Logistics, the business of transporting, custom clearing, storing and distributing goods, was hit hard by the 2009 global recession, but is now estimated to be growing in Ukraine at impressive, double digit rates.
In the short term, the path ahead for Ukraine’s logistics business is as bumpy as Ukraine’s roads, in part due to a horrible investment climate that chokes business in bureaucracy, corruption and shakedowns.
Yet it’s a path that logistics businesses will stick to, because of the huge long-term upside. Simply put, Ukraine lags far behind the West in terms of number and quality of logistics infrastructure, be it roads, warehouses, cargo terminals or ease of customs clearance procedures. And where there are hurdles for some, there is opportunity for others.
“Growth dynamics have not recovered to pre-crisis levels,” said Oleg Kalensky, secretary of the logistics and transportation committee at the American Chamber of Commerce in Ukraine. Kalensky estimated, however, that the industry is still growing strongly, by about 15 percent annually. Yet this, he said, is only half of the 30 percent annual increases of 2006-2008.
The pinch of recession has forced various businesses operating in the logistics sector to focus on improving competitiveness by boosting the quality and value of services provided.
Whereas investors in pre-crisis times were throwing money into any warehouse or other logistics project that popped up, “now investors usually think twice before starting a logistics business” in Ukraine, said Alyona Maksymchuk, head of transport and logistics commission at Kyiv regional Business Council.
Maksymchuk said that businesses have started developing in a so-called horizontal direction. New logistics operators tend to appear not from out of town, foreign investment, but as offshoots of existing retail operations that are in need of such services.
à âGrowth dynamics have not recovered to pre-crisis levels.â
â Oleg Kalensky— â Oleg Kalensky
“Retailers, like Fozzy Group and Epicenter, are now constructing their own big logistics centers,” Maksymchuk added.
Cost-cutting by companies is being noticed along all parts of the logistics service chain.
Before the crisis, companies would bring “full truck loads of freight to regional warehouses. Now, some of those regional warehouses are closed down, carriage sizes are being decreased from pallets to parcels,” Maksymchuk said. This has boosted business and profits for couriers, who handle smaller sized-deliveries.
Oleksandr Tkachev, head of investment analysis at Kyiv-based Pro-Consulting, said that rental rates for space at warehouses fell sharply during the 2009 recession and have yet to recover. This, he said, “decreased revenues of logistic operators.” But construction of new warehouses continues, with total stock increasing annually by about 10-15 percent, he estimated.
Maksymchuk said Ukraine’s new customs code legislation, which took effect this summer, rattled and shocked the logistics business, causing major headaches. Operators across the board were forced to abruptly adapt to major changes, not all for the better.
A simple visit to Ukraine’s border crossing with any country is enough to convince anyone that bribes and kickbacks are still expected by many customs officials as permission for crossing with goods. “High level of corruption and low reliability between various parts of supply chains are holding back the entire logistics services market,” Tkachev said.
Pointing to the difficulty average people have when it comes to importing a car into Ukraine, Maksymchuk said sarcastically: “Imagine what it takes to get a fully loaded truck of goods for Ukrainian companies, with medicines for example, across the border.”
And once you get the goods into Ukraine, getting them on time to the distribution warehouse, store or other destination is far from certain given the extremely low quality of the roads, railway carriages and transport terminals.
The warehouse in Ukraine that are classified as class A aren’t really so, compared to counterparts in European Union countries, “because we have far worse road conditions, quality of service, qualifications of personnel,” said Maksymchuk.
These hurdles can make services more costly than in the west, experts said.
Yet the logistics business is growing, and hiring more Ukrainians in the process.
Natalia Matsypura, a spokesperson for HeadHunter, a recruitment agency, said the number of job openings in logistics and transport posted on its hh.ua website has doubled from 1,216 in 2010 to 2,533 in 2012.
While most of the logistics jobs being offered are mid-level to blue collar, higher-paying top management openings more than doubled in the past year, reaching 165 in June 2012 on the rabota.ua job portal.
“Despite all the difficulties, the development of this business still has huge potential. It is far from being a saturated market,” said Tkachev.
Kyiv Post staff writer Oksana Grytsenko can be reached at [email protected].
