As Russia blocks Ukraine’s trade corridors, focus shifts to Silk Road
Locomotives carry empty wagons to a ferry during the opening ceremony of the Trans-Caspian International Transport Route from Ukraine to China in Odesa Oblast’s Chornomorsk Port in January 2016.
Ukraine’s exports to Kazakhstan, Kyrgyzstan and elsewhere in Asia slumped by 40 percent after Russia banned the transit of Ukrainian goods through its territory in the winter of 2016.
But inspired by the Silk Road – an ancient network of trade routes that linked the Far East and Europe – Ukrainian authorities found alternative routes, via the Black Sea, Georgia, Azerbaijan and then across the Caspian Sea to Kazakhstan and further into Asia, along the Trans-Caspian International Transport Corridor, one of six trade routes together dubbed the New Silk Road.
“Such a route is very difficult, and consumes more time and money, as the cargo goes across two seas and one mountain range. But there’s no alternative,” Yevhen Kravtsov, an adviser to Ukrainian Infrastructure Minister Volodymyr Omelyan told the Kyiv Post during the Ukrainian Railways Development conference in Kyiv on April 18.
Kravtsov said all of the export cargo to the east that used to be transported by rail across Russian territory now goes through Odesa’s Chornomorsk Seaport, via the ferry to Georgia.
In April, Ukraine’s Cabinet of Ministers ratified an agreement signed in September in Batumi in Georgia on a direct rail-ferry connection between Ukrainian and Georgian seaports.
Over the last two years, cargo turnover at Chornomorsk Seaport dropped by nearly 2 million tons, from 14.6 million tons in 2015 to 12.7 million tons in 2016, the port’s press service told the Kyiv Post.
Kravtsov is confident that situation will soon improve, as the new direct ferry link between Ukraine and Georgia forms part of one of six routes of the new Silk Road, officially called China’s One Belt, One Road Initiative, which was launched by the Chinese government in 2013 to expand links between East and West.
Chornomorsk Seaport connected the drop in cargo with the general fall in goods production in Ukraine and Russia’s ban on transit Russian goods through Ukraine’s territory.
But Kravtsov said that the ferry transport market in Ukraine wasn’t ready to operate at full capacity.
“As of now there are only three ferries going between Chornomorsk and the Georgian ports Batumi and Poti. Soon Ukrzaliznitsya will launch its first ferry, which, we hope, will improve the situation,” said Kravtsov.
At the moment it takes more than 12 days for Ukrainian exports to get to some store shelves in Kazakhstan, Tajikistan, and Kyrgyzstan, instead of eight days before. Furthermore, the Russian route for Ukrainian exports is much cheaper than the Silk Road.
Oleksandr Kava, a former infrastructure minister’s adviser, told the Kyiv Post prices depend on the type of cargo and the export destination. Kava reckons that to transport one cargo container from Dostyk station on the Chinese- Kazakhstan border to the Ukrainian-Polish border via Russian territory cost about $3,500, while to transport a contained along the Trans-Caspian Corridor of the Silk Road costs about $5,500.
Because of the longer time and higher prices, some Ukrainian exporters have been practically squeezed out of some Central Asia markets.
But Omelyan believes that the longer, harder road will soon be the perfect alternative to Russian Federation transit.
“The logistics is not the problem; the problem is the lack of clever and competitive logistic companies. But we’re working on it.
We’ve made deals with Kazakhstan, Azerbaijan, and Georgia, and there are more to come,” Omelyan told the Kyiv Post on April 20.
Omelyan said Ukraine wanted to join in the Silk Road project in 2015, and had asked that the Chinese make them not only members of the transport corridor, but also members of the Silk Road Economic Belt.
“But the Chinese refused, saying it was too late, and we’d missed our chance. Nevertheless, in a year we did the impossible, and Ukraine joined the Silk Road in 2016,” Omelyan said.
Ukraine launched the new route from Ukraine to Georgia, Azerbaijan, Kazakhstan and then China, which includes two ferry crossings bypassing Russia, in January 2016.
The first “Silk Road Train” with Ukrainian cargo from Chornomorsk Port arrived at Dostyk Railway Station on Kazakhstan’s border with China on Jan. 31.
Russian President Vladimir Putin early last year banned transit of Ukrainian export goods to Kazakhstan through Russia “for Russia’s national interests and economic security.”
At first, Russia let Ukrainian traders transport their products through Belarus and then to Russia, as long as the shipments were constantly tracked online by the Glonass navigation satellite system, the Russian analog of GPS.
However, in June, Russia expanded the ban on the transit of Ukrainian goods not only to Kazakhstan, but also Kyrgyzstan.
The Economic Development and Trade Ministry’s press service said that because of the export drop in 2016, Ukraine had lost $297.7 million in export revenues from Kazakhstan, $28 million from Kyrgyzstan, $51 million from Azerbaijan, $91 million from Turkmenistan, and $36.4 million from Uzbekistan.
According to the Economy Ministry, Ukraine exported mostly ferrous metals, nuclear power elements, electric cars and food industry products to the Central Asian countries.
Kava said that Kazakh and Kyrgyz exporters have the right to transport their goods through Russia, so frequently trains return to Ukraine via Russia.
The expert said he was sure Russia won’t lift its ban on the transit of Ukrainian goods soon.
Because of the ban, and the extra expense of using the Silk Road, Ukrainian goods have become much more expensive on the Asian markets and have been pushed out of the market by Chinese and Russian goods.
“Russia got an extra niche on markets where it could sell goods banned under EU and U.S sanctions, and under its own sanctions,” Kava said.
Kava said the government’s Silk Road initiative was more of a political decision than a realistic alternative route for exports. Traders always chose the simplest and cheapest way to transport their goods, while the Silk Road is neither simple nor cheap. And it’s riskier.
“The cargo stands in lines in ports. Some ferries can’t carry all the train wagons at once. Plus, there is the risks of transporting cargo across two seas,” said Kava. “The Chinese try to transport their goods as quickly as possible, and to diversify their supply routes. Frequently cargo that came from China to Batumi (Georgia) is transported through Turkey, Bulgaria or Romania, because that way it’s more simple to get straight to the European Union.”
A glance at an online vessel tracking map confirms. According to vesselfinder.com, Turkey’s port at Istanbul and the Romanian port of Constanta accept 10 times more cargo vessels than Ukraine’s Chornomorsk.
However, Omelyan is confident that the Silk Route corridor through Ukraine will become the perfect alternative for the Russian route sooner or later.
“The route will start working. The only question is whether it will be this year or next year,” the minister said. “That’s because the number of cargo trains from China to Europe is growing.