Interviews UDP 06 April 2023
The head of Ukrainian Danube Shipping about the current situation with freight transportation in the Danube region
The blockade of the Black Sea ports increased the interest of Ukrainian shippers in the Danube ports. Before the war, they did not play a significant role in transshipment of export goods, but under the new conditions they work almost at the limit of their capacity. Although the Danube ports have become especially important for the export of grain, other cargoes also occupy a large specific weight in transshipment. Last fall, 45% of iron and steel production passed through the Izmail port. According to the USPA, the volume of cargo handling last year in the Danube ports increased as follows: Reni – to 6.8 million tons from 1.4 million tons in 2021, Izmail – to 8.9 million tons from 4 million tons, Ust-Dunaisk – to 785 thousand tons out of 64 thousand tons.
In an interview with GMK Center, Dmytro Moskalenko, CEO of PJSC Ukrainian Danube Shipping (UDP), told about the situation with freight transportation in the Danube region.
What is UDP now?
– Ukrainian Danube Shipping is a shipping company, 100% of which shares belong to the state. As of the beginning of April 2023, there are 24 self-propelled vessels of the cargo river fleet and approximately 197 non-self-propelled vessels in operation of the UDP. The UDP structure also includes its own repair base – Kiliy Shipbuilding and Ship Repair Plant. Last year, we launched our own stevedoring complex.
In 2022, UDP accounts for approximately 10% of the total cargo traffic of the Danube ports of Ukraine, including river and sea transportation. In 2022, the ports of the Danube Sea Cluster showed the best results for all the years of Ukraine’s independence, processing a total of 16.5 million tons of cargo. In particular, Izmail increased its cargo turnover by 2.2 times (up to 8.89 million tons), Reni – by five times (up to 6.82 million tons), Ust-Dunaisk – by 12.3 times (up to 785,000 tons). etc.).
The Danube is a transport artery with a length of 2,400 km from the mouth of the Danube River to the port of Kellheim (Germany). The Danube connects the Ukrainian Danube region with 9 European countries located on its banks. These are Moldova, Romania, Bulgaria, Serbia, Croatia, Hungary, Slovakia, Austria and Germany. The Danube accounts for approximately 10-15% of all European freight river transportation (70-80 million tons annually). In total, over 1,000 self-propelled fleets and over 2,000 non-self-propelled fleets operate on the Danube.
What were the transport indicators of Ukrainian Danube Shipping in 2022?
– More than 1.8 million tons were transported last year. The basis of cargo in 2022 was grain and steel raw materials. The enterprise could have carried out much more transportation, but was hampered by the severe congestion of the Danube infrastructure and the queues at the terminals in the seaports, where caravans with goods could wait for unloading for several weeks.
The second negative factor is the drought in Europe, which caused the Danube to become shallower. We closed navigation twice, worked with minimal draft. However, the volume of transportation was preserved, and the record financial result (in 2022, the company’s profit, including subsidiaries, amounted to more than UAH 1 billion, compared to losses of UAH 38 million in 2021) made it possible to fully pay off the debts of the UDP, launch the fleet restoration program, own investment projects. In particular, more than UAH 10 million has been invested in the grain transshipment complex in Kiliy.
Last year, financing of the UDP repair program was increased to UAH 134 million. As of the end of last year, the number of self-propelled fleet in operation increased from 19 to 24 units, non-self-propelled – from 184 to 200.
What is the specific weight of iron ore and steel products in UDP transportation? Is there prospects for increasing the cargo turnover of steel cargoes through the ports of the Ukrainian Danube region and UDP capacities?
– In 2022, we transported almost half a million tons of iron and steel products – iron ore to the Middle Danube. However, the share of steel production decreased compared to pre-war. For example, in January-February 2022, the monthly volume of cargo transportation by steel plants amounted to approximately 80,000 tons. This is almost 2/3 of the total volume of transportation. But after the start of the war, the Black Sea ports of Ukraine were blocked. Grain cargoes were redirected to the Danube. Therefore, in the spring and summer, all efforts were devoted to the export of grain.
Towards the end of the year, the UDP fleet began to return to the Middle Danube, and the share of iron and steel began to grow again. Unfortunately, in January-February 2023, compared to December 2022, the volume of steel transportation again declined for reasons unrelated to the UDP. As a result of power outages, problems arose with energy supply for production, logistics in Ukraine, etc. Currently, the situation is gradually leveling off. In total, in the first quarter of 2023, transportation of steel cargo by the UDP fleet amounted to approximately 70,000 tons.
UDP is ready to transport 1.5-2 times more. Currently, the percentage of iron and steel in the structure of our transportation is 15-20%. And it can be up to 50% or higher. Due to the new model of work of crews, the circulation time of barge caravans is reduced. We expect two more of our most powerful tugs, which can push not 6, but 9 barges, to come out of repair. The only question is whether Europeans are ready to buy more, and our producers are ready to supply more.
The company won the HBIS Serbia tender for the transportation of 500,000 tons of iron ore. How interested is the producer in Ukrainian raw materials?
– European producers have the opportunity to choose a logistics model. For example, UDP once supplied raw materials to the Austrian steellworking plant Voestalpine, but then the producer decided to reformat logistics. Some other producers replaced the supply of steel products through Izmail with supplies through the Romanian Constanta. The question is how competitive the logistics chain through the Ukrainian Danube ports is in general. It is not only about the fleet, there is transshipment, railway. Before the war, trying to maintain the volume of transportation of iron and steel, UDP was actually operating at a loss. Today, the fleet management process is organized much more efficiently, and a modern monitoring and control system has been created. Now we are ready to offer very competitive conditions, while maintaining sufficient profitability of transportation. That is, we are doing everything possible to develop supplies of Ukrainian raw materials.
In 2022, Ukrainian companies were forced to rebuild their logistics routes for both export and import. What role did the UDP play in the restructuring, in particular, for steel sector?
– In the conditions of the overheated Danube logistics market, we were ready to offer long-term contracts on stable terms to representatives of steel industry. As a result, they entered into a large contract with the aforementioned producer from Serbia. We are open to any proposals, ready to offer complex logistics solutions to facilitate the entry of Ukrainian producers into new sales markets.
What factors are currently restraining the development of UDP?
– Firstly, we can transport much more, but there is not enough tonnage. Therefore, at the own Kiliy plant, they started a project to build SLG barges from donor lighters (currently, the UDP has 86 lighters, which they plan to transform into barges in 2-3 years and receive another 5-6 barge caravans). Secondly, we have a very old traction fleet. This means not only constant repairs, which are more and more difficult to carry out every year (even such spare parts are no longer produced). There is a risk that due to the strengthening of environmental standards, after some time our fleet will not be able to work in the EU countries at all. Therefore, the issue of complex modernization of the fleet is a question of our existence. Therefore, we are conducting negotiations with European shipyards regarding the capital modernization of UDP self-propelled vessels, the project of modernization of the factory slip in Kiliy is being considered. They tried to do this earlier, but finally there is a clear understanding of what and how to do it, as well as financial resources to launch the project.
How will the privatization of the ports Ust-Dunaisk and Bilhorod-Dnistrovskyi affect the work of the UDP?
– The arrival of investments and investors in the Danube region is very good. Strengthening the infrastructure means new opportunities and, accordingly, an increase in the flow of goods. But for now it is difficult to say exactly what investment plans the new owners of the privatized assets have.
At what stage are the negotiations with the International Finance Corporation (IFC) regarding the possibility of financing projects in the field of river logistics?
– IFC is very interested in cooperation, because there are not so many enterprises in Ukraine, the development of which will contribute to the economic growth of the region as a whole. Companies that not only have an investment program, but also an absolutely realistic vision of return on investment. However, we understand that in order to take specific steps, it is necessary to do homework – for example, the UDP should have a more transparent and understandable corporate structure for the investor. We offer IFC projects related to the modernization of ships, assistance in de-offshoreization, digitization of management processes, measures to reduce the negative impact of production activities on the environment, etc.
What are the prospects for the development of ports in the Ukrainian Danube region? What infrastructure problems have already been solved and what still need to be solved?
– Problems are already being solved. These include dredging, the construction of new warehouse complexes, and the appearance of new interesting projects, such as the Orlivka-Isakcha cargo terminal (there is an international automobile checkpoint here, but last year Orlivka-Isakcha also turned into a cargo terminal – a new point of loading and unloading ships and barge), and increasing the opportunities for ships to enter the Bystre estuary. The team of the Ministry of Recovery works very professionally and efficiently.
What are the plans of the UDP for the current year in terms of transportation, investments, construction and modernization of the fleet?
– With regard to investments, we have very ambitious plans – to build the first batch of new barges, to begin capital modernization of the first four self-propelled vessels, to develop a modernization program for our shipyard. Transform our repair facilities into a modern fleet maintenance infrastructure. As for the volume of transportation in 2023, it will most likely not change drastically. Although the structure of cargoes may vary.