Industry trends. The state of logistics in Ukraine: trends and features

15.07.2024
The logistics industry’s potential

In 2023, 68 countries increased their investments in infrastructure development. According to a World Bank study, private capital investment in infrastructure (PCI) amounted to $86 billion in 2023, which is $0.5 billion more than the average annual volume over the previous five years. The number of infrastructure projects in the world is growing dynamically. While in 2022 investors financed 260 projects, in 2023 it was already 322. In Europe and Central Asia, the infrastructure portfolio more than doubled over the year to 35 projects. Despite the predominance of investments in the renewable energy segment in global PPI, spending on port infrastructure development also doubled in 2023.

Nevertheless, representatives of the Ukrainian transport and logistics sector are optimistic despite the war. According to the results of the Infrastructure Index 2023 industry survey conducted by the European Business Association in cooperation with Arzinger and Sayenko Kharenko, 84% of companies are ready to resume shipping after the de-blockade of Ukrainian ports. Most of the surveyed companies intend to do so as soon as possible. At the same time, 66% of industry representatives consider the development of highways connecting Ukraine with the European Union to be the most relevant area for investment in logistics. In addition, 70% of transport and logistics companies are convinced of the need to develop a network of strategic transport hubs in the western regions of Ukraine. It is worth noting that 85% of the industry’s companies in Ukraine have either not stopped operating at all or have fully resumed operations.

Ukrainian logistics has generally adapted to the new realities and is successfully operating under martial law. The industry is recovering and integrating into the European and global transport and logistics network. Domestic agro-industrial holdings, trading and manufacturing companies, and developers are making a significant contribution to the development of Ukrainian logistics. Despite the difficult circumstances, new transshipment complexes are being built in Ukraine, and warehouse hubs and vehicle fleets are being modernized. Moreover, some companies are creating their own flotillas, investing billions of hryvnias in development, and, therefore, need to establish effective public-private partnerships and expect further European integration reforms. This can create the conditions for the Ukrainian logistics industry to attract foreign investment and reach a new level of development.

Logistics industry in Ukraine. Perspectives of development.

During communication with specialists of domestic logistics companies and local structures of international companies in Ukraine, one gets the feeling that the industry is optimistic about the prospects for development in the medium term. It is unlikely that this impression was formed due to the deliberate silence of companies on the negative aspects of their activities. Nor can it be spoiled by the change in the position of several international players in the Ukrainian market to a less public one. Of course, sometimes you hear comments like: “As long as there is something to carry for at least the current year, and then, perhaps, the fog will somehow clear.” However, there are very few such assessments, and more optimistic statements prevail. The most interesting thing is that the optimism of commentators is confirmed when analyzing the official statistical information available in the context of war.

Logisticians’ allies also add to the confidence in the industry’s positive prospects. Let us mention just a few recent examples. The agro-industrial holding PJSC Myronivsky Hliboproduct is buying a well-known logistics company. Another agricultural holding, Kernel, is creating its own flotilla to transport goods by water. The Novus chain of stores opened a powerful logistics center to further develop its retail business. And this is not a complete list. The achievements of transport and logistics companies and their encouraging assessments of the development of key segments of Ukrainian logistics are presented in our review.

The first part of the study is devoted to a general analysis of the state of affairs in the logistics market. The experts’ assessments are complemented by an analysis of industry statistics, which leads to the conclusion that the industry is resilient in the face of war. We also identified the trends currently prevailing in the transport and logistics sector of Ukraine.

The second part shows the dynamics of market processes and presents the results of the analysis of five key trends in logistics. Special attention is paid to the prospects for container transportation in Ukraine. After all, the level of containerization in the world is ten times higher than in Ukraine, and the country has a lot to strive for. For example, according to the World Bank, suppliers transport 35% of cargo in containers by volume and 60% by commercial value. This is a good benchmark for national carriers.

The third part of the report briefly describes the new challenges that logistics market participants will have to overcome in 2024. Almost two-thirds of business representatives have already publicly recognized the negative impact on the industry of the critical labor shortage and large-scale power outages. Preparing for an even worse situation, companies are investigating how to solve problems.

The situation in Ukrainian logistics: the overall view

Ukrainian logistics companies are recovering from the sharp drop in transportation volumes in the first months of the full-scale invasion. This is evidenced, among other things, by the positive dynamics of freight volumes over the past two years. According to the State Statistics Service, in March-December 2023, 282.4 million tons of cargo were transported by all modes of transport, while in the same period in 2022, only 231.1 million tons were transported. So we have a 22% overall growth. Monthly growth ranged from 17% to 30%. Of course, the volume of transportation remained significantly lower than the pre-war level, but the positive dynamics of indicators remained.

In 2024, the positive “cargo” trend continued. This is clearly demonstrated by the performance of the main segment of freight transportation: the railways, which traditionally accounts for about half of the total volume of freight transportation in Ukraine. According to JSC Ukrzaliznytsia, in the first five months of this year, rail freight traffic increased by 30% compared to the previous year. This significant growth is primarily driven by servicing the needs of exporters. The growth here is up to 57%. In January-May 2024, 75.4 million tons of cargo were transported by rail, of which 38 million tons were destined for export. The railroad is already transporting two-thirds of the pre-war level of cargo.

At the same time, experts emphasize the growing importance of land transportation. Logistics companies attach a special role to road transportation, and some even call it the key in the transport complex. Experts also note the high dynamics of road transportation in Ukraine. “Road transport is currently developing the fastest,” says Mykhailo Lymar, CEO of Meest China. Transporters also draw attention to the high ability of road transportation to adapt to circumstances. For example, in response to the blockade of the Polish borders, carriers sent trucks with goods across the borders of other countries or switched to using smaller trucks that were allowed to pass through during the border blockade*.

Despite the prospects of the “big water”, the Danube route plays an important role. It was in particular demand from early 2022 to mid-autumn 2023. According to the CTS estimates, in 2023, operators transshipped almost 52% of all sea cargo through the Danube ports. Then the demand for transportation capacity on this route slightly decreased due to the resumption of transportation through the Ukrainian Black Sea corridor. “However, we are currently maintaining a stable demand for a total flow of 250-300 thousand tons per month using all local capacities of the ports of Reni, Ismail and Orlivka,” GOL, an Odesa-based company, said.

By the way, the commodity structure of cargo transportation is also stabilizing. The share of commercial cargo is growing in the structure of transportation, gradually replacing humanitarian aid. The volume of grain cargo transportation by sea is increasing. Agricultural and metallurgical products traditionally occupy key positions in exports, while fuels and lubricants and engineering products are the main imports. Food cargo is mainly represented by grains and oil seeds, vegetable oil, sugar, etc. There is also a stable demand for logistics companies’ services in the FMCG segment, with only a declining share of expensive goods in the overall turnover structure. Demand for military cargo transportation is also growing.

Among the key industry trends, experts highlight:

  • the restoration of the country’s transport and logistics infrastructure;
  • active development of logistics transshipment complexes;
  • increased demand for consolidated cargo delivery and handling services;
  • growth in fulfillment volumes;
  • high demand for warehouse logistics;
  • the restoration of container shipping;
  • further automation and digitization of the industry.

Logistics companies also strive to integrate various logistics services – warehousing, transportation, and customs – into a single platform, enabling operators to manage supply chains more efficiently. There is a growing trend towards creating strategic partnerships and alliances between logistics providers, manufacturers, and retailers. According to DB Schenker, such partnerships optimize costs and improve service quality by pooling the resources and expertise of participants.

Industry representatives are developing solutions to address issues caused by labor shortages and the worsening energy situation. Some companies have already started actively involving women in transportation roles, and measures to improve logistics energy efficiency are being implemented.

New challenges in Ukrainian logistics

The year 2024 has brought an increase in workforce shortages and a lack of energy resources for domestic logistics. Due to the mobilization of Ukrainians, there is a growing labor shortage in the industry. “The situation with personnel is getting more complicated, their cost is rising, and finding a specialist is becoming increasingly difficult,” notes Meest China CEO Mykhailo Lymar.

Today, the issue of staffing is extremely pressing. According to representatives of GOL, in just one week – from May 13 to 17 – 22 drivers hired by the company for transportation fled (yes, fled) from their jobs. The following week – from May 20 to 24 – another 15 drivers did the same. The reason is clear: drivers are afraid to go on routes because they are detained, checked, and often mobilized directly during their trips. Industry participants believe this trend is very alarming as the number of drivers continues to dwindle. GOL CEO Pavlo Lynnyk and the company’s Commercial Director Volodymyr Guz call for urgent action to address this issue.

“Booking drivers hasn’t been a ‘cure-all.’ There have already been cases where even booked drivers were taken off their routes for re-checking. This, at the very least, leads to lost time in cargo delivery. So, there are many misunderstandings in this matter, and the reasons for them need to be eliminated,” say GOL executives.

Due to the shortage of professional personnel, one of the key tasks today is to increase the involvement of women in so-called “male” work and to adapt people with disabilities to work in logistics processes. Adds Daria Senchenko, Head of Land Transport at DB Schenker in Ukraine. In particular, training women in truck driving courses, using exoskeletons, and robotizing logistics work have become relevant.
Another equally challenging issue has arisen due to disruptions in electricity supply to enterprises. As of mid-2024, the very difficult situation in the domestic energy sector is forcing companies to revise their sustainable development strategies in Ukraine and set new priorities. According to Daria Senchenko, the main direction of efforts for companies to overcome this challenge should be “the implementation of energy-efficient solutions in warehouses to ensure uninterrupted cargo handling.” This problem continues to worsen during the third year of the major war, and it is unlikely to be resolved in the coming months.
Primarily, these solutions will be installed in regional centers and connected to the networks of the society from which railway transport facilities, the social sphere, and critical infrastructure facilities of other economic sectors are powered. “According to available forecasts, with the approach of the autumn-winter period, an increase in electricity supply shortages may affect the uninterrupted movement of trains and negatively impact the provision of utilities for household consumers, as JSC ‘Ukrzaliznytsia’ is also an operator of the electricity distribution and water supply systems,” the company notes.
As we can see, companies with high consumption are already ready to invest in enhancing their energy security and reducing dependence on electricity supply from traditional generation. This generation, as is known, suffers from terrorist attacks and destruction by the aggressor country. However, logistics companies remain optimistic about the future development of the industry. They believe that if the Ukrainian economy generally holds at least at the current level, solutions to personnel and electricity problems will be found, and the logistics industry will continue to function.

 

 

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