Ukraine. Entering the new season with old logistics problems

UkrAgroConsult

Article author:

Maksym Kharchenko

Freight Market Analyst

UkrAgroConsult holds optimistic expectations for the marketing year 2021/22. Production and exports of cereals and pulses is forecast to be higher than in 2020/21. Nevertheless, the market is aware that large crops in Ukraine invariably entail logistics problems, and timely contract execution becomes the primary goal.

Inland logistics has long been the Achilles’ heel of Ukrainian grain exports. The problems are often systemic, therefore a local solution such as the railcar fleet boost in recent years has not become a panacea. Other objective factors also contributed to the 2020 drop in grain transportation by rail: a significant corn crop decline and rising grain prices that urged growers to hold back sales.

Of the total number of hoppers one-third will have to be down for scheduled repairs in 2021. Thus, the change in the balance of grain carriers will lead to higher freight rates, especially during peak demand amid a shortage of locomotives.

The trucking segment experiences the following trends: diesel fuel prices have been growing throughout MY 2020/21 and the fact that in 2021 Ukraine’s authorities tightened overload control and increased fines for violation.

All the above will drive up shipping cost and consequently raise freight rates. As a result, shippers will switch part of cargo traffic to railways. This will become another factor pressuring the rail transportation sector, whereas there is now no serious alternative to it.

In 2021, the crop and export recovery to the 2019/20 records will become a serious challenge for Ukraine’s inland logistics. In the opinion of UkrAgroConsult, uncertainty in the grain shipping market and vulnerability of logistic business processes will contribute to tariff volatility in the peak period of summer and fall of 2021.

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UkrAgroConsult

Tags: Ukraine, logistics, new season