Success of Ukraine's Black Sea Corridor Puts Danube Back in Second Place

 

The Ukrainian Danube Shipping Company (UDP) is a key part of the nation's backup export route, which runs from inland ports to Constanta and to the Black Sea. But the Danube was a backwater for Ukrainian shipping before the war, and now that the deepwater grain terminals near Odesa have resumed operation, the river has once again become a second-tier option for agricultural exporters. With its higher built-in costs, UDP faces a slew of challenges to its future - even though it is a strategic backup option in an era of uncertainty. 

"The year 2024 will be remembered by the Danube as a time of testing resilience and endurance," said CEO Dmytro Moskalenko in a New Year's message. "The crisis has hit everyone. Most [Danube] shipping companies have frozen investments and halted repairs, many owed crews, forced to work at [loss-making rates], unable to repay loans, and putting the fleet at a loss."

Now that the Danube is no longer Ukraine's only lifeline connection to the sea, UDP has to adapt to its circumstances. First and foremost, it has kept paying its seafarers, consistently and on time. It has refused to operate routes at a loss, ensuring at least bare-minimum profitability for each trip, and has maintained its investment program in tonnage renewal and shoreside infrastructure to increase efficiency. Moskalenko described its capital investments as "a future without which everything else loses meaning." UDP's first post-Soviet, modern bulker is now in operation and is delivering results, he said. 

The firm has also maintained its anti-corruption program, he said, putting a halt to fuel and parts theft and other corrupt schemes (historically a challenge for the region). It has also worked hard to maintain its preferential credit terms with international lenders.  

However, Moskalenko said that the company is burdened with restrictions that come with being a state-owned company. It has large costs are outside the control of its commercial managers - "ship cemetaries" of non-operating vessels that it is required to keep up, unused real estate that is taxed at a "collosal" rate, and "a huge social burden, which no private shipping company has." In addition to government-mandated costs, UDP has little state support to underpin the development of its routes, he said. 

"We do not lose hope that next year 2025, we will be able to get rid of at least some of the negative factors," he said. "We have hope and faith in the UDP, which gives us strength to continue the struggle."

There is an additional factor that could impact the route. The company is dependent upon the fate of shoreside transport routes connecting Ukraine's agricultural areas to two Danube ports, Ismail and Reni. The rail freight connection to Ismail is particularly important, and state rail company Ukrzaliznytsia is trying to increase the tariff on this route by nearly 40 percent. This would increase the overall transport cost from the field to Constanta by five dollars a tonne. The deep-sea ports around Odesa are already cheaper than the Danube for exporters, and UDP claims that a further rail tariff price hike to Ismail would shut down the route to Constanta altogether. UDP has appealed to the Ukrainian cabinet to turn down Ukrzaliznytsia's tariff hike. 

"If we are heard and supported, the UDP will receive a guaranteed monthly freight flow of 1.2-1.5 million tons per year and we will be able to provide export, both in the case of seaport blockades and [slowdowns at] the western border," Deputy Director General Vladislav Belah said. "War continues, military risks are real. If exports from Odessa, as in 2022-2023, are under threat, time will have to be spent on resuscitating Danube logistics [if the route shuts down]."