The naval blockade of Ukrainian seaports has made markets to which shipping is carried out by sea transport inaccessible. As a result, the negative effect on the economy is marked by the loss of foreign exchange earnings, the impossibility of restoring industrial production, and the decrease in Ukraine’s GDP. Moreover, the critical export directions — the agro-industrial complex, the mining and metallurgical complex, etc. — were affected.
Establishing uniform conditions for transporting all cargo in the Azov-Black Sea basin for Ukraine is essential. And, of course, the best solution would be the complete unblocking of maritime commercial transport in the Black Sea and the opening of Ukrainian ports for all types of cargo. It is imperative for export industries to continue to operate at total capacity and unblock logistics chains.
The complete unblocking of Ukrainian ports will give Ukraine (compared with the format of the Grain Agreement, which was in effect until July 2023):
- 15% increase in Ukraine’s GDP,
- оver 200 billion Ukrainian hryvnias in additional tax revenues annually,
- аn additional annual foreign exchange income of over $25 billion.
- It will allow us to restore/save about half a million jobs.
For one year and six months, total injustice has been taking place when the maritime trade of Ukraine remains blocked by the aggressor country, due to which Ukraine bears enormous economic losses. At the same time, the aggressor country, which started a bloody war, not only did not receive a fair assessment of its actions and a proper response to them but also strengthened its role and economic activity in the Black Sea region (its trade is only growing), while brazenly violates international law and dictates its illegal terms to the entire civilized world.
Some export industries are going through almost the most difficult times in the history of independent Ukraine. So, for example, this applies to the mining and metallurgical complex. The key reasons are
- the sea blockade,
- insufficient capacity at the western border crossings of Ukraine,
- the overcrowding of European ports with cargo and
- the limited ability of their infrastructure to receive shipments from Ukraine in full.
Moreover, the sharp drop in prices for MMC products has averaged a third over the past few months compared to last year’s average prices, making it impossible to export to distant markets via logistics routes through European Union ports. Energy terror on the part of the Russian Federation, which leads to damage to equipment at plants, limited electricity consumption, the need to use alternative power sources, and, accordingly, an increase in the cost of production.
Ukraine must restore free navigation and export its entire product line, earn foreign currency, and replenish the budget to strengthen the financing of its defense sector. The situation when the aggressor continues to trade freely and receives tens of billions of export revenues from sea supplies to foreign markets finances an aggressive war against Ukraine and buys weapons, while a peaceful country that defends its independence is under Moscow’s blockade, should be a thing of the past.
As a result, according to business representatives, the workload of most enterprises has fallen by more than 50% from the pre-war level; enterprises are operating at a loss only to maintain production potential, jobs, support workers and their families, help the army and the most affected the population In 2021: MMC exported ~60–80% of produced products (mainly through sea ports) and provided ~33% of Ukraine’s total exports (>$22 billion); MMC formed ~10% of Ukraine’s GDP (the main article in the GDP structure of Dnipropetrovsk, Donetsk, Poltava and Zaporizhzhia regions).
The most affected industries, for which maritime logistics was the main one:
• mining and metallurgical complex (the current utilization of metallurgical plants is ̴55%, and mining and beneficiation plants ~35% of the pre-war production level in 2020–2021 (excluding temporarily occupied enterprises). The complete unblocking of seaports will allow the restoration of the loading of production capacities of MMC to almost the level of 2020–2021, increase annual tax deductions to the budgets of all levels by +60%, and additionally attract more than 8 billion dollars of foreign exchange revenue to Ukraine for the year.
• non-ferrous metallurgy, where exports of titanium and zirconium ore and concentrate fell by -43% in 2022, and imports of bauxite (aluminum ore) for aluminum production fell by -82% in 2022
• the pipe industry, which, due to the blockade, reduced output by almost -40%
• chemical industry, agrochemistry — for which the export of fertilizers and other chemical products is also limited
• energy, where much more expensive land logistics temporarily replace sea logistics for the import of petroleum products and coal for the stable passage of the winter period 2023–2024
• logistics and transport sector due to underloaded ports and temporarily non-working logistics operators
• mechanical engineering, light industry — a significant part of imported components and equipment is delivered by sea import in containers
The complete unblocking of maritime commercial transportation in the Black Sea and the opening of Ukrainian ports for all types of cargo will not only allow Ukraine to create conditions for the growth of industrial production and the GDP of Ukraine but also save/restore thousands of jobs, ensure the payment of taxes and fees to the budget, which is extremely important for the state to perform social, humanitarian and defense functions in this challenging time for our country.
In addition, opening ports will be a decisive factor in stabilizing the hryvnia exchange rate, as it will provide additional significant foreign exchange earnings. Business is determined to support and develop the economy of Ukraine. The same determination in actions is expected from international partners!
At the same time, Western crossings cannot be a full-fledged alternative to Ukrainian seaports. Seaports in the pre-war period were the critical direction of export of products of the agricultural sector and MMC of Ukraine; the western crossings cannot be a full-fledged alternative to the seaports of Ukraine because:
The distance to EU ports is three times greater than the distance to Ukrainian ports on the Black Sea; as a result, the cost of transporting Ukrainian export products to EU seaports is 4–6 times higher than in the pre-war period.
EU ports do not have sufficient free throughput capacity (only for exporting Ukrainian iron ore products; 35–40 million tons of deep-sea port capacity is needed annually, and about 40–50 million tons of grain). EU ports are already loaded with cargo from the EU itself (coal, agricultural products, and others).
Passage through the western border crossings in the pre-war period was 4–5 times smaller than the volume overloaded by the seaports of Ukraine
the structure of external (export + import) transshipment through ports
Before the war, the structure of external (export + import) transshipment through the ports of Ukraine was as follows:
• 42% agricultural products,
• 38% of MMC and
• 22% of the remaining cargo.
National Extractive Industries Association of Ukraine turned to the United Nations authorities, Black Sea NATO members (including Turkey), and the Ministry of Foreign Affairs with a proposal and letters to join forces and contribute to the implementation of the strategy of complete unblocking of Ukrainian seaports of the Black Sea for commercial transportation of all types of cargo and performance of guarantees of safety and freedom of navigation of commercial vessels in the waters of the Black Sea following the norms of modern international law!
For this, effective measures should be taken to strengthen the defense sector (air defense of ports and the exclusive economic zone of Ukraine, patrolling and demining of the Black Sea), the introduction of insurance tools for ships entering the ports of Ukraine, increased sanctions pressure on the Russian Federation, as well as cooperation with the USA/ WB and NATO members in the World Cup (Turkey, Romania, Bulgaria) to implement a security solution in the Black Sea region.
There is a definite positive trend on this track. For example:
1) The container ship Joseph Schulte left the port of Odesa on August 16. The vessel carried over 30 thousand tons of cargo in 2114 containers.
2) The bulk carrier Primus, with a cargo of rolled metal, left the waters of the Odesa port on August 26.
3) The bulk carrier Anna Theresa left the port of Pivdenny on September 1 with a cargo of 56 thousand tons of cast iron.
4) The bulk carrier Ocean Courtesy left Pivdenny on September 1 with 172 thousand tons of iron ore concentrate.
5) The bulk carrier Puma, loaded with 16 thousand tons of metal and 14 thousand tons of rapeseed, left Odessa on September 15.
But this is still not enough for the complete restoration of Ukraine!
To fully unlock the ports of Ukraine, it is necessary:
1. Refuse to return to the format of the grain agreement, which is hugely disadvantageous for Ukraine and Ukrainian farmers. The only possible form is completely unblocked ports of Ukraine without any influence of the aggressor state on what we trade.
2. To appeal to our partners with a request to provide Ukraine with all the necessary weapons for the possibility of a forceful termination of terrorist and pirate encroachments by the Russian Federation on free commercial shipping to the ports of Ukraine
3. Take measures to strengthen the defense sector and ensure the safety of vessels in the Black Sea region to deter military aggression and promote a safe environment for shipping. The proposed measures should include comprehensive monitoring, anti-missile defense, detection, and disposal of sea mines
4. Put into operation the Procedure for providing guarantees for compensation for damage caused to ships from the war, which the Government recently approved, and additionally, with the participation of our foreign partners, create a mechanism for commercial risk insurance in partnership with international organizations (insurance fund)
5. Significantly increase the sanctions pressure of the international community on the Russian Federation. All this is necessary for the fight against piracy and terrorism in the Black Sea region.
Prospective directions for effective strengthening of sanctions pressure on the Russian Federation:
1. A proposal to the sanctions coalition to put forward demands for Russia to unblock free shipping to/from Ukrainian Black Sea ports as soon as possible without any conditions and restrictions, as stipulated by international documents in the field of shipping;
2. In the event of non-fulfillment of the requirement mentioned above within three months, the countries of the sanctioning coalition shall impose sanctions on all participants in the processes of sea transportation to/from the ports of Russia, namely, impose sanctions on:
– Russian port administrations;
– port operators and stevedore companies in Russian ports;
– shipowners/operators of vessels that own the so-called “shadow fleet” of the Russian Federation (ships flying the flag of other countries but relatively regularly carry out transportation to/from the ports of the Russian Federation), as well as directly to the vessels of the so-called “shadow fleet” of the Russian Federation;
– shipowners whose vessels carry out transportation to/from ports/ports of the Russian Federation and were noticed to have excluded geolocation means or so-called “transponders”;
– Russian bunkering companies, as well as bunkering companies that provide services to vessels belonging to the so-called “shadow fleet” of the Russian Federation or to ships that have disabled transponders or on which sanctions have already been imposed;
– towing fleet operators operating in Russian ports;
– ship repair enterprises that provide services to the so-called “shadow fleet” of the Russian Federation or vessels that have disabled transponders or that have already been sanctioned;
– insurance and reinsurance companies that provide coverage for the risks of sea transportation to/from Russian ports;
– crewing companies providing services to vessels/ship owners/operators of dishes that will be sanctioned.
Due to the participation of the UN in the grain agreement, Russia legitimized the “right of terror” at sea and received unprecedented rights to fully control the foreign trade of a sovereign state in the Black Sea, as well as control functions in the Bosphorus Strait, which are not provided for by the Montreux Convention. Unfortunately, the international community has witnessed brazen piracy and has de facto consented to this state of affairs.
We are a free country, and we don’t need to ask permission from murderers and war criminals about what we can trade and what we can’t. One of the pillars of the modern civilized world is free trade and free, peaceful navigation at sea, and the actions of any terrorist or pirate must receive an appropriate assessment and response from the entire civilized world. Ukraine should ask for help from the civilized world: means of defense (air defense, naval boats, and drones), sanctions against the aggressor, and insurance instruments to insure the risks of military aggression by the Russian Federation.