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TRADE POLICY PROJECT

Trade Corridor Assessment and Efficiency

Table of Content

TRADE POLICY PROJECT

March 31, 2017

This publication was prepared by International Group Development LLC, for review by the United States Agency for International Development.

Trade Corridor Assessment and Efficiency March 2017

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Trade Corridor Assessment and Efficiency

Trade Corridor Assessment and Efficiency publication prepared by Mr. Giorgi Turdzeladze – expert of USAID Trade Policy Project in Ukraine. The purpose of the publication is to assist the Government of Ukraine and other stakeholders in exploring key issues and trends in the sphere of transport and transit though Asia-Europe trade corridors, assess its efficiency and potential and to present recommendations.

DISCLAIMER The author’s views expressed in this publication do not necessarily reflect the views of the U.S. Agency for International Development or the United States Government.


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TABLE OF CONTENTS

List of abbreviations ................................................................................................................................ 6

Summary ................................................................................................................................................. 8

I.1 GDP and trade .............................................................................................................................. 14

I.2 Ukraine’s exports ......................................................................................................................... 16

Global exports ............................................................................................................................... 16

Major export commodities ........................................................................................................... 17

Exports to Russian Federation, Turkey, China, Caucasus and Central Asia .................................. 20

I.3 Export by transport mode ............................................................................................................ 24

Export through the ports of Ukraine............................................................................................. 25

Export by railway .......................................................................................................................... 27

Export by road ............................................................................................................................... 30

Export through the ferry complex of Chornomorsk ..................................................................... 31

II. Regional transport context ............................................................................................................... 33

II.1 Euro-Asian Transport Links ......................................................................................................... 37

II.2 China’s One Belt – One Road initiative ....................................................................................... 40

II.3 Pan-European Transport Corridors ............................................................................................. 45

II.4 EU-Ukraine Association Agreement ............................................................................................ 48

II.5 Transport Corridor Europe-Caucasus-Asia .................................................................................. 49

II.6 Eastern Partnership ..................................................................................................................... 51

II.7 Asian Development Bank (ADB) and Central Asia Regional Economic Cooperation (CAREC) Program............................................................................................................................................. 51

II.8 Trans-Caspian International Transport Route (TITR) .................................................................. 52

II.9 Organization for Cooperation of Railways (OSJD) ...................................................................... 55

II.10 Eurasian Economic Union ......................................................................................................... 56

II.11 Comparative analysis of various routes between China and Europe (Eurasian Development Bank Study) ....................................................................................................................................... 57

II.12 Container block-trains ............................................................................................................... 61

Viking train .................................................................................................................................... 61

Zubr train ...................................................................................................................................... 62

III. Transport and trade routes along TRACECA .................................................................................... 65

III.1 Black Sea Region ........................................................................................................................ 68

Chornomorsk Port ......................................................................................................................... 68

Poti Port ........................................................................................................................................ 70

Batumi Port ................................................................................................................................... 72

Rail-ferry/RO-RO services on the Black Sea .................................................................................. 73


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III.2 Caspian Sea Region .................................................................................................................... 74

Port of Baku (Alat) ......................................................................................................................... 74

Aktau Port ..................................................................................................................................... 75

Port of Turkmenbashi ................................................................................................................... 76

Rail-ferry/RO-RO services on the Caspian Sea .............................................................................. 77

III.3 Railway links ............................................................................................................................... 78

Poti – Gardabani (GEO) / Beyuk-Kyasik (AZ) – Baku/Alat ............................................................. 80

Aktau – Altynkol – Dostyk (Kazakhstan/border with China) ......................................................... 81

Aktau (KZ) – Bishkek (KG) .............................................................................................................. 82

Aktau (KZ) – Dushanbe (TJ) ........................................................................................................... 82

Aktau (KZ) – Tashkent (UZ)............................................................................................................ 83

Turkmenbashi (TM) – Bishkek (KG) ............................................................................................... 83

Turkmenbashi (TM) – Dushanbe (KG) ........................................................................................... 84

Turkmenbashi (TM) – Tashkent (UZ) ............................................................................................ 84

III.4 Road links ................................................................................................................................... 86

Poti – Red Bridge (Georgia/Azerbaijan border) – Baku/Alat ........................................................ 90

Aktau – Almaty – Khorgos (China’s border) .................................................................................. 92

Aktau (KZ) – Bishkek (KG) – border of China ................................................................................. 92

Aktau (KZ) – Tashkent (UZ) – Osh (KG) – Irkeshtam (China’s border) .......................................... 93

Aktau (KZ) – Dushanbe (TJ) – Kulma (China’s border) .................................................................. 94

Turkmenbashi (TM) – Bishkek (KG) – Torugart (China’s border) .................................................. 94

Turkmenbashi (TM) – Tashkent (UZ) – Osh (KG) – Irkeshtam (China’s border) ........................... 95

Turkmenbashi (TM) – Dushanbe (TJ) – Kulma (China’s border) ................................................... 96

IV. Transportation costs ........................................................................................................................ 97

V. Regulatory costs .............................................................................................................................. 102

VI. Logistics performance .................................................................................................................... 106

VII. Findings ......................................................................................................................................... 112

VII.1 Overall findings ....................................................................................................................... 112

Trade (export) ............................................................................................................................. 112

Transport (export) ....................................................................................................................... 113

VII.2 Regional transport context ..................................................................................................... 113

VII.3 Transport sector of Ukraine .................................................................................................... 115

Institutional setup in transport infrastructure ............................................................................ 116

Infrastructure planning, construction, maintenance .................................................................. 117

Procedural issues ........................................................................................................................ 118

Operational issues ....................................................................................................................... 119


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VII.4 TRACECA ................................................................................................................................. 120

Railway Transport ....................................................................................................................... 120

Road transport ............................................................................................................................ 127

Ferry services and port dues ....................................................................................................... 128

Port dues for container vessels ................................................................................................... 129

VIII. Recommendations ....................................................................................................................... 131

VIII.1 In Ukraine ............................................................................................................................... 131

VIII.2 In TRACECA ............................................................................................................................ 133

Figure 1. Comparative Costs of Transporting from Ukraine to border of China in Kazakhstan (in US$) ...................................................................................................................... 11 Figure 2. Import, export and trade balance trends in Ukraine, 2010-2016, in billion USD and % growth of GDP .................................................................................................................... 14 Figure 3. Composition of Ukraine’s GDP by sector of economy (in % of total) ...................... 15 Figure 4. Composition of Ukraine’s GDP the region of the country (in % of total) ................. 15 Figure 5. Share of trading partner countries in the exports from Ukraine (in $US billion) ..... 16 Figure 6. Trends in the structure of export partners (in % of total exports) ........................... 17 Figure 7. Major export commodity groups, 2016 (Source: State Statistics Service of Ukraine) 18 Figure 8. Trends in export of major commodities to all countries (2013-2016, US$ billion) .. 19 Figure 9. Total exports by mode of transport (in thousand USD) ........................................... 24 Figure 10. Share of transport mode in exports, based on export value .................................... 24 Figure 11. Trends in exports from Ukraine through USPA berths (in thousand tons) .............. 27 Figure 12. Trends in exports from Ukraine to various trade partners (in thousand tons) ........ 28 Figure 13. Generation of rail cargo (export and internal transport) by regions of Ukraine (in mln. Tons) 29 Figure 14. Exports from port of Chornomorsk by destination .................................................. 31 Figure 15. Structure of exports from Chornomorsk by means of transport (in thsd. tons) ...... 31 Figure 16. International trade and transport corridors in Eurasia ............................................ 33 Figure 17. Evolution of world merchandise trade, seaborne trade, and world GDP ................ 34 Figure 18. Chingqing – Xinjang – Europe railway and maritime corridors ................................ 34 Figure 19. Xiamen – Lodz railway corridor ................................................................................ 35 Figure 20. Zhengzhou – Hamburg railway corridor ................................................................... 36 Figure 21. Shanghai – Moscow – Warsaw railway corridor....................................................... 36 Figure 22. UNECE Euro-Asian Links – Railway routes ................................................................ 38 Figure 23. UNECE Euro-Asian Links – Road routes .................................................................... 39 Figure 24. China’s “One Belt – One Road” Initiative .................................................................. 40 Figure 25. China’s presence in world’s ports and harbors ........................................................ 41 Figure 26. Container throughput of world’s major port operators ........................................... 41 Figure 27. Planned Aktau-Khorgos railway ................................................................................ 42 Figure 28. Pan-European Transport Corridors ........................................................................... 46 Figure 29. Czech-Slovak RFC (no. 9) (Source: http://www.szdc.cz) ........................................... 47 Figure 30. Mediterranean RFC (no. 6) (Source: https://www.railfreightcorridor6.eu) ............. 47


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Figure 31. TRACECA (Source: www.traceca-org.org) ................................................................. 50 Figure 32. CAREC Corridors ........................................................................................................ 52 Figure 33. Trans-Caspian International Transport Route (in red below) ................................... 54 Figure 34. OSJD railway corridors (Source: OSJD) ..................................................................... 55 Figure 35. Main road and rail routes of EAEU (source: http://eec.eaeunion.org) .................... 56 Figure 36. Routes between China and Europe, assessed by Eurasian Development Bank (2016) 61 Figure 37. Viking train ................................................................................................................ 62 Figure 38. Zubr train .................................................................................................................. 63 Figure 39. Schematic representation of the TRACECA corridor ................................................ 66 Figure 40. The multimodal terminal of Chornomorsk port – berths and warehouses ............. 68 Figure 41. Port of Baku (Alat) masterplan (Source: Astonsmith) .............................................. 74 Figure 42. CAREC Designated Rail Corridors (DRCs) (source: A Railway Strategy for CAREC, 2017-2030) 79 Figure 43. Rail traffic density on the CAREC corridors (Source: CAREC CPMM, 2014).............. 80 Figure 44. Road traffic density on the CAREC corridors (Source: CAREC CPMM, 2014) ........... 89 Figure 45. Time-distance chart (Source: Consultant) .............................................................. 100 Figure 46. Cost-distance chart (Source: Consultant) ............................................................... 100 Figure 47. Ukraine’s Overall LPI score compared to the regional neighbor countries ............ 107 Figure 48. Overall LPI score ...................................................................................................... 108 Figure 49. LPI Customs score ................................................................................................... 108 Figure 50. LPI Infrastructure scores ......................................................................................... 109 Figure 51. LPI international shipments score .......................................................................... 109 Figure 52. LPI Logistics services and performance .................................................................. 110 Figure 53. LPI tracking and tracing score ................................................................................. 110 Figure 54. LPI timeliness score ................................................................................................. 111 Figure 55. The “Spaghetti Bowl” of Regional Organizations in Central Asia (Source: The Consultant) 114 Figure 56. Global competitiveness index and rail infrastructure quality rankings of selected CAREC countries .......................................................................................................................... 121 Figure 57. CIM/COTIF and SMGS/OSJD applicability ............................................................... 125 Figure 58. Joint border control between Germany and Poland .............................................. 138


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List of abbreviations

ADB Asian Development Bank AH Asian Highways AIIB Asian Infrastructure Investment Bank AIS Automatic Identification System

BCPs Multiple Border-crossing points BTK Baku-Tbilisi-Kars railway connection CAREC Central Asia Regional Economic Cooperation Program CASPAR Caspian Shipping Company CBM Conventional Buoy mooring CIA Central Intelligence Agency CIM Uniform Rules Concerning the Contract of International Carriage

of Goods by Rail CIS Commonwealth of Independent States CIT International Rail Transport Committee CMR Convention on the Contract for the International Carriage of

Goods by Road COTIF Convention concerning international Carriage by Rail CPMM Corridor performance measurement and monitoring

DCFTA Deep and Comprehensive Free Trade Area DIN German Institute for Standardization DRC Designated Rail Corridors DWT Total tonnage EAEU Eurasian Economic Union EaP Eastern Partnership EATL Euro-Asian Transport Links EBRD European Bank of Reconstruction and Development EDI Electronic data interchange EFTA European Free Trade Area FEZ Free Economic Zone FIDIC International Federation of Consulting Engineers FTZ Free Trade Zone GCI Global Competitiveness Index GoK Government of Kazakhstan GOST A set of technical standards maintained by the Euro-Asian Council

for Standardization, Metrology and Certification (EASC) ICD Islamic Corporation for the Development ICTIS International Container Terminal Services Inc IFI International Financial Institutions LPI Logistics Performance Index MDBs Multilateral Development Banks MIU Ministry of Infrastructure of Ukraine MLA Basic Multilateral Agreement of TRACECA MoU Memorandum of Understanding


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MTT Russian abbreviation for International Transit Tariff NAFTA North American Free Trade Area NCTS New Customs System OBOR “One Belt – One Road” OOG Out-of-gauge cargoes OSJD Organization for Cooperation in Railways PETC Pan-European Transport Corridors RFCs Rail Freight Corridors PPIAF Port Reform Toolkit RKC Revised Kyoto Convention SMGS Convention concerning International Goods Traffic by Rail SNiPs Construction norms and rules (orig. СНиП) SREB Silk Road Economic Belt SSMRT State Service of Maritime and River Transportation of

Turkmenistan TENT-T Trans-European Transport network TEU Twenty-foot equivalent unit TICSP Turkmenistan International Commercial Sea Port TIR International Road Transports TITR Trans-Caspian International Transport Route TPP Trans Pacific Partnership TRACECA Transport Corridor Europe-Caucasus-Asia UAIS Unified Automated Information System UNCTAD United Nations Conference on Trade and Development UNECE United Nations Economic Commission for Europe UNESCAP United Nations Commission for East Asia and Pacific USPA Ukrainian State Ports Administration VED Typical Transport Contract in EAEU WTO World Trade Organization


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Summary

Ukraine is an important crossroad and land bridge between Europe and Asia, as well as, between the Baltic and Black seas. Ukraine’s GDP is mainly dominated by services, followed by industry and agriculture. Transport generates around 8-8.5% of the total GDP and is a significant contributor to the economy in terms of employment and budgetary contributions; and a conductor of inbound, outbound and transit trade flows.

The GDP of Ukraine, in nominal value, was US$ 90.6 billion in 2015 and was expected to grow by 1.5% in 2016. The total foreign trade of Ukraine amounted to US$ 108.3 billion in 2014, i.e. 22.8% less than in 2013. In 2015, a further drop in trade was recorded (-30.1%) against a severe drop in GDP. In 2016, the total trade remained at the level of the previous year and amounted to US$ 75.6 billion.

Ukraine’s economy is diverse. The major production centers are spread throughout the country. In 2016, Dnipropetrovsk, Donetsk and Kiev regions contributed to 49% of Ukraine’s GDP. This diverse production geography underpins the importance of transport in supporting the flows to Ukraine’s export gateways, mainly the ports of Ukraine.

In 2016, Ukraine exported US$ 36.2 billion’s worth of goods. These mainly consisted of iron and steel and their articles, cereals, ores, slag and ash; and vegetable oils. Over 38% of Ukraine’s exports were destined to the EU, 9.9% to the Russian Federation, 6.7% to the CIS countries1, 5.7% to Turkey, and 5.1% to China. Over the past three years, a decrease in the Russian Federation’s share and an increase in the EU’s share of Ukrainian exports were recorded. China’s share in exports grew in 2013-2015 by 0.5% on average but dropped by 1.2% in 2016. At the same time, exports to the rest of the world grew steadily, reaching 33.4% of the total exports in 2016.

Total exports decreased by 4.6%, or US$ 1.7 billion in 2016. This was preceded by a 29.3% drop, or US$ 7.9 billion, in 2015. In spite of this, the export of cereals, oil seeds and oleaginous fruits, vegetable fats and oils, wood and articles of wood, electrical machinery and equipment, railway or tramway locomotives and rolling-stock all increased by a total of US$ 0.9 billion in 2016.

In 2016, considerable contraction of Ukraine’s exports to Central Asian countries occurred, particularly to Kazakhstan (-43.8%, or US$ 0.31 billion) and Kyrgyzstan (-46.5%, or US$ 0.04 billion), as well as to China (-23.5%, or US$ 0.56 billion).

In the case of Kazakhstan, exports of cereal commodity groups demonstrated a solid growth in 2014 and 2015, as did the cocoa and cocoa preparations group. In the case of China, the exports of cereals, iron and steel grew significantly in 2015 before experiencing a sharp drop in 2016. In the case of Kyrgyzstan, exports of sugar and sugar confectionary demonstrated an 186.6% growth in 2015 before a 100% drop in 2016.

1 Excluding Russian Federation. Including Georgia and Turkmenistan due to geographic proximity, although these countries are not part of CIS officially.


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At the same time, exports of base metals to China; meat and offal, dairy produce and eggs, pharmaceutical products, sugar and confectionary to Kazakhstan; and preparations of fruit and vegetables and rubber articles to Kyrgyzstan, increased in 2016.

Therefore, it may be reasonable to assume that these commodity groups can be traded with Central Asia and China if appropriate transport and logistics systems are in place. However, in the absence of affordable overland export routes, bulk cargoes are likely to shift to the maritime transport.

Maritime transport accounts for the majority of Ukrainian exports (57.5%), followed by road transport (26.1%) and railway transport (13.5%). The containerized exports from Ukraine grew, especially for maritime transport (+17.4%, or US$ 2.3 billion) and railway transport (+1.9%, or US$ 0.18), while it decreased for road transport (-10%, or US$ 0.16 billion). Export of trucks by ferries grew by 26% in 2016, as the haulers sought export alternatives towards Central Asia and China.

Nearly 500 thousand tons of goods were exported on ferries in 2016, which is a 160% increase compared to 2015. The surge was mainly attributed to the growth of ferry-based exports to Georgia (490 thousand tons in 2016, 158% growth year-on-year).

The ports of Ukraine have processed 120.3 million tons (-8.6% from 2015) of cargo in 2016, of which 90 million tons were exports. The railways exported 114 million tons (-10.4% from 2015) in 2016. While railway exports dropped to Caucasus, Central Asia, Turkey, Russian Federation and China, they grew to Belarus, Europe and the rest of the world.

Ukraine exported 22 million tons of cargo to China in 2014 and 24 million tons in 2015, among which were over 21 million tons of iron ore and 2.5 million tons of grain. In 2016, the export to China of iron ore and grain dropped by respectively 10 million tons (-48.7%) and 600 thousand (-24.3%) tons.

The railway-based export to Kazakhstan dropped twofold since 2014 and stood at around 200 thousand tons in 2016. During the last year, a major decrease has occurred in the exports of construction materials (-59 thousand tons), ferrous metals (-44 thousand tons), and “other commodities” (-32 thousand tons).

As demonstrated above, the main challenge that Ukraine faces at the moment is a sharp decrease in transit through its territory, coupled with decreasing exports to Central Asia and China. Facilitating exports and a better utilization of the transport capacities are among the foremost priorities for the Government of Ukraine.

The alternative overland routes supported internationally (i.e. in the framework of China’s “One Belt – One Road” initiative, including TRACECA routes) are not currently commercially competitive. Firstly, this is due to the fierce competition of the maritime transport. The transport cost of 1 TEU through traditional northern routes via the Russian Federation (from Urumqi in China to Belarus/Poland border) by rail was between US$ 1300-2200 versus US$ 5000 via TRACECA (to Chornomorsk, Ukraine). The low cost via northern routes was due in part to the Customs Union between Kazakhstan, the Russian Federation, and Belarus, which resulted in seamless crossing of the vast distances as a single customs territory. On the


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other hand, there are too many border crossing stops and transshipping points along the TRACECA route.

At the same time, China’s evident pursuit of global trade leadership will underpin the future growth of trade between EU and Asia in both directions. This is demonstrated through its growing presence in key global ports and harbors, as well as its ambitious and outward-oriented infrastructure development initiatives. China is actively using the maritime trade routes from its Eastern coast to the ports of the North and Baltic Seas; and the railway routes (container transport) through the Russian Federation, Belarus, and recently Kazakhstan.

In this respect, the overland transportation routes from EU to Central Asia and China will gain increased attention, as an alternative to the transit through the Russian Federation.

Secondly, the cost of transportation through TRACECA remains high, while the service and reliability levels are low. Logistics capabilities and value-adding services such as freight villages and free zones are rarely available along this route.

Most importantly, the users noted the lack of reliability of the TRACECA routes, associated with unpredictable waiting times and control procedures at border-crossing points, abrupt changes in fees and dues collected by various state services, and non-regular services on the sea legs. Different rent-seeking practices still exist along this route, such as priority passage at various nodes, unnecessary checks, and mandatory convoy escort.

Successful international practices show that the delivery time advantage of overland routes in the Eurasian context can only be achieved when deploying container block-trains2, which allow for fast transit (~1000 km/day) speeds and more efficient border-crossings.

In the case of regular trains, the advantage is outweighed by the waiting times at border crossing points. Therefore, the type of commodities that can be moved efficiently from EU to China, and vice versa, are those with a high unit price, such as automotive parts and consumer electronics. In this case, the cargo owners would logically prefer a quicker turnaround of products, which can be done by block-trains rather than cheaper but lengthier maritime transport, or significantly more expensive air transport.

Ukraine takes part in successful international container block-train initiatives3 which are well established and serve the purpose of linking Black and Baltic Seas. Another block train initiative, where Ukraine participates, is the “Nomad Express” block-train organized in the framework of the Trans-Caspian International Transport Route (TITR). It links Izov (Poland/Ukraine border) to Dostyk (Kazakhstan-China border) via the territories of Georgia and Azerbaijan.

There is potential forinking the TITR Nomad Express with the Viking and Zubr services; thus, completing a multimodal route from China to the EU via Ukraine. At the same time, the 2 A unit train, also called a block train or a trainload service, is a train in which all cars (wagons) carry containers, which are shipped from the same origin to the same destination on a regular basis 3 The ‘Viking’ and ‘Zubr’ block train services – regular train services from Odessa (Ukraine) to Klaipeda (Lithuania), Riga (Latvia) and Tallinn (Estonia)


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issue is complicated by regulatory factors. Additional inter-governmental or inter-departmental agreements will be required to allow for such integration, in particular, the use of a single transport document.

The Nomad Express service offers competitive pricing and delivery times for cargoes from Ukraine to China. However, the pricing applies to the entirety of the route only (i.e. if transporting to any point before the end of the route in Dostyk, regular rates will apply). More importantly, it shows that, technically and technologically, it is possible to compete with other overland routes.

Figure 1. Comparative Costs of Transporting from Ukraine to border of China in Kazakhstan (in US$)

The above chart compares the distance and costs of transportation of 1 TEU from Chornomorsk in Ukraine to the Kazakhstan-China border at Dostyk. In the case of TITR Nomad Express, the route originates at Ukraine-Poland border (in Izov), and hence the distance of this route is longer than those originating in Chornomorsk. Despite the length, the transportation costs and delivery times on the TITR route are better than those from Chornomorsk in conventional railway transport.

The challenge for Ukraine in this context is the fact that the TITR Silk Route initiative considers moving freight via Georgia and through the territory of Turkey, once the Baku-Tbilisi-Kars railway link is commissioned. This effectively means that Ukraine is an alternative option for the TITR service, as the ferry crossing of the Black Sea adversely affects the overall transport chain and is likely to be avoided once possible. In this respect, there is an opportunity to establish direct rail-ferry services from Turkey (possibly Samsun) to Ukraine and attract transit flows, originating from China and other Asian and Middle Eastern economies destined for Northern and Central Europe. This could be possible by channeling such flows through the Viking service, or bringing them directly to Poland via the existing extension of the wide-gauge railway. At the moment, this is hampered by regulatory


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issues, as Turkey applies CIM/COTIF4 legal system, while all the other participants of the chain apply SMGS/OSJD5 documentation for railway transport.

As far as the TRACECA routes are concerned, the main weak links are the sea legs on the Black and Caspian seas. The ongoing developments of the Georgian, Azerbaijani, and Kazakhstan ports are essential to eliminate traffic bottlenecks. The throughput capacity of hinterland connections (i.e. transshipment, road and railway access) remains questionable. Overall, the TRACECA routes are not currently prepared to accept large freight flows.

The TRACECA routes lack an integrated approach. To date, it has been regarded as simply a physical transport corridor, which is no longer sufficient to compete with global supply chains. Modern supply chain principles, such as integrated management, regularity of services, flexible routing, specialized nodes and inter-modality are the main principles where improvements are needed.

The regulatory costs and time for Ukrainian exports are still high according to the World Bank’s Doing Business assessment. This means that there is space for improvement of procedural aspects within Ukraine in the first place. Export flows may be unreasonably delayed due to the checks and inspections initiated by numerous state bodies. Inspections of transit flows in the past and the associated losses of profit and cargo in transit have compelled many cargo owners to avoid transiting through Ukraine.

Infrastructural problems, such as quality of roads and lack of rolling stock and traction, persist in Ukraine. The underlying reason relates to the methods and approaches for planning and developing the infrastructure, which are not in line with international practices. The current practice allows the same legal entity to act as a contracting authority and a supervisor in an infrastructure development project. Application of FIDIC terms of contract6 is very limited. The construction standards and norms require an update.

The involvement of private sector in infrastructural development is largely limited to lease arrangements in the port terminals. There is an ongoing attempt to deploy concession mechanisms in Ukraine. However, there is an opinion that the provisions of the current law on concessions are not implementable in Ukraine, due to conflicts with other legislation, e.g. on land use and ownership.

Apart from the natural monopoly PJSC Ukrzaliznytsia, there are monopolistic service providers in Ukraine such as stevedoring companies and auxiliary service providers in the ports. This results in reportedly higher costs of service in Ukraine compared to other ports of the Black Sea basin.

4 Convention concerning International Carriage by Rail (COTIF) applies in Europe, the Maghreb and in the Middle East 5 Convention on direct railway communication of the Organization for Cooperation in Railways 6 Widely accepted international standard forms of contracts for works developed and published by International Federation of Consulting Engineers (commonly known as FIDIC)


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Logistics capabilities are gaining an increasing importance. Freight amassment facilities (logistics centers, freight villages) are required to ensure regular services across the Black Sea and hence improve the reliability of the overall transportation chain.

The remainder of this report provides a more thorough insight into the issues described above and concludes with pertinent recommendations, which would improve Ukraine’s position in the regional transport context and enhance the attractiveness of overland TRACECA routes for the Ukrainian trade with Central Asian countries and China and potentially increase transit through Ukraine.

The main high-level recommendations to be implemented by Ukraine include:

• Streamline the procurement procedures in line with the European ones, with particular respect to the tendering of construction of roads and other infrastructure, considering the provisions of EU-Ukraine Association Agreement;

• Allow for and encourage the use of international standards and norms in the construction sector;

• Improve the investment climate in order to attract private participation in the infrastructure development by further approximation of legislation with the European ones;

• Eliminate inefficiencies in the operations of state-owned monopolies in the transport sector;

• Eliminate the unnecessary check and delays of export and transit flows; • Improve logistics capabilities by deploying logistics centers; • Assess the potential of establishing free economic and or industrial zones in the

south-western parts of Ukraine to act as additional anchors for transportation activities;

• Improve the international image of Ukraine in global indices, such as World Bank’s Doing Business, particularly by streamlining and facilitating trading across borders through simplification and increased transparency of procedures.

As far as TRACECA is concerned, it is recommended that the regional cooperation of the involved Member States be enhanced to enable modern supply chain principles, such as integrated management, flexible routing, roles of nodes, inter-modality, and regular transport services. These are issues that Ukraine would need to bring up with its TRACECA partner countries.

It is also recommended to promote the integration of the Nomad Express Service with the 'Viking and Zubr services in Ukraine. This will complete a multimodal route from the eastern borders of China, overland, across the Caspian and Black seas to the Baltic Sea. The ongoing work on the deployment of CIM/SMGS waybills as a single transport document shall be continued actively as well.


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I. Economy of Ukraine I.1 GDP and trade Located at the crossroads of major international trade routes, Ukraine is prone to the effects of global geo-political influences and economic forces. Following the global recession, Ukraine’s GDP in nominal terms grew on average by 4.8% in 2010-2011. However, the growth stagnated and was minimal in 2012 and stalled completely in 2013 (0% year-on-year). An outbreak of conflict in 2014 was reflected in a GDP contraction of 6.6% in 2014 and a further 9.8% in 2015, reaching US$ 90.6 billion.

Figure 2. Import, export and trade balance trends in Ukraine, 2010-2016, in billion USD and % growth of GDP

(source: Statistics Service of Ukraine, CIA Factbook estimate for 2016 GDP growth)

According to various sources, GDP growth is expected to pick up from 2016 (1.5%) and onwards as follows:

Source 2017 2018 2019 World Bank 2.0% 3.0% 3.0% International Monetary Fund 2.5% 3.0% 3.5%

Overall, a correlation can be seen between the GDP growth rates and the trade trends in the respective years. Hence, it may be reasonable to assume that trade volumes are expected to grow during the coming years. A slight growth of overall trade in 2016 was achieved, primarily attributable to the increased import.

Ukraine’s GDP is traditionally dominated by the services sector, followed by industry and agriculture sectors. The latter demonstrates a steady growth trend from 2010, while the


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services sector has been shrinking since 2013. Transport and warehousing generated 8% of GDP in 2015 and approximately 8.5% of GDP in 2016.

Figure 3. Composition of Ukraine’s GDP by sector of economy (in % of total)

(source: Statistics Service of Ukraine; Consultant’s analysis)

Ukraine has a complex and diverse economy, with production centers spread throughout the country. However, in 2016, Kiev city and region, Dnipropetrovsk, Donetsk, Zaporizhzhya, Mykolayiv and Odesa, accounted for nearly 70% of GDP.

Figure 4. Composition of Ukraine’s GDP the region of the country (in % of total)


Such a diverse production base across the country highlights the importance of transport and logistics services in channeling the production to the export gateways of Ukraine.


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I.2 Ukraine’s exports Global exports

According to the State Statistics Service, Ukraine’s trade in 2013 was with over 170 countries, and exports stood at US$ 62.7 billion. In 2014, external trade with the world fell, and the exports dropped to US$ 53.7 billion. The trend continued in 2015, and the trade contracted further to US$ 38 billion in exports, representing a 29.7% drop compared to the previous year. In 2016, notwithstanding all the economic hardships, the volume of exports amounted to US$36.2 billion, a further year-on-year drop of 4.6%, while imports were at 39.2 billion, 4.5% more than in 2015.

Figure 5. Share of trading partner countries in the exports from Ukraine (in $US billion)


Ukraine’s main export partners historically are the EU, the Russian Federation, and Turkey. Together, these countries accounted for US$ 35.9 billion (57% of total exports) in 2013 and US$ 19.4 billion (54%) in 2016. Exports to CIS were at the level of US$ 2.7 billion (11.2%) in 2013 and gradually diminished to US$ 2.4 billion (6.7%) in 2016. Russia’s share in Ukrainian exports (US$ 15 billion, or 24% in 2013) halved in 2015 and further shrunk in 2016, reaching US$ 3.6 billion (9.9% of total). Exports to Turkey continued a downward trend and stood at US$1.8 billion (5.7%) in 2016.

While exports to the Russian Federation, CIS, China, and Turkey were decreasing, growth was observed in exports to the EU and the rest of the world. Exports to EU have grown by US$ 0.6 billion (+4% compared to 2015), mainly attributed to export growth to Germany (+7.2%), Poland (+11.3%) and Hungary (+15.8%). Notably, exports grew to India (+31%) and reached US$ 1.9 billion in 2016. Exports to Egypt grew to US$ 2.3 billion in 2016.


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The evolution of the share of export partners of Ukraine is illustrated in the following chart.

Figure 6. Trends in the structure of export partners (in % of total exports)


The following sections describe the commodities exported from Ukraine to various parts of the world, defining the main export basket of Ukraine.

Major export commodities

The main exports from Ukraine to all world countries traditionally fall into the following commodity groups:

• Cereals • Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruits; industrial or

medicinal plants; straw and fodder • Animal or vegetable fats and oils and their cleavage products; prepared edible fats;

animal or vegetable waxes • Residues and waste from the food industries; prepared animal fodder • Ores, slag and ash • Mineral fuels, mineral oils and products of their distillation; bituminous substances;

mineral waxes • Wood and articles of wood; wood charcoal • Iron and steel • Articles of iron or steel • Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof


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• Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles

These commodity groups accounted for 77.1% of Ukrainian exports to the world in 2016, as illustrated in the following chart:

Figure 7. Major export commodity groups, 2016 (Source: State Statistics Service of Ukraine)

In 2016, while the overall exports decreased by 4.6% (-29.3% in 2015), the export of ore, slag and ash dropped by 11.8% (-36.2% in 2015), iron and steel by 10.3% (-36.2% in 2015), articles of iron by 24.8% (-45.9% in 2015), nuclear reactors, boilers and equipment by 20.4% (-34% in 2015) year-on-year. In 2015 and 2016, US$ 7.9 and US$ 1.7 billion (total of US$ 9.6 billion) worth of were respectively lost in these categories.

Among the same categories, a US$ 2.2 billion decrease was observed in exports to Russia (1.8 in 2015 and 0.4 in 2016). Another US$ 4 billion of exports decreased to Azerbaijan, Armenia, Georgia, Kazakhstan, Kyrgyzstan, Turkmenistan, Uzbekistan, Turkey, and China.

At the same time, in 2016, growth was observed in the overall exports of cereals, oil seeds and oleaginous fruits, animal or vegetable fats and oils, wood and articles of wood electrical


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machinery and equipment, railway or tramway locomotives and rolling-stock. The export growth in these categories amounted to US$ 0.9 billion USD.

Growth to a lesser extent was observed in the exports of edible vegetables, products of the milling industry, wadding, felt and nonwovens, live animals, meat and edible meat offal, sugars and sugar confectionary and pharmaceutical products to the world.

The trends in the export of major commodities to all countries of the world are illustrated below.

Figure 8. Trends in export of major commodities to all countries (2013-2016, US$ billion)

(source: State Statistics Service of Ukraine, Consultant’s analysis)

For the purposes of the present study, the following section presents the trends in exports to the Russian Federation, Turkey, China, the Caucasus and Central Asia.


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Exports to Russian Federation, Turkey, China, Caucasus and Central Asia

With respect to Ukraine’s trading partners, export to the Russian Federation accounted for 9.9% of the total exports in 2016. Exports to Russian has been steadily diminishing: in 2014 (-35.2%, or US$ 4 billion), 2015 (-49.2%, or US$ 3.65 billion); and in 2016 (-67.4%, or US$ 0.82 billion).

In 2016, the steepest decreases were observed in the exports of the following:

• Dairy produce, eggs, natural honey and other edible products of animal origin; • Salt, Sulphur, earths and stone, • Paper and paperboard, ceramic products, • Nuclear reactors, boilers, machinery, electrical machinery and equipment, • Sound recorders and reproducers, television image and sound recorders and

reproducers, and parts and accessories of such articles.

The total decrease of exports of these commodity groups accounted for US$ 0.51 billion.

Exports to Turkey, which accounted for 5.7% of the overall Ukrainian exports in 2016, continued a downward trend and decreased by 28.4%, or by US$ 0.75 billion. Major decreases were observed in the exports of cereals (-72.7%), inorganic chemicals (-60%), fertilizers (-49%), iron and steel (-28.5%), ore, slag and ash (-30%). In total, US$ 0.6 billion worth of exports was lost in these commodity groups in 2016.

Notably, the export of fertilizers was growing in 2015, as was the export of oil seeds and oleaginous fruits, food industry residue and animal fodder. All of these, however, dropped considerably in 2016. The only growth (albeit insignificant) was observed in the export of animal or vegetable fats and oils to Turkey.

Export to China, accounting for 5.1% of total Ukrainian exports, stood at US$ 1.83 billion in 2016, representing a 23.5% drop year-on-year. The major drops occurred in the exports of mineral fuels, mineral oils distillates (-53%), ores, slag and ash (-34%), nuclear reactors, boilers and components (-40.1%). However, the export of these commodities shrunk significantly in 2014 and 2015 as well.

On the contrary, the exports of cereals and iron and steel, grew significantly in 2015, before experiencing a sharp drop in 2016. Exports of other base metals, aircraft and its components and electrical machinery and equipment grew by varying degrees, most notably by 500% in case of other base metals.

Products of the milling industry, animal or vegetable fats and oils, as well as wood and articles of wood (including coal), were exported at levels slightly lower (-1 to -4%) than in 2015.

The share of China in the total exports of Ukraine was growing steadily in 2014 and 2015. It, however, dropped by nearly 20% in value in 2016.


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Exports to Armenia, Georgia and Azerbaijan accounted for 2% of Ukraine’s global exports and stood at US$ 0.73 billion USD in 2016. There was a drop of exports by 22.2% to Azerbaijan, 8.5% to Georgia, and 12.4% to Armenia.

In the case of Georgia, the exports in 2016 were at the level of US$0.39 billion. In the last two years, these contracted by a total of nearly US$ 0.1 billion, mainly due to decrease in the exports of iron and steel (-24.6 and -22.8%), electrical machinery and equipment (-47.9% in 2016, following +26.4% in 2015), oils (-38.3% in 2016) and cocoa and cocoa preparations (-16.6% in 2016).

Sugar and sugar confectionary exports to Georgia grew significantly in 2016 (+265%), continuing the growth (17.7%) experienced in the previous year.

Exports to Azerbaijan in 2016 stood at US$ 0.25 billion (0.7% of total exports) – a 22.2% drop year-on-year. The decrease was the result of the contracting exports of inorganic chemicals (-68.7%), articles of iron and steel (-62.2%), iron and steel (-57.7%), railway locomotives and rolling stock (-57.4%), as well as cocoa preparations, preparations and cereals, wood and articles thereof by over 40% each. In general, exports to Azerbaijan have followed a downward trend in all important commodity groups since 2014.

Exports to Armenia in 2016 amounted to US$ 0.09 billion, i.e. 0.2% of the global exports from Ukraine. A decreasing trend is noted in the exports to Armenia since 2014. In 2016, the total exports to Armenia dropped by 12.4%, mainly due to the continued decrease in exports of electrical machinery and equipment (-38.4%), iron and steel (-34.5%), oils (-28.4%) and tobacco (-13.3%).

Export of dairy produce was growing significantly in 2014 (+90.9% year-on-year) but dropped significantly in 2015 (-36.3%). Similarly, a slight growth in the exports of sugar and sugar confectionary, preparations of cereals and nuclear reactor components and equipment was observed in 2014, but all of them dropped in 2015. In 2016, a slight recovery (+3 to 4%) was observed in the export of sugars and sugar confectionary and preparations of cereals to Armenia.

Exports to the countries of Central Asia in 2016 amounted to US$ 0.72 billion, or 2% of Ukraine’s global exports. Exports to the countries of Central Asia were historically led by Kazakhstan (1.9% of the total exports in 2015), followed by Uzbekistan (0.5%), Turkmenistan (0.4%), Kyrgyzstan (0.2%), and Tajikistan (0.1%). A decrease of exports was demonstrated with respect to Kazakhstan (-41.1%), Kyrgyzstan (-46.5%), Turkmenistan (-36%), Uzbekistan (-18.4%), and Tajikistan (-15.2%).

Exports to Kazakhstan, in 2016, dropped sharply in terms of articles of iron or steel (-88.6%), electrical machinery (-69.8%), nuclear reactors, boilers, and components (-67.6%), ceramic products (-66.8%), furniture and associated products (-65%), wood and articles (-62.9%), and preparations of cereals (-47.6%). In total, exports of these commodity groups decreased by US$ 0.26 billion.


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Decreases, albeit to a lesser extent, were also observed in the export of cocoa and preparations (-19%), paper and paperboard (-24.6), and railway tramway locomotives and rolling-stock (-24.3%) – totaling at US$ 0.01 billion decrease in 2016 year-on-year.

Notably, the exports of cereal commodity groups demonstrated a solid growth in 2014 and 2015, as did the cocoa and cocoa preparations group. Hence the loss of export in these specific categories may be directly attributable to the current tendencies in export and transit flows originating in Ukraine.

Growth was observed in the exports of meat and offal (+11.5%), dairy produce and eggs (+55%), as well as to a lesser extent pharmaceutical products (+3.7%). Sugar and sugar confectionary exports grew by 54% in 2015 and by 10.3% in 2016.

Exports to Uzbekistan constituted 0.4% of the total exports from Ukraine and stood at US$ 0.12 billion USD in 2016 – a drop of 18.4% year-on-year, following a 43% drop in the previous year. The most acute drops were observed in the export of meat and edible offal (-48.5%), preparations of cereals (-53.7%), wood and its articles (-49.3%), iron and steel (-48.8%), as well as nuclear reactor components (-46.3%) and electrical machinery (-65.1%). Smaller decreases were observed in the exports of oils (-28.7%), paper and paperboard products (-20.8%), articles of iron and steel (-9.2%).

Iron and steel commodity group exports were growing steadily in 2014 and 2015, and the drop of its exports in 2016 may be directly attributable to the current regional transport context.

Growth was observed in the export of pharmaceutical products to Uzbekistan (+23.8%), as well as of miscellaneous articles of base metal (+67%) and optical and photographic equipment (+15%).

Exports to Turkmenistan amounted to US$ 0.09 billion in 2016 or 0.3% of total exports from Ukraine. These exports decreased in 2015 (-60.5%), as well as 2016 (-36%). In 2016, a major decrease was observed in the exports of articles of iron and steel (-93.6%), furniture (-67.2%), iron and steel (-65%), vehicles (-63.3%), preparations of cereals (-57.2%), preparations of fruit and vegetables (-49.9%), as well as to a lesser extent sugar and sugar confectionary (-19.9%), cocoa and preparations thereof (-39.3%), nuclear reactors and equipment (-22.8%) and electrical equipment (-22.2%).

Growth was observed in the exports of dairy produce and eggs (+9.9%), pharmaceutical products (+61.7%) as well as railway locomotives and rolling stock.

Exports to Kyrgyzstan accounted for US$ 0.04 billion, or 0.1% of total exports from Ukraine in 2016. Such exports decreased in 2014 (-23.9%), in 2015 (-26.2%), but most severely in 2016 (-46.5%). The decrease was mainly due to a major drop in the exports of sugar and sugar confectionary (-100%), animal and vegetable fats and oils (-99.7%), pharmaceutical products (-99.2%), beverages and spirits (-96.3%), furniture (-70.5%), meat and edible offal (-55.8%), preparations of cereals (-35.9%), paper and paperboard products (-28.4%), nuclear reactors and equipment (-62.4%), electrical machinery and equipment (-47%) and cocoa and cocoa preparations (-8.7%).


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Notable, exports of sugar and sugar confectionary demonstrated a 186.6% growth in 2015, before a 100% drop in 2016, which may be directly attributable to the current regional transport context.

On the contrary, despite the hardships with exports to Kyrgyzstan in 2016, exports of preparations of fruit and vegetables and rubber articles grew by 163% and 190%, respectively.

Exports to Tajikistan in 2016 amounted to US$ 0.03 billion, or 0.1% of total Ukrainian exports, which represents a 15.2% drop year-on-year, following a 31.3% drop in 2015 and a 22.2% drop in 2014.

The decrease in exports in 2016 was observed against the backdrop of diminishing exports of dairy produce and eggs (-78.4%), cocoa and cocoa preparations (-39.5%), preparations of cereals (-44.7%), pharmaceutical products (-51.4%), nuclear reactors and equipment (-32.2%), as well as railway locomotives and rolling stock (-53.5%), albeit the latter mainly owing to the higher base of the previous year (+375.7%).

Notably, the export of pharmaceutical products was growing in 2015 (+37.1%) before the drop in 2016.

Growth was observed in the exports of sugar and sugar confectionary (+28%), which continued the trend from 2014, as well as in the exports of electrical machinery and equipment (+159.4%) and optical and photographic equipment (+39.5%).


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I.3 Export by transport mode

Historically, the majority of Ukrainian export relies on the maritime transport, followed by land transport (road and rail), air transport, and other means of transport (i.e. high voltage transmission lines, pipelines, postal, etc.).

Figure 9. Total exports by mode of transport (in thousand USD)

(Source: State Statistics Service of Ukraine; Consultant’s analysis)

In a year-to-year comparison, in terms of value, export by rail decreased by 11.8%, maritime by 4.3%, road by 3.6%. Air transport decreased by 17%, noting that the net contribution of this mode in terms of export value is limited.

Figure 10. Share of transport mode in exports, based on export value



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At the same time, growth was observed in the export of containers by road, rail and maritime transport, as well as in the export of railway wagons and trucks on maritime vessels.

The overall growth in containerized export in 2016 was 13.6% (US$ 2.6 billion). This was due to the 17.4% (US$ 2.3 billion) growth in containerized export by maritime transport and a 1.9% growth (US$ 0.18 billion) by railway transport. The containerized export by road transport demonstrated a 10% (US$ 0.16 billion) contraction compared to the previous year.

Railway wagon export by maritime vessels demonstrated a quadruple growth (from US$ 0.05 to US$ 0.24 billion) in 2016, following a very sharp decline in 2015.

Despite the overall contraction, the transportation of exports by trucks on maritime vessels has demonstrated a growth of nearly 26% compared to 2015. A total of US$ 0.5 billion worth of exports were transported in this manner in 2016.

Export through the ports of Ukraine

In 2016, 131.7 million tons of cargo were processed in the ports of Ukraine, which is an 8.5% decrease compared to 2015. By December 2016, 93.6 million tons were exported; imports amounted to 16.4 million tons; 14.8 thousand tons transited Ukraine and 6.7 million tons were transported internally.

The decrease of export operations in the ports amounted to 3.1%, import – 11%, transit 35.1%, cabotage – 23.4%.

Top 5 Ukrainian ports accounted for the 81% of the total port throughput in 2016, as follows:

Port Goods throughput (mln tons)

Share in total (%)

Yuzhnyi 39.3 29.8% Odessa 25.3 17.7% Mikolayiv 22.4 15.4% Chornomorsk 15.9 12.0% Mariupol 7.6 6.2%


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Top 5 state-owned stevedoring companies transshipped the following volumes in 2016:

Stevedoring company Throughput (mln tons)

Year-on-year Share in total (%)

SE Sea Trade Port Yuzhnyi 12.3 -18.2% 9.3% SE Sea Trade Port Chornomorsk

6.6 -44.8% 5.0%

SE Mariupol Sea Trade Port 7.0 -18.5% 5.3% SE Izmail Sea Trade Port 5.4 +17.5% 4.1% SE Berdyansk Sea Trade Port 3.5 -19.2% 2.6%

Top 5 private stevedoring companies transshipped the following volumes in 2016:

Stevedoring company Throughput (mln tons)

Year-on-year Share in total (%)

TIS 21.5 -20.9% 15.6% Brooklyn-Kiev 7.5 -15.7% 5.7% Mykolayiv Clay Factory 4.2 -6.7% 3.2% TransBulk Terminal 3.7 +41.3% 2.8% Nika-Tera 4.0 -4.4% 3.0% In 2016, a total of about 69 million tons of goods were exported through the ports of Ukraine, from the berths owned by the Ukrainian State Ports Administration (USPA), representing a 1% growth year-on-year. Exports through ports of Ukraine grew to EU (+1%), the CIS region (+39%), Iran (+72%), Korea (+41%) and the other parts of the world (+16%). Decreases were observed in exports through ports to Russian Federation (-11%), Turkey (-23%), and China (-21%). In the case of the latter two, growth was observed in 2015 (Turkey +6%; China +8%).

Export of oil, wheat and ore to China was growing in 2014-2015, but dropped in 2016, with the exception of oil, whose export grew in 2016 by 13%, reaching 514 thousand tons. Less significant growth was observed in the export of dry bulk and break bulk cargoes to China.


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Trends in exports from Ukraine through USPA berths (in thousand tons)

(Source: USPA; Consultant’s analysis)

Out of the total goods exported through the USPA-owned berths in the ports of Ukraine, 3.5 million tons were containerized, or 14.7% more than in 2015. The most significant growth in percentage points occurred in the exports of containerized goods to Belgium, Greece, Italy, Georgia, Turkey, as well as the Russian Federation. Regarding shipment volumes, containerized exports to Italy have more than doubled, continuing the growth trend from the previous year and reaching nearly 134 thousand tons in 2016.

Nearly 500 thousand tons of goods were exported on ferries in 2016, which is a 160% increase compared to 2015. The surge was mainly attributable to the growth of ferry-based exports to Georgia (490 thousand tons in 2016, 158% growth year-on-year).

Export by railway

In 2016, a total of 114 million tons of cargo were exported to all countries, which is an overall drop of 10.4% compared to 2015. Exports decreased to the Caucasus region (-19.9%), Central Asia (-45.6%), Turkey (-11.3%), Russian Federation (-48.5%) and China (-45.6%). At the same time, exports by railway grew to Belarus (+63.9%), EU (+9.4%), and the rest of the world (+7.1%). The following chart illustrates the trend in the shares of export destinations of Ukraine.


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Figure 11. Trends in exports from Ukraine to various trade partners (in thousand tons)


The overall exports to Russian Federation have decreased by 48.5% in 2016, or by 8.7 million tons. The most significant contractions occurred in the exports of construction materials (-8.6 million tons). At the same time, exports of coal (59 thousand tons more than in the previous year) and salt (34 thousand tons more than in the previous year) grew.

Exports by rail to Belarus have grown significantly in 2016 (+63%) and reached 5.3 million tons. The growth was mainly achieved through a sharp increase in the exports of construction materials (+2.1 million tons, or +110%). Growing exports of iron ore (+90%) and grain (+159%) were also observed.

As can be seen from the trend line of exports by rail to China (dark blue dotted line), there were growing in 2015, and the decrease may be directly attributable to the current regional transport context. Ukraine exported 22 million tons of cargo to China in 2014 and 24 million tons in 2015, among which were over 21 million tons of iron ore and 2.5 million tons of grain. Export of these commodities dropped by 10 million tons (-48.7%) and 600 thousand (-24.3%) tons, respectively. Overall, more than 11 million tons of cargo’s export to China was lost in 2016.

Export by rail to Kazakhstan dropped by 47.1% in 2016, brought about by shrinking exports of all commodities. Overall, the exported volumes have decreased twofold since 2014 and stood at around 200 thousand tons in 2016. During the last year, a major decrease occurred in the exports of construction materials (-59 thousand tons), ferrous metals (-44 thousand tons), and “other commodities (-32 thousand tons). A marginal loss occurred in the export


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of chemicals (-3.3%), indicating a strong demand on the part of Kazakhstan, whereby this export stood at 36.5 thousand tons in 2016.

Export by rail to Kyrgyzstan dropped by 46.5%, or by 32 thousand tons in 2016. Most significantly, the “other” commodity groups exports decreased by 18 thousand tons, grain by 4 thousand tons, forestry goods by 6 thousand tons, construction materials by 2.8 thousand tons. Notably, even a bigger decrease of exports to Kyrgyzstan occurred in 2015, when exports shrunk by 68.6 thousand tons year-on-year. A major decrease of forestry items export (-32.7 thousand tons) took place at that time.

Exports by rail to Turkey were at the level of 9.8 million and 8.7 million tons in 2015 and 2016, respectively (i.e. 11.3% drop year-on-year). The drop was due to the decreased exports of forestry items (-291 thousand tons), iron ore (-301 thousand tons), ferrous metals (-225 thousand tons), grain (-156 thousand tons), fertilizers (-107 thousand tons), and ferrous scrap metals (-106.7 thousand tons).

Notably, exports of grain, forestry items, ferrous scrap, construction materials, iron ore and black metals were growing in 2015, before decreasing in 2016.

At the same time, a growth of exports to Turkey was observed in coal (+99 thousand tons) and non-ferrous ore (+42 thousand tons).

In terms of export and internal rail transport, Dnepropetrovsk region generated 85.9 million tons (59% iron ore) of rail cargo, followed by the Donetsk region – 58.7 million tons (44% coal), Poltava region – 20.6 million tons (55% iron ore), Zhytomyr region – 17 million tons (66% construction materials) and Zaporozhya region – 13.4 million tons (33% iron ore).

Figure 12. Generation of rail cargo (export and internal transport) by regions of Ukraine (in mln. Tons)

(Source: www.cfts.ua based on PJSC Ukrzaliznytsia data)

The cargo base for rail transportation, including import, export, transit and internal transportation was as follows:

http://www.cfts.ua/


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Mln tons % change y-o-y Iron ore 77.1 -9.1% Coal 72.9 -0.6% Other cargo 50.7 +12.5% Construction materials 35.9 -14.2% Grain 31.2 +8.7% Ferrous metals 27.3 +3.7% Oil and oil products 12.8 -11.7% Chemicals and chemical fertilizers 8.6 +0.3% Coke 8.6 +5.5% Cement 5.9 +5.3% Forestry 5.0 -9.6% Scrap 2.6 -13.8%

Over 70% of all rail transportation was carried out in semi-wagons – the most demanded type of wagon in Ukraine.

Export by road

A total of 123 million tons of cargo was moved by road transport in 2016. Of these, 6 million tons were moved on international routes. The most important commodity group (around 1 million tons) moved along international routes was constituted by food products, drinks and tobacco products, followed by wood and wooden articles (0.89 million tons), agricultural products (0.48 million tons), mineral non-metal products (0.46 million tons), base metals (0.45 million tons), chemical products (0.44 million tons), and electrical equipment (0.42 million tons).

Export by TIR vehicles through the port of Chornomorsk stood at 356 million tons in 2016, which is a 13% increase year-on-year. The following products constituted over 71% of total exports by TIR vehicles through the port of Chornomorsk:

Commodity Share (%) in total volume in

2016 y-o-y % change

Lumber 24.37% -25.7% Foodstuffs 13.82% +41.2% Confectionary 9.55% +384.5% Meat (carcasses) 6.75% +111.8% Meat, poultry, fish (packaged) 5.21% +10.1% Nuts and other plant vegetables 3.38% +108.8% Cigarettes, tobacco 2.07% +130.8% Sweet cream spread 2.14% +101.4% Technical carbon 2.23% -23.9% Equipment 1.94% -3.8%


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The considerable year-on-year growth in the export of confectionary, by most of the above commodity groups, by TIR vehicles indicates the efforts of the industry to find alternative export routes in the conditions of restricted export to and transit through Russian Federation.

Export through the ferry complex of Chornomorsk In the circumstances of restricted export to and transit through the Russian Federation, the port of Chornomorsk and its Terminal no. 5 gain an ever more important role for railway- and road-based exports.

In 2016, nearly 1.2 million tons of goods were handled in export and transit operations through the Chornomorsk ferry complex, up by 43.3% compared to 2015. The vast majority of exports were shipped to Georgia and Turkey:

Figure 13. Exports from port of Chornomorsk by destination

(Source: official statistics; Consultant’s analysis)

The vast majority of exports in Chornomorsk ferry terminal are carried by TIR trucks and wagons, and to a lesser extent on the vessel’s deck as general cargo. The following volumes of cargo were exported in 2016:

Figure 14. Structure of exports from Chornomorsk by means of transport (in thsd. tons)

(Source: official statistics; Consultant’s analysis)


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In 2016, the exports by TIR trucks grew by 16.5% and export by wagons by 116.2%. At the same time, exports by other motorized means and containers decreased by 25.5% and 35.3%, respectively, as did the exports of general cargo (-45.8%).

In 2016, the vast majority of wagon-based exports were made to Georgia (504 out of 506.6 thousand tons). As for the exports by TIR trucks, 52.2% of export and transit was destined to Georgia and 47.7% to Turkey. Regarding general cargo, 85.6% of the total was destined for Georgia (257 thousand tons export, 31.7 thousand tons of transit).

Despite the surge in the transshipment at the Chornomorsk rail-ferry complex, a significant capacity remains unused (total throughput capacity of the 5th Terminal is around 4.5 million tons annually). Therefore, the terminal itself had no significant difficulty in handling the increased flow of trucks and wagons, which occurred due to the closure of the exports and transit through Russian Federation.


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II. Regional transport context

The Eurasian continent is crisscrossed with numerous international trade and transport corridors and Ukraine is placed at the crossroads of those. With direct access to the Black Sea, Ukraine’s transportation system is linked with Belarus, Poland, Slovakia, Hungary, Romania, Moldova, and the Russian Federation by overland links, as well as with Turkey and Georgia by maritime links. Therefore, there is substantial potential for Ukraine to benefit from the trade flows by offering competitive transport services.

Figure 15. International trade and transport corridors in Eurasia

(Source: http://www.belkomur.com/map/)

The demand for transport services is closely linked to the economic developments around the global production and consumer markets. The recovery after the global economic crisis comes at a pace lower than expected, and so the global trade growth remains subdued.


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Figure 16. Evolution of world merchandise trade, seaborne trade, and world GDP

Source: UNCTAD (2016) Review of Maritime Transport

Despite the general economic situation, the Euro-Asian trade is the main generator of global trade. World export growth is mainly driven by Asia and Europe. According to Seabury Cargo Advisory, Chinese export growth alone is responsible for almost 50% of all TEU growth in 2014, followed at a distance by growth from South East Asia and Europe. Export growth in North East Asia is negative if China is excluded. Trade from Asia to the Middle East and Indian Subcontinent is growing faster than Asia-Europe trade. This trade lane is also dominated by China. At the same time, Asia to Europe trade is slowing down.

Maritime transport, i.e. shipping services from the ports of East Asia to the ports of Europe, followed by a land leg (rail, truck, or both) accounts for the lion’s share of Eurasian trade. The railway links between China and Europe via the Central Asian countries are the object of the growing interest since they can offer transport products competitive under certain conditions. The main advantage of rail connection is fast delivery. Several multinational companies have started operating regular container block trains using different routes across Eurasia. Some of them are:

• Chongqing – Duisburg (17 days in transit) • Chengdu – Lodz (15 days in transit) • Hamburg – Zhengzhou (16 days in transit) • Souzhou – Warsaw (14 days in transit)

On 18 January 2017, another milestone in container block train traffic between China and Europe was set: the first test train from China arrived in London, having covered about 12 000 km from the Yiwu (Eastern China) to Barking (UK). The container train with 44 x 40’ boxes carried mostly textile, 10 of which were discharged in Disburg (Germany), while the rest was trans-loaded onto Channel Tunnel approved container platforms.

Figure 17. Chingqing – Xinjang – Europe railway and maritime corridors


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(Source: Ministry of Commerce of China, General Administration of Customs, YinXinOu Rail Logistics Company)

Figure 18. Xiamen – Lodz railway corridor


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Figure 19. Zhengzhou – Hamburg railway corridor

Figure 20. Shanghai – Moscow – Warsaw railway corridor

Container services are a flexible instrument allowing the establishment of logistics chains to conform to the requirements of different companies - both goods producers and retailers. The accelerated container train (~1000 km/day) is the most operative approach to containerized cargo transportation. In comparison to conventional trains, its efficiency is 20-30% higher due to shorter delivery time, simplified documents of carriage and border-crossing.

However, the land bridge is unlikely to fiercely compete with the maritime option because the potential throughput of overland routes is limited by 1–2 percent of what is carried by sea. Rather, it may well establish itself as a complement to shipping to increase the


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reliability of time-sensitive supply chains involving manufacturing production sharing, such as high-value components in the automotive or computer industries.

The subject of land transport between China and Europe has been subject to considerable research within various initiatives. Some of the most relevant ones, from Ukraine’s perspective, are described in greater detail below.

II.1 Euro-Asian Transport Links

The Euro-Asian Transport Links (EATL) project, under the auspices of United Nations Economic Commission for Europe (UNECE) and United Nations Commission for East Asia and Pacific (UNESCAP), had identified a strategy for the development of Euro-Asian Transport Links, taking into account the major routes along the four main Euro-Asian Corridors. These routes had been previously agreed upon at an international level and represent an extension of the Pan-European Transport Corridors further eastwards. On the one hand, major routes along these corridors should encompass intermodal aspects, including transshipment points. On the other hand, border crossing problems should be addressed.

The project had identified the rail, inland water and road transport linkages that are of central importance in tackling the following interrelated problems:

- to develop transport options alternative to maritime transport between Asia and Europe;

- to better connect the landlocked countries of Central Asia and the Caucasus with the global markets;

- to improve conditions for trade within EATL area itself, primarily – in the Central Asian region.

The identified EATL routes, therefore, not only aim at improving connectivity amongst EATL countries, but also at connecting the EATL with other existing transport networks in Europe and Asia. Among them are the Trans-European Transport Network (TEN-T Network) in EU-28, the Pan-European Transport Corridors (PETC), the TRACECA and the rail and road networks in Asia.

The Euro-Asian transport network transport system is mainly already formed. The main routes are demonstrating the practical capability of expensive and time-sensitive cargoes delivery serving as a complement to maritime routes.

Currently, the overland Euro-Asian transport links suffer from:

• the general slow-down of demand in transport, • the decreasing of the “critical mass” of traffic in land-bridge corridors to keep the

transport services across them sustainable, • the limitations of the investment potential for infrastructure projects

implementation; and


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• a growing gap between the shipping rates and the railway rates (which is one of the main disadvantages of the Euro-Asian land-bridge).

EATL are regarded as the competition of logistic decisions based on intermodal services and value-added services and are focused on the needs of particular supply chains, rather than simple choices of routes and modes. Hence, the parameters applicable to the entire transport and logistics chains, such as regular services, high punctuality, flexible costs, value added services availability, and delivery speed appropriate for certain types of cargo, are of primary importance for the competitiveness of the logistic chains.

The latest EATL publication (Draft report of the phase III EATL project, 2017) suggests that railway transport should play the leading role within the EATL transport links. In the current situation competitive railway services in EATL transit corridors can develop under the following conditions:

a) location of Asian terminal points in North-Western China

b) location of European terminal points in Eastern Europe and

c) the existence of guaranteed flow of high-value and time-sensitive cargo (automotive parts, electronics, etc.) from one shipper or a limited group of “anchor” shippers as a basis for sustainable regular service.

The road transport within the EATL corridors should be harmonized with railway services and complete them rather than directly compete with rail. The following spheres look most reasonable:

a) short-run cross-border trade;

b) long haul transportation on the lanes where railway links do not exist or can’t provide effective services for certain commodities (perishable, expensive, etc.);

c) “road section” of intermodal rail-road transport service.

For effective long-haul trucking, it is important to provide the even weight/length limitations for road transport along the main EATL routes.

It appears that currently the role of logistic centers in the EATL links development is underestimated. Being created in the hubs of EATL network, logistic centers could play the role of modern market-oriented nodes of supply chains, improving the competitiveness of the entire EATL system. Regular monitoring of corridors functioning is necessary not only for political needs but also as an instrument used by logistic operators willing to arrange the best possible currently transport chain.

Figure 21. UNECE Euro-Asian Links – Railway routes


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(Source: UNECE)

Figure 22. UNECE Euro-Asian Links – Road routes

(Source: UNECE)


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II.2 China’s One Belt – One Road initiative

China’s OBOR initiative is a US$ 1 trillion plan of greater economic integration and development, through better connectivity. The initiative consists of a “belt” – an overland transport connection between China and Europe through Central Asia, and a “road” – a maritime return route from southern Europe, through Suez, back to Asia. The initiative assumes increasing credibility with the USA’s recent withdrawal from the TPP, and possibly soon from NAFTA. The withdrawal of USA from TPP creates a space in China’s trade policy and interests in the trading partners, which could theoretically be filled by Europe, should bilateral investment mechanisms be settled by the two sides. China, through its dominant position in the TPP and the recent developments in terms of Regional Comprehensive Economic Partnership, is undoubtedly set to strengthen its position as a global force in international trade.

The OBOR refers to the Silk Road Economic Belt and 21st Century Maritime Silk Road, which is a significant development strategy launched by the Chinese government with the intention of promoting economic co-operation among countries along the proposed Belt and Road routes. The Initiative has been designed to enhance the orderly free flow of economic factors and the efficient allocation of resources. It is also intended to further market integration and create a regional economic co-operation framework of benefit to all.

Figure 23. China’s “One Belt – One Road” Initiative

(Source: The Wall Street Journal)


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Chinese companies have funded and built roads, bridges and tunnels across the region. A ribbon of fresh projects, such as the Khorgos “dry port” on the Kazakh-Chinese border and a railway link connecting Kazakhstan with Iran, is helping increase trade across Central Asia.

As far as ports are concerned, China has already ensured presence at the crossroads of global trade routes, as can be seen in the following image.

Figure 24. China’s presence in world’s ports and harbors

(Source: www.ft.com)

Investment in a wide network of harbors has made Chinese port operators global leaders in the field. Chinese companies transport more cargo than those from any other country. Chinese fleet is growing rapidly as well, while 5 of the world’s ten largest container ports are located in China.

Figure 25. Container throughput of world’s major port operators


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Notably, along with the investments in transport infrastructure, there is a trend of moving Chinese manufacturing to Africa. By the end of 2015, China had completed 128 industrial projects in Nigeria, 80 in Ethiopia, 77 is South Africa, 48 in Tanzania and 44 in Ghana.

China is not the only investor in Central Asian connectivity. Multilateral financial institutions, such as the Asian Development Bank, the European Bank for Reconstruction and Development and the World Bank have long been investing in the region’s infrastructure. The Kazakh government has a US$ 9bn stimulus plan, directing money from its sovereign wealth fund to infrastructure investment. Other countries, including Turkey, the US, and the EU have also made improving Eurasian connectivity a part of their foreign policy.

Whether transporting frozen poultry or electronic equipment, subsidies from China are making new overland train routes across Central Asia an increasingly attractive proposition for logistics businesses. Cheaper than by air, and faster than by sea, increased overland rail networks could help the region capture valuable business and capitalize on increased trade from China to Europe through overland routes across Belarus, Russia, and Kazakhstan.

Khorgos-Aktau railway

Figure 26. Planned Aktau-Khorgos railway


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In May last year, Kazakhstan’s President Nursultan Nazarbayev announced a plan to build — with China — a railway from Khorgos, on the Chinese border, to the Caspian Sea port of Aktau. The scheme dovetails with a US$ 2.7bn Kazakh project to modernize its locomotives and freight and passenger cars and repair 450 miles of rail.

China-Kyrgyzstan-Uzbekistan railway

Kyrgyzstan’s prime minister Temir Sariev has stated that the construction of the delayed Kyrgyz leg of the China-Kyrgyzstan-Uzbekistan railway would start in 2016. In September 2015, Uzbekistan stated it had finished 104km of the 129km Uzbek stretch of the railway.

Khorgos Gateway

Khorgos Gateway, a dry port on the China-Kazakh border that is seen as a key cargo hub on the new Silk Road, began operations in August 2015. China’s Jiangsu province has agreed to invest more than US$ 600m, over five years, to build logistics and industrial zones around Khorgos.

The Belt and Road Initiative upholds the principles of jointly developing the programme through consultation with all interested parties. Existing bilateral and multilateral cooperation mechanisms will be utilized to promote the integration of the development strategies of the countries along the route. Steps will be taken to advance the signing of cooperation memorandums of understanding or cooperation plans for the establishment of some bilateral cooperation demonstration projects. Efforts will also be made to set up a sound bilateral joint work mechanism and to devise an implementation plan and action roadmap for advancing the Belt and Road strategy.


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The US$40 billion Silk Road Fund has been established to finance the Belt and Road Initiative. It will invest mainly in infrastructure and resources, as well as in industrial and financial cooperation. The Fund was set up as a limited liability company in December 2014 with its founding shareholders including China’s State Administration of Foreign Exchange, the China Investment Corp, the Export-Import Bank of China and the China Development Bank.

The new multilateral development bank - Asian Infrastructure Investment Bank (AIIB) has been set up to complement and cooperate with the existing MDBs to address infrastructure needs in Asia. AIIB will focus on the development of infrastructure and other productive sectors in Asia, including energy and power, transportation and telecommunications, rural infrastructure and agriculture development, water supply, sanitation, environmental protection, urban development, and logistics.


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II.3 Pan-European Transport Corridors

Ukraine is a country in Eastern Europe, on the north-western coast of the Black Sea. Several international transport corridors cross Ukraine’s territory. Among them are:

Pan-European Corridors:

III Brussels - Aachen - Cologne - Dresden - Wrocław - Katowice - Kraków - Lviv – Kiev

Branch A - Berlin – Wrocław

Countries: Italy, Slovenia, Hungary, Slovakia, Ukraine

Length: 1595 km, including in Ukraine: 266 km road, 339 km rail

V Venice - Trieste/Koper - Ljubljana - Maribor - Budapest - Uzhhorod - Lviv - Kiev

Branch A - Bratislava - Žilina - Košice - Uzhhorod

Branch B - Rijeka - Zagreb - Budapest

Branch C - Ploče - Sarajevo - Osijek – Budapest

Countries: Italy, Slovenia, Hungary, Slovakia, Ukraine

Length: 1,600 km, including in Ukraine: 266 km rail, 339 km road

VII The Danube River (Northwest-Southeast) - 2,300 km

IX Helsinki - Vyborg - St. Petersburg - Pskov - Gomel - Kiev - Liubashivka - Chișinău - Bucharest - Dimitrovgrad - Alexandroupolis. 3,400 km (2,113 mi) long.

Major sub-alignment: St. Petersburg - Moscow - Kiev.

Branch A - Klaipėda - Vilnius - Minsk - Gomel

Branch B - Kaliningrad - Vilnius - Minsk - Gomel

Branch C - Liubashivka - Rozdilna – Odessa

Countries: Finland, Russian Federation, Ukraine, Belarus, Moldova, Romania, Greece

Length: 3400km, including in Ukraine: 1496 km rail, 996,1 km road


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Figure 27. Pan-European Transport Corridors

(Source: European Commission)

The Regulation concerning a European Rail Network for Competitive Freight (Regulation EU 913/2010 ) entered into force on 9 November 2010. The Regulation requests the EU Member State to establish international market-oriented Rail Freight Corridors to meet three challenges:

• strengthening co-operation between Infrastructure Managers on key aspects such as allocation of a path, deployment of interoperable systems and infrastructure development;

• striking the right balance between freight and passenger traffic along the Rail Freight Corridors, giving adequate capacity and priority for freight in line with market needs and ensuring that common punctuality targets for freight trains are met;

• promoting intermodality between rail and other transport modes by integrating terminals into the corridor management and development.

RFCs are a European Commission initiative intended to foster cross-border co-operation between member states and infrastructure managers. The aim is to provide coordinated capacity planning, traffic, and infrastructure management as well as ‘one-stop-shop’ contact points for train operators. The European Commission is providing co-funding through the Connecting Europe Facility.


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In November 2015, the Scandinavian–Mediterranean, Baltic–Adriatic and the North Sea–Baltic rail freight corridors (RFCs) were officially launched. This marks the completion of the EU’s European Rail Network for Competitive Freight.

Ukraine is linked to two of the RFCs, i.e the Czech-Slovak RFC (no. 9) and the Mediterranean RFC (no. 6).

Figure 28. Czech-Slovak RFC (no. 9) (Source: http://www.szdc.cz)

Figure 29. Mediterranean RFC (no. 6) (Source: https://www.railfreightcorridor6.eu)

In addition to the above links, the “Russian” standard wide gauge extends beyond the territory of Ukraine by about 400 km to Slawkow (Poland) and 90 km to Kosice (Slovakia). Both terminals are equipped for transshipment of containers from the Russian standard


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wide gauge to the European railway gauge, while the former allows for transshipment of dry bulk (coal, ore, grain) cargoes. Other transshipment points on the western side of Ukraine are:

• Medyka and Zurawica, Poland • Dobra, Slovakia • Zahony, Hungary

In the export operations, freight trains are formed at the terminals on the territory of Ukraine, i.e. Mostiska-2 terminal (border with Poland at Medyka and Zurawica), Chop and Batevo terminals (border with Slovakia at Kosice and Hungary at Zahony.

II.4 EU-Ukraine Association Agreement

The relations of the EU with Ukraine are governed by a comprehensive EU-Ukraine Association Agreement.

The Association Agreement takes an ambitious, innovative approach, include a Deep and Comprehensive Free Trade Area (DCFTA), and goes qualitatively beyond the previous Partnership and Co-operation Agreement. It reflects the strategic importance of EU-Ukraine relations and provides for political association and economic integration. It contains binding, rules-based provisions, and cooperation arrangements developed further than in traditional agreements. And it is comprehensive, covering all areas of interest. The Agreement provides a long-term basis for future EU-Ukraine relations without prejudging any possible future developments in line with the European Union Treaty. Special attention has been given to implementation and subsequent enforcement issues, including clear timelines and the establishment of an appropriate administrative and institutional infrastructure, so as to create the necessary predictability for economic operators.

Chapter 5 of the Association Agreement deals with the issues related to customs and trade facilitation. In particular, the parties to the Association Agreement have acknowledged the importance of customs and trade facilitation matters in the evolving bilateral trade environment. The parties have agreed to reinforce cooperation in this area with a view towards ensuring that the relevant legislation and procedures, as well as the administrative capacity of the relevant administrations, fulfil the objectives of effective control and support facilitation of legitimate trade as a matter of principle. Among numerous provisions, the Parties have agreed to eliminate (a) any requirements for the mandatory use of customs brokers and (b) any requirements for the mandatory use of pre-shipment inspections or destination inspection. The legal approximation requirements in the field of customs are set out in Annex XV of the Association Agreement.

Articles 367-370 of the Association Agreement are dedicated to transport and provide for cooperation between the Parties. They aim at facilitating the restructuring and modernization of Ukraine's transport sector and gradual approximation towards operating


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standards and policies comparable to those in the EU, in particular by implementing the measures set out in Annex XXXII to the Association Agreement. Such cooperation shall also aim at:

• improving the movement of passengers and goods • increasing the fluidity of transport flows between Ukraine, the EU and third

countries in the region • removing administrative, technical, cross-border and other obstacles • improving transport networks • upgrading the infrastructure in particular on the main axes connecting the Parties

This cooperation shall include actions to facilitate border-crossings.

One of the stated priorities of the Association Agreement is the development of the multimodal transport network connected to the Trans-European Transport Network (TEN-T) and improvement of infrastructure policy in order to better identify and evaluate infrastructure projects in the various modes of transport. Furthermore, attention is given to the development of funding strategies focusing on maintenance, capacity constraints and missing link infrastructure as well as activating and promoting the participation of the private sector in transport projects as set out in Annex XXXIII to the Association Agreement.

II.5 Transport Corridor Europe-Caucasus-Asia

One of the EU constant priorities is the development of effective transport links with their Eastern and Southern neighbor states and, via them – with countries of Central and Eastern Asia. The regional EU-assistance in transport benefitting the eastern neighbors is channeled, in particular, under the TRACECA-programme, an acronym referring to Transport Corridor Europe-Caucasus-Asia. This EU programme was launched in 1993 to develop a transport corridor from Europe to China, via the Black Sea, the Caucasus, the Caspian Sea and Central Asia.

Ukraine is also party to the Basic Multilateral Agreement of TRACECA – an initiative to reinvigorate trade and development along the ancient Silk Route, interconnecting the markets of China and other Asian countries with those of Europe.


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Figure 30. TRACECA (Source: www.traceca-org.org)

Currently, Ukraine is presiding the TRACECA IGC. TRACECA functions by 10-year strategies, the most recent one being the “TRACECA IGC Strategy up to 2016-2026”. The main objectives of the current strategy are:

- concerting efforts with the view of enhancing the role and functions of the TRACECA corridor in international trade outside the TRACECA region as an important alternative to other corridors;

- ensuring a sustainable multi-modal transport network conducing to the smooth and uninterrupted flow of trade and passengers using transit potential of the corridor to the full;

- encouraging stakeholders in making a systematic evaluation of regional and international consequences of the national policy while solving transport-logistic issues, which will promote further negotiations with donors and IFIs;

- introducing and maximally wide spreading of the best practices and advanced regional and international experience, modern approaches and innovations among all concerned circles in the TRACECA countries;

- promoting the improvement of global logistics of supply chains and development of transport processes based on international practice;

- arranging optimal conditions to attract private sector for creation of maritime routes, international logistic centers and realization of combined projects;

- identifying priority infrastructure and other projects from investments and financing schemes;

- reinforcing human resources and capacity development.

At the same time, the analysis made by the EU-funded LOGMOS Technical Assistance project showed that the key problematic areas include complicated export-import procedures; regulatory environment for business on the whole and corruption in border crossing. Therefore further effort of TRACECA shall be focused on carrying out measures to remove obstacles to trade and transport. It is necessary to concentrate on the


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implementation of more favorable procedures and rules for business, the fight against corruption, as well as the elimination of causes of excessive costs and delays connected with international traffic.

The EU stopped the financing of technical assistance and infrastructure projects in 2014 for an indefinite period.

II.6 Eastern Partnership

In 2009 EU and six partner countries (Armenia, Azerbaijan, Belarus, Georgia, the Republic of Moldova and Ukraine) established the Eastern Partnership (EaP), a joint initiative building also on bilateral relations. This cooperation has a certain transportation aspect – the EaP Transport Panel, which is a framework for the exchange of information and best practice between the partner countries and the EU Member States. Its goal is to strengthen transport connections both between the partner countries and the EU and between partner countries themselves. It addresses reforms underpinning regulatory convergence across transport modes. Policy work conducted in this area includes certain transportation issues, in particular: The EaP regional transport network (approved 2013 and included in the indicative TEN-T maps); Regulatory convergence, which became a priority notably for countries having signed Association Agreements with the EU, including Ukraine.

II.7 Asian Development Bank (ADB) and Central Asia Regional Economic Cooperation (CAREC) Program

The Central Asia Regional Economic Cooperation (CAREC) Program is a partnership of 10 countries (Afghanistan, Azerbaijan, China, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, Tajikistan, Turkmenistan and Uzbekistan) and six multilateral development partners (Asian Development Bank, European Bank for Reconstruction and Development, International Monetary Fund, Islamic Development Bank, United Nations Development Programme, and World Bank) working to promote development through cooperation; and leading to accelerated economic growth and poverty reduction. Asian Development Bank (ADB) serves as the CAREC Secretariat.

Transport is among the CAREC top priorities. The CAREC Transport and Trade Facilitation Strategy presents a shared vision of transport and trade facilitation development across the region, identifying three transport goals:

- establish competitive transport corridors across the CAREC region;

- facilitate the efficient movement of people and goods across borders; and

- develop safe, people-friendly transport systems


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The work in the framework of the CAREC programme is focused around the following main corridors (which overlap with the TRACECA Corridor in the Central Asian and Caucasus regions):

• Corridor 1: Europe–East Asia (Kazakhstan, the Kyrgyz Republic, and XUAR) • Corridor 2: Mediterranean–East Asia (Afghanistan, Azerbaijan, Kazakhstan, the

Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan, and XUAR) • Corridor 3: Russian Federation–Middle East and South Asia (Afghanistan, Kazakhstan,

the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan) • Corridor 4: Russian Federation–East Asia (IMAR, Mongolia, and XUAR) • Corridor 5: East Asia–Middle East and South Asia (Afghanistan, the Kyrgyz Republic,

Pakistan, Tajikistan, and XUAR) • Corridor 6: Europe–Middle East and South Asia (Afghanistan, Kazakhstan, Pakistan,

Tajikistan, Turkmenistan, and Uzbekistan)

Figure 31. CAREC Corridors

II.8 Trans-Caspian International Transport Route (TITR)

As a part of the “New Silk Road” intermodal East-West transport infrastructure initiative, Azerbaijan, Kazakhstan, Georgia, and Turkey agreed on the creation of the Trans-Caspian International Transport Route (TITR).


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In the framework of the TITR project, a cargo train that launches from China will be able to reach Europe in less than 14 days, which is the most competitive route in terms of transport time. For instance, it takes around 15-19 days for a cargo train that departs from China and passes through the Russian territories to reach Europe, and it takes more than a month for cargo from the Eastern China to arrive in Europe using the current maritime route.

Therefore, the TITR would have obvious advantages over the existing inland and maritime routes. The agreement on the establishment of the Coordination Committee to develop the Trans-Caspian International Transport Route was signed by the representatives of the national railway companies from Azerbaijan, Kazakhstan and Georgia, and the representatives of the ports of Aktau and Baku during the 2nd International Transport and Logistics Business Forum “New Silk Road” in November 2013. During the 5th meeting of the Coordination Committee on the development of the TITR on 20 October 2014, participants of the TITR project agreed to accept the Turkish State Railways to the Coordinating Committee. Currently, the regular meetings of the working group of the Coordination Committee are attended by the heads of the JSC “NC Kazakhstan Temir Zholy”, the Turkish State Railways, the JSC “Azerbaijan Rail-ways”, the JSC “Georgian Railways”, the JSC “NC Aktau International Sea Trade Port”, the Baku International Sea TradePort, the JSC “Azerbaijan Caspian Shipping Company” and the LLC “Batumi Sea Port”.

KTZ Express - an affiliated company of the Kazakhstani Railways – is appointed as the operator of TITR.

The most significant result of the TITR working group meeting was reached in Batumi on 24 July 2015, namely, in coordination with the Chinese transport company, Minsheng Logistics. The parties managed to launch the first container train over the Trans-Caspian International Transport Route.

On 28 July 2015, the test cargo train departed from the Xinjiang province in China, travelled along the Shihezi-Dostyk-Aktau-Alyat-Keshla route through the territories of Kazakhstan and Azerbaijan, and arrived at the Baku International Trade Port complex, located in the town of Alyat (south west of Baku). The train carried caustic soda and consisted of 41 platforms and 82 containers, weighing 20 tons each. It traveled for six days and more than 4,000 kilometers, passing through the Kazakh port of Aktau. Therefore, it was the first successful attempt to launch a cargo train from China to the Caspian region through the Caspian Sea. The test train showed the principle capability of the parties to reach an agreement on tariff policy and harmonized customs procedures providing a competitive route from Asia to Europe.

The second container train via the Trans-Caspian International Transport Route arrived in Georgia on October 3, 2015. The train, consisting of 44 containers, departed from the Chinese Xinjiang province, travelled on the Alashankou-Dostyk-Aktau-Alyat-Tbilisi route and arrived in Georgia in eight days.

The second test train showed that the organization of the container service on the China-Kazakhstan-Azerbaijan-Georgia-Turkey route could meet the expectations of the TITR members. It is expected that approximately 300,000-400,000 containers will be transported


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via the Trans-Caspian International Transport Route by 2020 ensuring an average speed of up to 1 100 km a day. Participants predict that the TITR will initially be able to transport up to 5.5 million tons of cargo annually, increasing to 13.5 million tons per year by 2020.

Figure 32. Trans-Caspian International Transport Route (in red below)

Despite the agreements, there remains one important missing part (illustrated above) of the TITR, namely, a 98 km link from Akhalkalaki (Georgia) to Kars (Turkey) to complete the 826-kilometer Baku-Tbilisi-Kars (BTK) railway connection. The opening of the BTK railway, with an annual carrying capacity of 6.5 million tons by the end of the year with further integration with the “Marmaray” rail project under the Bosporus Strait, will allow freight trains to travel between Europe and Asia along the fully launched Trans-Caspian International Transport Route. However, concerns remain on safety and security of the link going through the eastern parts of Turkey.

In May 2016, in Tbilisi, PSJ “Ukrzaliznytsia” signed a protocol on joining the TITR. The Ukrainian ferry-service provider UkrFerry is also part of TITR.

The TITR largely follows the TRACECA routes and is an alternative to the already established China-EU transport links via the Russian Federation and Belarus. The comparative advantage of the route is the delivery time, as already mentioned above, but this can only be achieved in the case of a block train.

Hence, TITR is a multimodal route, as it involves railway transportation, as well as a maritime leg (ferry). For Ukraine, this could be an advantage and a disadvantage alike. Ukraine could potentially act as a link to Europe via the ports of Georgia, in the absence of an operational link between Georgian and Turkish railways. Furthermore, Ukraine has


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established transportation links (an exchange hubs) with Europe, the largest being the Chop BCP at the border of Slovakia and Hungary. Lastly, Ukraine possesses the ferry fleet required to complete the maritime leg across the Black Sea.

On the downside for Ukraine, Turkey is a very strong competitor regarding the TITR. Once the Tbilisi-Kars railway link is complete (expected in 2017), the maritime leg of transportation via the Black Sea may be avoided for the direct railway links to Istanbul and Europe via the Bosporus Tunnel.

II.9 Organization for Cooperation of Railways (OSJD) The Organization for Cooperation of Railways (OSJD) was established in 1956 by the railway administrations of the ‘Eastern Block’ countries to create and improve the coordination of international rail transport. Concerning especially the transports between Europe and Asia, it has helped develop cooperation between railways and with other international organizations.

The participating states are Azerbaijan, Albania, Afghanistan, Belarus, Bulgaria, Hungary, Vietnam, Georgia, Iran, Kazakhstan, China, Democratic People's Republic of Korea, Cuba, Kyrgyzstan, Latvia, Lithuania, Moldova, Mongolia, Poland, Russia, Romania, Slovakia, Tajikistan, Turkmenistan, Uzbekistan, Ukraine, Czech Republic, and Estonia. Apart from them, OSJD incorporates seven railways with observer status from France (SNCF), Germany (DB AG), Finland (VR), Serbia (ZS), Greece (OSE), the Austrian-Hungarian company "GySEV", and Federal Passenger Company (FPC JSC, Russia).

Figure 33. OSJD railway corridors (Source: OSJD)

Some of the most important objectives of OSJD are:


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• Development and improvement of international railway transportation with the traffic between Europe and Asia, including combined transportation;

• Development of consentaneous transport policy in the field of international railway traffic;

• Improvement of international transport law, administration of the Convention concerning International Goods Traffic by Rail (SMGS) and other legal documents connected with the international railway traffic;

• Co-operation on the solution of the problems connected with the economic, information, scientific, technological and ecological aspects of railway transport;

• Development of measures aimed at the increase of railway transport competitiveness;

• Co-operation in the field of railway operation and technical matters connected with the further development of international railway traffic; collaboration with other international organizations, engaged in railway transportation matters, including those of combined transport.

One of the projects initiated by OSJD aimed to improve the conditions of Euro-Asian railway transportation is the CIM/SMGS consignment note. This single transport document combines the required CIM and SMGS contracts of carriage into one paper.

The customs authorities officially recognize this document of carriage. The document is valid in the EU/EFTA customs area as transit declaration T and also in the SMGS regime as a national customs (transit) document. The CIM/SMGS consignment note can not only be used for wagonload services, but also for Combined Transport.

Using the new consignment note means documents no longer have to be changed at border crossings between two legal jurisdictions, dispensing with a great deal of administrative expenditure: a first step towards being able to provide through service for freight transport with just minimal border stops.

II.10 Eurasian Economic Union

The Eurasian Economic Union (EAEU) is an international organization established in 2014 for regional economic integration. It has international legal personality and is established by the Treaty on the Eurasian Economic Union.

The Member-States of the Eurasian Economic Union are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic and the Russian Federation.

Figure 34. Main road and rail routes of EAEU (source: http://eec.eaeunion.org)


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The EAEU provides for free movement of goods, services, capital, and labor; and pursues coordinated, harmonized and single policy in the sectors determined by the Treaty and international agreements within the Union.

Transportation is among the priorities of the integration process within the Union. Integration in the spheres of transport and natural monopolies (railways among them) are embodied in Section XIX «Natural Monopolies» and Section XXI «Transport» of the Treaty on the Union.

According to the Treaty on the EAEU, the Union shall conduct coordinated (agreed) transport policy aimed at economic integration through consistent and gradual establishment of a Common Transport Area.

Common Transport Area means a range of transport systems of Member States providing for free movement of vehicles, passengers, and cargo as well as vehicle compatibility based on the harmonized transport legislation of Member States.

Given the fact that for the transportation between EU and Asia, the EAEU acts as a single transit territory (defined by the Customs Union between the participating states), the transportation through Kazakhstan and the Russian Federation is the most heavily used inland link for the time being.

II.11 Comparative analysis of various routes between China and Europe (Eurasian Development Bank Study)

The Eurasian Development Bank published, in 2016, a research note containing some preliminary estimates regarding the potential transportation capacity and investment needs


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of various Silk Road Economic Belt (SREB) transportation routes that run across the Eurasian Economic Union’s countries.

The study argues that currently the huge potential presented by land routes from China through Central Asia to Europe is not being utilized. According to the study, out of all land routes, only two are now in actual operation:

- Urumqi (XUAR) – Kazakhstan – Omsk – Moscow – EU (as regards transit, its estimated utilization ratio at 20%); and

- Shanghai – Trans-Siberian Railroad – Brest (Trans-Siberian Railroad utilization ratio currently reaches 100%).

The land route is considerably more expensive than the marine route. The study estimates the cost of marine transportation along the Shanghai – Rotterdam route as 10 cents per ton per mile, while the cost of railroad transportation is as high as 30 cents per ton per mile. Therefore, meaningful trading volumes can be generated only when dealing with China's western provinces.

The list of goods that can be profitably carried by land from central and eastern provinces is very limited and contains:

- Export goods originating from China's western provinces (mostly the Xinjiang Uyghur Autonomous Region, the Tibet Autonomous Region, and the Qinghai Province). The alternative for those provinces is to take the goods to the shore (about 3,000 km), and then carry them by sea;

- Limited selection of goods originating from China's central and eastern provinces. These are high unit added value products (electronic devices, automotive parts, pharmaceuticals, standard and costume jewelry, etc.) and goods with critical delivery times (some food products, premium textiles).

The study points out at six potential transit corridors that can be used to deliver cargoes along the China – Europe route. These corridors are analyzed regarding their current condition and potential that can be reached after upgrading.

Route 1: Urumqi (XUAR) – Kazakhstan – Omsk – Moscow – EU. The cost of cargo delivery via this route strongly depends on the mode of transportation: it amounts to about US$ 1,300 per 1 TEU for railroad carriage. The design capacity of this route is the highest among all SREB routes at 300,000 TEUs. Its utilization ratio currently does not exceed 20% of maximum capacity. The most established version of the Urumqi – EU route is the transport corridor passing through the following cities: Lianyungang, Zhengzhou, Lanzhou, Urumqi, Khorgos, Almaty, Kyzylorda, Aktobe, Orenburg, Kazan, Nizhny Novgorod, Moscow, and Saint-Petersburg with access to Baltic Sea ports. The bulk of transit cargoes uses this route and the Trans-Siberian Railroad. One of its key advantages is that there is only one customs border between China and Kazakhstan. The route's most critical problem is its limited throughput capacity. To make it competitive, it needs to be overhauled, and its transport and logistical infrastructure need to be expanded.


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The volume of funding required to modernize and improve railroads in Russia and Kazakhstan, to develop the Urumqi – Omsk – Moscow – EU route, and to build six major logistical centers (including those already in operation) is estimated at US$ 6 billion. Modernization will make it possible to not only boost cargo turnover but also to bring railroad transportation tariffs down from US$ 1,300 per 1 TEU to US$ 1,000 per 1 TEU.

Route 2: Shanghai – Trans-Siberian Railroad – Brest; cargoes are delivered from China through Russia's Far East Maritime Province (Primorsky Krai). The cost of cargo delivery from Vladivostok to Moscow using the Trans-Siberian Railroad currently stands at about US$ 1,100 per 1 TEU, and US$ 1,400 per 2 TEUs. The cost of railroad cargo delivery from Shanghai to Brest will be about US$ 2,200 per 1 TEU, and US$ 3,000 per 2 TEUs. The overall throughput capacity of the routes is 250,000 TEUs, and it is already utilized. The key problem of the route is that it uses the busiest section of the Trans-Siberian Railroad: Omsk – Novosibirsk. This route is also longer than the Kazakhstan route. It will require the construction of some new railroads, in some cases in mountainous areas. Subject to all those factors, this route will hardly prove to be attractive to China.

Route 3: Urumqi – Aktau – Makhachkala – Novorossiysk – Constanta. The cost of transportation (including transshipment to container carriers) currently stands at about US$ 4,000 per 1 TEU for deliveries to EU, and US$ 3,200 per 1 TEU for deliveries to the south of Russia. In theory, this route can be used to transport about 100 thousand TEUs per year (subject to existing port capacity and available fleet).

Route 4: Urumqi – Aktau – Makhachkala – Tbilisi – Constanta. The cost of cargo deliveries from China to Georgia will amount to US$ 3,700 per 1 TEU. The route's current theoretical throughput capacity does not exceed 50 thousand TEUs per year (subject to existing port capacity and available fleet).

The first issue arising in connection with the further development of trans-Caspian routes is that none of the existing Caspian ports are ready to process massive cargo flows. All port facilities require serious modernization. To use trans-Caspian routes, it will be necessary not only to modernize the ports but also to build new container logistical centers. Another problem is the need to use additional marine transport.

Route 5: Urumqi – Aktau – Baku – Poti – Constanta. The route is the most expensive and has the least throughput capacity of all the routes described above; besides, it has been used very little, if at all. The cost of railroad cargo delivery is as high as US$ 5,000.

This route will require the most significant outlays, including completion of construction of container facilities in Baku and port facilities in Poti, reconstruction of motorways, construction of tunnels and container logistical centers. Total required capital expenditures are estimated at not less than US$ 8 billion. That figure combined with the need to transship cargoes at several ports leaves the route basically without demand.


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The following table (and a figure overleaf) summarizes the findings of the Eurasian Development Bank study:

Route

Estimated route capacity, thousand TEUs

Railroad Transportation Cost, US$/TEU

Potential Throughput Capacity Post-Modernization, thousand TEUs

Railroad Transportation Cost Post-Modernization, US$/TEU

Urumqi (XUAR) – Kazakhstan – Omsk – Moscow - EU 300 1300 1000 1000

Shanghai – Trans-Siberian Railroad - Brest 250 2200 1000 1000

Urumqi (XUAR) – Aktau – Makhachkala – Novorossiysk – Constanta

100 4000 1000 1600

Urumqi (XUAR) – Aktau – Makhachkala – Tbilisi 50 3700 1000 1600

Urumqi (XUAR) – Aktau – Baku – Poti - Constanta 50 5000 1500


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Routes between China and Europe, assessed by Eurasian Development Bank (2016)

Source: Draft Report of UNECE on Euro-Asian transport links (2017); Consultant’s analysis

II.12 Container block-trains Viking train

The piggyback Viking Train is a joint project of Lithuanian, Ukrainian and Belarusian Railways, stevedore companies and ports of Klaipeda, Chornomorsk and Odessa. The route crosses Ukraine, Belarus, and Lithuania and links the network of sea container and contrailer lines of Baltics and the Black seas, Mediterranean and Caspian seas. The regular runs were launched on 6 February 2003.

Cooperation between the project stakeholders includes the creation of a platform for discussions, between the ministries of transport, railways, customs and border authorities (in Republic of Belarus, Lithuania, Republic of Turkey, Ukraine, Georgia, Armenia, Syria, Bulgaria, Greece), to facilitate customs and border controls for goods crossing VIKING Member States.


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Another important goal is to attract goods to rail in Europe-Caucasus-Asia directions (TRACECA Corridor) and freight from Turkey and the Middle East to North Europe and return.

Figure 35. Viking train

The stakeholders are working on improvements to the delivery framework in Baltic-Black Sea directions. They are elaborating the guidelines to create a legal basis and management structure for multimodal and intermodal transport runs of route container and contrailer trains. It is planned to arrange advanced booking of places on the train and transparency of rates with the strict schedule and delivery times. Special attention is focused on the unification of CIM/SMGS consignment note and its usage as e-consignment and delivery documents within NCTS (New Customs Transit System).

Zubr train

ZUBR is the name of the container block-train operating in the north-south direction between the Baltic and the Black Sea. The operational principles were agreed upon by Estonian, Latvian, Belorussian and Ukrainian railways administrations in year 2009, but the regular traffic was started in the cooperation of EVR Cargo and Citodat Invest in the


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beginning of 2012. During the year, there was on average of one departure per week, delivering over 8000 TEU of containers by the end of the year. The train is running on the route Muuga – Kiev (or Dnepropetrovsk) – on Muuga, however, it is possible to deliver containers to/from several other stations in Belorussia and Ukraine. In addition to previously mentioned railways, during the year 2012 Railway of Moldavia and Polish railway company PKP LHS joined the project, increasing the selection of stations even more.

Figure 36. Zubr train

The Zubr train can carry 20’, 40’ and 45’ containers from the Black Sea to the Baltic Sea and in reverse. The departure frequency is technologically defined as once per week but, in fact, the train runs three times per week.

Against the backdrop of the signing of the Ukraine-EU association agreement, container transportation by rail is an important area of development for Ukraine. Rail transport is being stimulated in Europe because of its environmental impact and its higher energy efficiency compared to road transport, among other things. This was also the reason for such rapid development of containers transportation by rail.

This helps to relieve the load on automobile roads and reduce the number of traffic jams in densely populated ports and industrial areas. In addition, transportation of containers by road is restricted by weight and time periods in many European countries.

The association agreement that was signed between Ukraine and the European Union contains a provision on the development of combined and multimodal transportation. However, Ukraine needs to regulate this mode of transportation and bring it into line with European standards.

To attract additional cargo volumes, Ukrzaliznytsia introduced a 20-percent discount on the rates for transportation of large-tonnage import/export containers through the territory of Ukraine on Viking and Zubr trains in 2014. In addition, the commonly reduced rates that are


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used in conjunction with the other participants in the project (the railway administrations of Belarus, Lithuania, Latvia, Estonia, Moldova, and Bulgaria) have been prolonged.


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III. Transport and trade routes along TRACECA

During the last three years, regional developments in trade and transport have gradually limited trade between Ukraine and its trading partners of the Central Asian Republics and China. Ukraine has been exploring alternative trade routes to trade with Central Asian Republics (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) and China.

Ukraine is a contracting party of Basic Multilateral Agreement on the development of Transport Corridor Europe-Caucasus-Asia (TRACECA), a multimodal transport network flowing East-West linking Asia with Europe via Caucasus and Ukraine/Moldova. TRACECA flows through the territory of Azerbaijan, Armenia, Georgia, Iran, Kazakhstan, Kyrgyzstan, Moldova, Romania, Tajikistan, Turkey, Ukraine, and Uzbekistan.

Against the above background, some alternative export routes from Ukraine up to China shall be considered. In particular, the multimodal route from the port of Chornomorsk across the Black Sea to the ports of Poti and Batumi in Georgia, the land to Baku in Azerbaijan, across the Caspian Sea to the port of Aktau in Kazakhstan and up to the border with the China at Dostyk or Khorgos border crossings.

A natural branch of this route flows to the port of Turkmenbashi in Turkmenistan, and mainly serves the market of Turkmenistan. This branch of the transportation route is not viable for the imports to other countries of Central Asia or China.

These routes represent a geographical alternative to the land transport route through Russia or the maritime route through the Bosporus and Suez canals.

The illustrated transport route is a multimodal chain of transportation, involving the maritime leg (rail-ferry and RO-RO vessels on the Black and Caspian Seas), road and railway legs, as well as ports and multiple border-crossing points (BCPs).

The following schematic drawing illustrates the routes.


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Figure 37. Schematic representation of the TRACECA corridor

Source: Consultant

In particular, the routes for Ukrainian exports to Central Asia and beyond to China are:

Railway routes:

• Chornomorsk – Poti/Batumi – Baku/Alat – Aktau – Almaty – China’s border • Chornomorsk – Poti/Batumi – Baku/Alat – Aktau – Almaty • Chornomorsk – Poti/Batumi – Baku/Alat – Aktau – Bishkek • Chornomorsk – Poti/Batumi – Baku/Alat – Aktau – Tashkent • Chornomorsk – Poti/Batumi – Baku/Alat – Aktau – Dushanbe • Chornomorsk – Poti/Batumi – Baku/Alat – Turkmenbashi – Ashgabat

Road routes:

• Chornomorsk – Poti/Batumi – Baku/Alat – Aktau – Almaty – China’s border • Chornomorsk – Poti/Batumi – Baku/Alat – Aktau – Almaty • Chornomorsk – Poti/Batumi – Baku/Alat – Aktau – Bishkek • Chornomorsk – Poti/Batumi – Baku/Alat – Aktau – Tashkent • Chornomorsk – Poti/Batumi – Baku/Alat – Aktau – Dushanbe

The above-listed roads and rail routes go through the following nodes (port and/or BCPs):

• Chornomorsk port (Ukraine) – gateway for Ukrainian exports on the Black Sea • Poti/Batumi ports (Georgia)


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• Gardabani – Beyuk-Kyasik (rail BCP Georgia-Azerbaijan) • Red Bridge (road BCP Georgia-Azerbaijan) • Baku/Alat port (Azerbaijan) – gateway to Kazakhstan and Turkmenistan on the

Caspian Sea • Aktau Port (Kazakhstan) – gateway to the markets of Kazakhstan and railway and

road connection to the border of China

Ukraine’s export flows reach Chornomorsk by road and rail connections. Trucks and railway wagons are then transported across the Black Sea by regular rail-ferry and RO-RO services, connecting Chornomorsk with the ports of Poti and Batumi in Georgia. Roads and rail services link the Georgian ports to the port of Baku/Alat, through dedicated BCPs at the borders of Azerbaijan, without transshipment. However, in the case of railway transport, change of locomotive is required at every border between the members of the TRACECA corridor.

From Baku/Alat, a rail-ferry/RO-RO service operates to the ports of Aktau in Kazakhstan and Turkmenbashi in Turkmenistan. From these points, rail cargoes and road vehicles can travel to the capitals of the Central Asian republics, or to the borders of China. However, depending on the final destination, the freight flows crosses several borders, such as:

• Rail and road flows to Uzbekistan cross the Kazakhstan-Uzbekistan border at Beyneu-Karakalpakiya BCP;

• Road and rail flows to Kyrgyzstan cross the Kazakhstan-Kyrgyzstan border at Chaldovar (KZ) - Kaindy (KG) BCP;

• Road flows to Tajikistan cross the Kazakhstan-Uzbekistan border at Beyneu (KZ) - Karakalpakiya (UZ) BCP and then the Uzbekistan-Tajikistan border at Saraissiya (UZ) - Bratstvo (TAJ), while the rail flows cross to Tajikistan at Kudukli (UZ) - Pahtaabad (TAJ) BCP;

Kazakhstan, Kyrgyzstan and Tajikistan operate road border-crossings with China, at:

• Khorgos (Kazakhstan) • Dostyk (Kazakhstan) • Irkeshtam (Kyrgyzstan) • Torugart (Kyrgyzstan) • Kulma (Tajikistan)

The railway border-crossing with China is available only in Kazakhstan, at Dostyk and Altinkol (near Khorgos) stations, which makes Aktau an attractive point for the exports to China. There are no transshipments or BCPs all the way up to China, as opposed to the theoretical alternatives via Turkmenbashi port.

Similarly, transportation of rail freight to Kyrgyzstan is more convenient through the port of Aktau and the territory of Kazakhstan, rather than through Turkmenistan, the latter involving a transit through Uzbekistan and then Kazakhstan again.


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In further sections, an overview of infrastructure and key issues associated with the above-listed trade and transport route are discussed in greater detail.

III.1 Black Sea Region

Chornomorsk Port

The port of Chornomorsk (formerly Illyichevsk) is located on the northwest tip of the Black Sea, southwest of Odessa in Ukraine. It is a multipurpose port and traditionally serves the flows of metallurgical cargoes, grain, and containers. The port also operates a multimodal (rail-ferry/RO-RO) complex in one of its terminals, which allows loading of railway wagons and trucks directly onto a ferry for transportation across the Black Sea.

The total container handling capacity of the port is 1.15 million TEUs, while the planned development shall bring the capacity to 2.37 million TEUs. In 2015 and 2016, Chornomorsk port handled 2740 and 1693 containers, respectively.

The multimodal complex includes two rail-ferry bridges (berths 26 and 27) and a berth for automobile ferry (berth 28). The total existing annual capacity of the multimodal complex is 4.5 million tons of cargo, 19,000 TIR trucks and 250,000 cars.

Figure 38. The multimodal terminal of Chornomorsk port – berths and warehouses


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The complex includes warehouses no.s 26 and 25, with the capacity of storing 450 containers and 30 TIR trucks, as well as 5.5 thousand cars.

The development plans aim to increase the handling capacity of the multimodal terminal by an additional 1.7 million tons annually, to be achieved through the construction of the new berth next to berth no. 26, the extension of warehouse territory through the coastal area for purposes of TIR trucks service, the extension of the warehouse areas for automobiles storage using multilevel covered warehouses construction, and the construction of the automobiles pre-sail preparation center.

In 2015, the rail-ferry complex of the Chornomorsk port handled (import, export, and transit) 1.4 million tons of cargo (including 3016 railway wagons and 27,125 TIR trucks), while in 2016 the handled volume was 1.8 million tons (including 6418 wagons and 30,006 TIR trucks).

There are 11 economic operators in the port, 10 of which are privately held companies. Ukrainian State Port Authority (USPA) owns the strategic infrastructure (i.e. the berth access, access channels and waterways, road and rail access) and is responsible for the technical maintenance thereof, including the dredging works.

The port fees and dues are collected by USPA, while the cargo handling charges are collected by the respective operators. 75% of USPA’s income is transferred to the central budget.

The port hinterland connection consists of direct access to the road and railway networks of Ukraine. However, regarding road connections, the highway is about 25km away and is accessed by a peripheral dual carriageway.


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The territory of the multimodal complex does not allow for grouping of road vehicles in lots for quick loading and release of the vessel. In the case of an influx of trucks, a long queue is formed outside the port entrance, where nearly no facilities exist.

There is a single inspection tower at the RO-RO berth, and the satellite image above illustrates a queue of trucks lined up for inspection.

There are plans to concession the rail-ferry complex of the Chornomorsk plan, as the Ministry of Infrastructure of Ukraine (MIU) specified this project as the pilot concession project in the transport sphere. MIU with the support of Western NIS Enterprise Fund created the Public-Private Partnership project management office. Presently the accounting model for a preliminary feasibility study is under elaboration.

Poti Port

The port of Poti is in freehold ownership of APM Terminals Poti, which also undertakes the port authority functions. The port of Poti is the largest commercial (predominantly non-oil and gas) port on the Black Sea of Georgia having a 10 Mt design capacity.


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It has 15 berths, with a total berth length of 2,900 meters and more than 20 quay cranes and a capacity of 12 Mt per year. Berth №13 in the South Basin is used for handling Ro-Ro vessels. Rail-ferries have been accommodated since 1999 at berth №2. This 183 m long and 12.5 m deep berth cost EUR 3.4 M, funded by the TRACECA Program. The ramp has a 1,520 mm. Russian gauge. The complex includes a 10,000 sq.m. lorry park. The nominal cargo throughput is estimated at 700,000 tons. Container vessels are berthed at Pier №7 (210 m long, 8.5 m deep) adjacent to a 16,000 sq. m/800 TEU storage area and pier №14 (250 m long, 8.5 m deep) rehabilitated in 2009, thanks to EBRD funding, to receive 1,000 TEU feeder vessels.

Both terminals are connected to the railway network, but there is no container storage facilityat Berth № 14. Limited storage facilities in the port area compel the stevedore to evacuate discharged containers to 8 off-dock private terminals where empty containers are stored, and wherefrom full and empty export boxes are brought for loading upon vessels’ calls. In an initial move to integrate activities, a storage area in the port was completed in 2010 to handle second-hand car containerized traffic. Reportedly, the port is often congested (shipping lines report an average of 3-day waiting time for vessels, which may occasionally surge up to 7 days in case of bad weather, for instance), which has led some operators to divert their vessels to Batumi and others to implement a congestion surcharge.

Poti is also the Georgian gate of the E 60 European route (running from Brest, France to Irkeshtam, Kyrgyzstan on the border with China). In Georgia, this major axis known as the “East-West Highway,” links Poti to Beyuk-Kyasik, via no less than 7 of the ten other biggest Georgian cities (including the capital city Tbilisi).

In April 2011, AP Moeller Terminals, a sister-company of Maersk Line, acquired 80% of the shares in the port of Poti. The change from state-owned company to private enterprise and from public service to a supposedly more efficient type of operation has led to a significant number of redundancies in the port staff (reportedly over 400 in 2011 alone) as well as to the implementation of a new wage and social benefits policy.

The weather conditions adversely affect the port of Poti. In December 2016, the port was unable to handle vessels for as much as two weeks, due to a storm which took place and resulted in the clogging of the access canals with the river residues.

Furthermore, the fact that there is only one rail-ferry bridge in the port constitutes a bottleneck, as vessels have to be held at the roadstead, waiting for the discharge of the previous one.

Due to the non-competitiveness and non-transparency of rail tariffs, the insufficient quality of service, the shortage of platforms, the lack of container handling equipment at railway stations, the long transit times and customs issues, trucking to Azerbaijan either in containers or after un-stuffing at Poti is by far the preferred mode of transport. This applies to all cargo except for heavy loads, moving mainly in 20” containers.


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Still, border-crossing formalities for trucks reportedly take about four hours in total, and the implementation of EDI systems have failed on the Azerbaijani side as there is no possibility to file pre-declarations. Due to the unavailability of container logistics services in Azerbaijan, boxes, after devanning, are brought straight back to Poti, whether by rail or truck. As a result, all exports from Azerbaijan, even containerized goods, move to Poti either by truck or, for heavy cargoes, in closed wagons or gondolas.

Still, as ocean carriers and container lines do not offer inland transport service, customers have to perform the on-carriage till final destination in merchant haulage. The container lines, which are afraid of losing their boxes, request the cash payment of a deposit equal to the value of the container, which most clients reject. Instead, they un-stuff their cargo into conventional wagons in Poti. Another reason for the lower than possible container statistics, in Poti, is the cost of returning an empty back to the original port of discharge.

Poor logistics services, overly expensive rail tariffs, long and unpredictable transit times, as well as infrastructure constraints (single rail-ferry bridge, narrow roads, tunnels and bridges) cause an important part of the flow of non-containerized general cargo destined to Baku and (mostly) to Central Asia via Turkmenbashi and Aktau to be diverted during the river navigation period (April to November) to the Volga-Don Complex.

This solution is not only less expensive and easier, it is also quicker, as sea-river vessels (able to load between 3 and 5,000 t) perform the voyage from Turkish Marmara Sea ports to Caspian ports in 8 to 10 days only and much less if loading from Azov Sea ports (Mariupol, Taganrog or Rostov-on-Don). This brings about the loss of whole contracts for Georgian ports and the central TRACECA corridor. Nonetheless, the port handles significant volumes of heavy cargoes and out-of-gauge OOG cargoes for destinations in the Caucasus.

Batumi Port

In November 2007, container Berths №4 and №5 (which total 284 m in length at a depth of 11.7 m), the adjacent terminal,the rail-ferry bridge, and Berth №6, of 187 m length and 8 m depth, were leased to Batumi International Container Terminal. The Batumi International Container Terminal is a subsidiary of ICTSI/Manila and a major maritime terminal operator in the world, operating in over 18 countries. In February 2008 KazTransOil, the main transport operator of Kazakh oil, both for export and domestic market and a member company of the KazMunayGaz Group, acquired the exclusive long-term management rights of Batumi Sea Port and purchased the Batumi Oil Terminal. Over USD 8 M had already been invested by 2009 for the purchase of new equipment (such as an 18-32 t portal crane, the first bought in Georgia in over 30 years, and a new mooring tug), repair and upgrading of the existing equipment, port buildings and berths and development of modern IT systems.

Batumi is predominantly a liquid bulk terminal. Depending on the year, crude oil and oil products can represent up to 80-90% of the total turnover.

The port consists of 5 terminals: the oil terminal (berths №1, №2, №3 and CBM-conventional Buoy mooring, which can accept 4 tankers simultaneously), the multi-purpose


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container terminal (berths №4, №5), the railway ferry terminal, the dry cargo terminal (berths №6, №7, №8, №9) and the passenger terminal (berths №10, №11). Maximal throughput is 18 Mt at the oil terminal, 2.3 Mt at the dry cargo terminal and 0.7 Mt at the rail-ferry terminal. The prospective throughput of the container terminal is 300,000 TEU per year.

One of the main obstacles to the development of the container terminals and the whole port of Batumi is the fact that the rail tracks to the port cross the city center and the main access road to Poti, Tbilisi and the rest of Georgia. The municipality is considering the construction of a fly-over, which would cost some USD 16-18 M, to alleviate the situation. The road network in the region is being rehabilitated and improved: in December 2010, ADB signed a Multi-tranche Financing Facility of USD 500 M as its contribution to the Road Corridors Development Program in Georgia which includes the 48.4-km Adjara Bypass around Kobuleti and Batumi. Currently, the government of Georgia, together with the World Bank, implements the program of rehabilitation of the whole road East-West road connection through Georgia.

Also, the space available for grouping of TIR trucks for the ferry transportation is very limited within the port. This results in longer time to turn around a ferry, as the trucks aligned outside the port have to wait until full disembarkation and clearance of the incoming vehicles before entering the port area for embarkation.

Rail-ferry/RO-RO services on the Black Sea Port of Chornomorsk is serviced by rail-ferry and RO-RO lines, operated by UkrFerry and NaviBulgar. The rail-ferry and RO-RO vessels calling at the port of Chornomorsk are as follows:

Operator/Vessel Capacity Trucks Wagons (up to 14m) NaviBulgar Heroes of Sevastopol 100 108 Heroes of Odessa 100 108 UkrFerry Greifswald 95 49 Kaunas Seaways 95 49 Vilnius Seaways 95 49

The ferry lines serviced are:

NaviBulgar:

• Varna (Bulgaria) – Poti (Georgia) – Chornomorsk (Ukraine) • Chornomorsk (Ukraine) – Poti/Batumi (Georgia) • Chornomorsk (Ukraine) – Varna (Bulgaria) • Chornomorsk (Ukraine) – Varna (Bulgaria) – Derince (Turkey) – Poti/Batumi (Georgia)

UkrFerry:

• Chornomorsk (Ukraine) – Varna (Bulgaria)


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• Chornomorsk (Ukraine) – Poti/Batumi (Georgia) • Varna (Bulgaria) – Batumi (Georgia) • Chornomorsk (Ukraine) – Haydarpasa (Turkey)

The journey from Chornomorsk to ports of Georgia takes about 36-48 hours at sea. On average, it takes 12-14 hours to handle a ferry vessel in Chornomorsk, 15 hours in Batumi and 18 hours in Poti. Overall, it takes about five days for a return journey.

The timetable of the ferry services is not regular and often depends on the availability of cargo for transportation, which results in the vessels waiting on roadstead until a certain mass of cargo is amassed inside or in the proximity of the port.

III.2 Caspian Sea Region Port of Baku (Alat)

The new port of Baku, opened in 2014, located in the Alat village is a transport node interconnecting the East (Turkey and EU), South (Iran and India) and North (Russia). The new location of the port is linked with the main road and rail network of Azerbaijan.

Figure 39. Port of Baku (Alat) masterplan (Source: Astonsmith)

The railway ferry complex of the port includes two berths on a common quay, each capable of handling vessels of up to 154 meters in length. The stated capacity of the port, following


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the completion of Phase I (in 2017), is 10-11.5 mill tons and 40,000-50,000 TEU in containers annually.

However, during the influx of vehicles and wagons due to the restrictions imposed by Russia on the Ukrainian transit, severe congestion occurred at the approaches of the port, where numerous wagons and trucks awaited embarkation and transfer to the opposite side of the Caspian Sea.

In December, 2016, the Port of Baku signed a Memorandum of Understanding (MoU) with the Islamic Corporation for the Development (ICD) of the Private Sector. One of its purposes is to study the potential opportunities in the Port of Baku and Alat Free Trade Zone (FTZ) and examine the possibility of involving private sector players in their realization. Reportedly, Azerbaijan will start accepting applications from investors wishing to work in its (FTZ) from in March 2017.

Aktau Port

Aktau is the only international commercial sea port in Kazakhstan. Bautino, 124 km north of Aktau, mainly serves as the marine and supply base and vessel maintenance facility. It supports the development of the Northern Caspian Sea offshore oil fields, notably Kashagan. While Kuryk, 70 km south of Aktau, is the construction base for the (huge) artifacts installed at sea in the oil fields.

Aktau is managed and operated by the Republican State Enterprise “Aktau International Sea Commercial Port”. Early in 2013, the Government of Kazakhstan (GoK) decided to transfer the management of the port to Kazakhstan Temir Zholy, the Kazakh State Railways. For increased efficiency, a UAE-based global port operator – DP World – acts as a consultant to the port. Since 2013, the same company is entrusted with the management of Khorgos dry port and is responsible for its integration with the port of Aktau.

Discussions were also going on with number 3-world container terminal operator DP World to have them manage (to an undisclosed extent) the port operations and Aktau FEZ. It seems the GoK wants to make a package deal and demands that DP World takes over the management of the Horgos FEZ at the same time. The total investment needed in both locations is valued at about USD 1 bn.

Aktau has been designed for the handling of bulk liquid and solid commodities (oil and oil products, grain) and break-bulk cargoes (metal, steel products, sawn-timber, etc.). A rail-ferry handling complex was added(and later on rehabilitated and modernized with an EUR 2 million EU TRACECA allocation). After a USD 74 M reconstruction partly financed by the EBRD in 1997-1999, the design capacities have been increased to 8 million tons for oil and 1.55 million tons for dry cargo.

The port is never frozen and open all the year round. However, berthing is often delayed (up to several days) in winter due to bad weather conditions.

Currently, Aktau port disposes of the following:


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• Two berths of the multi-purpose terminal • Warehouse area of about 7.9 ha (bulk and general cargo) • Roofed transit warehouse of 2,000 sq. m • A berth for grain export and transshipment of overweight cargoes, as well as

mooring of RO-RO vessels • A berth for smaller vessels • A single berth for ferry and transshipment of oil products

The ferry complex of Aktau port includes a dedicated access to the railway and road networks of Kazakhstan. Traditionally, it is used for the transshipment of oil products, consumer goods, spirits and beverages, wheeled equipment, chemical cargoes, pipes, etc.

The total capacity of ferry handling is 6-7 ferries a week, hence the throughput capacity of the ferry complex is 2 million tons of cargo per year. In 2015, the ferry complex processed 466 thousand tons of cargo.

Notably, the berth used for the mooring of the ferry is also used for oil products transshipment. Since this is a more lucrative and voluminous business, it is often privileged and as a result, ferries experience wait times for berthing. The handling time for the ferry vessel is about 8 hours in Aktau.

In 2015, the construction of a new ferry complex in the port of Kuryk was commenced. The design throughput capacity of this complex is planned at 4 million tons annually.

Port of Turkmenbashi

Turkmenbashi, the main commercial sea port of the country, is located 165 nautical miles (about 305 km) East of Baku, at a short distance from the Western coast of the Caspian Sea and approximately 550 km from the capital of the country, Ashgabat, which it is linked to by road and railway. It is managed and entirely operated by the State Service of Maritime and River Transportation of Turkmenistan (SSMRT) through the State-owned company “Turkmenbashi International Commercial Sea Port” (TICSP). The SSMRT also manages the Turkmen commercial fleet.

The 22 km, 140 to 200 m wide, one-track access channel was last dredged in 1968, and as a result of siltation, the maximum acceptable draft has been decreased to 5.1 m (the actual minimum and thus critical depth being 5.5 - 6 m). This halved the lifting capacity of the 12,000 DWT tankers (which have a fully laden draft of 7.1 m) and hampered moves with the rail-ferries under windy conditions. In 2012, the navigation channel was entirely modernized with a new light buoy of international standard with AIS system (Automatic Identification System) enabling vessels to move at night.

The 1963-built double 2-railtrack ramp cargo ferry terminal is used for the handling of both wagons and trucks; and occupies 41.7 hectares. This includes the parking area for outgoing trucks and the maritime station for ferry passengers. There is a customs post in the maritime station, which is in charge of the ferry freight + pax traffic only.


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From the ramps, the rail tracks lead to a marshalling yard located half a kilometer behind the dry cargo port. The marshalling yard is in poor condition, and only part of the original 12-track network is operational. The underground electric cable network was once automatic but has been operated manually since it was flooded by the Caspian Sea. The main road from the port entrance to the truck parking area and rail-ferry terminal was upgraded in 2010-2011, and now a 500 truck parking lot is available. The main rail track to the ferry ramps has also been revamped. Two additional separate road access points, leading from the port directly to the Ashkhabad highway, are planned/under construction.

The cranes at the port railway station have a 5 t lifting capacity only. Therefore, when discharging from the vessels, containers which have to be dispatched inland by rail, are trucked to better geared private terminals where they are reloaded onto rail platforms. The reverse procedure applies for full export containers. Apart from the ferry line to Baku, other shipping links include Russian tramp sea-river vessels and Iranian coasters of Khazar Sea Shipping Company, plying irregular services to and from Iran (Anzali, Amirabad) and Russia (Astrakhan, Olya) and rail-ferries to Makhachkala (Russia).

Given the evident shortcomings, the Government of Turkmenistan decided to construct a new port in Turkmenbashi, with a ferry terminal planned on an area of 230,000 sq.m. and a capacity to process 75 thousand trucks annually.

A container terminal with a 400 thousand TEU capacity and a logistics park are also envisaged. The total stated throughput capacity of the new port of Turkmenbashi is 15 million tons. The port shall be completed by the end of 2017.

Rail-ferry/RO-RO services on the Caspian Sea

Caspian Shipping Company (CASPAR) is the exclusive operator of the ferry services across the Caspian Sea. An incumbent of the ferry vessels from the Soviet era, CASPAR currently operates the following ferry vessels on Baku-Aktau-Baku and Baku-Turkmenbashi-Baku lines:

• 7 “Dagestan” type vessels (capacity 28 wagons) • 4 “Academic Zarifa Alieva” type vessels (capacity 52 wagons) • 2 “Barda” type vessels (capacity 54 wagons) • 2 RO-RO vessels of “Composer Gara Garaev”

The transit time is about 24 hours to Aktau (269 nautical miles) and 12 hours to Turkmenbashi (179 nm).

The service on these lines is irregular and depends on the loading of the ferry vessels. For the time being, the ferry complex in Baku processes 6-7 ferries a week, while the total throughput capacity is 10-11 ferries per week.

The Port of Baku has announced the planned launching of new ferries to port Kuryk. However, this has not materialized to date.


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The ferry link from Baku to Aktau is one of the important contributors to the low attractiveness of the overall TRACECA route, as the service is irregular (sometimes calling only twice a week, despite the multitude of vessels available). CASPAR could theoretically organize daily calls in Aktau and Baku; However, about half of its fleet serves the Turkmenbashi port.

The works on the rail-ferry complex in Kuryk are ongoing. As of February 2017, one of the two rail-ferry bridges was completed. When complete, the Kuryk complex shall be capable of handling 5 million tons of cargo annually. The rail-ferry complex will be suitable for the transshipment of grain, oil products, fertilizers, chemicals, equipment, transportation means and other cargoes.

The Caspian Sea is one of the major bottlenecks on the TRACECA route. Adding to the usual hazard of the voyage by sea, the lack of coordination between the different transport modes, mismanagement of the existing port infrastructure, missing port infrastructure and nontransparent port-transit price formation make the Caspian Sea one of the most unreliable supply chain segments in the corridor.

III.3 Railway links

The railway links in the TRACECA corridor link the port of Poti in Georgia to the port of Baku/Alat in Azerbaijan. It also links the ports of Aktau (Kazakhstan) and Turkmenbashi (Turkmenistan) with the capitals of the Central Asian countries, as well as to China via two border-crossings in Kazakhstan, Altynkol (in the proximity to Khorgos) and Dostyk.

The railway links considered as part of this assessment are illustrated in the following image and described further below.


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The routes illustrated above are:

Route BCPs Length (km)

Time in transit (days)7

Poti – Gardabani (GEO) / Beyuk-Kyasik (AZ) – Baku/Alat 1 894 3-4 Aktau – Altynkol – Dostyk / border with China - 2847 15 Aktau (KZ) – Bishkek (KG) 1 3200 16 Aktau (KZ) – Dushanbe (TJ) 2 2383 8 Aktau (KZ) – Tashkent (UZ) 1 2056 11 Turkmenbashi (TM) – Bishkek (KG) 3 3150 16 Turkmenbashi (TM) – Dushanbe (KG) 2 1900 10 Turkmenbashi (TM) – Tashkent (UZ) 1 1900 10

As illustrated in the following figure, all of these railway routes fall onto the CAREC Designated Rail Corridors (DRC).

Figure 40. CAREC Designated Rail Corridors (DRCs) (source: A Railway Strategy for CAREC, 2017-2030)

7 Time in transit may vary depending on a range of issues, such as timely supply of rolling stock etc. The average travel speed of 200 km/day is a widely accepted standard on the railways of the Central Asian republics


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Figure 41. Rail traffic density on the CAREC corridors (Source: CAREC CPMM, 2014)

Poti – Gardabani (GEO) / Beyuk-Kyasik (AZ) – Baku/Alat

The railway link interconnects the port of Poti in Georgia with the Port of Baku/Alat in Azerbaijan, going through one BCP at Gardabani (GEO) / Beyuk-Kyasik (AZ).


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The link includes 373 km of railways in the territory of Georgia and 521 km in the territory of Azerbaijan. The time in transit is 3-4 days. The waiting times for the train are about 2 hours on either side of the border. This includes the handing over of freight documentation to the railway administration of the neighboring country, the technical check of the train and the change of locomotive. The BCP does not suffer from congestion and the border-crossing times are within the limits of habitual times all along the TRACECA route.

Aktau – Altynkol – Dostyk (Kazakhstan/border with China)

his railway link interconnects the port of Aktau in western Kazakhstan with the border-crossing point at Dostyk (China’s border). The railway link is 2847 km long and the normal transit time is up to 15 days8.

As no border-crossings are involved, the hand-over of documents and technical checks are not required along the way. 8 The transit time for the test run of the block-train from China to Aktau was 3-5 days


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Aktau (KZ) – Bishkek (KG)

The railway route interconnects the port of Aktau (Kazakhstan) with the capital of Kyrgyzstan – Bishkek. The length of the route is 3200 km and the transit time is 15-17 days.

The route passes through a railway BCP at Chaldovar (KZ) – Kaindy (KG). The regular procedures on the border include the handover of documentation to the railway administration of the next country, a technical check and a change of locomotive.

Aktau (KZ) – Dushanbe (TJ)

The railway route interconnects port of Aktau in Kazakhstan to the capital of Tajikistan – Dushanbe. The length of the route is 2383 km and the associated transit time is about 12 days.

The route goes through the territory of Uzbekistan. Hence there are two BCPs to be crossed on this route, i.e. Beyneu (KZ)/Karakalpakiya (UZ) and Kudukli (UZ) / Pahtaabad (TAJ). Regular procedures at both BCPs are the handover of documents between railway administrations, a technical check of the train and a change of locomotives. As there are 2 BCPs, these procedures are done two times along this specific route.


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Aktau (KZ) – Tashkent (UZ) This railway link interconnects the port of Aktau in Kazakhstan to the capital of Uzbekistan – Tashkent. The length of the railway route is 2056 km, and the distance is covered in about 11 days.

There is one BCP involved along the route, at Beyneu (KZ)/Karakalpakiya (UZ) crossing. Regular procedures at both BCPs are the handover of documents between railway administrations, a technical check of the train and a change of locomotives.

Turkmenbashi (TM) – Bishkek (KG)

This railway route represents a theoretical alternative when transporting railway cargo from the Caspian Sea to Bishkek. Its length is 3150 km, and the transit time is around 16-17 days.

The viability of the route is undermined by the need to pass through three BCPs, i.e. Farab (TM) / Khodjadavlet (UZ), Keles (UZ) / Saryagash (KZ), and Chaldovar (KZ) - Kaindy (KG), as there is no direct link between the railways of Uzbekistan and Kyrgyzstan. Therefore, the train passes through the territory of Kazakhstan as well. This would mean that the regular


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train handover procedures between the administrations of national railways would take place three times.

Turkmenbashi (TM) – Dushanbe (KG) This link interconnects the western coast of the Caspian Sea to the capital of Tajikistan – Dushanbe, through the territory of Uzbekistan. Its length is 1900 km and the associated time in transit is 10-11 days.

There are two BCPs involved along the route, i.e. Farab (TM) / Khodjadavlet (UZ) and Kudukli (UZ) - Pahtaabad (TAJ). Regular procedures on the border include the handover of documentation to the railway administration of the next country, a technical check and a change of locomotive.

Turkmenbashi (TM) – Tashkent (UZ)

This link interconnects the port of Turkmenbashi to the capital of Uzbekistan – Tashkent. Its length is 1900 km, and the associated time in transit is 10-11 days.

There is one BCP involved along the route, i.e. Farab (TM) / Khodjadavlet (UZ). Regular procedures on the border include the handover of documentation to the railway administration of the next country, a technical check and a change of locomotive.


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III.4 Road links

Road links interconnect the port of Poti on the Black Sea to the port of Baku/Alat on the Caspian Sea. Following the journey with a ferry across the Caspian Sea, road links the ports of Aktau in Kazakhstan and Turkmenbashi in Turkmenistan to the capitals to Central Asian countries, as well as to China.

The road network of interest displayed above coincides at many stretches with the CAREC corridors, as well as with Asian Highways (AH), as described further below:


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In particular, the main road network in the TRACECA area coincides with the CAREC corridors and the Asian Highways as indicated in the following table:

Part of Asian Highways

Part of CAREC CORRIDOR

Azerbaijan Red Bridge (border with Georgia) - Gazakh - Tovuz – Ganja – Yevlakh – Kyurdamir – Mammed – Gazi – Alyat – Baku

~493 km AH5 CAREC-2

Georgia Poti – Senaki – Samtredia – Kutaisi – Zestaponi – Khashuri – Gori – Tbilisi – Ponichala – Red Bridge (border with Azerbaijan)

~445 km AH5

Kazakhstan Aktau – Beyneu ~70 km AH70 CAREC-2a Beyneu - Tazhen/Daut Ata (border with Uzbekistan)

~70 km AH63 CAREC-6a & 2a

Beyneu – Kulsari – Dossor ~342 km AH63 CAREC-6a Dossor - Makat – Sagis – Kandagach – Aktobe

~502 km

Aktobe – Khromtau – Qarabutaq – Aralsk – Novokazalinsk – Kyzylorda – Shymkent

~1,488 km

AH61 CAREC-1b

Chernyavka (border with Uzbekistan) - Shymkent – Taraz – Merke – Lugovaya - Chaldovar (border with Kyrgyzstan)

~434 km AH5 CAREC-1b (Chaldovar Shymkent only, 85 km) & 3a

Saryozek – Khorgos (border with China) ~217 km AH CAREC Kyrgyzstan Chaldovar (border with Kazakhstan, NW) - Kara Balta - Bishkek - Georgievka (border with Kazakhstan, NE)

~144 km AH5 CAREC-1c (Bishkek - Kara Balta - Chaldova only) and 3/3a

Bishkek – Tokmak – Kochkor - Naryn - Torurgart (border with China)

~557 km AH61 CAREC-1c

Khanabad (border with Uzbekistan) Jalal Abad - Bazar Korzon – Sargata – Kara Balta – Bishkek

~498 km AH7 CAREC-3 (Bishkek -Kara Balta) and 3b (Kara Balta - Osh)

Osh - Kara Suu (border with Uzbekistan) ~21 km AH7 CAREC-2 Sarytash - Sopu Kargon - Gulcha - Osh ~169 km AH65 CAREC-2 and 3b Irkeshtam (border with China, South) - Sarytash

~78 km AH65 CAREC-2 and 5

Jalal Abad - Kazarman - Baetov ~400 km - - Sulyukta (border with Tajikistan) - Isfana - Osh - Kyzyl Kaya - Batken

~380 km - -

Turkmenistan Turkmenbashi - Balkanabat – Serdar – Ashgabat – Tejen – Mary – Turkmenabad – Jalkym – Farap (border with Uzbekistan)

1,197 km

AH5 CAREC-2 & CAREC- 3a (Farap-Tejen only)


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Uzbekistan Kara Suu (border with Kyrgyzstan) - Khanabad (border with Kyrgyzstan)

15 km

Tashkent – Almalik – Angren – Kokand – Andizhan – Osh (border with Kyrgyzstan)

372 km AH7 CAREC-2

Alat (border with Turkmenistan) - Bukhara - Karmana – Navoi - Samarkand - Dzhizak - Dostlik Sirdarya - Tashkent - Chernyavka (border with Kazakhstan)

666 km AH5 CAREC-3a (entire length), 2 (Tashkent - Bukhara only), 2b (Bukhara - Alat) & 6b (North of Samarkand only)

Kanibadam (border Tajikistan) - Kokand ~58 km CAREC-2 Dzhizak - Dochtobob - Bekabad (border Tajikistan)

~125 km CAREC-2

Daut Ata/Tazhen (border with Kazakhstan) Oazis- Kungrad- Nukus- Bukhara - Qarshi - Guzar

1,195 km

AH63 CAREC-2a (West of Bukhara only) & 6a (entire length)

Samarkand - Penjikent (border with Tajikistan)

~52 km

The following figure illustrates the intensiveness of road traffic on the above-mentioned road network.


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Figure 42. Road traffic density on the CAREC corridors (Source: CAREC CPMM, 2014)

The border-crossing points with China are as follows:

• Khorgos (Kazakhstan) • Dostyk (Kazakhstan) • Kolzhat (Kazakhstan) • Torugart (Kyrgyzstan) • Irkeshtam (Kyrgyzstan) • Kulma (Tajikistan)


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In the context of exports from Ukraine to the Central Asian countries and to China, the following internal (between the TRACECA countries) BCPs are relevant:

• Red bridge BCP (Georgia/Azerbaijan) • Tazhen (KZ) – Daut Ata (UZ) • Farab (TKM) - Alat (UZ) • Yallama (UZ) - Konysbaeva (KZ) • Chaldovar (KZ) - Kaindy (KG) • Karasu (UZ/KG) • Samarkand (UZ) - Penjikent (TAJ) • Saraisiya (UZ) - Bratstvo (TJ)

These BCPs are illustrated on the following figure.

In the following sections, the transit times and distances of the road links involved is described.

Poti – Red Bridge (Georgia/Azerbaijan border) – Baku/Alat The total length of the road route is nearly 900 km, of which 373 km is in the territory of Georgia and 493 (up to Alat) is in the territory of Azerbaijan. The average journey time for a loaded truck is 7 hours in the territory of Georgia and 6-8 hours in the territory of Azerbaijan.


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The crossing of the border from Georgia to Azerbaijan takes place at the Red Bridge border-crossing. The waiting times for vehicles vary but usually are not sufficiently long to affect the overall transit time. However, occasional delays may occur due to the checks of goods in transit and lack of coordination among the involved parties (customs, inspections, etc.) on the Azerbaijani side. This gives rise to corrupt practices, whereby inspections and delays may be avoided by illicit payments.


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Aktau – Almaty – Khorgos (China’s border)

The road route interconnects the port of Aktau on the Caspian Sea with the border of Kazakhstan with China (Khorgos BCP illustrated on the following figure). The length of the route is 2847 km and the transit time is about six days.

No border-crossings are involved along the route.

Aktau (KZ) – Bishkek (KG) – border of China

This road route crosses the whole of Kazakhstan and crosses into Kyrgyzstan, to reach its capital – Bishkek (3213 km) and from there to the border of China at Torugart (507 km). An alternative way to reach Bishkek and Torugart is to cross into Uzbekistan, then to Kazakhstan again and then to Kyrgyzstan. The alternative is considerably shorter (2749km). However, the additional two border-crossings render the alternative as an unlikely choice for the drivers.


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Aktau – Bishkek via Kazakhstan takes up to 5 days to transit. One BCP is involved at the Kazakhstan – Kyrgyzstan border at Chaldovar (KZ) - Kaindy (KG). The leg from Bishkek to Torugart is about 507 km and is characterized with a difficult terrain. This leg takes up to 1 day in transit time.

Aktau (KZ) – Tashkent (UZ) – Osh (KG) – Irkeshtam (China’s border)

This road route is one of the theoretical alternatives for reaching the borders of China, from the port of Aktau in Kazakhstan, through Uzbekistan and Kyrgyzstan. The total length of the route is slightly over 2000 km, of which ~140 km in Kazakhstan (Aktau – Benyeu – Tazhen (KZ) / Daut Ata (UZ)), 1567 km in Uzbekistan (Daut Ata – Tashkent – Karasu (UZ/KG), and 268 km in Kyrgyzstan (Karasu – Osh – Sarytash – Irkeshtam (China’s border). Transit time is about three days, but could be longer, depending on the delays at BCPs involved.


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There are two BCPs involved in this route, i.e. Tazhen (KZ) / Daut Ata (UZ) and Karasu (UZ/KG). The operations at BCPs are irregular and may result in considerable delays without any obvious reason. The workers of BCPs work at their pace, while truck and car drivers, as well as pedestrians, often wait in the absence of any facilities.

Aktau (KZ) – Dushanbe (TJ) – Kulma (China’s border)

The route is one of the ways of reaching the borders of China from the port of Aktau, through Uzbekistan and Tajikistan. The length of the route is about 2400 km, i.e. 140 km in Kazakhstan (Atkau – Benuey – Tazhen (KZ) / Daut Ata (UZ)), 1278 km in Uzbekistan (Tazhen (KZ) / Daut Ata (UZ) – Samarkand (UZ) / Penjikent (TJ)), and 1019 km in Tajikistan (Penjikent – Kulma (TJ) / Karasu (China)). Transit time is around five days but could vary depending on the delays at BCPs.

There are two BCPs involved along this route, i.e. Tazhen (KZ) / Daut Ata (UZ) and Samarkand (UZ) / Penjikent (TJ). The operations at BCPs are irregular and may result in considerable delays mainly due to poor work organization.

Turkmenbashi (TM) – Bishkek (KG) – Torugart (China’s border)

A theoretical alternative to transporting freight from the Caspian Sea to the borders of China is by using the port of Turkmenbashi in Turkmenistan (rather than Aktau in Kazakhstan). This route links Turkmenbashi with Bishkek – capital of Kyrgyzstan, through the territories of Uzbekistan and Kazakhstan, and further to the border of China. The total length of the route is about 3100, of which 1197 km in Turkmenistan (Turkmenbashi – Ashgabat – Farap (TM)/Alat (UZ)), 616 km in Uzbekistan (Farap (TM)/Alat (UZ) – Yallama (UZ)/Konysbaeva (KZ)), 604 km in Kazakhstan (Yallama (UZ)/Konysbaeva (KZ) – Chaldovar (KZ)/Kaindy (KG)) and 590 in Kyrgyzstan (Chaldovar (KZ)/Kaindy (KG) – Bishkek - Torugart (China’s border). The transit time is about five days but additional time is required to pass the three BCPs.


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The BCPs along the route are Farap (TM)/Alat (UZ), Yallama (UZ)/Konysbaeva (KZ), and Chaldovar (KZ)/Kaindy (KG). Due to this fact, the route is an unlikely choice for haulers, as additional BCPs means additional waiting times, administrative burden and costs. In the case of Ukrainian drivers, none of the routes through Turkmenistan are attractive due to the visa requirements to cross the territory of Turkmenistan.

Turkmenbashi (TM) – Tashkent (UZ) – Osh (KG) – Irkeshtam (China’s border)

An alternative to the above-described route is to transport freight from Turkmenbashi port, via the territory of Uzbekistan and Kyrgyzstan and to the border of China. Firstly, this route is not going through Bishkek and crosses from Uzbekistan to Kyrgyzstan at another BCP. Secondly, one less country is transited (i.e. no transit through Kazakhstan), hence one less BCP is involved. The total length of the route is about 2550 km, of which 1197 km in Turkmenistan (Turkmenbashi – Ashgabat – Farap (TM)/Alat (UZ)), 1081 km in Uzbekistan (Farap (TM)/Alat (UZ) – Karasu (UZ/KG)), and 268 km in Kyrgyzstan (Karasu – Osh – Sarytash – Irkeshtam (China’s border)). The transit time is about four days. However, delays at BCPs may occur, making it very difficult to accurately predict the overall time in transit.


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There are two BCPs involved along this route, i.e. Farap (TM)/Alat (UZ) and Karasu (UZ/KG). The route is an unlikely choice for the haulers due to the unpredictability of waiting times at BCPs, as well as due to the visa requirements to enter and transit Turkmenistan.

Turkmenbashi (TM) – Dushanbe (TJ) – Kulma (China’s border)

The route links the port of Turkmenbashi to the capital of Tajikistan – Dushanbe, via the territory of Uzbekistan, and further with the border of China at Kulma BCP. The total length of the route is about 2800 km, of which 1197 km in Turkmenistan (Turkmenbashi – Ashgabat – Farap (TM)/Alat (UZ)), 590 km in Uzbekistan Farap (TM)/Alat (UZ) – Saraisiya (UZ)/Bratstvo(TJ)) and 990 km in Tajikistan (Saraisiya (UZ)/Bratstvo(TJ) – Kulma (China’s border). The transit time is about five days. However, the accurate transit time is difficult to predict due to uncertainty with delays at BCPs.

The two BCPs involved along the way are Farap (TM)/Alat (UZ) and Saraisiya (UZ)/Bratstvo (TAJ). The route is an unlikely choice for the haulers due to the unpredictability of waiting times at BCPs, as well as due to the visa requirements to enter and transit Turkmenistan.


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IV. Transportation costs

Transportation cost is a major variable in the transport network, along with the delivery time, the reliability of services, and safety/security. The alternative transportation routes through the TRACECA countries are historically characterized by high transportation costs, attributable to a multitude of causes, such as numerous border-crossing points, illicit payments along the route, limitations resulting from the state ownership of railway undertakings and so on.

Transportation costs in the TRACECA countries are dependent on the type of cargo transported, its volume, and the distance of transportation. Also, costs associated with the passage through ports and border-crossing points contribute to the overall transportation costs. Hence, from the perspective of the freight owner, the main components of the transportation costs are:

• Fares levied by transport operators (ferry, railway, road transport) • Cargo handling charges in ports, where change of mode takes place • Documentary compliance costs at border-crossings • Costs of inspections at the border (where ordered by the customs officials)

As the TRACECA routes go through two sea legs, ship call charges play a role in the transportation costs. However, these are usually included in the fare’s quotes by the respective ferry operators, i.e. the price for transportation by ferry is on an “all-inclusive basis”, except for additional costs in case of inspections by border services.

For the purpose of the present analysis, actual price quotations were sought from the transport operators in the countries concerned. These included road transport operators, port and terminal operators, railway freight forwarding companies and associations of freight forwarders and international road haulers.

The table overleaf indicates the “all-inclusive” rates charged by transport operators for transportation by ferry, road, and railway along the routes.

Routes: Cost of transportation (US$)

Road Length Transit

time (d)

Loaded TIR vehicle Loaded 40” container

(km) (up to 23 ton load) (up to 20 ton load)

Ferry lines:

Chornomorsk (UA) – Poti (GEO) 1048 km 1.5 US$ 1 500 US$ 1 120

Baku/Alat (AZ) – Turkmenbashi (TKM) 306 km 0.6 US$ 1 100 US$ 1 000

Baku/Alat (AZ) – Aktau (KZ) 450 km 0.8 US$ 1 300 US$ 1 200


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Road routes: Poti (GE) – Gardabani – Red Bridge (GE/AZ border) 373 km 1 US$ 450 “

Red Bridge – Baku/Alat (AZ) 521 km 1 US$ 650 “ Aktau (KZ) – Almaty – Kazakhstan/China border

3763 km 6 US$ 4 550 “

Aktau (KZ) – Bishkek (KG) - border with China

3700 km 6 US$ 3 900 “

Aktau (KZ) – Dushanbe (TAJ) - border with China

2383 km 4 US$ 2 900 “

Aktau (KZ) – Tashkent (UZ) – Osh (KG) - border with China

2056 km 3 US$ 2 500 “

Turkmenbashi (TM) - Bishkek (KG) - border with China

3100 km 5 US$ 3 780 “

Turkmenbashi (TM) - Tashkent (UZ) - Osh (KG) – border with China

2550 km 4

US$ 3 100 “

Turkmenbashi (TM) - Dushanbe (TAJ) - border with China

2800 km 5 US$ 3 400 “

Railway Length Transit

time (d)

Standard wagon (<17m)

Loaded 40” container

(km) (up to 62 ton load) (up to 20 ton load)

Rail-Ferry lines:

Chornomorsk (UA) – Poti (GEO) 1048 km 1.5 US$ 2 000 US$ 1 500

Baku/Alat (AZ) – Turkmenbashi (TKM) 306 km 0.6 US$ 850 US$ 507

Baku/Alat (AZ) – Aktau (KZ) 450 km 0.8 US$ 945 US$ 572 Railway routes: Poti – Gardabani – (GEO/AZ border) 373 km 2 US$ 780 US$ 530

Beyuk-Kyasik – Baku/Alat (AZ) 521 km 2 US$ 1 260 US$ 680 Aktau – Altynkol (KZ) – (KZ/border with China)

2847 km 15 US$ 5 900 US$ 2 300

Aktau (KZ) – Bishkek (KG) 3200 km 16 US$ 4 200 US$ 2 600

Aktau (KZ) – Dushanbe (TAJ) 2383 km 8 US$ 4 700 US$ 5 500

Aktau (KZ) – Tashkent (UZ) 2056 km 11 US$ 3 900 US$ 3 500

Turkmenbashi (TKM) - Bishkek (KG)

3150 km 16 US$ 5 500 US$ 4 300

Turkmenbashi (TKM) - Tashkent (UZ)

1900 km 10 US$ 4 600 US$ 2 500

Turkmenbashi (TKM) - Dushanbe 1900 10 US$ 5 500 US$ 3 500


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(TAJ) km Trans-Caspian International Transport Route (block-train service)

(Poland/UA border) - Izov (UA) - Chornomorsk - Poti (GE) - Baku (AZ) - Aktau (KZ) - Dostyk (KZ-China border)

6200 km 12 n/a US$ 3 980

In summary, as demonstrated in the following table, the following average rates per ton/kilometer are applicable to the transportation along the TRACECA routes:

Road transport

The costs of ferry transportation of trucks are as follows:

Route TIR truck Container Chornomorsk (UA) – Poti (GEO) US$ 0.06 US$ 0.05 Baku/Alat (AZ) – Turkmenbashi (TKM) US$ 0.16 US$ 0.16 Baku/Alat (AZ) – Aktau (KZ) US$ 0.13 US$ 0.13

Road transportation costs are in the range of US$ 0.046-0.054 per ton kilometer throughout the Caucasus and Central Asian countries, as follows:

Route Rate per ton/km Poti (GE) – Gardabani – Red Bridge (GE/AZ border) US$ 0.052 Red Bridge – Baku/Alat (AZ) US$ 0.054 Aktau (KZ) – Almaty – Kazakhstan/China border US$ 0.053 Aktau (KZ) – Bishkek (KG) - border with China US$ 0.046 Aktau (KZ) – Dushanbe (TAJ) - border with China US$ 0.053 Aktau (KZ) – Tashkent (UZ) – Osh (KG) - border with China US$ 0.053 Turkmenbashi (TM) - Bishkek (KG) - border with China US$ 0.053 Turkmenbashi (TM) - Tashkent (UZ) - Osh (KG) – border with China US$ 0.053 Turkmenbashi (TM) - Dushanbe (TAJ) - border with China US$ 0.053

Railway transport

The costs of ferry transportation on railway transport are as follows:

Route: wagon container Chornomorsk (UA) – Poti (GEO) US$ 0.031 US$ 0.07 Baku/Alat (AZ) – Turkmenbashi (TKM) US$ 0.045 US$ 0.08 Baku/Alat (AZ) – Aktau (KZ) US$ 0.034 US$ 0.06

The costs of transporting one ton of cargo along one kilometer varies in different routes being assessed i.e.:


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Route Rate per ton/km wagon container Poti – Gardabani – Georgia/Azerbaijan border US$ 0.03 US$ 0.07 Beyuk-Kyasik – Baku/Alat (AZ) US$ 0.04 US$ 0.07 Aktau – Almaty – border with China US$ 0.03 US$ 0.04 Aktau (KZ) - Bishkek (KG) US$ 0.02 US$ 0.04 Aktau (KZ) - Tashkent (UZ) US$ 0.03 US$ 0.09 Aktau (KZ) - Dushanbe (TAJ) US$ 0.03 US$ 0.12 Turkmenbashi (TM) - Bishkek (KG) US$ 0.03 US$ 0.07 Turkmenbashi (TM) - Dushanbe (TAJ) US $0.04 US$ 0.09 Turkmenbashi (TM) - Tashkent (UZ) US$ 0.05 US$ 0.07 Below, time-distance and cost-distance charts are presented, comparing the railway link from Chornomorsk to the border of China in Kazakhstan, via Georgia and Azerbaijan with the block-train from the border of Poland to the border of China in Kazakhstan via the same route.

Figure 43. Time-distance chart (Source: Consultant)

Figure 44. Cost-distance chart (Source: Consultant)


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As can be seen from the above chart, the TITR Noman Express block train travels a greater distance in fewer days and at less cost than the regular transport.


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V. Regulatory costs

Regulatory costs represent a part in the above-described transportation fares. Such costs are associated with the documentary compliance at the border, as well as the time needed for such compliance.

Doing Business records the time and cost associated with the logistical process of exporting and importing goods. Doing Business measures the time and cost (excluding tariffs) associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods.

The following table lists the import and export indicators in terms of Doing Business – Trading Across Borders assessment (data for Turkmenistan is not available).

Time to export Cost to export

Time to export

Cost to export

Export Border compliance

Border compliance

Doc. Compliance

Doc. Compliance

(hours) (USD) (hours) (USD)

Ukraine 26 75 96 292 Armenia 39 100 2 150 Azerbaijan 29 214 33 300 Georgia 14 383 2 35 Kazakhstan 133 574 128 320 Kyrgyz Republic 20 445 21 145 Tajikistan 75 313 66 330 Uzbekistan 112 278 174 292 Turkey 16 376 5 87 Russian Federation 96 765 25 92 China 26 522 21 85

Time to import Cost to import

Time to import

Cost to import

Import Border compliance

Border compliance

Doc. Compliance

Doc. Compliance

(hours) (USD) (hours) (USD)

Ukraine 72 100 168 212 Armenia 41 100 2 100 Azerbaijan 30 423 38 200 Georgia 15 396 2 189 Kazakhstan 2 0 6 0 Kyrgyz Republic 37 512 36 200 Tajikistan 108 223 126 260 Uzbekistan 111 278 174 292 Turkey 41 655 11 142 Russian Federation 96 1125 43 153


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China 92 777 66 171 Among the countries considered, the time to export indicator for border compliance of Ukraine is second only to Georgia and Turkey, while the cost of border compliance is the best. The documentary compliance on the other hand and the cost of such compliance in Ukraine remains quite high compared to other countries. This indicates space for improvement regarding procedures and bureaucratic issues associated with exports from Ukraine.

In terms of importing, as evidenced by the table above, Tajikistan and Uzbekistan are among the worst performers in terms of time needed for border compliance (over 100 hours), followed by Russia and China. Kazakhstan’s indicator cannot be considered as valid, as the assessment considers exporting a common commodity to the major trade partner, which in this case is Russian Federation. As there is an active customs union between these countries, the formalities take much less in terms of time and costs.

To determine the impact of the regulatory costs and time taken for compliance, indicators for the export of Ukraine have been put together with the indicators of import to the Central Asian countries and China in the following table:

Ukraine - Kazakhstan (export) Ukraine Kazakhstan (import)

Time Cost Time Cost

Domestic transport 5 h $ 300 84 h $ 1 595

Border compliance 26 h $ 75 2 h $ - Doc. Compliance 96 h $ 292 6 h $ -

127 h $ 667 92 h $ 1 595

Ukraine - Kyrgyzstan (export) Ukraine Kyrgyzstan (import) Time Cost Time Cost Domestic transport 5 h $ 300 5 h $ 80 Border compliance 26 h $ 75 37 h $ 512 Doc. compliance 96 h $ 292 36 h $ 200 127 h $ 667 78 h $ 792

Ukraine - Uzbekistan (export) Ukraine

Uzbekistan (import)

Time Cost Time Cost Domestic transport 5 h $ 300 2 h $ 58 Border compliance 26 h $ 75 111 h $ 278 Doc. compliance 96 h $ 292 174 h $ 292 127 h $ 667 287 h $ 628

Ukraine - Tajikistan (export) Ukraine Tajikistan (import) Time Cost Time Cost Domestic transport 5 h $ 300 3 h $ 433 Border compliance 26 h $ 75 108 h $ 223


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Doc. compliance 96 h $ 292 126 h $ 260 127 h $ 667 237 h $ 916

Ukraine - Georgia (export) Ukraine Georgia (import) Time Cost Time Cost Domestic transport 5 h $ 300 7 h $ 464 Border compliance 26 h $ 75 15 h $ 396 Doc. compliance 96 h $ 292 2 h $ 189

127 h $ 667 24 h $ 1 049

As demonstrated above, Central Asian countries are characterized by lengthy documentary compliance processes, as well as high costs.. Domestic transport plays a significant role in the case of Kazakhstan, due to the vast distances covered.

The overall indication is that the countries concerned, including Ukraine, shall continue working on relieving the trade and transport flows of unnecessary burdens, hindering the development of flows throughout the routes.

The complexity of exporting from Ukraine and importing to Central Asian counties can be seen by an illustrative example overleaf.

Complexity of exporting from Ukraine and importing to Central Asian countries

Characteristics Ukraine Kazakhstan Kyrgyzstan Uzbekistan Tajikistan Turkmenista Export Import Import Import Import Import

Product HS 72 : Iron and steel

HS 8708: Parts and accessories of motor vehicles




- Not available

Trade partner Russian Federation

Russian Federation China Russian

Federation China

Border Smolenskaya Oblast

Troizk border crossing

Kamyshanovka border crossing

Yallama border crossing

Dusty-Tursunzade border crossing

Distance (km) 335 2,300 55 60 71 Domestic transport time (hours)

5 84 5 2 3

Domestic transport cost (USD)

300 1,595 80 58 433

Documents required:

- CMR waybill Certificate of

- Import documents

- Import documents:

- Customs Import

- Bill of lading


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origin - Certificate of

quality - Sanitary and

Epidemiological clearance

- Contract VED

: Invoice - Waybill - Packing list

- Certificate of conformity

- Certificate of origin

- Customs import declaration

- DKD-delivery control document

- Document certifying cost of transportation

- Document certifying payment of customs fees

- Invoice - Invoice for

transportation of the shipment

- Packing list - Sales and

purchase contract

- Terminal handling receipts

- Transit declaration

Declaration - Certificate

of origin - Commercial

invoice - Packing list - Serial/code

numbers - CMR waybill - Certificate

of conformity

- Expert decision determining the code of the product

- Certificate of conformity

- Commercial invoice

- Customs import declaration

- Document confirming payment of customs fees

- Inspection report

- Packing list - CMR waybill - Sales

purchase contract

- Terminal handling receipts


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VI. Logistics performance

The assessment of the logistics performance in the countries concerned is based on the World Bank’s Logistics performance index. The following table presents a summary of International LPI scores in 2016, in the precedence of overall LPI ranking in 2016

Country LPI R

ank

(201

6)

LPI S

core

Cust

oms

Infr

astr

uctu

re

Inte

rnat

iona

l sh

ipm

ents

Logi

stic

s co

mpe

tenc

e

Trac

king

& tr

acin

g

Tim

elin

ess

Kazakhstan 77 2.75 2.52 2.76 2.75 2.57 2.86 3.06 Ukraine 80 2.74 2.3 2.49 2.59 2.55 2.96 3.51 Uzbekistan 118 2.4 2.32 2.45 2.36 2.39 2.05 2.83 Georgia 130 2.35 2.26 2.17 2.35 2.08 2.44 2.8 Armenia 141 2.21 1.95 2.22 2.22 2.21 2.02 2.6 Kyrgyzstan 146 2.16 1.8 1.96 2.1 1.96 2.39 2.72 Tajikistan 153 2.06 1.93 2.13 2.12 2.12 2.04 2.04

Kazakhstan ranks highest in the World Bank’s LPI assessment, followed by Ukraine, Uzbekistan, Georgia, Armenia, Kyrgyzstan, and Tajikistan. Kazakhstan’s high rank is determined by its high performance in all contributing parameters, except the timeliness of shipment. Ukraine scores better regarding timeliness but lags behind regarding the customs indicator. Uzbekistan seems to score well, albeit worse than Kazakhstan and Ukraine, in all indicators, except tracking and tracing, whereby Georgia and Kyrgyzstan score better.

The following chart graphically illustrates Ukraine’s scores vis a vis those of the TRACECA countries.


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Figure 45. Ukraine’s Overall LPI score compared to the regional neighbor countries

In conjunction with the above, the following charts illustrate the evolution of LPI’s major constituent scores (customs, infrastructure, international shipments, logistics competence, tracking and tracing, and timeliness) in Ukraine and other countries of TRACECA (2016 data not available for Azerbaijan).


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Figure 46. Overall LPI score

In terms of the overall LPI score, Ukraine’s position was improving according to 2010, 2012 and 2014 assessments, but the improvements were drawn back in from 2014 to 2016. As demonstrated further, Ukraine has dropped across all contributing indicators, except the timeliness, from 2014 to 2016.

In 2016, the customs performance indicator was reduced for Ukraine, Turkmenistan, and Tajikistan, while Uzbekistan seemingly has made considerable progress in streamlining the related processes, as evidenced by the following graph. Kazakhstan has also made considerable progress in improving the customs indicator, alongside Georgia.

Figure 47. LPI Customs score

Ukraine’s score in terms of infrastructure has dropped in 2016, along with Georgia’s, Tajikistan’s and Kyrgyzstan’s scores. Improvements were observed in Kazakhstan, Uzbekistan and Turkmenistan.


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Figure 48. LPI Infrastructure scores

All the countries performed quite poorly in terms of international shipments (ease of arranging competitively priced shipments), whereby only Kazakhstan’s and Uzbekistan’s scores improved somewhat.

Figure 49. LPI international shipments score

In terms of quality and competence of logistics services, slight improvements of the scores were observed in Uzbekistan and Turkmenistan, while drops were recorded in the scores of Ukraine, Kazakhstan, Tajikistan, Georgia and Kyrgyzstan.


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Figure 50. LPI Logistics services and performance

Improvements in the tracking and tracing indicators were made by Kazakhstan and Kyrgyzstan, while in other countries concerned, including Ukraine, the indicator scores have deteriorated, following a prior improvement trend.

Figure 51. LPI tracking and tracing score

Ukraine maintained a growing trend in terms of the timeliness indicator of the LPI assessment. Improvements were also taking place in Kyrgyzstan and Turkmenistan, while drops were recorded for Kazakhstan, Uzbekistan, and Tajikistan.


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Figure 52. LPI timeliness score

Overall, the LPI score of Ukraine is ranked at the 80th place, which is well above the rank of Russian Federation (99), but behind Poland (33), Turkey (34) and Egypt (49). The LPI assessment indicates that there is room for considerable improvement across all the constituent indicators. In other words, according to the LPI index, Ukraine performed at 53.83% of the top LPI performer in 2016, i.e. Germany.


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VII. Findings VII.1 Overall findings Trade (export)

In order to explore the potential of transport routes regarding their viability for export flows, it is necessary to understand the trade context and more specifically whether there are suitable commodities for trade along a specific route.

The analysis of export trends demonstrated that, in 2014-2015, exports to China from Ukraine were growing in the cereals and iron and steel commodity groups.

Exports of other base metals, aircraft and its components and electrical machinery and equipment grew in 2016, despite the difficulties in transporting those to China. Products of the milling industry, animal or vegetable fats and oils, as well as wood and articles of wood (including coal) were exported at levels slightly lower than in 2015.

Therefore, it can be reasonably assumed that there is demand in the Chinese part for the aforementioned products.

With respect to the exports to Kazakhstan, exports have decreased considerably in 2016. The exports of preparation of cereals commodity groups demonstrated a solid growth in 2014 and 2015, as did the cocoa and cocoa preparations group, prior to a drop in 2016.

Growth in 2016 was observed in the exports of meat and offal (+11.5%), dairy produce and eggs (+55%), as well as to a lesser extent pharmaceutical products (+3.7%). Sugar and sugar confectionary exports grew by 54% in 2015, and, despite the difficulties in 2016, still grew by another 10.3%. Hence, the increase of costs of exporting these via alternative routes proved marginal.

Therefore, these commodity groups are demanded in Kazakhstan and may be traded in the case of proper and adequate logistics conditions.

With respect to Uzbekistan, iron and steel commodity group exports were growing steadily in 2014 and 2015, and the drop-in exports in 2016 may be directly attributable to the recent developments in the regional transport context. Growth was observed in the export of pharmaceutical products (+23.8%) to Uzbekistan, as well as of miscellaneous articles of base metal (+67%) and optical and photographic equipment (+15%). Hence, these commodity categories may be well suited for the trade along the TRACECA routes.

In summary, cereals, iron and ore, sugar and confectionary, cocoa and cocoa preparations, meat, dairy produce and eggs, pharmaceutical products, base metals are the commodity groups with promising potential for trade with China and/or other Central Asian countries.


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Transport (export)

Maritime transport is accountable for the majority (57.7% in 2016) of Ukrainian export, followed by road transport (26.1%) and railway transport (26.1%).

Exports by rail to China were growing in 2015 but decreased in 2016. Ukraine exported 22 million tons of cargo to China in 2014 and 24 million tons in 2015, among which were over 21 million tons of iron ore and 2.5 million tons of grain. Export of these commodities dropped by 10 million tons (-48.7%) and 600 thousand (-24.3%) tons, respectively in 2016. Overall, more than 11 million tons of cargo’s export to China was lost in 2016.

Export of oil, wheat, and ore from the ports where berths are owned by Ukrainian State Ports Authority (USPA) to China was growing in 2014-2015, but dropped in 2016, except the export of vegetable oil, which grew in 2016 by 13%, reaching 514 thousand tons. Less significant growth was observed in the export of dry bulk and break bulk cargoes to China.

Therefore, a logical shifting trend from the railways to maritime transport is observed. In spite of the transit restrictions through the Russian Federation, the commodities demanded in China, such as vegetable oil, were finding their ways through other means of transport. Hence, provided sound logistics are available along the TRACECA route, these commodities can be transported by land transport.

VII.2 Regional transport context

A favorable geographic position and developed transport interconnections with the neighboring countries make Ukraine a significant player in the regional transport context. For the same reason, Ukraine is part of numerous international aimed at trade and transport facilitation and, in the case of European programs – broader socio-economic integration.

China’s evident pursuit of global trade leadership, demonstrated through its growing presence in key global ports and harbors, as well as ambitious, outward-oriented infrastructure development initiatives, will underpin the future growth of trade between EU and Asia in both directions.

China is actively using the maritime trade routes from it eastern coast to the ports of the North and Baltic Seas, the railway routes (container transport) through the Russian Federation and Belarus, and lately through Kazakhstan as well. At the same time, challenges for the overland transport routes from China via Kazakhstan, which Ukraine could potentially benefit from, are numerous and persistent.

One of the major challenges is the competition, i.e. the northern (China-Russian Federation-Belarus or China-Kazakhstan-Russian Federation-Belarus) transportation routes for the trade between China and Europe. The Customs Union of Russian Federation, Kazakhstan and


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Belarus allows the route to be crossed as a single customs territory, seamlessly, as opposed to the overland routes through Central Asia, which remains fragmented due to numerous border-crossings along the way. At the same time, the route through the Russian Federation currently functions at its maximum capacity – one of the possible reasons China is supporting the development of alternative overland routes.

Another challenge for the transportation flows, which could be directed through Ukraine, is the expected commissioning of the Baku-Tbilisi-Kars railway link, which will interconnect the railway systems of Georgia and Turkey, and hence will complete the whole railway route from Baku to Istanbul and Europe.

Lastly, as far as trade between EU and China is concerned, Romania or Bulgaria would seem better destination points than Ukraine, as crossing Ukraine would mean an additional customs territory on the way to Europe. Theoretically, this could be alleviated by establishing seamless transit procedures and utilizing the strong logistical capacities available to Ukraine, in the wake of the enactment of free trade with the EU.

On the other hand, when considering the Ukrainian exports, as the market tendency shows, only containerized flows seem relevant. Only in the case of container block-trains the comparative advantage of the overland deliveries to China may be realized, as regular wagon trains are subjected to multiple and lengthy stops at the border-crossing points. In contrast, the test runs of the “Nomad Express” (block train in the framework of Transcaspian International Transport Route, travelled from China to Georgia in 8 days) and the test block-train from Ukraine to China (reached China on the 16th days) demonstrated the technical readiness of the involved parties to facilitate the transit of container flows through their territories.

Block-trains from Ukraine to the Baltic Sea (“Viking” and “Zubr”) are well established and can be considered as successful examples of efficient logistics arranged across several countries.

Figure 53. The “Spaghetti Bowl” of Regional Organizations in Central Asia (Source: The Consultant)


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Overall, the route via the TRACECA countries lacks an ultimate integration approach. Some of the initiatives, where different TRACECA Member-States (in Central Asia particularly) participate, are overlapping and even contradictory. This results in a regulatory environment which is often referred to as “the Spaghetti Bowl).

VII.3 Transport sector of Ukraine

Ukraine faces numerous geo-political challenges both internally and externally, including an armed conflict in its eastern regions of Donetsk and Lugansk, coupled with increased competition among the transportation routes and corridors, particularly the maritime transport routes and overland routes through the territories of the Russian Federation, Belarus, and Kazakhstan.

Internally, reform of the transport sector has been ongoing for several years. Major milestones include the passing of the Law of Sea Ports of Ukraine, whereby the administrative functions of port authorities were separated from the operational functions of state-owned stevedoring companies. This particular reform (establishment of the State Port Authority and delineation of administrative and commercial activities in the ports), albeit complete, resulted in the centralization of decision-making at the level of Ukrainian State Ports Administration. This refers, among others, to the centralized procurement processes even for day-to-day consumables, such as fuel, which leads to operational inflexibility at times.

The ambition of the Government of Ukraine is to align the Ukrainian port sector with the European port sector from an institutional perspective. Therefore, there is a need to adjust


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the hybrid port management model towards a landlord9 model. This means that the following goals should be met in the near future:

• privatization of state owned operating companies; • simplification of the current legislation in order to limit bureaucracy and enhance the

investment climate; • harmonization of various laws which are applicable for direct foreign investments;

and • introduction of new procurement legislation which should enhance the participation

of foreign companies, in line with European tender regulations.

In general, the strategy of the current Minister of Infrastructure and the Cabinet of Ministers is decentralization and privatization. The declared aim is to transparently privatize those assets which are not effectively managed. For those assets which cannot be privatized, the aim is to improve the quality of management.

The incorporation of new joint stock companies based on integral economic complexes (usually on separate terminals) is also provided for in the Law on Sea Ports. The concession agreement is given priority for new investment based on large port infrastructure and separate ports. Privatization of infrastructure (except strategic infrastructure) is allowed. Infrastructure created with private investments will be considered as private property.

The most distinctive and liberal provision of the Law is the direct determination of free port service rates, including those for loading and unloading operations and other commercial services. The provision applies to all services, except those deemed to be natural monopoly services. However, not all stevedore business participants are ready to de-regulate port rates.

An effort was made for the establishment of a maritime administration, as a body responsible for the implementation of international standards in the maritime field. The respective draft law has been prepared and circulated for inter-departmental consultation. Reportedly, it is unlikely to move forward due to the opinion of the Ministry of Finance which rejects funding any additional jobs by the state budget, noting that the final version of the draft requires the hiring of about 140 additional personnel.

Institutional setup in transport infrastructure

The state-owned railway company – Ukrzaliznytsia – commenced its reform process years ago, when its status was changed to a Public Joint-Stock Company. A merger of 6 railway subsidiaries and about 40 undertakings took place. However, further reform is needed for the overall railway market functioning, rather than the corporate structure of the

T The World Bank / PPIAF port reform toolkit defines a landlord port where private ownership of infrastructure and superstructure, private regulation and ancillary services are allowed in the port, while the land remains state ownership. In contrast, “public service” and “tool” port models allow for little to none of private participation


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incumbent operators, such as the creation of the regulatory body, enabling private operators, etc. This process is stagnated due to bureaucratic issues.

The state-owned road asset management company – Ukravtodor – is also undergoing reform. For the time being, Ukravtodor is responsible for planning, tendering, construction and supervision of all road work in Ukraine, in obvious violation the concept of independent supervision. The reform process envisages the decentralization of the road asset ownership by dividing it in accordance with the road designations, i.e. the road of local importance shall be in the ownership and management of municipalities. Further, enabling the independent supervision was also envisaged, as was the streamlining of sources of financing the construction and maintenance works, as well as the transition to modern technologies and the introduction of concessions and toll roads. It must also be noted, that the private sector involvement in the construction/maintenance of the roads is virtually non-existent in Ukraine.

There are state-owned stevedoring companies in the ports of Ukraine, some of which (e.g. in Chornomorsk) compete very well with the private operators. Most of the ports in Ukraine can be described as a “hybrid model”, where private operators lease the port facilities from the port, but also there are full private ports (e.g. TIS group of companies), whereby the land is owned by private operators.

Although intended, state-owned operating companies cannot be privatized based on current legislation. In 1999 the Law of Ukraine “On the schedule of objects of state property which are not subject to privatization” established a list of state-owned enterprises which cannot be privatized. All current 13 Ukrainian sea ports are included in this list, and, therefore, they are currently prohibited for privatization. To be privatized, the ports need to be excluded from this list. The opponents of privatization insist that in an unstable political situation, in particular, where a risky military conflict exists, the privatization will lead to the full loss of state control over the strategic port infrastructure.

Infrastructure planning, construction, maintenance

Infrastructure-wise, an important issue which the transport sector faces is the complete lack of a coordinated approach to planning. This is to say that the concept of multimodality, for instance, is not considered when deciding on what to build – a road, or a railway, or both. In other words, the branches of state-owned companies come up with project ideas without consideration of other transport modes, which results in a situation where different modes are competing for the budget, rather than complementing each other. The issue is aggravated by the absence of a transport model, which could be used to estimate the transport demand in future and guide the development of infrastructure in locations using most appropriate modalities.

Another issue relates to the budgetary cycle in place in Ukraine. According to the prevailing practice, it is impossible to budget for anything beyond one year, meaning that the costs of maintenance works cannot be budgeted from the outset of a road project, for instance.


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When looking at infrastructure projects funded by external sources, several issues exist at the planning and implementation stages. International Financial Institutions (IFIs) and other international donors require a comprehensive set of documents to be elaborated for the final release of funds to commission the project. Such documents are usually different from the ones required under the legislation of Ukraine (in particular – analysis of options, environmental and social impact assessment, applicable construction standards, etc.)

In order to enable the application of international standards (e.g. standards of the German Institute for Standardization- DIN), the respective loan agreement must be ratified in the Parliament of Ukraine. This is a lengthy and cumbersome process, which oftentimes results in elaboration of two sets of documents – by the local standards, and by the standards of respective external funding bodies.

In February 2017, the Minister of Infrastructure announced the adoption of a resolution of the Cabinet of Ministers of Ukraine concerning the applicability of FIDIC10 terms of contract in the road projects funded by the non-budgetary sources. The intention is to deploy FIDIC terms of contract for all sectors of transport infrastructure, including the dredging works in the ports.

There is an ongoing attempt to enable concession projects in the transport sector in Ukraine, i.e. one of the named pilot projects for this is the planned concession of the ferry complex in the port of Chornomorsk. Seemingly, the law on concessions is in place and allows for such a mechanism to be deployed, but it conflicts with other legal acts of Ukraine, importantly those which prohibit the alienation of strategic facilities, such as berths in the ports and other legislation (land use etc).

Procedural issues

While the infrastructural and institutional issues are important, the interviewed respondents frequently cited procedural issues when asked about the main problems with transportation. In particular, it has been found that checks are initiated by various bodies active at customs crossings. During the period from 11 January 2016 to 16 February 2017, 378 inspections were initiated and carried out by the following bodies of law enforcement in the territory of Odessa region of the State Fiscal Service of Ukraine:

State body Orientations received

Inspections initiated by the body

Weighting procedures initiated by the body

Scanning procedure initiated by the body

State Security Service

83 257 3

National police 30 8 State Border Service

42 64 10

10 International Federation of Consulting Engineers


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State Fiscal Service

14 2 2

Interregional Target Centre

57 49

Total 226 378 15 2

Interestingly, all the above-listed inspections resulted in the completion of 1 single protocol on the violation of the Tax Code of Ukraine, which raises questions as to the efficiency and effectiveness of the inspections, as well as to their appropriateness and necessity in the first place.

The overall effect of such inspections can be traced in the release times of various freight flows in the ports, which for the period 01.11.2016 to 16.02.2017 on average were as follows:

Port Import Export Transit IM 40 EE Odessa 7 h 5 m 5 h 37 m 1 h 28 m 18 m Chornomorsk 1 h 35 m 31 m 17 m 24 m Chornomorsk (Rybnyi)

3 h 34 m 5 h 7 m 26 m 5 m

Yuzhnyy 3 h 37 m 28 m 13 m 32 m

The stated reason for the delay of the export flows was the fact that the goods being transported were subject to customs control procedures (e.g. forestry goods). Such control procedures (visual inspection, taking of samples, scanning, weighting) may take from 1 to 3 hours. This is due to the fact that the equipment of the port operator can only be used for control purposes (e.g. moving a container to the inspection site) once the vessels loading/unloading is complete. A similar explanation was given for the import flows, though no explanation was provided for the transit cargo processing delays, which should ideally not take longer than 20 minutes.

Operational issues

For the major exported commodities, the exporters rely mostly on railways to get their products to the export gateways, i.e. the ports. Most of the major producers of iron ore and other products have direct railway access at their production facilities. However, the problems occur in supplying the wagons (current deficit estimated at 10,000 units) and sometimes in the shortage of traction means (locomotives). This results in delays in gathering the cargo lots for loading on the ferry vessels in Chornomorsk for example, which effectively means that a ferry may be held at the roadstead until sufficient cargo is gathered onshore. In turn, this means that regular ferry services are very difficult to establish, which is one of the major issues with the export route from Chornomorsk.

The ferry operators cannot bunker their vessels in the ports of Ukraine nor in the ports of Georgia. Reportedly, the resulting diversion (to Romania for instance) results in 10-15%


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increase in the cost of the voyage, as well as in additional time required for vessel turnaround.

Ukrzaliznytsia recently retook the ownership of two rail-ferry vessels, which are currently undergoing maintenance works. It is the intention of the company to commission the two ferries on the lines between Chornomorsk and Poti/Batumi in Georgia. As Chornomorsk operates only two rail-ferry bridges, the commissioning of the new rail-ferry service may result in congestion at the rail-ferry bridge. This is even more likely in the case of Poti and Batumi, where single rail-ferry bridges are in operation.

On 11 January 2017, a draft order of the Ministry of Infrastructure was published online for a public consultation. Among others, the draft order includes provisions for indexation of the railway tariffs by 25% (cargo transportation) and deregulation of charges for the use of wagons which are in the ownership of Ukrzaliznytsia. It must be noted, that the cargo transportation tariffs were already increased by 15% in 2016. The increases are justified by the increased investment programme (wagons and tractions means) announced by the company.

The vast majority of heads of associations and unions of industrial producers oppose the announced increase in tariffs in the absence of the analysis of effects of previous rises. Reportedly, the cost of railway transportation in the final price of the industrial products amount to about 7% and in some cases to 10%. Hence, further increase of tariffs may aggravate the difficult economic situation of the enterprise, which, in turn, may decrease production as a result.

VII.4 TRACECA Railway Transport Physical issues

The TRACECA railway corridor is a multi-modal and a multi-country corridor, therefore its competitiveness depends a lot on the efficiency of the intermodal transport organization and harmonized cross-border procedures.

According to the EU-funded LOGMOS project (2014), the total length of existing railways in the TRACECA Corridor is over 5,113 km (Russian standard gauge of 1,520 mm):

• 1,005 km electrified; • 1,456 km double-track; and • 2,298 km single-track.

The main competitive disadvantages of the TRACECA corridor in its rail component are (1) two sea legs (the Black Sea and the Caspian Sea), which require ferry operations and (2) no access to South-Eastern Asia.


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One of the weakest points on the TRACECA rail corridors is the reliability of the transit times. Even local freight forwarders do not have basic information concerning transit time on the route between China - Kazakhstan and Azerbaijan and vice versa. This is due to the absence of accurate schedules for rail transport across the Central Asian countries, congestion originating from outdated infrastructure, and lack of rolling stock and other operational barriers.

Container transport is mixed with the regular wagon deliveries and, therefore, experiences additional delays (especially when sorting out/marshalling the wagons at different stations on the way). Moreover, in the majority of the TRACECA countries, the present freight transport systems are still based on the method of assembling and disassembling of freight cars at each freight yard, when trains are dismantled and recomposed depending on the cargoes’ final destinations. This is a cost-effective system for the supply side, but a very time-consuming system which decreases the time reliability of the overall service. Furthermore, the absence of coordination in the supply of the railway wagons to the ports between the railways of Azerbaijan, Turkmenistan, and Kazakhstan make the Caspian Sea ferry crossing time very unreliable. It is impossible to establish fixed schedules for the rail-ferries.

This so-called Silk Wind project is aimed at a significant reduction of transit time between China, Turkey and (Southern) Europe with a much-improved quality of services. The precondition for its realization is the elimination of the following missing links and bottlenecks along its route:

• Construction of new railway line between Georgia and Turkey (Baku-Tbilisi-Kars): this involves rehabilitation of the whole railway infrastructure from Baku to Kars;

• Modernization and extension of the port of Aktau, Kazakhstan.

The following figure illustrates the condition of the railway infrastructure in the region of interest, along with the World Economic Forum’s Global Competitiveness Index:

Figure 54. Global competitiveness index and rail infrastructure quality rankings of selected CAREC countries


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Some other physical barriers along the TRACECA railway network are:

• General obsolete condition of the infrastructure and rolling stock, shortages of rail cars, containers and locomotives; – Poor/outdated technology and low levels of security;

• Different gauges (Europe, Turkey, Iran, China – 1,435 mm, TRACECA corridor countries – 1,520 mm). The special facilities built for bogie change at border stations do not reduce the acuteness of this problem because the processing capacity of transfer points, which is generally too low, do not correspond to the traffic volumes. This results in congestion at the sorting yards;

• Out of gauge cargoes cannot be moved via the corridor through Caucasus due to the gauge restrictions (tunnels) as well as small radii of curves (200 m) and high gradients (up to 2.9%) in the mountainous sections which entails the loss of complete contracts for local operators;

• Different electrical systems on separate segments: 3 kV DC, 25 kV AC 50 Hz and a considerable amount of sections that are not electrified;

• Shortage of dual-system electric locomotives for use on both 3 kV DC and 25 kV AC networks causing operational problems;

• Different signaling and control systems: not all of the sections of the railway corridors are equipped with automated control systems;

• Only about a half of the rail corridor is double-track; • Shippers and consignees have no access to information about the location of their

shipments, for there is no unified information system enabling users to track/trace their cargoes (some countries started implementing automated information processing methods, e.g. Georgia);

• At the Poti, Baku, Turkmenbashi and Aktau seaports there are always risks that suitable and sufficient rolling stock may not be available when needed;


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• Train speed limits: the maximum freight train speed varies on average from 60-80 km/h. On some sections in the Caucasus, due to infrastructure conditions, the train speed is limited to 20-40 km/h;

• Transshipment of containers between different modes of transport causes significant time delays

• The shortage of flat container trailers and vehicles is frequent.

Non-physical barriers

Non-physical barriers are the most significant obstacles to the development of rail cargo transit in the region and cause serious delays in cargo delivery. Wasted time not only results in loss of money and customer trust but also ruins the main (in fact the only) competitive advantage land transit has over sea transit – shorter transit times.

Non-physical barriers are mostly related to the intermodal connections with two sea legs and multiple border crossings. To a large degree, these barriers have an operational character, are ‘manmade’ and can be removed through ‘soft measures.’ Such operational barriers mainly consist of complicated customs procedures at border crossing points, which significantly increase waiting times for vehicles and rolling stock (e.g. random inspections that require sealed transit containers to be opened). Users also report major difficulties and delays on boundary railway stations due to bad and untimely coordination between the railways, the customs, the forwarding agents and the customs brokers. Also, the tremendous number of documents required and long registration procedures with numerous state (and highly bureaucratic) agencies contribute to more difficulties and delays.

Administrative rules and documentation (including customs and railways operators) are not clear. They are subject to unpredictable change and differ from one country to another. Access to relevant information is not easy, even for local enterprises.

Border crossing by rail in the TRACECA region goes together with complex operational processes and procedures. Several countries within the TRACECA railway corridor are actively working on the improvement of their customs procedures and introducing modern automated systems for customs clearance and centralized cargo management.

Projects for the reconstruction of the customs checkpoints in accordance with best international practices, e.g. integrating the ‘single-window’ concept, were ongoing in Armenia, Azerbaijan, Georgia and Kazakhstan. In order to improve the control of delivery, the processing of cargoes and to simplify customs clearance control, Uzbekistan started to operate a Unified Automated Information System to control delivery and processing of cargoes with a special application for railways (UAIS-Railways).

Another non-physical barrier is non-harmonized transit tariffs. Despite the unified tariff policy being applied across the CIS, variations in the funding of railways and the different methods used to calculate freight tariffs have resulted in significant fluctuations in transport costs. Obtaining quotations for transport costs is a difficult and time-consuming process.


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Illegal/informal payments vary and cannot be budgeted. For instance, carrying a 20” container from Poti to Baku (863 km) with general cargo costs USD 569, while the rail tariff from Aktau to Almaty (2,910 km) is only USD 793. In addition, the wagon handling/transit costs differ greatly between the ports: e.g. USD 230 wagon at Poti, USD 70 at Baku, USD 600 in Aktau (MoS Feasibility study). Freight forwarders operating in the region indicate that tariffs are also subject to sudden changes and sometimes the rail tariff inconsistencies are observed within one country.

Costs are altogether higher than in other corridors in particular with rail tariffs. For example, transportation of a 20” container by Trans-Siberian railway from Shanghai to Moscow cost US$ 3585, with a delivery time of 15 days. Travel times are not fixed because they depend upon too many transport operators. Therefore, dates of delivery of cargo to the consignees cannot be scheduled accurately. Low reliability of service and high risk of damage and theft (known cases in Ukraine, Kazakhstan, Tajikistan) of the cargo (multiplied by the very long distances to be covered) reportedly are the current reasons that negatively affect the shippers’ decision to transport their cargoes by rail in the TRACECA region. Cost is yet another factor, albeit reportedly less important.

Regulatory issues

Development of the railway transport between Central and Western Europe, and the Eastern Europe and China is being restrained by the presence of fundamental distinctions of provisions of two different international transport law systems: SMGS/OSJD and CIM/OTIF. Contracts for international railway freight transportation are being regulated by CIM for the states of Western and Central Europe and by SMGS in Eastern Europe and China. These statutory acts are based on different legal systems.


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CIM/COTIF and SMGS/OSJD applicability

The regime of liability of the SMGS differs from the CIM’s one. Otherwise, it is used exactly in the same way as far as customs’ clearance of the goods is concerned. In an effort to make the CIM and SMGS consignment notes legally interoperable, the International Rail Transport Committee (CIT) and the OSJD are working on the implementation of a comprehensive contractual framework to allow goods to be moved simply in administrative terms but with complete legal certainty. The CIT and OSJD are coordinating their work closely with the UNECE. A further step towards the consolidation of the legal interoperability has been taken with the set-up of the Special Conditions of CIM/SMGS Liability (SC CIM/SMGS). These are standard provisions for liability in case of the loss of or damage to the goods.

The aim of the common CIM/SMGS railway consignment note is to simplify and shorten transit and border-crossing procedures, as there will be a single transport document recognized by all customs services, covering the whole stretch of the carriage from origin to destination through, from and to countries using either SMGS or CIM. The performance of customs clearance could therefore be made on the basis of this common railway note instead of either SMGS or CIM waybill, regardless of the country of final destination in OTIF or OSJD areas.

Another objective of the joint CIT/OSJD effort is to extend the application of the common consignment note CIM/SMGS in practice, in particular for the transcontinental transportation between Europe and China in transit through Kazakhstan on the Great Silk Rail Road. This will allow shippers to (i) save time due to the reduction of container idling and related demurrage at border stations, and (ii) help reduce transportation costs. The client is usually charged for re-issuing the CIM consignment note in place of SMGS note for each shipment at border stations. The introduction of the CIM/SMGS common consignment note will eliminate these extra payments.

In Ukraine, thanks to the work carried out for many years in implementing modern EDI with all neighboring countries , the use of the single CIM/SMGS consignment note is somewhat an old story already as it has been increasingly used for the consignments shipped on the fast transit railway lines crossing the country from West to East and South to North (e.g. Viking from Chornomorsk to Klaipeda via Minsk reportedly travelling at 890 km/day in


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Ukraine, Romania to Russia - 920 km/day, Czech Republic and Slovakia to Russia – 1,300 km/day). Recently, negotiations have been ongoing between Ukraine and Georgia to enable the transportation by CIM/SMGS note across the Black Sea to the Georgian ports.

Rail tariff policies In the TRACECA countries, rail transit tariffs are set according to the so-called MTT (Russian abbreviation for International Transit Tariff) scale, which is revised twice a year within the OSJD forum. These scales are still partly based on the outdated costing methodologies dating from the Soviet centralized planning era. They allow heavy discounts, which compensate to some extent the lack of rational costing, and give the railway companies some commercial flexibility. It is, therefore, a common practice to have a differentiated tariff structure: a tariff for international movements and a tariff for domestic movements that is largely discounted (sometimes 1/3 of the international tariff). In general, high transit tariffs appear to cross-subsidize domestic traffic. Altogether, however, there is no consensus between the TRACECA countries on tariff matters and rebates to be applied for transit cargo.

The cost of delivery of goods on the TRACECA rail corridors is often dependent on the distance, the shipment size and the nature of cargo. It is also highly dependent on the number of countries involved in the cargo delivery, the number of borders to cross and the bilateral agreements between the countries. The parties within TRACECA signed an agreement (Technical Annex on the development of multimodal transport) relating to certain benefits including reduced tariffs (e.g. up to a 50% discount on rail freight and ferry transportation of empty wagons); and abolishment of taxes and fees on transit cargoes. Since no fixed discount on tariffs has been agreed upon, (unlike the agreement concerning the VIKING train from Ukraine to Lithuania) the provisions of this Appendix are not binding. As a result, although this agreement is in effect as of 23 November 2011, in practice the composition of the rail tariff in various countries on the TRACECA corridor remains opaque and is subject to changes on short notice.

Furthermore, neither Kazakhstan nor Turkmenistan (the main TRACECA-region railway transit countries on the Central Asian shore of the Caspian Sea) is a party to the Agreement on Multimodal Transport Development (Technical Annex to MLA). Fluctuating tariff is the general concern of all railway operators and freight forwarders in the region. This makes it nearly impossible to forecast prices for the mid- and long-term. The lack of coordination between the TRACECA beneficiary countries on railway tariff harmonization matters is one of the significant constraints for the competitiveness of the corridor. It is important to quote non-discriminatory prices (rather than preferential tariffs to a select few) to the clients transparently and providing competitive prices that are within market limits. In general, container rail transport in the TRACECA countries remains very expensive. There is a large gap between the tariffs for the carriage of the same goods in wagons in bulk or breakbulk and on platforms in containers (the latter being 2 to 4 times more expensive).

Moreover, there is no single operator which can quote and guarantee a price all along the corridor. State railways give rail tariff rates only for carriage on national wagons and platforms. Georgian Railways, for instance, are unable to guarantee the availability of


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wagons belonging to Central Asian countries at the time of shipment from Georgian ports. The rates from Georgia to Central Asia are based on the use of Georgian wagons, which include the return of the empty wagons to their depots in Georgia.

Reportedly, the delivery of services by the railways in most countries very often also requires illicit payment to expedite customs clearance or to obtain wagons in time, suitable condition and sufficient number. This significantly increases the final transport costs. Besides, the delivery time at the final destination (including the description of available technical facilities) and liability of the various parties involved along the transportation chain remain unclear for the users. The set-up of a unified easy-to-use transit tariff is one of the key issues in the creation of a competitive route.

In summary, the key issues to be addressed to improve the attractiveness of the TRACECA rail network are:

• lack of common basis between railways for calculation of the tariff; • lack of coordination between railways to change the level of tariffs; • differences between domestic, international and transit tariff levels; • lack of coordination policy for discounts except to some large freight forwarders,

which therefore have exclusive access to such discounts • differences of tariff levels for wagons and containers;

Road transport

The institutional frameworks governing the road sector varies among countries of the TRACECA corridor:

• Except for Georgia, which has made considerable progress in involving the private sector in road maintenance; in most countries of the project area, road maintenance works are still carried out by public entities.

• Generally speaking, the road networks of all countries of the TRACECA route have been gradually deteriorating during the last two decades. Although some of the main roads are being modernized, the secondary and local roads have continued deteriorating and are often in a very poor state;

• The public authorities in charge of the management of the road network face two important challenges; on the one hand, they must find ways to significantly increase the resources dedicated to the road sector; on the other hand, they must modernize and reorganize the public entities in charge of the management of the road network;

• In all countries considered, there is an urgent need to strengthen the planning and programming capacities and develop a comprehensive and up-to-date “Road Asset Management System”.

The total length of the TRACECA roads (Moldova, Ukraine, South Caucasus, Central Asia) is about 19,860 km representing 43% of the main road network in these countries. The regional breakdown is as follows:


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• Central Asia: 14,400 km, equivalent to 49% of the length of the main network in Central Asia;

• South Caucasus: 2,990 km, equivalent to 59% of the main network in South Caucasus;

• Ukraine / Moldova: 2,470 km, equivalent to 21% of the main network in these two countries.

There are seven sea ports along the TRACECA roads in the project area, with ferry crossings. They are: Aktau (Kazakhstan) and Turkmenbashi (Turkmenistan) on the eastern side of the Caspian Sea; Baku (Azerbaijan) on its western side (plus the new port of Alyat under construction); Poti and Batumi (Georgia) on the eastern side of the Black Sea; and Chornomorsk and Odessa in Ukraine on its western side.

There are 46 inland Border Crossing Points (BCPs) along the TRACECA roads in the project area:

• 23 in Central Asia of which five are with China, five with Afghanistan and 13 between Central Asian countries;

• 14 in South Caucasus of which one is with Iran, four with Turkey and nine between South Caucasus countries;

• Nine in Ukraine / Moldova of which two are with Poland, one with Hungary and one with Slovakia and two with Romania, and the rest between Ukraine and Moldova.

Out of the 19,860 km of TRACECA roads within the project area, 14,290 km, equivalent to 72% of the length of the TRACECA roads, are at the same time Asian Highway (in Central Asia and South Caucasus) or Pan-European corridors (Ukraine and Moldova). In the six countries of the project area participating in the CAREC Programme, there are 11,900 km of TRACECA roads, of which 9,900 km, equivalent to 83%, are also CAREC corridors. The CAREC programme has thus a considerable impact on the TRACECA road network.

Road transport is also prone to the risks of theft and other crime. In Central Asia, there are known cases of cargo theft from secured and unsecured parking lots and even during the movement of a vehicle through areas where the travel speed is low due to the poor condition of the road surface. There are also known cases of theft at BCPs during inspections and checks, when the loading compartment has to be opened.

Ferry services and port dues

The main contributor of the low attractiveness of the TRACECA routes is the existence of two sea legs along the way. While the sea legs currently support multimodal operations (road and rail onto/off the ferry), the time, costs and procedures associated with the change of mode of transport have an adverse effect on overall logistics performance.

The Caspian Sea is one of the major bottlenecks on the TRACECA route. Adding to the usual hazard of the voyage by sea, the lack of coordination between the different transport modes, mismanagement of the existing port infrastructure, missing port infrastructure and


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nontransparent port-transit price formation make the Caspian Sea one of the most unreliable supply chain segments in the TRACECA corridor.

Ferry lines are also subject to different port dues along the way. In Georgia, for instance, both in Poti and Batumi the functions of the ports administration is vested with private operators. In Baku and Aktau, state-owned entities are in charge of setting the port dues. The following table includes a comparison between the port dues along the TRACECA route:

in thsd. USD per call of a rail-ferry Chornomorsk Poti Batumi Baku Aktau

Port charges for 1st (2nd ship calls) 10.9 (2.4) 11 10.5

4.9 2.8

For further ship calls during the year 2.4 Additional services 3.6 6.5 7.5 Cost of ship call (2nd ship call) 14.5 (6.0) 17.5 18.0

Poti and Batumi ports seem by far the most expensive ones along the considered route. Commissioning of the new port of Anaklia (preliminary studies concluded in 2017) may result in increased competition in the future which will, in turn, compel the port authorities to lower the applicable dues.

Port dues for container vessels

At the same time, when considering the transit potential, port dues applicable to container vessels shall be looked at (container vessel dimensions: 212Х32Х16m):

As can be seen from the table above, the container vessel call costs are substantially higher than in Constanta (Romania), Novorossiysk (Russian Federation), St. Petersburg and Burgas (Bulgaria). At the same time, these costs in the port of Ukraine are comparable to Riga (Latvia), Ventspils (Latvia), Tallinn (Estonia), and Klaipeda (Lithuania).

Port Port dues and fees in thsd. US$ Chornomorsk (Ukraine) 37,0 Odessa (Ukraine) 34,6 Yuzhnyi (Ukraine) 43,8 Constanta (Romania) 10,6 Novorossiysk (Russian Federation) 9,9 Saint Petersburg (Russian Federation) 15,5 Burgas (Bulgaria) 19,5 Riga (Latvia) 40,0 Ventspils (Latvia) 36,9 Tallinn (Estonia) 33,6 Klaipeda (Lithuania) 43,4


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The port fee setting is subject to government regulation11 in Ukraine, while the terminal handling charges are liberalized and set at the discretion of the terminal operators, whether public or private.

In 2016, the share of state-owned stevedoring companies processed 37.1 million tons of cargo, while their share in the total throughput declined by 4.3% in 2016 (overall throughput of state-owned stevedoring companies accounted for 30% of total processed volumes in 2016). This included 33% of total transit (-2.7%), 27.3% of exports (-2.6%), 28.5% of import (-8.3%) and 77.7% of cabotage (-9.9%)

At the same time, the top-10 private operators processed 47.8 million tons (-4.6%), or 39.7% (+1.7%) of total cargo throughput in the ports of Ukraine in 2016. This included 27.4% of total transit (+5.3%), 40.3% of export(-1.2%), 53.0% of import (+5.5%) and 14.7% (+12.5%) of cabotage.

11 Odder of the Ministry of Infrastructure of Ukraine no. 316


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VIII. Recommendations

This study identified several issues associated with transport in Ukraine and more broadly in the region. In the wake of the geo-political pressures, Ukrainian producers are compelled to search for alternative ways to export their produce to the markets of Central Asia and China and to seek and develop new markets on the European side.

The main challenge that Ukraine is facing at the moment is a sharp decrease in transit through its territory and the restricted access to the territory of the Russian Federation for eastbound trade, especially exports. Facilitating exports through a better utilization of the transport capacities is one of the foremost priorities of the Government of Ukraine.

Based on the findings of this study, recommendations for action on national and regional levels are provided.

VIII.1 In Ukraine

To facilitate export, better transport infrastructure is required within Ukraine. An infrastructure planning approach, supporting the multimodal transport, shall be established to replace the current approach, where every mode of transport competes for a share of the national budget. Hence, a transportation model shall be developed to allow for a well-planned development of the transportation system, considering all modes of transport in their entirety, rather than in isolation.

Tendering for the construction of new infrastructure (road for instance) is often carried out by the same entity, which also acts as a construction supervisor at a later stage. This is contrary to the best international practices (FIDIC terms of contract) and may result in collusive practices and lack of transparency during the process of infrastructure development. In addition, there is little sense in developing new infrastructure when the existing one cannot be maintained properly due to the lack of funds. Therefore, the costs of, and approaches, to the maintenance of the infrastructure shall be specified from the outset of the project. This is currently impossible to achieve due to the existing budgetary cycle, which does not allow for planning expenditure beyond the period of one year. Deployment of FIDIC terms of contract in all infrastructure fields may alleviate these issues.

The application of international standards in the field of infrastructure construction shall be supported in Ukraine. The existing standards (SNiPs and GOST) do not correspond to the international standards and often hamper the infrastructural development, in particular when funds of International Financial Institutions are concerned. The documentation of an infrastructural project as required by the applicable standards falls short of or does not correspond to, the best international practices in terms of options analyses, environmental impact assessment, stages of detailed design etc. Harmonization of practices with the


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European/international ones shall be advanced further by legal approximation as outlined in the EU-Ukraine Association Agreement.

Involvement of private sector in the infrastructure development shall be expanded. The existing law on concessions reportedly cannot be implemented due to conflicting provisions with other laws of Ukraine (on land use etc). A comprehensive legal assessment is therefore required to ensure the applicability of the law on concessions, in line with the European legislation principles and in compliance with the EU-Ukraine Association Agreement. Specifically, with respect to the law on concessions, it is recommended to carry out a detailed regulatory assessment with a view to eliminating any conflicting provisions in other pieces of legislation.

With respect to the planned concession of the ferry-bridge in the port of Chornomorsk, as well as any other planned concessions in the ports of Ukraine, it is critical that the government of Ukraine retains the functions of port administration (setting of port charges, such as canal dues, tonnage dues, etc).

Institutional strengthening shall continue in the transport sector of Ukraine in line with best international and European practices. In particular, efforts shall be made to finalize the establishment of a regulatory body (e.g. Maritime Administration) in charge for the implementation of international standards in the maritime sector. The implementation of such standards shall be given utmost priority, as it greatly affects the perception of the international transport community and has a direct impact on the attractiveness of Ukraine as a transport and transit destination.

Inefficiencies in the operation of state-owned companies (such as stevedoring) shall be addressed and eliminated. This refers to the issues of adequate staffing, as well as price-setting by such entities. The disparity of interests between the public sector involved in stevedoring business and the private sector shall be eliminated. One way to achieve this is the privatization of the state-owned stevedoring companies, as well as the involvement of successful global operators, oriented at profiting from increased cargo throughput, rather than from high fees collected from less turnover.

Lack of railway rolling-stock has a considerably adverse effect on the major producers in Ukraine. The deficit of semi-wagons is currently assessed at 10 000 units. There is a lack of container fitting platforms and other rolling stock, as well as of traction means (locomotives), most of which are well beyond their design lifespan. The incumbent railway company is apparently attempting to address the issue through another increase of tariffs, amid doubts from the industry as to the purposefulness of such an increase. The tariff-setting methodologies on the railway lack transparency and cross-subsidies (between freight and passenger transport) still exist. Alternative sources of financing shall be sought, and transparency of railway tariffs shall be improved.

Unnecessary checks and delays, particularly with the export and transit flows, still exist in the ports of Ukraine. Such checks are often a means of rent-seeking from the inspection bodies or artificial hampering by others (some of them unrelated to trade or transport as such). To address the issue, procedural aspects (especially those related to customs and


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technical controls) need to be streamlined, in particular, the implementation and enforcement of the existing legislation and procedures shall be ensured.

Logistics capabilities shall be improved to allow for the amassment of freight in freight villages and/or logistics centers, particularly to enable efficient rail-ferry and Ro-Ro connections across the Black Sea. Currently, a vessel may be waiting at a roadstead for a few days until sufficient freight is collected on the shore. This results in a severe unreliability of such links across the Black Sea.

Alternatively, creation and promotion of industrial parks shall be considered in the south-western part of Ukraine, which benefits from the direct sea access, as well as hinterland connections with the EU. By providing certain tax reliefs and ensuring a stable investment climate (investor protection), such parks may act as additional gravity points for trade and transport flows.

The international image of Ukraine as a reliable transportation and transit hub shall be enhanced. The reliability and quality of services have a significant impact on the attractiveness of the route. Ukraine shall aim at promoting a success story, composed of an investor-friendly environment, high level of predictability regarding state fees and dues, robust logistics capabilities and value-adding services. These shall all be instituted and transparent for the international transport community. One way of achieving this is aiming at addressing areas for improving rankings in global indices, such as World Bank’s Doing Business (including Trading Across Borders) and Logistics Performance Index.

VIII.2 In TRACECA

The ancient Silk Route, currently referred to in numerous Eurasian trade and transport initiatives, was characterized by fragmentation and remains so to date. On a global scale of things, the countries which are positioned along the Silk Route are responsible for their respective territories and lack a general integration approach in practice, despite numerous international and regional agreements concluded to facilitate trade and transport along this route.

Merely regarding a geographically aligned range of countries as an international transport corridor is no longer sufficient in the modern world. Rather, such corridors shall be regarded as supply chains, competing among themselves at the level of logistics performance.

In this context, the overarching recommendations that can be given at a TRACECA-wide level fall into the following main attributes of corridor development;

Integrated management

Modern supply chains are under constant control which is usually carried out by high-level logistic providers acting on behalf of the focus companies of the supply chains. The entire logistic network within the supply chain is constantly customized according to the market


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situation. Functions, costs, responsibilities and risks are distributed among the players and planning is done across the supply chain according to the strategic interests of the whole system.

In the context of TRACECA, electronic data interchange (EDI) among all the participating countries should be one of the priorities for development. Uniform rules and terms of carriage for the multimodal transport shall be developed in a coordinated manner. Check and inspection procedures at border-crossing points shall be streamlined and harmonized. Overall, the activities in the TRACECA region shall be aimed at a concerted effort to reduce the fragmentation caused by numerous borders. This also includes the further effort to deploy the CIM/SMGS consignment note throughout the corridor.

On the other hand, commonly agreed harmonized transit tariff policies shall be put in place by railway administrations of the TRACECA countries. The pre-agreed tariffs shall be non-discriminatory and shall be publicly available and applicable for fixed periods of time, hence improving the reliability of the whole transportation chain.

Integrative approaches shall be used to improve cooperation between the counterpart services at border-crossing points with a view to decrease the waiting times at the borders of TRACECA Member States and improve throughput capacities.

Transparency and reliability shall be promoted by making the information on transit times and costs publicly available, possibly through a common web-based portal.

Cross-border cooperation shall be improved with respect to the coordination mechanisms to ensure the availability of railway rolling stock.

Flexible routing

While the traditional supply chain is something like the fixed sequence of nodes and links between the origin and destination points, the modern supply chain looks more like a network connecting the regions where commodity flows originate and are absorbed. The actual routes can vary within this network depending on the changing situation on the commodity markets served by the supply chain and on the transport services market.

In TRACECA, active works shall continue to involve Turkmenistan in the development of alternative routes such as through the port of Turkmenbashi. In addition, the implementation of the Agreement on Development of Multimodal Transport (Annex to the TRACECA Multilateral Agreement) shall be further promoted to include Kazakhstan and Turkmenistan in their capacity of transit territories.

This will ensure the diversification of the transportation routes and hence their attractiveness, namely through alleviating the congestion in potential bottlenecks along the TRACECA routes, i.e. the ports and the border-crossing points.

Regarding road transport, a political dialogue shall continue to alleviate the visa requirements for the access of Turkmenistan’s territory to allow flexible routing on the road transport as well.


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Apart from the above, in the framework of TRACECA, opportunities shall be explored to develop interconnections in the direction of India and other countries of southeast Asia.

Special role of nodes

Nodes of traditional supply chains – sea and inland waterway ports, railway stations, etc., had always performed the obviously necessary connecting and transshipment functions within the supply chains. At the same time, traditionally, they also created inevitable obstacles for traffic and cargo flows, sometimes being the bottlenecks within the supply chains.

“Traditional” node is the spot where the flow of vehicles and commodities is interrupted, and players that have to cooperate in the resumption of this flow often have contradictory interests. Some local players – both state agencies and commercial intermediaries - pursue pure revenue goals. The procedures are often aimed not at speeding the process but at collecting more fees (formal and sometimes informal). The scarcity of resources is a typical system problem and long enough waiting time for cargo - either onboard the vehicles or in the warehouses - is a rule. Different types of cargo are handled which aggravates the problems. Additional services adding to the total value of goods are rare. The market position of the “traditional” node is often a monopoly since it gains an advantage, primarily, due to its geographical position.

Nodes of modern supply chains are quite different. Supply chain connectivity and fastening of flows is the main goal for the players in charge, including the governmental agencies. Fast and cheap transshipment is the main efficiency factor. The technologies used are focused on intermodal units, primarily – containers. Handling operations are complemented by value-added logistic services. Nodes compete because their main advantages – services quality and price as well as the set of transport services catering for particular node – do not so much depend on the location factors.

Along the TRACECA routes, the ports of Baku and Aktau do not have adequate capacity for handling large volumes of trade and transport flows. The modernization of both ports is ongoing. However, for the moment, Aktau remains a weak link in the chain, due to the availability of a single rail-ferry bridge. Poti and Batumi port in Georgia also may become a bottleneck due to single rail-ferry bridges available. While the construction of the new deep-water port in Anaklia may alleviate the problem, at the moment, this limitation results in waiting times for vessels.

The fees charged by the port administrations in these ports are often not based on competition, but potentially on collusive practices, especially in the case of Poti and Batumi, which are in private management and/or ownership.

Main delays occur at inland border-crossing points. Several studies showed that border crossing times in Central Asia vary from a number of days to a few hours, but are on average too long compared to waiting times measured in other regions, such as South Asia and Europe (CAREC 2013). It is necessary to better understand the actual causes of the delays at


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the border-crossings and to identify ways to eliminate them, possibly through a detailed time-release study on the key nodes along TRACECA routes.

Intermodality

Modern intercontinental supply chains are intermodal by their nature. Most of origins and destinations in the Euro-Asian trade in principle cannot be connected by services of one single transport mode. It means that in spite of intermodal competition (which is one of the drivers of transport system efficiency) different modes are compelled to cooperate within the transportation process.

Recent test runs of block-trains from China to Europe and from Ukraine to China have shown that the container transportation in block-trains may be technically, as well as economically viable. However, the lower tariffs applicable to the transportation from the borders of EU to the border of China only apply to the transportation along the entirety of the route (i.e. from Izov in Ukraine to Dostyk at Kazakhstan/China border), but not to the components of such routes (e.g. from Chornomorsk in Ukraine to Aktau in Kazakhstan). The applicability of such comparable tariffs to other (intra-TRACECA) routes shall be assessed and promoted.

On the other hand, the issue of trade imbalances shall be studied in depth with a view to identifying the measures to better balance the trade flows, hence avoiding the empty runs, in particular in the East-West direction. The necessity of empty runs currently adversely affects the attractiveness of the TRACECA routes, due to the costs of the return of empty railway rolling stock, as well as empty containers.

Regular transport services

One of the most important qualities, highly valued in modern supply chains, is the availability of regular transport services. Regular service with pre-announced call points, schedules, and tariffs is ideal from the point of view of supply chain design and planning. It is commonly accepted that the minimum frequency of the regular long-haul transport service suitable for most international supply chains is a weekly service; although the well-developed trade lanes show the example of several long-haul transports serviced a day offered by a number of competing transport operators. Combining the regular services of different modes (e.g., ship and rail) allows the creation of efficient intermodal transport services within the supply chains.

Regular transport services shall be promoted and ensured, particularly on the Black and Caspian seas. The irregularity is often caused by the lack of consolidated freight, which would be sufficient for a vessel to sail profitably (from Ukraine to Georgia), or by the unavailability of the berth at a certain point in time (in Aktau). The expansion of the Aktau port should facilitate the solution of the issue, but logistics hubs shall be developed along the TRACECA routes to allow for consolidation of cargo, which shall result in regular departure schedules. The ferry service on the Caspian Sea remains a weak link in the overall chain due to the irregularity of services. The non-existence of competition in providing the


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ferry services results in considerably higher rates of transportation across the Caspian Sea compared to the Black Sea.

Fostered international cooperation is required in order to give an impetus to the development of TRACECA. This includes the necessity of the continuous dialogue between the TRACECA Member States themselves, as well as between TRACECA and other international bodies, such as UNECE and UNESCAP. Implementation of international agreements and conventions in the transport field shall remain a priority for the TRACECA Member States.

On the other hand, a dialogue shall continue with China, aiming at better and smoother transport cooperation. In particular, the road haulers (including those from Ukraine) could benefit from better access to the Chinese market, which would require a gradual removal of the quota systems currently in place.

Many of TRACECA Member-States also follow the quota-based systems in road transport. While this is a common practice to protect national haulers, gradual liberalization of the road transport market will result in increased competition and efficiency of the services providers.

On the other hand, further technological integration with the successful intermodal connections available to Ukraine (Viking and Zubr) trains shall be promoted. In fact, such an integration, if materialized, will ensure the closing of a link all the way from China to the Baltic states, hence unlocking the whole route for the freight transportation.

Lastly, the application of CIM/SMGS waybill shall be promoted in Turkey, allowing the freight flows to/from Ukraine under a single document and opening the way towards the Middle East and the Indian Ocean.

In parallel, the modernization of the transport infrastructure shall be continued by TRACECA Member-States, along the lines of the master plan developed by the EU-funded Technical Assistance project “Logistics Processes and Motorways of the Sea (2013-2014)”. The acutest issues to be dealt with relate to the interoperability of networks, adequate rolling stock availability and transshipment time.

Overall, the development of TRACECA routes and the increase of their attractiveness will require a joint and uniform approach to all of the above-listed issues. While the TRACECA countries have reached a certain level of development where most of the infrastructural developments are self-funded, the functioning of the overall TRACECA supply chain will require pooling the resources and expertise of all participants, supported by International Financial Institutions and the governments of the Member States themselves.

This is particularly true of border-crossing points for instance, where the developments on either side of the border cannot materialize to a full extent unless commensurate and compatible developments take place on the other side. In this respect, global experience in facilitating border throughput, such as joint border controls or even shared border-crossings, shall be assessed in terms of their applicability in the TRACECA region and shall form a basis for further development.


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Joint border controls refer to the concept of two neighboring customs administrations entering into an agreement to operate Customs control jointly, i.e. to coordinate export and import controls, opening hours and competences. Ideally, joint controls are conducted in juxtaposed Customs offices where physical and technical infrastructures are shared. A good example of a functioning joint border control is located at the border of Germany and Poland, illustrated overleaf.

The joint border controls are supported by the UNECE, WTO, and CAREC as an effective means to alleviate the long waiting times at borders, namely by addressing the procedural and infrastructural discrepancies on both sides of a given border, such as different opening times, different throughput capacities etc.

Figure 55. Joint border control between Germany and Poland

The physical state of the border crossing is often a reflection of the relationship between two countries. A necessary prerequisite is, therefore, to establish fruitful and trusted relationships among neighboring countries, possibly in the framework of the TRACECA Multilateral Agreement.

On this basis, the operation of joint customs controls and the establishment of juxtaposed customs offices at common border crossings, as stipulated by Standards 3.4 and 3.5 of the Revised Kyoto Convention (RKC), will help to streamline the clearance process, eliminate redundancies and also strengthen Customs control capabilities.

In practice, this will require:

• a legal basis for the budgetary commitments of the two countries to establish and maintain joint facilities and division of costs,

• definition of the border line, • a legal basis for the officers from each country to exercise law enforcement

measures (e.g. penalties, seizures, arrests) on the other country's territory within the limits of the joint Customs office, including cases of pursuit.


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Lastly, given the multitude of international initiatives for the development of Euro-Asian trade and transport networks, synergies must be sought among those to ensure there is no overlapping spending of efforts and resources.

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