ODESSA – It was a lovely, seaside afternoon, but freight forwarder Dimitry Kirichuk was anything but relaxed.
The Odessa-based transportation industry veteran makes his living exploiting Ukraine’s unique shipping potential as a land bridge between Turkey and the Baltic Sea region. In a nutshell, he makes things like Iranian tomato paste or Czech toilet fixtures move with alacrity through the port of Odessa.
None of which was happening last Friday. As shadows lengthened towards evening at the Odessa port container terminal, Kirichuk’s current worry – an eighteen wheeler jammed with Italian washing machines – was going nowhere fast.
‘Look at all these trucks. No way all their paperwork is going to get done by six,’ he fumed to the Post, gesturing at a queue of some 20 semis. ‘We’re gonna lose another day, and the customer is going to kill me.’
With his deadline dependent on the efficiency of Ukrainian bureaucrats, Kirichuk’s ire could be understood. But his plight would probably receive little sympathy from the Trieste shippers who entrusted their container to his care. Rather than kill him, however, the shippers would be more inclined to simply route their next shipment through the Russian port of Novorossisk.
For Kirichuk and thousands of Ukrainian transportation professionals like him, rampant bureaucracy in Ukraine is killing the transit shipping business – even as Kyiv is promoting Ukraine as an ideal shipping corridor for the future.
‘The number of government inspectors has gone up,’ said Reny Port Director Sergei Chadiu. ‘And the volume of freight that we handle has gone down … it is as simple as that.’
Located deep in the Danube delta and linked to Bulgaria by a direct automobile ferry service, Reny is well positioned to accommodate many of the trucks heading north and east with European goods. The drive to the border takes about half a day, the roads are good, and the route bypasses the sticky Moldovan and Trans-Dnistren border crossings.
Ferry service between Reny and Varna opened in 1994 and boomed almost immediately. By 1995 the port was handling over 2,000 trucks a month. Alas, this success was short-lived.
In 1996 the average number of trucks heading through Reny was a shade over 1,000. In 1997 it was down to around 550, and currently it hovers at a modest 600. Ferries that used to call every three days now show up once a week, and one of the vessels has simply been retired for lack of business.
That dramatic reduction can be blamed in part on the opening of a competing auto ferry between Varna and Novorossisk, Russia, and in part on a generally deflating economy, Chadiu concedes. But what is even more damaging, he emphasizes, is that as the industry decreases in size, the government has been increasing the level of control over the industry.
‘When we started the service, the government organs controlling the truck shipments included the border police, customs, the veterinary quarantine, the agricultural quarantine, and the international shipping service,’ Chadiu recalled. ‘In 1996 they added the Odessa Oblast Accounting Center of Road and Transportation Development…in October it was the government insurance inspection agency … and in 1997 they added the ecological control service.’
A chop from each of those eight agencies averages between $10 and $20, paid in advance by harried forwarders like Kirichuk. Nor is that the end to the costs.
The state insurance agency has recently required coverage – with separate policies – of not just the freight but the driver, the truck, and the collision and personal damage they might inflict.
Beginning in January of 1997, Ukraine required shippers of high-excise items like cigarettes or vodka to pay all taxes on these items in advance, even if they were destined beyond Ukraine’s borders. Previously, Ukrainian law exempted freight in transit from this requirement. To make matters worse, Ukraine expanded the law to apply to all transit freight at the beginning of 1998.
The law, which was instituted to combat smuggling, has forced many shippers to completely abandon Ukraine and has slowed business at the country’s ports significantly. Port Director Chadiu estimates that the law has cut his port’s gross income by a third.
The national government isn’t the only beast angling for a piece of the region’s shipping profits. In 1996 the Odessa oblast instituted a road usage fee. Initially priced at a moderate $10 per truck, by the beginning of this year the administration had jacked the fee up to $95 per truck.
The extra fees are putting Ukraine at a competitive disadvantage compared to its neighbors. ‘In terms of official payments to official government agencies, getting a truck across Ukraine costs up to $700,’ Chadiu computed. ‘That’s around $200 to $250 more than transporting through neighboring countries [like Russia or Moldova].’
Where this money is going is anybody’s guess. ‘I have a car,’ said Kirichuk, repeating a common Odessa complaint. ‘And all that money is NOT going to fix potholes, I can tell you.’
Inflated as they are, the astronomical costs say nothing about the time delays the new regulations have added to the process. Although Ukraine’s roads are relatively good, its border transit points are horrendous, with waits of three days common and a waits of up to a week by no means rare. Add to that delays in the port itself, and drivers from overseas have another good reason to think about alternatives to trucking through Ukraine.
‘The Ministry of Foreign Affairs issues a foreign truck driver a visa for three days,’ explained Aleksander Moroz of the Sovmortrans Ilychevsk company. ‘Delays make it effectively impossible for him to leave Ukrainian territory before his visa expires. The local police know this, stop the trucks, and the trucker must pay to free himself.’
And then there’s the ‘unofficial’ payments, famous throughout Ukraine but particularly rampant at customs’ points. Kirichuk figures that in terms of gifts, incentive payments, and outright bribes, his company is out of pocket an additional $20 to $30 per container handled.
These days one of the most popular career choices for up-and-coming young Ukrainians is customs officer, even with salaries starting at $120 a month. In Ilychevsk, the northern terminus of one of the largest Ukraine-Turkey ferry lines, many of these new officials are embracing the truck transit business, some industry professionals say.
‘Back when our freight volumes were at seven million tons yearly, we had five customs officers,’ said Anatoly Voinovsky, Director of Ilychevsk Port Ferry Terminal Number 7. ‘Now [at 25 percent of that volume] we have 67 customs officers working here. Naturally, they are able to keep themselves busy. But the result is that there will be fewer and fewer customers willing to use the truck ferry to Ilychevsk.’
Customs officials in Odessa and Ilychevsk declined to return the Post’s phone calls.
Not surprisingly, the varied and numerous burdens to efficient transit shipping via Ukraine’s traditional transportation routes have led some enterprising Ukrainian businessmen to seek alternative routes.
In tiny Skadovsk, near Kherson, local entrepreneurs have begun operating a brand new ferry service that bypasses the country’s most popular ports and their accompanying army of government inspectors. Begun in April, the new service operates three small ferries – two leased from the Russian Caspian Sea Shipping Line and one bought used in France – which ply their way between Skadovsk and the equally miniscule Turkish port of Zonguldak.
Skadovsk is not completely free of government hawks. But there transit costs are comparatively lower and the wait is effectively nonexistent. ‘In Skadovsk the government inspectors manage to inspect 40 vehicles in three hours,’ said Moroz. ‘That means that either they are working with unbelievable violations of the law, or that [in Ilychevsk] we are fantastically disorganized.’
The result? Skadovsk ferries are full, while Ilychevsk ferries are only one-half to three quarters full. And while last year state-owned operator Ukrferry wrote two of its vessels off as scrap, company management is considering expanding the Skadovsk fleet.
But Skadovsk is the exception, not the rule. The Ukrainian transit shipping industry continues to contract in 1998, with transit freight shipping down 30 percent nationwide this year compared to 1997.
As for Kirichuk, after a hurried private meeting with a customs agent, he finally got his container moving just before the long weekend. When approached by the Post for comment, the customs officer declined to say why he had decided to prioritize Kirichuk’s shipment.
