomorsk, Pivdenniy, and Ochakiv.

However, after Russia started the war in Ukraine, all the country's key exporting ports have been blocked and not a single bulk vessel has left since February 23 - the day before the invasion began.

Thus export options have become limited to the railways, trucks, and the exports through the smaller, up river ports of Ismail and Reni, which are close to the border with Moldova and usually convey Moldovan originated-grains rather than Ukrainian.

The will and the way

Since the start of the war on February 24 up to March 17, Ukraine has moved around 593 wagons loaded with grain and 389 wagons carrying meal through the border with Poland, accounting for around 38,545 mt and 25,285 mt respectively, according to Elena Neroba, business development manager at Maxigrain and a partner at Kyiv's Trend and Hedge Club.

Although the volumes are relatively small, they are expected to increase as the trade proves the viability of the routes, overcomes teething issues and as the picture around export restrictions becomes clearer.

Exports were entirely absent for the first two weeks of the war and much of the sector expected exports to be curtailed as the government ensured it had enough supplies of agricultural products to feed itself.

Rail is most likely to be the key in any future export outlooks - as long as Russia maintains its blockade of the country's ports - with truck freight likely to be left in the shade by a lack of vehicles and drivers as the ongoing efforts to resist Russian forces pulls in men and machines. 

Railway and its issues

The biggest issue facing grain exports through the land borders with European countries has been the lack of rail loading capacity on the borders, as the mechanism has not been the primary method of exporting. 

A basic difference in rail-track sizes, with EU rails narrower by a few centimetres versus Ukraine's more Russian-oriented rail connections, means that wagons need to be reloaded at additional cost and inconvenience.

In addition, logistics in neighboring countries are already busy with internal deliveries and there is a lack of available wagons on the border with Ukraine that can be used to transport the volumes further within the bloc, including potentially to European ports.

“The railroad plans to reach higher volumes than they previously announced. But in any case, there is a limited capacity of border crossings for all types of cargo, and grain exporters compete with other types of goods, iron ore for example,” Neroba told Agricensus.

“Separately, accumulation capacity is limited - border warehouses are not designed even for the volumes that can be exported now, and it is necessary to look for transport for further exports towards European ports or processors,” she continued.

Poland

Ukrainian railways are able to deliver a total of 45 wagons per day to the stations on the border with Poland, which accounts for around 3,150 mt.

At the same time, the overloading capacity is at 145 wagons per day on the Ukrainian side and 215 wagons on the Polish side according to information provided to Neroba.

But the average carriage capacity for Polish wagons stands at 57 mt compared to Ukrainian wagons that can take up to 70 mt, further limiting the capacity possibilities. 

Romania

Along the southern border, Ukrainian railways are able to deliver 150 wagons to stations on the border with Romania, but only 40 carriages per day to Vadul-Siret, which is the main land border between the two countries.

Ukrainian overloading capacity there reached 67 wagons per day, but the capacity on the Romanian side is only 20 wagons per day.

There are also three closely grouped ports along the Danube river that can be used to load Ukrainian grains, including Giurgiuleşti in Moldova (5 wagons per day), Reni (87 wagons), and Ismail (18 wagons) in the south of Ukraine.

The annual bulk loading capacity for Reni and Ismail ports stands at around 16.5 million mt, but that includes all cargoes, including grain, iron ore, steel, coal, etc.

The estimated capacity of simultaneous storage in Ismail is around 85,000 mt and 108,000 mt in Reni.

But local sources said that available space in the grain terminals is already tight in those ports, as they were usually used for Moldovan grains.

Hungary

The final major contributor to the equation is Hungary, to the west of Ukraine.

There, railways are able to deliver 77 carriages per day to the border with Hungary and Slovakia, while the overloading capacity on the Ukrainian side of the border stands at 134 wagons (around 9,400 mt) per day.

However, on the opposite EU side, there is only one point that is able to cope with loading in Hungary where capacity stands at only 20 wagons per day.