Ukraine grain transit through Baltics only workable with preferential tariff

Russia once again attacked Ukraine's port infrastructure Monday, increasing concerns around future shipments from the Danube, currently the key route for agriculture products after the Black Sea Grain Initiative stopped working, and causing stakeholders to consider alternative routes, including transit through Baltic and Polish ports.

However, trade sources said this route was currently not really workable, with one of the main reasons being the high costs associated with it, which means it will only be a viable option only if the EU can agree on a preferential rail tariff for Ukrainian exports.

The price question is currently very painful, unlike a year ago when Ukraine also had limited choices for export as the Black Sea ports were still blocked.

Back then world prices were at historical highs, giving Ukrainian sellers an opportunity to include expensive logistics in the price while still remaining competitive.

But this year, inland prices in Ukraine are already at very low levels, close to or even at the level of costs of production, and any further decline will hit farmers' ability to plan the upcoming planting.

"This option can work if you go through Belarus (which will not happen) or if there will be subsidies from the EU for transportation to more distant ports (which is currently being discussed),” one analyst said.

Other sources agreed that without discounted tariffs from European transporting companies, it was “senseless.”

In addition, rail logistics in the EU are planned well ahead, and this has caused delays for Ukrainian shipments, as the rail track is a different gauge in the EU and all exports have to be reloaded onto EU wagons at the border.

Another factor is the capacity at the border, which is still fairly limited – Ukranian rail shipments stood at 1.2 million mt per month back in 2022 before the opening of the Black Sea export corridor.

This means putting in a lot of effort to export a relatively low volume.

Finally, currently, the world prices are significantly lower than last year, so even if Ukrainian grain can be transited to Baltic ports, the price at which it is likely to be offered from there is unlikely to be competitive.

"Logistic costs including freight from the Baltic to the importers out of the EU kills the business," a broker said.

At the same time, if activity in Danube ports drops significantly amid higher risks, this could push commodity prices higher.

"Logistics are expensive for Baltic ports. But on the other hand, if we work only through EU borders, then the market will rise and maybe it will be again possible to calculate this according to the costs of production in Ukraine,” a trader said.

The president of the Ukrainian Grain Association (UGA), Mykola Gorbachov, has already called on European Commission to increase the export through its so-called solidarity lanes to 1.5 million mt per month by subsidizing the costs of the European transporting companies and port transshipment.

This could help lower overall logistics costs for Ukrainian traders and allow farmers to deliver grain without making a loss.

Gorbachov also said that the transfer of sanitary, phytosanitary and veterinary control from checkpoints at the EU border with Ukraine to the country of destination might ensure a significant increase in exports.