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Ukraine: Trade and Transit Facilitation Study
prepared under the Netherlands financed World Bank executed Trust Fund
“Ukraine: Support Competitiveness through Capital Budgeting, Public Financial
Management and Trade and Transit Facilitation”
Kyiv, 2010
Table of Contents
EXECUTIVE SUMMARY ................................................................................................ 6
1. UKRAINIAN TRADE AND TRANSPORT ENVIRONMENT ..................................... 11
A. Content ............................................................................................................................................................... 11
B. Country Background ............................................................................................................................................ 11
C. Transport and Logistics Infrastructure in Ukraine ........................................................................................... 17 Rail Infrastructure ................................................................................................................................................... 19 Road Infrastructure .................................................................................................................................................. 22 Seaports and Inland Waterways .............................................................................................................................. 23 Airports ................................................................................................................................................................... 25 Warehousing Capacity and Costs ............................................................................................................................ 26
2. TRADE COMPOSITION AND TRANSPORT PATTERN ....................................... 29
A. Trade Patterns by Region and by Commodity Group ...................................................................................... 29
B. Trade Patterns by Transport Modes and Countries .......................................................................................... 30 Trade by Rail ........................................................................................................................................................... 32 Trade by Road ......................................................................................................................................................... 33 Trade in Transport Services .................................................................................................................................... 34
3. TRADE LOGISTICS POLICY AND REGULATORY ISSUES .................................. 36
A. Transport Regulatory Issues ................................................................................................................................ 36
B. Ukraine‟s Record in Transport Safety ................................................................................................................ 39
C. Donors‟ Facilitation in the UkraineTransport Sector ....................................................................................... 42
4. BORDER-CROSSING AND CUSTOMS ISSUES .................................................. 46
A. Operational Framework ................................................................................................................................... 46 Legislative Framework .......................................................................................................................................... 46 Efforts of Interagency Coordination ..................................................................................................................... 47 Organization ........................................................................................................................................................... 47 Revenue Targets .................................................................................................................................................... 48 Performance Indicators ........................................................................................................................................ 50 Border Operations ................................................................................................................................................. 52 Issues ...................................................................................................................................................................... 55
B. Inland Clearance ............................................................................................................................................... 61 Clearance for Domestic Consumption .................................................................................................................. 61 Special and Temporary Procedures ..................................................................................................................... 63 Development of Risk Management ....................................................................................................................... 64 Issues with Clearance ............................................................................................................................................ 65
C. Enforcement Perspective .................................................................................................................................. 65
D. Proposal for a Streamlined Pilot Operation ................................................................................................... 66
5. STATUS OF TRANSPORT AND LOGISTICS SERVICE PROVISION .................. 68
A. Rail Transport ....................................................................................................................................................... 68
B. Wagon Reservation Procedure with UZ ............................................................................................................. 70
C. Road transport services ........................................................................................................................................ 71 Road Transport Cost Structure of Carriers .............................................................................................................. 72 Indicative Road Freight Levels ............................................................................................................................... 73 Competitive Position of Ukrainian Road Transport Firms in 2008 ......................................................................... 74 Supply of Consolidated (Groupage) Transport Services ......................................................................................... 75
D. Domestic Delivery Services by Road ................................................................................................................... 77
E. Shipping Services, Including Inland Waterways ............................................................................................... 78 Liner Shipping ......................................................................................................................................................... 78 Port and Terminal Handling of Containers ............................................................................................................. 79
F. Air Transport Services.......................................................................................................................................... 80
G. Freight-Forwarding Services and Multimodal Transport Operations ............................................................ 81
H. Ukrainian Postal Services .................................................................................................................................... 83
6 ASSESSING UKRAINE’S TRADE LOGISTICS COSTS ........................................... 85
A. The assessment of “Total Logistics Costs of Trade” ...................................................................................... 86
B. Assessing Avoidable Logistics Costs of Trade ................................................................................................ 86
7. UKRAINE’S POTENTIAL TO BECOME A REGIONAL LOGISTICS HUB ............ 88
ATTACHMENTS ........................................................................................................... 90
Attachment 1 Ukraine at a Glance 2009 .................................................................................................................. 90
Attachment 2. Indicators of the Business Environment in the BEEPS Study ...................................................... 92
Attachment 3 Selected Modal Split and Transport Intensity Graphs .................................................................. 93
Attachment 4 Main Airport Network in Ukraine, 2009 ......................................................................................... 94
Attachment 5 Ukraine‟s Imports by Country of Origin, 2001-09 ......................................................................... 95
Attachment 6 Ukraine‟s Exports by Country of Origin, 2001-09 ........................................................................ 96
Attachment 7 Ukraine‟s Imports by Commodities ,2001-09 .................................................................................. 97
Attachment 8 Ukraine‟s Exports by Commodities, 2001-09 ................................................................................. 98
Attachment 9 Ukraine‟s Imports by Country of Origin and Mode, 2008 ............................................................ 99
Attachment 10 Ukraine‟s Exports by Destination and Transport Mode, 2008 ................................................. 100
Attachment 11. Top 10 Commodity Groups in Ukraine‟s Transit, Export, and Import Movements by Volume
(thousand tons), Total and by Rail, 2008. .............................................................................................................. 101
Attachment 12. Top 10 Commodity Groups in Ukraine‟s Transit, Export ,and Import Movements by Volume
(thousand tons), Total and by Road, 2008. ............................................................................................................ 102
Attachment 13 Ukraine‟s Trade in Transport Services, 2006-09 ........................................................................ 103
Attachment 14. Ukraine‟s Trade Movements by Transport Mode, 2006-09 ..................................................... 104
Attachment 15 UNECE Transport Agreements and Conventions, Status at 31 December 2009 ..................... 105
Attachment 16 Number of TIR Carnets Issued by the International Road Union to local Associations of
Selected Countries. .................................................................................................................................................. 106
Attachment 17. ECMT Multilateral QuotaCoefficients for 2007-10 Based on the Environmental Class of the
Vehicles ..................................................................................................................................................................... 107
Attachment 18 Ukraine‟s Bilateral Road Transport Agreements ...................................................................... 108
Attachment 19. EU-Financed Projects in Transport Sector of Ukraine Since 2007 .......................................... 109
Attachment 20. EBRD Finance in Direct Investment in the Ukrainian Transport Sector, 1998-2008 ............ 110
Attachment 21 Performance Data Provided by the Ukrainian Customs, 2005-07. ........................................... 111
Attachment 22 WTO Accession Assues with Ukraine, Including Rail Transport ............................................ 112 Transit ................................................................................................................................................................... 112 Rail Transportation ................................................................................................................................................ 113
Attachment 23 Average Waiting Time for Trucks at Selected Border-Crossing Points in Hours, 2008. . 115
Attachment 24 Liner Shipping Connectivity Index Ratings and Ranks of Selected Countries, 2004-08. ........ 116
Attachment 25 Estimate of Trade-Related Total Logistics Costs in Ukraine, 2008 ......................................... 117
Attachment 26 Assessment of Avoidable Trade Barrier Costs out of Total Trade Logistics Costs in Ukraine,
2008 ........................................................................................................................................................................... 118
Attachment 27 International Comparison of Macro Logistics Costs ............................................................... 119
Attachment 28. Some key terminology .................................................................................................................. 121
Attachment 29 An industry Highlight: Retail Trade ........................................................................................... 122
Attachment 30. Comments on the Fall 2008 Version of the Draft Customs Code ............................................. 124
PREFACE
The Trade and Transit Facilitation Study (TTFS) has the objective of addressing key issues in
trade, transport and logistics that face Ukraine today and recommending options for reform that would
help Ukraine to fully realize its trade and transit potential. The TTFS covers the following selected areas
and issues: (i) the identification of options for broadening the tax base and improving compliance to allow
gradually reducing the tax burden; (ii) the identification of options for achieving expenditure savings in
selected areas of the budget; (iii) the estimation of the likely fiscal impact of key reforms to the pension
system; (iv) the identification of weaknesses in the process of capital budgeting and the provision of
options for its strengthening; (v) the identification of weaknesses (and incomplete reforms) in the
intergovernmental fiscal framework and of options for its improvement; (vi) the identification of options
for achieving higher levels of efficiency in public spending on health and education; and (vii) the
evaluation of the process of local capital budgeting.
The main author of the report is Lauri Ojala, trade and transit part of the report was prepared by
Lauri Ojala and Tetyana Dyachenko; the customs procedures part of the report was prepared by Michel
Zharnowiecki and Oleksiy Balabusko. Organizational and research assistance was provided by Maria
Koreniako and Tetyana Komashko. This report was financed under the Netherlands Financed Bank
Executed Trust Fund.
Executive Summary
1. The Trade and Transit Facilitation Study is a diagnostics report that identifies the main
regulatory and other barriers to trade, transport, and logistics and assesses those barriers in terms
of costs for international trade and logistics. It was undertaken by the World Bank under the Dutch
Grant for Supporting Competitiveness through Capital Budgeting, Public Financial Management and
Trade and Transit Facilitation. To undertake such analysis, the report focuses on several areas:
Transport and logistics infrastructure in Ukraine
Markets for transport and logistics services in the country
Potential obstacles to their modernization and development
Customs procedures and regulations as well as cross-border points infrastructure and
operations
Impact of transport and logistics barriers along the chain both in quantitative (time/money) and
qualitative terms (for example, handling, packaging, break bulk), and differentiated by major
product categories and major trading partners (Russia, EU, rest of the world).
The data collection was undertaken primarily in 2008, before the world economic crisis started to
materialize; however, the data were updated as they became available in the beginning of 2010. The
findings and recommendations put forward here, which aim at lowering logistics costs and barriers for
Ukraine’s trade and pertain to the longer-term competitiveness of the economy, became even more
important under the current worsened conditions.
2. Ukraine, strategically located between Russia and the markets of Western Europe, is one of
the most open economies in the world. It has access to the Black Sea and thus hosts one of the key
east-west transport corridors between Asia and Europe. Ukraine experienced robust economic
growth from 2000 up until 2008, with real GDP increasing at an average of some 7.5 percent a year, then
a considerable decline of about 15 percent of GDP in 2009. The past upswing in GDP reflected strong
growth of domestic demand, both consumption and fixed investment, as household real incomes rose
steadily and exports grew rapidly. Output also grew, especially in the metallurgical, manufacturing, and
construction industries. Transit trade and resulting service income increased as well, with transport
service exports growing at 15.1 percent annually in 2004-06. Export development and diversification are
crucial to Ukraine’s growth. Ukraine’s recent trade performance has been reasonably dynamic, with
import growth averaging 28.3 percent annually from 2004 to2008; export growth was lower, but still
reasonable at 24.4 percent. However, current trade performance has been driven by temporary market
developments such as the hike in commodity prices, and may not be sustainable in the longer term.
3. The worldwide economic downturn in 2008 and 2009 has hit Ukraine hard. In November
2008, the monthly GDP was 14 percent lower than in 2007, and industrial production has fallen by twice
as much (year-on-year). From September to December 2008, the Ukraine hryvnia (UAH) lost half its
value against the dollar, then stabilized in 2009. Ukraine’s GDP fell by 15 per cent in 2009.
4. The value of exports and imports halved in 2009. The economic downturn cut the value of
Ukraine’s foreign trade by half, which is one of the most severe cutbacks resulting from the crisis
anywhere in the world. In 2008, exports amounted to $US67.0 billion and imports to $US85.5 billion,
whereas the figures for the first 11 months in 2009 were $US35.6 billion and $US40.4 billion,
respectively. However, the commodity structure and direction of trade remained by and large the same.
5. Ukraine‟s transit and trade potential are presently far from fully exploited. Ukraine’s goods
exports remain highly concentrated on commodities, with a relatively low value added from processing,
while exports of manufacturing goods are predominantly destined for the Russian market. A number of
factors may account for this phenomenon1, however, it is in stark contrast to the experience of the new
member states of the European Union. Transit routes are subject to intense competition, and while
Ukraine has been able to cope with existing transit volumes reasonably well (except for recent gas
conflicts with Russia) because it inherited a very generously designed Soviet infrastructure, particularly
in railways and gas transportation, with rising demand there is a great need to modernize all modes of
transport, integrate them better with each other, and thereby allow Ukraine to compete with alternative
east-west routes through the Baltic countries, through Belarus and Poland, through the Black Sea and the
Balkans, and through the Bosporus.2
6. Ukraine‟s current export base is narrow and requires diversification that can be achieved
by lifting substantial trade-specific barriers that put a burden on current and potential exporters.
The distortion of input costs has predictably led to an excessive trade concentration in energy-intensive
commodities, in particular metallurgy. Export diversification is an urgent medium-term priority because
Ukraine’s strong current comparative advantage in metallurgy, in particular, faces serious medium- to
long-term threats related to outdated technology, low labor productivity, and declining global market
conditions. Yet there are currently large obstacles to export expansion: according to the 2005 IFC
Business Environment in Ukraine Report, 60 percent of exporters cited commercial or trade-specific
factors, such as lack of funds for promotion overseas, as important obstacles to their growth. Hence,
exporters are even more constrained than firms operating domestically. In addition to pursuing
economy-wide reforms to accelerate structural adjustment and labor mobility, and sector-specific
policies to exploit its comparative advantages more effectively, Ukraine needs urgently to address
the severe trade-related obstacles that hinder expansion of export across all sectors..
7. The obstacles Ukraine faces are also reflected in Ukraine‟s ranking in the major
international indexes and benchmarking studies. In Doing Business 2010, Ukraine’s overall rank in
ease of doing business is 142 out of 159 countries. It scores poorly in most subsectors of the Doing
Business indicator, but has also shown some improvement in areas such as getting credit, paying taxes,
and trading across borders. The EBRD-World Bank Business Environment and Enterprise Performance
Survey (BEEPS) data provide a clear indicator of how the business environment has changed over time.
Between 1999 and 2005, there were significant improvements in the business environment as perceived
by a large sample of Ukrainian firms, with the largest improvements registered in taxation and
infrastructure. By 2005, Ukrainian scores on the business environment were only slightly lower than for
the Commonwealth of Independent States (CIS) countries as a whole. It is noteworthy that infrastructure
gets the best rating of all the dimensions. Out of 118 countries, Ukraine ranks 68 in the Global Enabling
Trade Index (GETI), which considers four main areas: market access, border administration, transport
and communications infrastructure, and the business environment. Ukraine ranked 102nd
in World Bank’s
latest Logistics Performance Index (LPI 2010) out of 155 countries. In LPI 2007, Ukraine ranked 73th,
with almost identical scores. This means that other countries’ performance was improving, whereas the
1 Recent trends and patterns in trade performance were analyzed in detail in the 2004 Trade Review, World Bank.
2 The Bank analyzed the transport needs and likely prospects in the 2006 Transport Sector Strategy.
respondents saw little change in Ukraine. These rankings are based on assessments made by freight-
forwarding/logistics professionals outside Ukraine. The most cited problems include:
Unpredictability and corruption at borders, not only from custom agents but also from other
technical regulators
Weaknesses in the business climate in general that prevent investment in the production of
new goods
Absence of coherent policies to attract foreign direct investment (FDI)3
Inadequacies in the transport network, in particular connecting Ukraine to the European
Union
Customs procedures and cumbersome border inspections that reduce the competitiveness of
Ukrainian goods, especially those for which timely delivery is critical4
Network effects and linkages among industries inherited from Soviet times that are slow to be
broken up
Specific regulations such as mandatory product standards that reinforce traditional linkages
and prevent integration into new markets
The slow and costly process of VAT reimbursement to exporters (consistently the most cited
obstacle in exporters’ surveys)
General complexity of regulations relating to exporting and their unfair enforcement,
including numerous precustoms permits, registration licenses, technical regulations, and
certification, and the related delays and high compliance costs.
8. Recently Ukraine‟s trade has gradually shifted toward the European Union and greater
reliance on semi-finished and finished goods. Still, Ukraine’s economy uses up to 10 times more
transport movements relative to its GDP than EU countries because of its heavy reliance on metals, basic
industry, and agriculture. The economy is shifting to a greater reliance on semi-finished and finished
products that have a higher value per ton. This increases the use of road transport and the associated use
of containers and intermodal services. Bulk and basic metal products and heavy machinery dominate
exports, while imports comprise mainly energy carriers, unitized manufactures, and consumables.
Imbalances between export and import flows and transport modes are substantial. Export and transit rely
on bulk shipping by rail and sea. Import comprises manufacturing goods transported primarily by road
and in containers. It results in substantial inefficiencies, because transports run empty on return legs and
possibilities for consolidating transport flows are limited.
9. Shippers and logistics providers are still dealing with rather basic infrastructure and
transport capacity needs.5 Competitors in, for example, new EU countries have entered a much more
sophisticated logistics environment. The level of transport infrastructure development is well below EU
standards and does not meet reasonable safety conditions. A large part of road network is in poor
condition, and financing for road construction and maintenance has so far been limited. The rail network
has several bottlenecks in main junctions, and some congested sections require double tracks. A large part
of of the Ukrainian Railways (UZ) rolling stock is obsolete or will be soon. A national port development
strategy is needed urgently to coordinate the plans of individual ports. Key airports and terminal are in
3 For a recent update of the legal complications in FDI and Mergers and Acquisitions in Ukraine, see;
http://www.chamber.ua/resource/documents/updoc/tax_legal/57/Mergers_and_Acquisitions_2008.pdf . 4 See Raballand, Gael, Antoine Kunth, and Richard Auty (2005). ―Central Asia’s Transport Cost Burden and Its
Impact on Trade,‖ Economic Systems 29(1): 6-31, for an analysis how logistics costs can bias the structure of trade
to low value goods in the context of Central Asia. 5 For example, roads’, ports’, and airports’ capacity and quality on the infrastructure side, and availability of rolling
stock, modern trucks, and affordable warehousing space on the other side.
urgent need of enlargement, which is underway in part in anticipation of the Union of European Football
Associations (UEFA) 2012 Football Cup, for example in. Kyiv, Kharkov, Lvov, and Donetsk. Ukraine’s
development path in view of the transport and logistics environment for shippers is illustrated in figure 1.
Figure 1. Ukraine’s Position in Trade Logistics against Comparators
Source: AdLog study; at. www.tedim.com.
10. The bottlenecks that economic agents face depend on their role in the trade and transit
sectors of Ukraine. Large exporters of full units or bulk typically enjoy relatively low transport costs and
relatively few border-crossing problems. Their main logistics problems are related to availability of rail
and port capacity and nontransparent tariffs in rail and port operations. In metal manufacturing, firms
have difficulties using their own rolling stock in rail transport. The inflexible wagon reservation practices
also complicate exports and contribute to inefficient operations of UZ. For importers dealing with less-
than-full loads, the customs clearance and logistics operations are complicated and costly, which drive up
end-user costs. Underdeveloped logistics service provision hamper the buildup of modern retail
operations. Intermodal operations in general and container operations in particular are hampered by
severe queues of containers and ships in major ports, especially in Odessa. These are caused mainly by
the requirement for physical inspection of 100 percent of units combined with a high level of discretion of
customs and other border agencies. Third-party logistics services as well as domestic parcel and pallet
delivery services are gradually developing as demand for these services is growing. Ukrainian-based
EE
LTLV
EE
LTLV
LV
SCM
EE LT
EE
LTLV
EE
LTLV
LV
SCM
EE LT
Transport market
Traffic market
Advanced logisticsservices market
Infrastructure
Transport flow
Material flow
Logisticsconcepts
~1990 ~1995 ~2000 ~2005
Typical High-
income countries
e.g. EU-10
New EU-members
e.g. the Baltic States
Stagnating
economies e.g. in
Central Asia
• Enabling but not
sufficient factor
• Access
• Quality
• Capacity
• Port connections
• Frequencies
• Transport unit level
• Basic TPL solutions
• Competitiveness of TPL
• Time and place
• Business tactics level
• Advanced TPL solutions
• Competitiveness of
business environment
• FDI decisions
• Strategic level
Key characteristics:
UKRAINE 2008
transport freight forwarding firms are small and have weak resources to modernize assets (for example,
outdated fleet, facilities, or IT systems).
11. The possibility for Ukraine to become a regional logistics hub within the next 5-10 years
looks almost nonexistent. The main reasons that complicate development include:
Complicated border crossing and customs clearance procedures for import and transit.
(Customs and border agencies need to move from revenue collection to trade facilitation.
Risk assessment methods need to be put in place instead of excessive and pervasive physical
inspection)
Unreliable logistics service
Expensive and scarce warehousing capacity
Legal uncertainty with land ownership and building permits
High level of perceived corruption in logistics operations.
12. In international trade traffic to and from Ukraine, the Ukrainian road transport sector
enjoys a comparative advantage. International logistics companies prefer to use Ukrainian trucks
whenever possible in movements to and from EU. However, road carriers are constrained by the
multilateral and bilateral quota system; visa problems for professional drivers within the EU; a weak
financial position; and expensive finance, including nonstandard leasing arrangements.
13. Without any significant physical investment, but with improved border operations and
avoidance of unofficial payments, indirect logistics costs could be reduced by $US5 billion, and
direct logistics costs (such as freight) by $US1 billion. Ukraine’s total logistics costs of trade were
estimated at $US23 billion, or 15.1 percent of total trade value, and 12.1 percent of GDP, in 2008. An
estimated range of domestic logistics costs for Ukraine is 6‒8 percent of GDP. The overall logistics costs
of Ukraine would be between 18 and 20 percent of GDP, which is not exceptionally high for a large
country at the same level of development. The 1998 estimate of trade barrier costs was $US3 billion, or
10 percent of trade value. The absolute amount of the estimate for 2008 appears to be about twice as big,
slightly over $US6 billion. Relative to the size of the economy, however, the estimate for 2008 would be
about 4 percent of trade value, or 3 percent of GDP that year.
14. Transport sector policy making is seldom based on sound economic analysis. There seems to
be limited understanding of business needs and the market environment among public sector
decision makers in the transport sector. The current planning system applied in Ministry of Transport
and Communications (MoTC) deals with sub-optimization and individual projects rather than overall
system efficiency. One problem that stands out is poor project selection and evaluation processes. As a
result, the governance structure in the transport sector is characterized by micromanagement of UZ, ports,
and other state entities, including the Ukrainian postal services subordinated to the MoTC. This approach
does not allow market-driven potential to develop, regardless of the form of ownership.
1. Ukrainian Trade and Transport Environment
A. Content
1.1. The Trade and Transit Facilitation Study is a diagnostics report that identifies the main
regulatory and other barriers to trade, transport, and logistics and assesses those barriers in terms
of costs for international trade and logistics. It was undertaken by the World Bank under the Dutch
Grant for Supporting Competitiveness through Capital Budgeting, Public Financial Management and
Trade and Transit Facilitation. The World Bank has recently undertaken a major effort to compare the
cost of transport and trade across countries, based on recognition of the enormous role that transport and
trade logistics play in national competitiveness. Trade and Transport Facilitation Diagnostics for Ukraine
reviews the situation pertaining to international trade and transport in terms of transaction and
transportation costs and efficiency of the related services and infrastructure. It aims to develop a
prioritized and evidence-based reform roadmap to improve Ukraine’s trade performance. To undertake
such analysis, the report focuses on:
Transport and logistics infrastructure in Ukraine
Markets for transport and logistics services in the country
Potential obstacles to their modernization and development
Custom procedures and regulation as well as cross-border points infrastructure and
operations
Impact of transport and logistics barriers along the chain both in quantitative (time/money)
and qualitative terms (handling, packaging, breakbulk), and differentiated by major product
categories and major trading partners (Russia; EU, rest of the world).
The data collection was undertaken in 2008 before the world economic crisis started to materialize and
updated in the beginning of 2010. However, the findings and recommendations put forward here pertain
to long-term competitiveness of the economy and thus became even more important under the current
worsened conditions.
1.2. The report uses the methodology published by the World Bank under the umbrella of the
Global Facilitation Partnership for Transportation and Trade and Logistics Performance Index
2007 (LPI) and covers the same dimensions. About 50 interviews with public sector stakeholders,
logistics service providers, and authorities have been carried out, but the number of importers and
exporters remained low. A target workshop was held at the World Bank Kyiv office on November 21,
2008, which gathered about 15 senior-level logistics and transport stakeholders from the public and the
private sectors. The preliminary findings presented and discussed at that meeting also gave valuable
feedback to the analysis. Several roundtables on simplification of the customs procedures were held.
More than 30 interviews outside Ukraine with logistics service providers, manufacturers, and traders as
well as some public sector stakeholders in the transport sector were also undertaken in 2008 and early
2009. These were necessary to assess the view from outside the country, especially in analyzing the
business environment and development potential of logistics operations and markets in Ukraine
B. Country Background
1.3. Ukraine is one of the most open economies in the world, with a trade ratio to GDP of 101
percent in 2008. It is strategically located between Russia and the markets of Western Europe and has
access to the Black Sea and thus represents one of the key east-west transport corridors between Asia and
Europe. Export development and diversification are crucial to Ukraine’s growth. Ukraine’s recent trade
performance has been reasonably dynamic, with import growth averaging 28.3 percent annually in 2004-
08; export growth was lower, at 24.4 percent. However, current trade performance has been driven by
temporary market developments, such as the hike in commodity prices, and may not be sustainable in the
long term. Transit trade and resulting service income has also increased, with transport service exports
growing at 15.1 percent annually in 2004-06 (Attachment 1).
1.4. Ukraine‟s transit and trade potential are presently far from fully exploited. Ukraine’s goods
exports remain highly concentrated on commodities, with a relatively low processing content, and exports
of manufactures are predominantly destined for the Russian market. A host of factors may account for the
phenomenon,6 which is in stark contrast to the experience of the new member states of the European
Union. Transit routes are subject to intense competition, and while Ukraine has been able to cope with
existing transit volumes reasonably well because it inherited a very generously designed Soviet
infrastructure, particularly in railways and gas transportation, with rising demand there is great need to
modernize all different modes of transport, integrate them better with each other, and thereby allow
Ukraine to compete with alternative east-west routes (for example, through the Baltic countries, through
Belarus and Poland, through the Black Sea and the Balkans, and through the Bosporus).7 Ukraine’s
current export base is relatively narrow and must be diversified by addressing the substantial trade-
specific barriers that create obstacles for current and potential exporters. The distortion of input costs has
predictably led to an excessive trade concentration in energy-intensive commodities, in particular
metallurgy. Export diversification is an urgent medium-term priority because Ukraine’s strong current
comparative advantage in metallurgy, in particular, faces serious medium- to long-term threats related to
outdated technology, low labor productivity, and declining global market conditions.8
1.5. There are currently large obstacles to export expansion. According to the 2005 IFC Business
Environment in Ukraine Report, 60 percent of exporters cited commercial or trade-specific factors, such
as lack of funds for promotion overseas, as important obstacles to their growth. Hence, exporters are even
more constrained than firms operating only domestically. In addition to pursuing economy-wide reforms
to accelerate structural adjustment and labor mobility, and sector-specific policies to exploit its
comparative advantages better, Ukraine needs urgently to address the severe trade-related obstacles that
hinder the expansion of exports across all sectors (Correa 2007).
1.6. Internal factors, especially a burdensome regulatory environment for exporters, seem to be
more important obstacles to trade than external factors. The World Bank Study on Ukraine’s Trade
Policy (2004) and the IFC 2005 SME survey both argue, based on detailed firm-level data of the tradable
sectors, that the main constraints on export expansion and diversification across all sectors are not
6 Recent trends and patterns in trade performance were analyzed in detail in the 2004 Trade Review.
7 The Bank analyzed the transport needs and likely prospects in the 2006 Transport Sector Strategy. 8 Correa, Paulo. 2007. Ukraine Private Sector Development Strategy— Building the Microeconomic Foundations for Private
Sector‒Led Growth. The World Bank.
primarily related to access to external markets but are of domestic nature, in particular a very
cumbersome regulatory framework. The most cited problems include:
The unpredictability and corruption at borders, not only from custom agents but also from
other technical regulators
Weaknesses in the business climate in general that prevent investment and innovation;
Absence of coherent policies to attract foreign direct investment (FDI)
Inadequacies in the transport network, in particular connecting Ukraine to the European
Union
Customs procedures and cumbersome border inspections that reduce the competitiveness of
Ukrainian goods, especially those for which timely delivery is critical9
Network effects and linkages among industries inherited from Soviet times that are slow to be
broken up
Specific regulations such a mandatory product standards that reinforce traditional linkages
and prevent the integration into new markets
The slow and costly process of VAT reimbursement to exporters (consistently the most cited
obstacle in exporters’ surveys)
The general complexity of regulations relating to exporting and their unfair enforcement,
including numerous precustoms permits, registration licenses, technical regulations, and
certification, and the related delays and high compliance costs.
These issues are also reflected in Ukraine’s ranking in the major international indexes and benchmarks
such as Doing Business, Global Enabling Trade Index, Logistics Performance Index studies, and the
EBRD-World Bank Business Environment and Enterprise Performance Survey (BEEPS) (Attachment 2).
This study did not collect explicit empirical evidence across industries on these issues. However, the
stakeholder interviews indicated that the problems listed in 2005 were valid also in 2008. Based on the
data and evidence collected, the level of trade logistics costs in Ukraine in 2008 was estimated on a macro
level.
1.7. In Doing Business 2009 , Ukraine‟s overall rank in ease of doing business is 145 out of 159
countries (figure 2). It scored poorly in most subsectors of the indicator, but has also shown some
improvement in areas such as getting credit, paying taxes, and trading across borders. The Doing
Business (DB) study collects a large amount of interview-based soft data and combines them with
selected statistical hard data indicators. The EBRD-World Bank Business Environment and Enterprise
Performance Survey (BEEPS) data provide a clear indicator of how the business environment has
changed over time. Between 1999 and 2005, there were significant improvements in the business
environment as perceived by a large sample of Ukrainian firms, with the largest improvements registered
in taxation and infrastructure. By 2005, Ukrainian scores on the business environment are only slightly
lower than for the Commonwealth of Independent States (CIS) countries as a whole. It is noteworthy that
infrastructure gets the best rating of all the dimensions.
9 See Raballand, Gael, Antoine Kunth, and Richard Auty. 2005. ―Central Asia’s Transport Cost Burden and Its
Impact on Trade,‖ Economic Systems 29(1): 6-31, for an analysis how logistics costs can bias the structure of trade
to low-value goods in the context of Central Asia.
Figure 2. Doing Business 2009 Reforms: Ukraine
Source: Doing Business Ukraine, World Bank 2008.
1.8. Out of 118 countries, Ukraine ranks 68 in the Global Enabling Trade Main Index (GETI).
This is a lower rank than that of Bulgaria (60) or Romania (57), and clearly lower than Poland’s (45). The
GETI breaks the enablers into four overall issue areas, or subindices: market access, border
administration, transport and communications infrastructure, and business environment (figure 3).
Figure 3. Rank of Ukraine, Romania, Bulgaria, and Poland in the Global Enabling Trade Index (main index and selected trade dimensions), 2008
Source: World Economic Forum; www.weforum.org.
1.9. The World Bank‟s Logistics Performance Index (LPI) puts Ukraine in 102nd
place in LPI
2010 overall index out of 155 countries (figure 4). This is a lower rank than all its neighbors in the
region: rankings were, for example Poland (30), Romania (59), Bulgaria (63), and Russia (94). The ranks
are based on assessments made by freight-forwarding/logistics professionals outside Ukraine and based
on seven areas of performance: efficiency of the clearance process by customs and other border agencies;
quality of transport and information technology infrastructure for logistics; ease and affordability of
arranging international shipments; competence of the local logistics industry; ability to track and trace
international shipments; timeliness of shipments in reaching destination; and domestic logistics costs.
45
73
37
4642
57
81
61
49
6160
107
57 54 56
68
106
94
59
39
0
20
40
60
80
100
120
GETI Main index Business
environment
Border
administration
Transport and
communications
infrastructure
Market access
GE
TI ra
nk
am
on
g 1
18
co
un
trie
s
Poland
Romania
Bulgaria
Ukraine
Figure 4. Rank of Ukraine, Romania, Bulgaria, and Poland in Logistics Performance Index, 2010
Source: World Bank ; data available at: www.worldbank.org/lpi.
1.10. Ukraine‟s score in LPI 2010 (2.57) was almost the same as in LPI 2007 (2.55), but the rank
dropped from 73 to 102.10
This is explained by the overall improvement in many comparators’ scores. In
other words, other countries improved their performance significantly, whereas respondents saw little
improvement in Ukraine.
1.11. In the LPI 2010 subindices, the lowest ranking is in customs and border agencies, where
Ukraine ranks 135 out of 155 countries. This is markedly lower than Poland (34), Bulgaria (65),
Romania (85), and Russia (115). The gap to these comparators is wide also when the ability to track and
trace shipments is assessed. Here, Ukraine’s rank is 112, while others rank 33 (Poland), 66 (Romania),
and 97 (Russia). By contrast, Ukraine (79) ranks better than Romania (99) or Bulgaria (94) when the level
of transport and telecommunications infrastructure and services is assessed.
C. Transport and Logistics Infrastructure in Ukraine
1.12. Ukraine has a highly transport-intensive economy, which requires almost 6 ton-km of
freight transport for each U.S. dollar of GDP in 2005, compared to an average of 0.3 ton-km per
U.S. dollar of GDP in the EU25 countries in 2003.11
This situation is caused by heavy reliance of the
economy on minerals, basic industry, and agriculture, and is likely to continue through at least the next
decade.
10
Countries were assessed on a scale from 1 (lowest) to 5 (best); LPI 2007 had 150 countries, whereas LPI 2010 had
155 countries. 11
See page 13 at: http://www.eea.europa.eu/publications/eea_report_2006_3 ; transport intensity in the Baltic States
was on average 5 ton-km per one USD of GDP; and figure C. in Attachment 21 for Ukraine.
3034 36 35 33
43
2
59
85
66
34
66
99
73
63 65
55 52
62
94 95102
135
7784
112
79
114
0
20
40
60
80
100
120
140
160
Overall rank Customs and border
agencies
Logistics sector competence
Ease of Internat'l
shipments
Tracking & tracing
Transport & telecomm.
Inf rastructure
Timeliness of shipments
LP
I Ra
nk
am
on
g 1
55
co
un
trie
sPoland
Romania
Bulgaria
Ukraine
1.13. Both freight and passenger transportation have been growing since 2001. Freight traffic
movements in Ukraine grew in line with GDP as well as in Eastern European, Caucasus, and Central
Asian (EECCA) countries in 1998-2005.12
Emphasis, however, is gradually shifting from bulk
transportation of raw materials to general cargo, for example, semi-finished and finished products that
have a higher value per ton. This has important implications for the preferred mode of freight transport,
with an increasing preference for road transport and associated use of containers and intermodal services
(figures A to C in Attachment 3 for Ukraine and its comparators in EECCA). Passenger travel in Ukraine
halved in the decade leading up to 2000, as incomes went down and prices went up. However, it is now
recovering, albeit at a rate slower than GDP growth, averaging about 3 percent per year, measured in
passenger-kilometers. Such changes are also reflected in Ukraine’s trade orientation, which is
increasingly toward the EU rather than the Russian Federation. That said, Russia has remained Ukraine’s
major trade partner, and is likely to remain so for at least the next few years.
1.14. The year 2009 was the first out of the last 10 years during which both freight and passenger
transportation went down for all modes of transport. The reduction started gradually in the summer
of 2008, but the most significant impact materialized in 2009 (figure 5).
Figure 5. Cargo Flows Performance, 2009
1.15. Ukraine‟s strategic geographic location puts it on the main routes of international cargo
traffic, leading to significant EU interest in Ukrainian transit and transport potential. Four out of
ten pan-European corridors (figure 6) that the EU has committed to promote (see TEN-T map) cross the
territory of Ukraine. These corridors, according to the EU classification, are:
Corridor III: Berlin-Wroclaw-Lviv-Kyiv
Corridor V: Trieste-Ljubljana-Budapest-Lviv
Corridor VII Rhine-Main-Danube
Corridor IX: Helsinki-Kyiv-Odessa-Kyshyniv-Bucharest-Plovdiv-Alexandropolis.
12
See:http://www.unece.org/env/europe/monitoring/EECCA_CSI/EECCA%20CSI%20_Eng/EECCA%20CSI%203
0_freight%20transport%20demand_eng.doc.
103.2107.7109.5
108.3 108.1
107.8 107
106.1
105.4
104.4
101.7
99.467.7 62.1 62.6 61.7 63.4 65.2 66.7 69.1
70.8 72.475.477.5
0
20
40
60
80
100
120
%
Cargo flows by all modes of transport
(in % to the relevant period of the previous year)
2008
2009
Figure 6. Pan-European Corridors
When the Danube was reopened for navigation in 2005, Ukraine gained access to Western Europe
through the Danube-Main waterway. These corridors13
offer significant development opportunities, as
they constitute the shortest land bridge between Europe and Central Asia and the Far East, and provide a
strategic alternative corridor to Russian export of oil and gas to the EU market. Moreover, since its
enlargement in 2004, the EU and Ukraine share a common border. The EU High-Level Group on the
Extension of Trans- European Transport Networks (TEN-T) to Neighboring Countries established five
main transport axes that play a strategic role in the region. The transport network of Ukraine is part of the
central and southeast axes.
Rail Infrastructure
1.16. Rail transport carries over 80 percent of Ukraine‟s freight traffic and around 60 percent of
long-distance passenger traffic. Ukraine’s railways, with a 21891.4-km network, are the second biggest
system in Europe after Russian railways (figure 7), but they have been losing market share to road
transport. This is occurring despite the country’s large area and the extent to which its economy relies on
heavy industry; both factors suggest that railways should continue to play an important role in
transportation services. Railroad electrification gained mass scale in the 1960s and 1970s. The
operational length of electrified railroads is about 50 percent of the total length of Ukraine railways.
Remaining rail infrastructure is operating on diesel supply. In 2008, electrified railroad sections
accounted for about 85.1 percent of railroad traffic. The biggest part of rail traffic is operated by half of
the existing infrastructure. The 95.6 percent of railway operational length is automatic or semiautomatic
block equipped.
13
The land corridors refer, in most cases, to both road and rail transport.
Figure 7. Main Rail Network in Ukraine, 2007
1.17. The railway infrastructure in Ukraine has a mixed-use structure; the same tracks are used
for passenger and cargo transportation, which creates difficulties for the Railway Administration of
Ukraine (Ukrzaliznitsya) in scheduling and planning as well as for railway users with respect of
access to rail infrastructure. While the rail network density (in terms of route-kms/square kms) is
around 20 percent less than that of the EU; its rail network utilization, in terms of traffic-kms/route-kms,
is nearly three times higher than in the EU. Nevertheless, the existing railways infrastructure includes a
number of tracks and stations that are underutilized or even not operated at all. At the same time, about 30
percent of the railway routes are totally congested. Ukrzaliznitsya has a plan to separate the rail track
infrastructure for passenger and cargo transportation, but this will be done only on the most crowded
section of rail, for example from northeast border of Ukraine down to the Crimea. In an order to the State
Program on High-Speed Rail Connection Development in Ukraine, separation is to be completed on rail
lines beetween the main cities of Ukraine; however, this will require significant investment to optimize
the time for trip and number of stops sometimes even in prejudice of cargo transportation
1.18. Ukraine faces serious bottlenecks in the quality and capacity of its rail infrastructure and
rolling stock assets such as unbalanced track infrastructure, and an unclear and ineffective tariffs
system, including cross-subsidization of passenger transportation by cargo transportation.
However, passenger transportation is losing market share to other modes because passenger rail services
have not been able to offer the same frequency or speed as road transport. The shift of traffic to roads
implies higher transport costs, higher energy consumption and emissions, and more accidents. This loss of
market share appears to be the result of the railways’ failure to move away from the rigid institutional
setup and management and toward a more commercial, market-oriented form of organization.
1.19. The government of Ukraine holds a monopoly on railway transport services. The current
practice of cross-subsidization of unprofitable passenger transportation leads to unreasonable tariff
increases. In addition to asset modernization, there is a need to reform Ukraine’s railway sector
governance. Therefore, in December 2006, the government of Ukraine adopted the State Concept of the
Program for Railroad Transport Reform for 2007-2015. Two years ago, Cabinet of Ministers of Ukraine
(CMU) finally adopted (Decision of CMU on 16.12.2009) a program with an action plan. Program
implementation is carried out in three stages.
Elaboration and adoption of legislative and regulatory and legal acts needed for
realization of the program’s first stage
Creation of state economic association of railways and other railway transport enterprises
in the form of a state business concern
Elaboration and introduction of economic mechanisms that provide transfer to the
extended recreation of production assets based on innovative development model.
.The second stage (2011–12) envisages elaboration and practical verification of economic, legal,
and technical mechanisms of railway transport development and functioning in terms of transition
to a vertically integrated management structure and establishment of a state economic association
of main railway transport.
The last stage will focus on liquidation of the cross-subsidizing of passenger traffic at the
expense of freight by introduction of a financial support mechanism for passenger traffic,
increasing the number of private companies that own the passenger carriage fleet and
motor coach rolling stock; creating regional railway companies that own infrastructure
and rolling stock on the basis of industrial railway transport subdivisions and inactive and
narrow-gauge areas; and subsequently developing competition by increasing performance
efficiency and service quality not related to transportation.
1.20. Rail restructuring is, however, a problematic process, and the program‟s performance is
still far from optimal. The railways sector has also suffered from the vicious cycle to which railways are
subject almost everywhere: the government has held down passenger tariffs, especially on social grounds,
but has not provided adequate compensation. As a result, the quality of service has deteriorated as a result
of lack of renewal and modernization of assets. The two current critical issues for the railways are:
How best to restructure its organization and management systems to create incentives for
offering a more market-friendly set of services
How to raise financing to renew its aging infrastructure and rolling stock.
1.21. For the last 10 years, only 25 to 30 percent of the financing requirements for railways
maintenance and development have been satisfied. As a result, the principle of simple renewal of
capital goods has been violated. Depreciation increased from 38 to 78 percent (84.4 percent of the active
assets), which may result in loss of technological stability of the sector. Almost entirely depreciated
second-generation rolling equipment (fourth generation in European countries) is being exploited in
Ukraine, which increases exploitation expenditures up to UAH1.5 billion per year, and increases
consumption of materials and energy for transportation and rolling equipment repair. Total annual
additional losses resulting from using outdated equipment and servicing of noneconomic infrastructure
amount to UAH 2.5–3 billion per year, according to the Ukrzaliznitsya assessment. In order to maintain
and develop the rail infrastructure as well as support rail operational facilities, the 2007 capital budget of
Ukrzaliznitsya was UAH321,640 million for investments into operations, UAH745,325 million for track
facilities, and UAH2460,480 million for rolling stock.
Road Infrastructure
1.22. Existing road infrastructure has been adequate during the 10-year transition period, but
now quality and capacity of certain sections of roads hinder efficient movement of goods and
people.14
A map of the current main road network is shown in Attachment 5. The road network of kraine
covers 169,400 kilometers, or 281 kilometers per 1,000 sq km (figure 8);. 76.7 percent of roads are paved
(ferroconcrete, bituminous concrete, asphalt), with the remainder having other surfacing (gravel, paving
blocks, and so forth). At the same time, there are only 280 kilometers of road network that comply with
EU TEN standards; 16,100 bridges with a total length of over 379 kilometers span the motor roads, and
close to 63 percent of them are built according to obsolete engineering standards. In 2008, more than 500
bridges failed to meet adequate safety standards. In recent years, the vehicle fleet has increased by 5
percent and the traffic volume on highways by 20 percent per year.
Figure 8. Road Transport Network in Ukraine
1.23. The road network includes the roads of national significance and local roads. The road
network management has vertical tree format and carried out by the State Road Service of Ukraine
(Ukravtodor). The road maintenance and services is also a subject of state monopoly and carrying out by
the state joint-stock company, Motor Roads of Ukraine. Roads maintenance and development as well as
budget allocations are based on the principle of priority ranking of local and national roads usage. This
type of governance structure leads to the ineffective use of limited financial resources. The local
authorities and bodies of local self-governance do not have sufficient resources for budget allocations for
the local road maintenance and are not responsible for the technical condition of roads. In order to move
14
Recent surveys show that most of the state road network is still in reasonable condition: the International
Roughness Index (IRI) is usually less than about 5.00.
away from this system, the Concept on Reform of the Road Management was approved by the
government in 2008.
1.24. The main principle of the road sector reform is to divide the network responsibilities
between the state and regions. The reform strategy followed since June 2008 is to place the national
highway system under MoTC and its agency Ukravtodor. The remaining 150,000 km will be allocated
to regional governments. The resources for maintaining the 150,000 km of local roads need to be clearly
defined if these roads are not to fall into disrepair. At the same time, under the government program on
development of motor roads of common usage for 2007-11, technical and safety improvements represent
the largest share. The government strategy aims to achieve the following: (a) provide a high-quality
transport network and services that satisfy the country’s economic growth; (b) ensure that citizens have
access to quality transport services; (c) raise domestic transport system competitiveness, allowing Ukraine
to integrate with Europe and participate in the World Trade Organization (WTO); and (d) improve safety
and stabilize transport system development.
1.25. The Reform of the Road Management in Ukraine is targeted to be realized in a period of
three years. The government of Ukraine made a commitment to amend the laws of Ukraine pertaining to
roads, state and local administrations, and sources of financing for the road network and to transfer
administration of local public roads and enterprises responsible for their maintenance and services to local
administrations.
1.26. In response to the increasing demand for road network maintenance, Ukravtodor budget
resources increased from UAH466 million in 2004 to 1.9 billion in 2007. According to a World Bank
assessment in early 2008,15
the total budget expenditures were reasonable (albeit short of covering
all necessary maintenance demands), but needs are likely to increase as a result of the aging of the
network. Some economically strategic sections of the network are not only in poor condition but also
functioning at peak capacity because of steadily increasing commercial traffic and annual passenger
traffic that has been growing on average at 11 percent per annum over the last three-four years, with an
accelerating trend. Furthermore, substantial portions of the core network still need to be upgraded to
European technical and safety standards. The government proposed to include financing of road
construction, repair, and reconstruction in Ukraine in the 2009 national budget at a level of UAH14.9
billion, which is a 50.5 percent increase in financing from 2008. Of this, UAH8.65 billion is to pay off
loans received under the guarantee of the government. At the same time, average funding over the last
five years for the national roads has been low, at about 0.5 percent of GDP. Expenditures just on road
maintenance in most countries are about three times this level. Underfunding is economically inefficient
as the deterioration of road surface quality accelerates over time.
Seaports and Inland Waterways
1.27. Ukraine‟s maritime economy features a sophisticated structure made up of commercial sea
ports, shipping companies, organizations ensuring control and supervision of navigation safety,
ship repair yards, navigation safety providers, and scientific institutions. Ukraine has almost 20
seaports along the Black Sea and Azov Sea coast as well as a number of river ports on Dnieper and
15
Project Information Document (PID; P100580; Report No.:AB 3477), on a $US400 million loan by the World
Bank to Ukravtodor, approved by the Bank Board March 20, 2008.
Danube. Most of the ports deal with bulk transportation; only three have significant container operations.
Passenger and roro vessels in the Black Sea are operated mainly in the Odessa and Yalta regions.
Figure 9. Ukrainian Main Seaports and Inland Waterway Ports
Source: http://ukrport.org.ua/index-e.htm.
1.28. The seaports are all state owned, including most of the stevedoring facilities. The port
tariffs are set by the MoTC, but the ports have some freedom to give discount to clients. All sea and
major inland waterway ports were governed by the Ministry of Transport and Communications, via the
Ukrainian State Seaports’ Association, Ukrmorport. At the end of 2008, Ukrmorport was dissolved and
the ports remain under the ministry’s governance. In 2004, the ministry was considering privatizing
Ukrmorport. Then the ministry applied to the Anti-Monopoly Committee of Ukraine (AMCU) to allow
Ukrmorport to continue its activities until its eventual reorganization into a private firm. Ukrmorport was
originally given a one-year mandate by the AMCU and this was later extended, but AMCU pointed out
a range of defects in its work, in particular with regard to appropriation of economic activities in port
areas. To avoid this complicated management structure, a Ukrainian Maritime and River Transport
Administration was established in 2009 by combining State department for maritime and river transport
and Ukrrmorport
1.29. The administration of the ports is placed under the authority of a General Manager
appointed by the Ministry of Transport and Communications. Contrary to universal practice, the
port management does not include a Board of Directors and the General Manager is invested with
all powers to administer the port. Following a period when ports’ activities were provided through joint
port-private sector ventures, all cargo-handling operations are now provided by nine private stevedoring
companies through 10-year lease agreements. This allows the port to benefit from private sector
efficiency, but the current organization does not allow for real specialization in port operations according
to the best international practices. To illustrate the inconvenience resulting from the current
organizational framework, the recent decrease in activities of the stevedoring companies handling metal
products (scraps) results in a shift in the nature of their operations toward containerized cargo, with a loss
of efficiency resulting from the mix of activities. Furthermore, the absence of updated port master plans
does not allow for optimization in use of the scarce space available within the port area, which is so
congested t that the efficiency of cargo-handling operations is severely constrained.
1.30. There is an urgent need to review the current institutional setup of the port organization in
Ukraine. Despite the ministry’s pivotal role in port issues, no development strategy for the country’s
port sector has been formulated to date. The Concept Note for Port Development in Ukraine, approved
by the Cabinet of Ministers in the middle of 2008, does not reflect the current situation in this sector. At
the same time, each port authority is, at least in principle, required to get the ministry’s approval even for
the smallest investments. Ports are operated by port authorities, which are formally under the ministry.
However, many port authorities, especially in the large ports, have actively prepared port development
and investment plans independently. Some of these―especially those in Odessa, Illichevsk, and
Yuzhny―have substantial capital requirements. This refers in particular to container berth and handling
capacity increases. These plans have been prepared either by the ports themselves, or through the state-
owned transport planning entity (Chernomorprojekt). No major international consultancies in port or
transport development were used by the ports in their overall long-term planning. Even more important
is coordination among ports, inland transport modes, and customs/border agencies.
1.31. Taking into account rail and road transport tariffs for cargo transportation, the river
transport has a good opportunity to take over a share of cargo traffic flows from the north to to
Black Sea region from the road and railway transport system. More effective Ukrainian inland
waterways can be used to support short-distance river-based container traffic and sea-river traffic. There
are two main waterways in Ukraine, the Dnipro and the Danube. Apart from this, the Desna, Pripyat,
Yuzhniy Bug, and Dniester rivers are open for transportation. There are eight navigation locks on the
Dnipro and one on the Desna. Five river ports along the Dnipro River have traffic of 1 million tons a year.
The Danube international transport flows usually get to the Black Sea through the Romanian part of the
river using the existing, well-developed facilities. The Black Sea can also be reached by canal directly
from Ukrainian waters, and Ukraine has an ambitious plan to develop the Ukrainian part of Black Sea
canal and receive benefits from it in the near future. A number of steps has been taking by the government
in this regard, and a targeted state program has been adopted. At the same time, estimates show that
Romanian Danube ports have some unused capacity and the international traffic flow is not likely to
increase rapidly on the Ukrainian side. Taking into account the cost of the Ukrainian plan for channel
dredging and development of port facilities as well as the current level of competitiveness of Ukrainian
ports, it seems Ukraine will not be able to reach its expectation on Danube usage.
Airports
1.32. The airports of Ukraine that handle most air passenger traffic include Boryspil,
Dnipropetrovsk, Donetsk, Kyiv (Zhuliany), Lviv, Odessa, Simferopol, Kharkiv, and Zaporizhia. In
2009 they handled 95 percent of the total passenger operations in the country. There are also 22 other
airports that do not play a key role. (Attachment 4) Boryspil Airport is the only economically self-
sufficient airport to date; in 2009 it handled 67 percent of all passengers in Ukraine. The majority of the
airfields, facilities, and equipment do not meet the modern requirements for servicing air flights. The
passenger terminals and infrastructure of the airports are in bad shape, and large imbalances in the level of
infrastructure exist between the regional airports.
1.33. Air traffic control functions were separated in 1993, and the Transport Law of 1994
provided for establishment of the State Air Transport Department under the Ministry of
Transport. In 1998 the department was transformed into a Civil Aviation Department (Derzhavialuzhba),
which has gone through several reorganizations. At present, the majority of Ukraine’s airports are in
municipal ownership. The ones in state ownership are located at Boryspil, Dnipropetrovsk, Zaporizhia,
and Lviv. In order to raise the efficiency of airports management, the MoTC proposed that the airports be
returned to state ownership with financing from the state budget. However, the mechanisms were not
clearly defined and it was not implemented. The lack of both local budget funds and coordination of the
airports in municipal (collective) ownership hinders the provision of quality air services.
Overall, the lack of capacity of terminals and adjacent facilities in major airports creates a
bottleneck. A new air passenger terminal is being opened in Dnepropetrovsk in 2009, as well as in some
other major cities. The long overdue expansion of the Boryspil terminal, including parking and service
areas, will take place in the next few years. New construction of airports is being facilitated by the UEFA
Football Championships in 2012, but it concerns only airports that will be used during Euro 2012. The
State Program for EURO2012 Preparation in Ukraine envisages the modernization of main airports. It is
expected that largest part of these investments will come from the private sector, but in the present
economic climate it seems unlikely that the private sector will be able to finance these anticipated airport
investments in time for Euro 2012.
Warehousing Capacity and Costs
1.34. Having adequate storage and warehousing space available is essential for effective logistics
operations. In Ukraine, the use of outside storage/warehousing service providers is considerably
less frequent than in EU countries, and many Ukrainian firms operate their own warehouses. The
markets for warehousing and related third-Party logistics services are not well developed, and the main
users tend to be large international firms, especially in the retail business. These include the German-
based METRO Cash & Carry, which has used Schenker and Raben as its logistics service providers. In
December 2008, the Polish-based Raben group announced that it had secured a three-year contract for
METRO’s warehousing and logistics operations in Ukraine. Another large user of similar arrangements is
IKEA, which has invested more than €200 million in its operations in Ukraine.
1.35. The supply of such warehousing capacity has been much smaller than the demand, especially in
Kyiv and to a lesser extent in other large cities. This has pushed the warehousing prices to levels equal to
those found in high-cost regions in Europe, and in the main cities in Russia, where the situation has been
even worse than in Kyiv (figure 10) .This unmet demand has been noticed by property developers and, as
described below, the situation has rapidly changed to substantial oversupply of high-quality warehouse
space.
1.36. The problem is aggravated by the slow and often unpredictable process of building new
capacity. Here, problems start with securing land ownership, and continue with getting a valid
construction permit and the lack of reasonably priced materials and skilled construction capacity.
Unofficial payments are reportedly a serious problem. Anecdotal evidence from a warehousing planning
agency noted that land prices in mid-2008 within a 20-km radius of Odessa were $US50-150 per m2.
Furthermore, transferring land from one use to another is difficult, in part because of the presidential
moratorium on such changes that was implemented in 2007. If, for example, available agricultural land is
transferred to warehousing usage, it is a very high-risk operation for the new landowner. In Doing
Business 2009, Ukraine ranked 179, just before Russia (180), out of 181 countries in the complexity of
dealing with construction permits.
1.37. The imbalance between supply and demand is even greater in temperature-controlled
warehousing capacity. This has also hampered the handling of products that require an uninterrupted
cold chain from processing to storage. Construction of temperature-controlled storage space also requires
special expertise in planning and execution, which has been in short supply. According to industry
sources providing equipment to cold storage outfits, some recent large projects with temperature-
controlled storage space have faced technical problems. The demand for new refrigerating equipment in
Ukraine in 2008 was also much smaller than what the industry had expected, which indicates that
temperature-controlled storage capacity will not increase significantly in the short term.
Figure 10. Rental Band for Logistics Property > 5,000 m2 in Selected Metropolitan Areas, 2007
Source: Real Estate Publishers, 2007-2008.
Figure 11. Prime Base Rents ($US/sqm/year) and Vacancy Rates of Class
A Warehouses in Kyiv, Q3/2007-Q4/2009
Source: Kyiv City Profile, February 2010, Jones Lang LaSalle.
1.38. The available Class A and B space in Kyiv more than doubled during 2008; with the
economic crisis, this resulted in substantial overcapacity, and by end-2009, prime rents had fallen
by over 40 percent and the vacancy rate was over 25 percent. During 2008, more than 360,000 sqm
of Class A and B warehouse space was completed, followed by an additional 150,000 sqm in 2009, over
80 percent of which were Class A warehouses. Combined with the impact of the economic crisis, these
partly speculative warehouse completions have reduced warehouse prime rents substantially. Starting in
the fourth quarter of 2008, the vacancy rate of warehousing space rose rapidly and remained between 25
to 30 percent during 2009 (figure 11) Even so, there is still demand for high-quality temperature-
controlled storage.16
16 See: Market reports by e.g. Colliers; and Jones Land LaSalle at:
http://www.colliers.com/Content/Repositories/Base/Markets/Ukraine/English/Market_Report/PDFs/Colliers_Semi_Annual_Repo
rt_H1_2009_engl_security.pdf and
http://www.joneslanglasalle.ua/ResearchLevel1/JLL_Ukraine_Kiev-City-Profile-Feb_2010.pdf.
2. Trade Composition and Transport Patterns
2.1. Ukraine‟s merchandise trade in U.S. dollar terms has grown rapidly since 2001. In current
prices, imports quadrupled and exports tripled from 2001 to 2008. Export of goods in 2008 rose by
35.9 percent, to $US67.0 billion, while imports of goods grew by 41.1 percent, to $US85.5 billion.
Exports of goods and services grew by 34.9 percent in 2008 to $US78.7 billion, while imports grew by
40.5 percent, to $US92.2 billion. In 2008, the trade deficit reached $US13.5 billion in 2008 according to
official data released on February 15, 2009. The deficit in 2007 was $US7.2 billion. The worldwide
economic downturn has severely affected Ukraine’s exports, which are based mainly in metals and to a
lesser extent in minerals and chemicals. In 2009, Ukrainian exports came down to 43.4 percent from the
level of 2008, and imports dropped to 48.9 percent. This section summarizes key findings on trade
composition and patterns. Trade statistics with a higher level of detail are shown in Attachments 5-14.
A. Trade Patterns by Region and Commodity Group
2.2. In 2009, 3 percent of Ukraine‟s imports and 34 percent of exports were with CIS countries.
Russia and EU countries are by far the single most important trading partners; 28 percent of
imports and 21.1 percent of exports in 2009 were with Russia. The EU share of Ukrainian exports
was 23.8 percent, and the share of imports was 34.1 percent in 2009. The main European export
destinations were Turkey, Italy, and Poland. The main European countries of origin for imports were
Germany, Poland, and Italy. During 2001-08, the top 10 countries’ share of all imports was over 70
percent. Exports have been less concentrated: the share of the 10 most important countries varied between
46 percent in 2002 and 67 percent in 2008, indicating a trend towards a higher concentration (Attachment
5 and 6). The financial crisis has not changed the geographic structure of Ukrainian trade significantly.
Trading volumes of both exports and imports have decreased with all Ukraine’s main trade partners
except for China.
Russia
21%
Turkey
5%
China 4%
Kazakhsta
n 4%
Byeloruss
ia 3%
Germany
3%
Poland
3%
Other
57%
Foreign trade 2009 - export
Russia
28%
Germany
8%
China
6%Kazakhstan
5%
Poland
5%
Uzbekistan
4%
Byelorussia
4%
Other
40%
Foreign trade 2009 - import
Figure 12 Trade Decomposition by Region, 2009
Source: SSCU data.
2.3. Trade patterns by commodity group are even more concentrated than the geographical
pattern. The most important export commodity group at 2-level classification, ferrous metals, accounted
for 26 percent of total exports, and the top five commodities at 2-level classification were a total of 52
percent in 2009. In imports, the most important commodity group at the 2-level―energy, petroleum, and
related products―accounted for 32 percent, and the top five commodities at the 2-level a total of 56
percent ( Attachments 7 and 8). Diversification of especially the export base would be crucially important
for Ukraine. The current pattern leaves it highly vulnerable to outside economic and even political shocks,
as has been demonstrated since the end of 2008.
B. Trade Patterns by Transport Modes and Countries
2.4. Russia dominates Ukrainian imports, and in exports, Russia is by far the dominant
destination. The breakdown by countries is presented in two separate graphs to improve readability
because of the large difference in volumes, especially in imports. The breakdown of foreign trade and
transit movements by transport mode is shown in Attachments 9, 10, and 14. Approximately 80 percent of
Russian gas exports to Europe go through Ukraine. At year end 2006, and by the end of 2008 and early
2009, Ukraine and Russia had a deep disagreement on the terms of gas trade and transit, which severely
disrupted gas deliveries to many European countries. The sizeable transit of gas also dominates
(Attachment 14). This report is, however, not concerned with pipeline transport, so the gas trade and
transit are not discussed in detail. Russia also dominates the imports; the former is almost entirely gas by
pipeline, whereas imports from Russia are mostly by rail and pipeline. In exports, Russia is by far the
largest destination, with rail accounting for over 90 percent of volume, followed by Turkey, where
maritime transport dominates.
Figure 13. Ukraine’s Two Largest Trading Partners Measured by Transported Volumes of Exporst and Imports, by Mode of Transport in 2008, ‘000 tons
Source: Ukrainian Customs .
Note: group ―Other‖ is almost exclusively pipeline transport.
Figure 14. Ukraine’s Imports to Main Trading Partners (excl. Turkmenistan and Russia) Measured by Transported volume, by Mode of Transport in the Customs Declaration in 2008, ‘000 tons
Source: Ukrainian Customs.
1561.77 132.28 1271.18 0.12
24456.76
1767.09
18106.96
23.56
1849.12
7290.57
8663.71
23040.71
0
5000
10000
15000
20000
25000
30000
Russian Federation Turkey Russian Federation Turkmenistan
Export Import
other (incl.
pipe)
Sea
Rail
Road
0
500
1000
1500
2000
2500
3000
3500
Sea Rail Road
Figure 15. Ukraine’s Exports to Main Trading Partners (excl. Russia and Turkey) Measured by Transported volume, by Mode of Transport in the Customs Declaration in 2008, ‘000 tons
Source: Ukrainian Customs.
Trade by Rail
2.5. The cargo composition is highly concentrated. The top 10 commodities constituted 99 percent
of transit, import, and export flows by rail in 2008. About 48 percent of all export and 35 percent of
imports by volume were carried by rail in 2008 (Attachments 11, 12). Russia is the overwhelmingly
largest partner, followed by Poland and the Czech Republic. Of the 20 largest rail-based partners,
Kazakhstan, Belarus, and Poland are the only countries from which there is notable import by rail (figure
11).
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
other Sea
Rail Road
Figure 16. Ukraine’s Exports and Imports by Rail to 20 Largest Export Countries in 1,000 tons, 2008
Source: Ukrainian Customs.
Trade by Road
2.6. The cargo composition is also concentrated. The top 10 commodities make up between 75
and 82 percent of the road-based transport flows. Of total volume (including other modes), road
transport share was very small in transit (2 percent) and export (4 percent) in 2008. When trade by
road and country are considered, the volumes are dramatically lower than by rail and the country
distribution is much more even. Here, too, Russia is the largest partner, followed by Germany and Poland.
Annually, there seem to be relatively balanced figures for imports and exports. In reality, however, it is
difficult to match the available capacity of an empty truck to a particular shipper’s transport need
(Attachments 11, 12).
Total exports by rail in 2008 - 66.3 million tons
Total imports by rail in 2008 - 33.2 million tons
Import
Export
Figure 17. Ukraine’s Exports and Imports by Road to 20 Largest Trading Partners in 1,000 tons, 2008
Source: Ukrainian Customs.
Trade in Transport Services
2.7. Ukraine‟s positive balance in trade of services was about $US5 billion in 2008. However, the
main component was trade in transport services: its trade balance exceeded $US5.95 billion. This
statistics include payments to other countries and income from abroad for all types of transport and cargo-
handling services, including infrastructure charges paid by or to foreign operators. Whether a particular
payment is an international or domestic transaction could be assessed based on the registry of the vehicle
or vessel (aircraft). The data are not necessary related to Ukraine’s merchandise trade, or activities taking
place within Ukraine’s borders. For example, Ukraine-registered heavy-lift aircraft earn a significant
export income when operating in relief operations between third countries. The income of these aircraft
(through Ukraine-based firms) should be registered as services export. Likewise, payments for transport
services that these firms make in third countries (such as landing fees or overflight charges) should be
registered as transport service imports by Ukrainian operators.
2.8. Ukraine‟s trade balance in transport services is exceptional in the sense that it is a net
exporter of all types of transport services: road, air, rail, sea, and pipeline. The transport services
trade is dominated by pipeline transport. In 2008, pipeline transit services generated almost $US2.56
billion in export earnings, as imports of pipeline transport services were insignificant. While a positive
trade balance is often a positive thing for the national economy, it may also reflect a one-sided structure
Total imports by road in 2008 - 10.2 million tons
Total exports by road in 2008 - 5.4 million tons
Import
Export
of the country’s transport sector. This is largely the case with Ukraine. Majority of Ukraine’s commodity
exports are sold as Free on Board, Delivered at (Ukrainian) Frontier, or similar terms, where the buyer of
the goods takes care of the transport arrangements from the country’s border. In addition, the majority of
imports are delivered with clauses, where the seller takes care of the transport to the Ukrainian port, or in
the case of road-based transport, often to a destination inside Ukraine.
Figure 18. Ukraine’s Trade in Transport and Other Services, 2001-08: Trade Balance by Mode of Transportation, in $US million
Source: Ukrainian Transport Statistics.
2.9. Ukraine‟s positive net balance in transport services is therefore derived from service
charges and fees paid by foreign carriers and other logistics operators. This is especially true for
pipeline and rail transit fees. Very little – or none - of the positive net balance in maritime or rail transport
is produced by competitive Ukrainian transport companies selling their services to foreign shippers or
passengers engaged in either Ukraine’s own merchandise trade or international passenger transport. In the
case of rail and pipeline, it is transit over Ukrainian territory that generates the revenue. In maritime
transport, the Ukrainian merchant fleet is small and largely outdated, with little earning capability in
international shipping. Only in international road transport and heavy air cargo operations do Ukrainian
firms genuinely generate income from outside Ukraine. Detailed transport services trade statistics are
shown in Attachment 13.
2.10. Based on preliminary data for 2009 (January-November), Ukraine has remained a
substantial net exporter of transport services. According to the official statistics, the largest drop
since 2008 has been noted in pipeline service trade balance ($US1,151 million), but the reduction of trade
balance has been more modest in other freight transport sectors, even if the actual trade volume dropped
substantially; for example, rail transport exported more than $US1,636 million in 2008, but exports in
0
1000
2000
3000
4000
5000
6000
7000
2001 2002 2003 2004 2005 2006 2007 2008
road transport and other (logistics)
servicesAir transport incl airlines, airports,
airspace charges Rail transport
Sea transport incl ports services
Pipelines
Jan-Nov 2009 amounted to only$US915 million. During the same period, rail transport imports
diminished from $US653 million to $US303 million.
3. Trade Logistics Policy and Regulatory Issues
3.1. The key objectives for transport sector development were laid out by the Ministry of
Transport and Communication of Ukraine for 2009 as follows:
Attracting nongovernmental investments and finance to develop the road infrastructure
Starting implementation of highway engineering projects on concession terms
Harmonization of national aviation rules to meet ICAO requirements
Regulatory and legal provisions for using electronic traffic documents in Ukraine
Defining boundaries for future airport development, as well as ensuring the intended use of
land for further development of airports and building their infrastructure
Restructuring the passenger operations of the Ukrainian Railway
Ensuring adoption of the Law of Ukrainian Seaports and carrying out market reforms at
commercial seaports.
These objectives are in line with the recommendations put forward in the World Bank’s Transport Sector
Strategy for Ukraine in 2006, and they are endorsed by the EBRD. At the same time, there is no transport
strategy that creates a framework for mid- or long-term development of the sector and no cross-sector
cooperation, for example with the Custom Service. Ukraine still has a lot to do in adhering to the existing
international regulatory framework in the transport sector. Implementation and enforcement of many of
the conventions and agreements that Ukraine has entered into are far from satisfactory. Frequent changes
of power in the sector have created permanent difficulties at the management level, and political
instability has led to the situation whereby the Ministry of Transport and Communications has been
operating without a minister since the last half of 2009.
The international framework in relation to trade logistics is analyzed in this chapter. Emphasis is placed
on road and maritime transport and some key customs issues. A recurring feature in this chapter is
Ukraine’s dismal performance in safety issues with regard to road, maritime, and air transport
A. Transport Regulatory Issues
3.2. Ukraine has been dragging its feet in ratifying a large number of the transport and border
crossing agreements in Europe maintained by the United Nations Economic Commission for
Europe (UNECE). When compared with Southeastern Europe (SEE) countries, for example, the
extent to which Ukraine has ratified the agreements is very low (Attachment 15). Actions taken to
improve the situation include the EU-funded Ukrainian-European Policy and Legal Advice Centre
(http://www.ueplac.kiev.ua/en/ ) and TACIS project, ―Accession and Implementation by Ukraine of
International Agreement and Conventions on Transport.‖
3.3. The issue for Ukraine is how application of the Convention Concerning International
Carriage by Rail (COTIF) could be made easier, if such is dictated by the needs of the market. As
part of the CIS countries’ railway network, Ukraine is a member of the Organization for Railway
Cooperation (OSJD), which is its main international reference group in rail transport. OSJD is also the
network within which the transit tariff negotiations over that railway network are conducted.17
Ukraine is
in a transit position between Europe and Central Asia, and has to comply with both European
international rail transport law (COTIF, of which Ukraine is not a member) and the law predominating in
Eastern Europe and Central Asia (SMGS/SMPS). Work is currently ongoing to increase the legal
interoperability of documents used in the European CIM Convention system (related to COTIF) with
those used in the SMGS.18
The first phase of this work under the UNECE umbrella is to define a common
CIM/SMGS consignment note. The government of Ukraine on December 16, 2009, adopted a new
Decision of the CMU # 1391 for the implementation of the CIM/SMGS system on international rail
transportation.
3.4. The Convention on International Transport of Goods under Cover of TIR Carnets (TIR
Convention) remains an important document for Ukrainian carriers, as the road transit system is
going to be useful for non-EU countries in the foreseeable future. TIR statistics reveal that with
345,000 TIR Carnets, Ukrainian road haulers are the third largest users among the 56 countries
in the UNECE list. Only Turkish and Russian road carriers use more of this transit document. The 11.2
percent share of all TIR Carnets issued in 2007 is also an indication of the large fleet and operations of
Ukrainian carriers (Attachment 16). The Ukrainian Association of International Road Carriers (ASMAP)
is the local association issuing the documents, for which the operation is a source of revenue. ASMAP’s
service fee is UAH8 per carnet, which costs typically $US40; the cost depends on the length of the trip
and the Carnet, for example, four or six sheets. In Ukraine, the upper limit of TIR guarantee is
$US50,000.
3.5. The share of EURO IV or EURO V class trucks in the fleet of Ukrainian carriers is still
small (fewer than 1,000 trucks, or 5 percent of the international fleet). The European Conference of
Ministers of Transport (ECMT), an organization under the OECD umbrella, was in 2007-08 the
International Transport Forum (ITF; http://www.internationaltransportforum.org/), but the multilateral
quotas are still associated with the acronym ECMT. An agreement in November 2006 set out the terms of
development of the ECMT multilateral quota until the year 2010. ECMT member countries have agreed
on conversion rates and bonuses to be applied to the various categories of vehicles implied in the ECMT
Multilateral Quota System (Attachment 17). The EURO classes refer to trucks’ emission levels: the
higher the class, the lower the emissions. The coefficients mean that carriers in international traffic in the
EU need to invest in more modern trucks in order to be allowed to continue operations. Carriers in
western Ukraine are more likely to have newer equipment than those in the eastern part. One concern
raised during the interviews was that the Ukrainian institutes issuing EURO certificates for heavy road
vehicles in large numbers may not have the capacity to perform the technical inspections properly. In
addition, there is a concrete incentive to issue a higher certificate than what the test results would imply.
3.6. According to the International Road Transport Union (IRU) database, Ukraine has
concluded bilateral road transport agreements with 33 countries in Europe and Central Asia
(including Mongolia). These agreements came into force mostly in the mid-1990s (Attachment 18).
Ukrainian carriers need bilateral transport permits to carry goods to and from t other countries. The
permits are important for this type of traffic, as they complement the ECMT Multilateral Quotas, which
17
See ,e.g., http://osjd.plaske.ua/en/index.php. 18
See, e.g., http://www.unece.org/trans/wp24/wp24-presentations/documents/pres08-13.pdf .
enable traffic in the entire ECMT region. As freight costs for Ukrainian trucks are lower than those for
trucks from all EU countries (and also lower than some other non-EU countries), the bilateral permits
available to Ukrainian carriers are typically used first. Toward the end of the year, there is pressure to get
more bilateral permits from the main trading partners, but these are often difficult to obtain, as the other
countries want to secure traffic for their fleet. In 2008, the need for additional bilateral permits was the
highest for Poland, Austria, and Germany. Transit restrictions in Italy and Austria were also cited in the
interviews as a problem in this context.
3.7. Ukraine, together with Russia and Belarus, also has difficulty in complying with rules
regarding drivers‟ resting hours and related multi-manning conditions (the Convention on the
Taxation of Road Vehicles for Private Use in International Traffic [AETR Convention]) and meeting
the June 2010 deadline of implementing the Digital Tachograph.19
For now, Ukraine plans to
implement the Digital Tachograph in several steps: in 2010, implement it for international buses; in 2011,
for international freight transport and intercity buses; and in 2012, for other intercity buses, domestic
buses, and domestic trucks and for light trucks (from 3.5 to 11 tons). However, because of the lack of
financing, there is a risk that Ukrainian international carriers will be stopped at the EU border beginning
July 16, 2010.
3.8. In vehicle inspection and licensing, there are conflicting interests among competent
authorities. The unusual arrangement in Ukraine is that goods vehicles and buses need two
separate licenses, one from the State Enterprise International Road Transport Service of the Ministry of
Transport and Communications, and the other one from Department of the State Traffic Inspection of the
Ministry of Internal Affairs. The latter is also the competent authority on vehicle weights and dimensions.
3.9. This dual process has been in force for more than six years, making it virtually impossible
to maintain an up-to-date vehicle register and statistics. Furthermore, the system is nontransparent and
potentially prone to soliciting informal payments. The arrangement is a politicized issue and an important
source of income for both authorities, and therefore difficult to alter. According to ASMAP, the Ministry
of Internal Affairs issues national rules in Ukraine related to the European Agreement Concerning the
International Carriage of Dangerous Goods by Road (ADR Convention) The ADR Convention is not
adopted into the national legislation. ASMAP maintains that Ministry of the Interior also charges (in 2008
UAH500 or about $US100) for Dangerous Goods (DG) transport permits from Ukrainian carriers; foreign
carriers are exempt from this charge. This was also one of the topics in the protest issued by ASMAP in
June 2008. According to ITF (ECMT) and IRU,20
however, the competent authority for transport of DG
control by road is the Ministry of Transport and Communications and its subordinate units (see footnote).
In an international context, it would be unusual for transport of DG issues not to be under the Ministry of
Transport, or equivalent.
3.10. It is highly recommended that vehicle registration and licensing as well as issues pertaining
to transport of DG be unified under one ministry because of the significant public interest in the
matter. Internationally, this function is almost invariably subordinated to the MoTC, or equivalent.
19
www.unece.org/trans/doc/2008/sc1/ECE-TRANS-SC1-383e.doc. 20
See also: http://www.internationaltransportforum.org/europe/road/ctrlbodies/rdukraine.pdf.
3.11. The government has three remaining roles to play in relation to air transport: (i) to ensure
equitable and open competition among airlines; (ii) to facilitate efficient expansion of airport
capacity, avoiding either congestion or overcapacity; and (iii) to ensure the safety of air transport
operations. Ukraine has shown a strong commitment to all three objectives. Progress has been good
in (i), but less so in (ii) and (iii). Ukraine is a member of International Civil Aviation Organization
(ICAO) and Eurocontrol and a candidate member of the Joint Aviation Authorities (JAA) in Europe).
Ukraine is also a member of the European Civil Aviation Conference (ECAC), which represents the civil
aviation regulatory authorities of a number of European states that have agreed to cooperate in developing
and implementing common safety regulatory standards and procedures. JAA is an associated body of
ECAC.
3.12. The government of Ukraine is committed to complying with EU air transport regulations
and standards. Adopting JAA rules and standards and Eurocontrol regulations in Ukrainian legislation is
also a government objective.21
However, the concrete work of implementing and enforcing the regulations
and standards in the aviation sector remains to be done. The new Air Code is expected to provide a basis
for implementation of principles of aviation legislation that are in line with EU air laws. Moreover, the
negotiations on a Common Aviation Area Agreement were initiated between Ukraine and the EU in
December 2007. Initially, plans were to complete the negotiations and sign the agreement in mid- 2009,
but the issue has not been resolved. The Ukraine aviation authority will soon face a new strict European
Common Aviation Area (ECAA) requirement on separation of regulatory and operational functions and
establishment of an independent accident investigation body. These entities will need to be autonomous
and financially self-sustainable through the introduction of user charges and from commercial revenues.
B. Ukraine’s Record in Transport Safety
3.13. Ukraine‟s performance in transport safety in road, maritime, and air transport is dismal.
Data on rail safety were not available for this study. In summary:
9,481 people died in road accidents in 2007, 38.1 percent more than in 2006.
The number of road fatalities is among the highest in the world, and more than four times as
many as in Japan, The Netherlands, Norway, or the UK.
Ukraine is among the few countries on the International Maritime Organization’s Black List
(Paris Memorandum of Understanding on State Port Control).
Three Ukrainian air carriers are the only European carriers currently blacklisted by EU
aviation authorities (November 2008).
All Ukrainian air carriers were banned by the U.S. Federal Aviation Authority in 2006.
The record displays a recurring pattern across transport sectors, which means that the problems are not
only large but systemic. The Ukrainian government and nongovernmental bodies need to address these
issues in a much more profound way than has been done. This is also an area where international
agencies and international finance institutions need to direct efforts more than before.
3.14. The responsibility and accountability of transport safety authorities in Ukraine are diluted,
and their professional capacity and enforcement capabilities are limited. The financial basis of
21
See also: http://ec.europa.eu/transport/air/international_aviation/country_index/ukraine_en.htm .
safety-related control and licensing is weak, which creates ample possibilities for fraud and corruption.
Furthermore, transport safety authorities are under close political and ministerial control. This calls for a
profound rearrangement of their organization, responsibilities, enforcement capabilities, and, last but not
least, building up integrity and independence from service provision and political meddling. This applies
to all transport modes. While these are difficult tasks to do, useful models can be found in the way
transport safety agencies are being transformed in several EU countries. The trend is toward larger
transport safety agencies or authorities covering all transport modes, where the integrity and
independence can be combined with high standards of safety. For example the Swedish Transport
Agency started as a new authority on January 1, 2009, combining a broad range of authority and safety
work in rail, aviation, maritime, and road transport into one organization
(http://www.transportstyrelsen.se/en/ ). In Finland, the safety-related parts of rail, maritime, and aviation
agencies and vehicle inspectorate will be reorganized into one safety agency from January 1, 2010. The
infrastructure of road, rail, and maritime transport will be the responsibility of another state agency.
3.15. The number of traffic accidents in absolute terms has almost doubled since 2001, and
depending on the assessment methodology used, the cost of road accidents is estimated to be
between 1.5 and 3.5 percent of GDP, most of which is to the result of steadily increasing vehicle
ownership and use. Deaths per 10,000 registered vehicles were 8.0 in 2005, similar to many Eastern
European countries such as the Russian Federation, but much higher than many EU countries (between
three and four times higher in 2006). In 2007, a total of 9,481 people lost their lives in road accidents,
38.1 percent more than in 2006. This is the single highest figure after Russia (33,308 fatalities) recorded
by the ITF in European and Central Asian countries in 2007. Indeed, it is one of the highest figures in the
world. 22
Slightly more than 200 people per million inhabitants lost their lives in road traffic in 2007. This
figure was higher only in Lithuania (about 220) and Russia (about 240). In Japan, The Netherlands,
Norway, and the UK, the figure was under 50 fatalities per million population in 2007.
22
See: http://www.internationaltransportforum.org/Press/PDFs/2008-11-20.pdf .
Figure 19. Ukraine’s Road Traffic Accidents and Fatalities
Source: Ministry of Internal Affairs data
3.16. The traffic safety situation in Ukraine is one of the poorest in Europe. The issue has been
included in the government’s transport sector policy work, but a significantly more coordinated effort
across authorities as well as civil society stakeholders is needed to improve the traffic safety
environment, vehicle inspections and stock, and driver and pedestrian behavior, including the driving
culture. Measures already taken include the (practically) zero tolerance for speeding and drunk driving,
enacted in November 2008, and the regulation requiring passengers to wear safety belts in cars. However,
enforcement of these regulations is weak, and the procedures may actually encourage enforcement
officers to solicit informal payments more than before enactment of the regulations. A small step toward
improving the road safety situation is the joint project between Ukraine and EU Support to Strengthening
of Road Freight and Passenger Transport Safety in Ukraine (budget 1 million euro).23
3.17. The catastrophic situation with regard to road fatalities and injuries needs urgent action by
the government to ensure that the adopted policies are actually enforced. Ukraine should urgently
make preparations to sign and thereupon ratify the key traffic safety agreements, implement them in
national legislation, and ensure proper enforcement.
3.18. Implementation of maritime safety and inspection conventions is not satisfactory in
Ukraine. This is especially true in the case of inspections of Ukrainian flagged ships by the Shipping
Register of Ukraine, but also in the case of the ability to conduct so-called Port State Control inspections
for vessels entering Ukrainian ports. Ukraine’s position in the latest available ―Black-Grey-White list‖ of
the Paris Memorandum of Understanding dealing with Port State Control of ships under the IMO actually
deteriorated from ―Grey‖ in 2004-06 to ―Black‖ in 2005-07.24
The Black List is further divided into four
23
http://www.center.gov.ua/en/news/detail/942.htm ; Status of twinning projects in 2009, see:
http://www.center.gov.ua/data/upload/publication/main/ua/571/TWG_Projects_Database_as_of_28-02-09.xls . 24
http://www.parismou.org/upload/pdf/PMoU%20Target%20lists%202005-2007.pdf.
50.9
43.1
33.3
42.4
49.5
63.6
51.3
37
9.67.5
5.2 7.1 7.6 9.6 7.75.3
1990 1995 2000 2003 2006 2007 2008 2009
number of road accidents
number of fatalities
subgroups. In 2005-07, there were five countries in the ―Very High-Risk‖ category (including Albania,
DPR Korea, and Slovakia) and countries in its lowest ―Medium-Risk‖ category (including Egypt,
Panama, and Ukraine). This means that Ukrainian-flagged vessels will be subjected to particular scrutiny
in the world’s seaports and by the maritime community in general. A major concern is that there is no
separate maritime administration in Ukraine; rather, maritime safety issues are handled by a department
of the Ministry of Transport and Communications. This means that there is no independent or at least
separate authority to oversee ship registry issues or the quality of work and training of maritime
inspectors in Ukrainian ports.
3.19. The latest EU Black List (11 November, 2008) contains three Ukrainian air carriers: (i)
Ukraine Cargo Airways, (ii) Ukrainian Mediterranean Airlines, and (iii) Volare Aviation
Enterprise. The list names more than 150 air carriers, but no others are from Europe. The countries
represented in the list include Democratic Republic of Congo, Kyrgyz Republic, Indonesia, Angola,
Gabon, and Sierra Leone. The EU maintains a so-called Black List of air carriers for which all operations
are subject to a ban within the community.25
The list is not exhaustive and definitive: civil aviation
authorities of member states of the European Community only inspect aircraft of airlines that operate
flights to and from EC airports. In view of the random nature of such inspections, it is not possible to
check all aircraft that land at each EC airport. An airline that is included on the EC list deems itself to be
in conformity with the necessary technical elements and requirements prescribed by the applicable
international safety standards and may request the EC to commence the procedure for its removal from
the list.
3.20. The U.S. Federal Aviation Administration had banned all Ukrainian air carriers as recently
as January 2006, along with carriers of 21 other countries. The FAA ban was based on an assessment
of the country's civil aviation authority (CAA) that found that it is not providing oversight of its air carrier
operators in accordance with the minimum safety standards established by the International Civil
Aviation Organization (ICAO).26
The aviation authorities did take some steps to improve air safety. A
draft program of flight safety improvement measures to be taken during 2009–15 has been prepared but
still is not adopted. The very fact that air carriers that are allowed to operate under Ukrainian
aviation registry and standards are blacklisted by the EU and have been recently banned by the
U.S. FAA is an indication of the poor level of aviation safety control in Ukraine.
C. Donors’ Facilitation in Ukraine’s Transport Sector
25
The latest from 11 Nov. 2008 at: http://ec.europa.eu/transport/air-ban/pdf/list_en.pdf.
26 Applied if one or more of the following deficiencies are identified: (i) The country lacks laws or regulations
necessary to support the certification and oversight of air carriers in accordance with minimum international
standards, (ii) the national CAA lacks the technical expertise, resources, and organization to license or oversee air
carrier operations, (iii) the CAA does not have adequately trained and qualified technical personnel, (iv) the CAA
does not provide adequate inspector guidance to ensure enforcement of, and compliance with, minimum
international standards, and (v) the CAA has insufficient documentation and records of certification and inadequate
continuing oversight and surveillance of air carrier operations.
3.21. Transport is a key policy area for EU cooperation with Ukraine. There is a pledge in the EU-
Ukraine Action Plan to elaborate a concept for a national sustainable transport policy for the development
of all transport modes, consistent with the EU’s White Paper on Transport. The Action Plan also commits
the EU and Ukraine to work in partnership on measures and reforms in the road, railway, aviation, and
maritime and inland waterway transport sectors. The EU and Ukraine are now engaged in detailed
discussions on how to develop transport cooperation in view of the High-Level Group’s Report on the
Extension of Trans-European Transport Networks (TEN-T) to neighboring countries. The development of
transport infrastructure will be a key element in the preparations for hosting the EURO 2012 football
championships. Adherence to the Interbus Agreement remains a priority for Ukraine. In the aviation
sector, negotiations on a comprehensive EU-Ukraine aviation agreement started in December 2007.
Ukraine also benefits also from the EU Technical Aid to the Commonwealth of Independent States
(TACIS) program. TACIS projects will continue to operate until the end of year 2010. In 2007, TACIS
was replaced by the European Neighborhood and Partnership Instrument, which supports the European
Neighborhood Policy.
3.22. Since the inception of the ENPI, Ukraine has undergone a major shift in aid modality,
moving toward sector budget support (SBS) in order to enhance policy dialogue and increase
government ownership of operations. Identification of SBS programs is based upon a Sector Readiness
Assessment covering seven main criteria, of which three are considered eligibility criteria (existence of a
sector strategy; sound macroeconomic framework; sound public finance management system). If one or
more of the three criteria is missing, preconditions for SBS are considered not to have been met. Over the
period 2007-09, approx. 72 percent of the total annual allocations were devoted to SBS operations. In
2008, a first partial tranche of €23 million was disbursed under the 2007 Energy Sector Policy Support
Program as budget support. The Action Program 2008 for Ukraine includes an additional €70 million to
support energy efficiency in Ukraine, including €63 million to be disbursed as budget support over a
three-year period. The Action Program 2008 also includes the €45 million Sector Policy Support Program
(SPSP) to promote mutual trade by removing technical barriers to trade between Ukraine and the
European Union, comprising €39 million budget support, to be disbursed in four tranches, and €6 million
for technical assistance. In order to help the government of Ukraine integrate better with EU transport
systems, seven projects with a total value of €13 million are currently being implemented in this area.
The project activities will be continued and extended under the Annual Action Plan 2009 through
transport sector budget support (of approximately €65 million for the period 2010-13). In addition, the EU
has provided Ukraine with technical assistance and twinning projects. These projects in 2007-10 amount
to less than €15 million ($US20 million).27
The status of these projects in summer 2008 is shown in
Attachment 19 At that time, it was already known that the tendering process of some projects would take
longer than anticipated and that some projects might start later than envisaged. Technical assistance
projects usually comprise services provided in such fields as policy analysis and development, various
studies and assessments, and draft legal acts and recommendations. Twinning projects bring together
public sector expertise from EU member states and beneficiary countries with the aim of enhancing
cooperative activities. Twinning projects are built around the secondment of at least one full-time member
state expert, who then goes to work in a beneficiary country administration, and may include a number of
other actions such as workshops, training sessions, expert missions, and counseling. Ukraine is also
benefiting from the TRACECA (Transport Corridor Europe-Caucasus-Asia) interstate program aimed at
supporting political and economic development in the Black Sea Region, Caucasus, and Central Asia by
27
See more at: Delegation of the European Commission to Ukraine, http://www.delukr.ec.europa.eu/
means of improvement of international transport. The program in itself is a self-sustainable tool in trade
facilitation and the integration of the economies of the TRACECA member states into the world markets.
3.23. EBRD is the largest IFI that finances transport sector projects in Ukraine. In 1998-2008, the
total EBRD finance in direct investment type of projects amounts to $US965 million. Railway projects
account for 52.0 percent and road projects 38.8 percent of these. The total project value of these is over
$US1,880 million (Attachment 20). According to EBRD’s country strategy for Ukraine, as approved by
the Board of Directors on 18 September 2007, EBRD will continue to play a crucial role in developing
the transport infrastructure of Ukraine, and will take appropriate account of the recommendations of the
High-Level Group on the extension of the main trans-European transport axes to neighboring countries as
well as of the Long-Term TRACECA Strategy. A key strategic change will be the gradual move to
nonsovereign financing in the transport sector: for example, for Ukrainian Railways, the air navigation
authority, and possibly the Ukraine Postal Service. Preparations for the finals of the European Football
Championship in 2012 are expected to become a powerful catalyst for investment by public and private
sources in order to upgrade Ukraine’s transport infrastructure in a sustainable fashion to meet the
requirements of this event.
Box 1. EBRD Transition Goals in the Transport Sector of Ukraine
• Complete the process of corporatization the UZ and continue reforms in the railway sector, including
enhanced access of private operators.
•Adopt modern road concessions legislation enabling investments in the road sector through PPP schemes.
• Develop sector strategies for Ukraine’s regional airports and maritime and river ports in order to remove
bottlenecks, increase efficiency of passenger and freight operations, improve air navigation safety, and
help realize more fully the transit potential of Ukraine in line with the recommendations of the Baku
working groups, the TRACECA long-term strategies, and the recommendations of the High-Level Group.
• starting negotiations on a Common Aviation Area with the aim to fully integrate Ukraine into the EU single
aviation market and into European aviation structures. Ukraine will take over the EU aviation legislation and the
relevant standards for example in the field of safety or air traffic management
4. Border-Crossing and Customs Issues
4.1. There are four types of border crossings: airports, seaports, road crossings, and rail
crossings. In principle, the border operations and clearance processes at all four types are similar.
Generally, border operations focus on authoritarian control and revenue generation, rather than trade
facilitation as promoted by international conventions and rules. Consultations with stakeholders, being the
users of borders, show that they are not yet perceived as full partners by the authorities in the progression
toward more user-friendly and efficient border operations.
4.2. In Ukraine, the Customs Service is an independent government body. The work of the
Customs Service is coordinated by the Minister of Finance. The head of the Customs Service is
nominated by the Minister of Finance and appointed by the Cabinet of Ministers. The Custom Service
has been a member of the World Customs Organization since 1992. Currently, there are 218 border
crossing points as well as numerous inland customs clearance locations. In 1996, the Academy of the
State Customs Service was created by the Decree of the President of Ukraine #412/96. It is the main
source of human resources for the Customs Service, with more than 250 graduates per year. There are
three departments in the academy that train specialists in the areas of law, economics/commerce, and IT.
4.3. The Customs Service ensures the major revenue flow in the country. In 2007, revenues
collected constituted 7.6 percent of GDP; in 2008, this share increased to approximately 10 percent,
which added up to more than a quarter of the consolidated budget of Ukraine
A. Operational Framework
Legislative Framework
4.4. The legislative environment is often quoted by importers as being at the root of most
problems. There is an urgent need for new customs legislation, as all provisions of the old Customs code
became obsolete when Ukraine joined the World Trade Organization in May 2008 and the ensuing
vacuum created severe confusion: For example, no new customs brokers were licensed, and it was not
clear if previously licensed companies would be allowed to operate (with an annual registration renewal
fee of $US1,500) beyond the limit of the current validity of their existing license. Similarly, two current
laws on temporary imports and passenger clearance have become obsolete. Some legislative provisions
are inapplicable in the absence of sublegislation (for example, re-export).
4.5. The Customs Service has prepared a draft new code, which is a step forward; however, has
several drawbacks (Attachment 30). According to the Customs Service, this draft is largely compatible
with international standards and the new EU customs code, but there have been some concerns from the
private sector that it is not a major improvement over the previous code: Although the draft code is
largely consistent with EU, WTO, and revised Kyoto Convention principles, its implementation may not
be; for example, little will be changed for the determination of values or classification, which remains
largely a discretionary prerogative of customs. The draft also contradicts the Ukrainian system of law
(notably regarding presumption of innocence), it is even longer and more complicated than the old one,
and it may encourage corruption. In some cases, it adds a new burden on the clearing agents, who
formerly needed to submit only four documents, but who will now have to produce eight different
documents to obtain a license. It ignores essential modern operations, includes several inconsistencies
(see below), and will require extensive sublegislation to become operational, while there is a risk that
some restrictive interpretation may limit the benefits of new procedures. There are also overlaps resulting
from inconsistent legislation and existing regulations that are not necessarily due to customs. For
example, the law on safety and quality of food products, which was drafted with the help of WTO
experts, does not mention certification of food products, which should be eliminated, but is still
required.28
Veterinary inspection is in theory limited to intermediate products, but even end products are
subject to a veterinary inspection. There are also inconsistencies between this law and the harmonized
system classification used by customs, because subheadings do not match, thus preventing automatic
selection of relevant products.
Efforts of Interagency Coordination
4.6. A number of MoUs have been signed between the Customs Service and the Ministries of
Economy, Health, and Interior to streamline and harmonize clearance procedures and data
exchange. Data will be shared with the State Border Service (in charge of immigration and border
guards) on vehicles, persons, and goods through a computerized link currently under testing. Ultimately,
all law enforcement agencies will have access to the system, which will also include a database on
violations. Since 2007, customs officials have been delegated as environmental control officers. On an
operational level, the Customs Service carries out joint controls with the tax administration, based on a
mutually agreed-on quarterly schedule, and informal interagency communication is said to be good.
Organization
4.7. The structure of the Customs Service is based on a highly centralized organization with
field offices. Although there is a form of regional structure between headquarters and the field offices,
the regional office does not appear to be a specific echelon in the chain of command, but rather a
functional level in charge of certain policy matters, with field office managers reporting more or less
directly to national headquarters.29
The debate on an intermediary level between national and ground
level has been ongoing for several years. The Customs Service would prefer to eliminate, in most cases,
the regional office level. The risk if this is introduced is that headquarters is likely be flooded with
requests and applications from the field, or each field office will become a regional headquarter office, in
addition to performing operational tasks.
4.8. There is an ongoing debate regarding the necessity of having a middle regional level of
customs offices. Some border commanders argue that they would have more direct access to their
counterparts in the adjacent country, whereas now they have limited possibilities or initiatives in terms of
cross-border contacts. However, opposite countries often have a regional headquarters structure, so it is
not obvious that contacts would be facilitated. It was also observed that all international discussions are
28
More generally, goods manufactured in Europe need new certification, although it is alleged that in fact there is no
testing, but simply the collection of a fee. 29
Senior customs management, however, believes that a regional echelon creates an unnecessary additional level,
generating confusion, and is of the view that management over operations should be extremely centralized.
held at the national level, to the extent that Customs Service local border staff is not even involved in
them. Some activities, such as audit and control, are better managed more remotely. In Western
countries, it is the regional headquarters office supported by border station expertise that holds all
operational cross-border discussions, with national headquarters involved only in major policy decisions.
Furthermore, a regional echelon also allows flexible management of resources (for example, shifting staff
from one station to another within the same region, to respond to peak traffic, or to destabilize fraud or
corruption patterns), and drives inland and post-release control activities. Last, in a country the size of
Ukraine, it is almost impossible to centralize, irrespective of modern communication technology
(should it be available), activities such as training, enforcement, immediate audit, and professional
relations with local traders.
Revenue Targets
4.9. The Customs Service is under government pressure to meet revenue targets assigned to
customs and tax services, which has negative implications for trade facilitation and the efficiency of
customs control. While revenue projections are important, the way in which revenue targets are
internalized in the Customs Service makes them the main, if not sole, indicator of departmental
performance. In an effort to monitor and achieve the targets, the Customs Service has distributed the
overall objective for revenue collection among all customs houses, and collection figures are closely
monitored monthly by headquarters. This can have several perverse effects.
4.10. Client capture. Both importers and clearing agents are basically assigned to a specific customs
house, based on their place of registration.30
If an agent wants to clear at another location, he must file an
application, and can obtain an authorization that is valid for one month only to clear at another customs
house. This prevents flexibility in responding to a request by a new importer. Importers who want to
clear elsewhere must obtain a ―Coordinated Decision,‖ with permission from the office of registration,
which takes two weeks to obtain. These restrictions prevent groupage or consolidated imports. (For
example, there are nine different customs houses in Kyiv, but agents or transporters are limited to one
only, and cannot transfer goods to the office of clearance, which would be the most convenient for an
importer.) The draft new customs code should, however, follow the recommendations of the Kyoto
Convention, which provides for clearance anywhere, at the choice of importers.
4.11. Valuation. Valuation is the area where the pressure on revenue maximization is the highest.
Although Ukraine has adhered to the WTO agreement on customs valuation, which is based on
transaction values (essentially the invoice value), the Customs Service quasi-systematically challenges
values declared by importers and reverts to the sixth method of valuation.31
Although the WTO
agreement specifically excludes minimum price lists for establishing the value of imports, these are
widely in use in customs.32
In some cases, customs uses an average value per kilo as a baseline for
valuation. Another source of data for customs valuation is the use of internet prices for similar or
identical goods. According to Decision 1766 on valuation by the Customs Service, customs can require
30
Exporters are allowed to clear at the place where their business is performed. 31
Known as the ―fallback method,‖ this approach to valuation under Article 7 of the GATT agreement can lead to
highly discretionary decisions by customs, especially when, as is the case in Ukraine, it is not backed by proper
appeals mechanisms. 32
The Customs Service uses reference prices computed by the Ministries of Economy and Industry as a benchmark
for all transactions.
supporting documentation (which is an internationally accepted procedure), but also often require
additional confidential commercial information, and the Decision has a provision for the submission of
―any other‖(that is, unspecified) documents, which opens the way for arbitrary decisions. Overall, these
could intrinsically be acceptable solutions, as long as they do not lead to the imposition of arbitrary
values, which is the case in Ukraine. When there is a valuation dispute, importers have the choice
between accepting the value determined by the Customs Service, or, if they choose to dispute them, they
need to follow a complicated procedure that involves lodging a temporary declaration, paying the full
amount of duty as assessed by customs, then applying for a refund should the valuation appeal be
accepted. The entire process should not take more than a month, with a possible extension of 15 days, but
in reality valuation disputes take three to four months to be settled.
4.12. Unlike in other countries, there is no conditional release (that is, when importers are allowed to
remove the goods pending a valuation ruling, and subject to the submission of a guarantee to cover the
potentially unpaid duty). This is envisaged under the new code, but, in the absence of a guarantee
mechanism, is not implementable.
4.13. However, this negative assessment needs to be balanced against the fact that Ukrainian importers
may not yet have attained the level of professionalism of their EU counterparts, and that declared values
are often under-reported (also partly because, knowing they will be disputed, importers want to set as low
as possible the bargaining base for subsequent valuation adjustments). Unlike in EU countries, there is no
comprehensive audit trail, of well-established computerized link with the tax administration or the
banking sector, and the ability to detect fraud after clearance and release of goods is more limited. For
these reasons, customs cannot be solely blamed for the lack of confidence displayed toward the private
sector. At the same time, the solution is not to reinforce these controls, but to put in place the
mechanisms used in EU countries.
4.14. Discretionary decisions. Other areas where customs allegedly misuses discretionary powers are
(i) classification of goods, where customs is blamed for systematically selecting the tariff heading with
the highest duty rate, and (ii) origin, for which certificates are often resent to countries where they were
issued to be checked; the subsequent verification process can take up to nine months.
4.15. Petty checks. The focus on revenue leads the Customs Service to an increasingly overzealous
interpretation of the law. For example, there is a penalty of $US200-300 for cleared shipments that are
not removed from warehouses immediately after clearance. Long shipments (that is, an excess over the
manifested number of goods) are systematically fined; so are lorries with even a minor delay for reporting
at the end of a transit. (When a lorry in transit is late at the point of destination for whatever reason, the
importer cannot clear the goods and has to request a special permission from the customs delivery control
and antismuggling departments. There is an administrative penalty that is a multiple of $US100, and if
the importer chooses to dispute it in court, the fine can reach a multiple of $US1,000.) In that context,
customs has no real interest in simplification. There are no provisions under the customs code for ―bill of
sight‖ procedures,33
and improperly declared goods are then fined or seized. When free samples are
imported by express courier, their value must be certified by customs headquarters, a procedure that
delays release by three to four days. Many checks are pure formalities, or do not take place, but a fee is
charged (this is essentially the case for SPS or certification). As for radiological control, a fee is charged,
33
The right for the importer to inspect an arriving shipment before making a declaration.
but there is usually no testing equipment. This generates a mindset in customs of an excessive focus on
maximizing collections to the detriment of facilitation. The Customs Service is reluctant to implement
modern customs principles (for example, the free choice of place of clearance) or to properly enforce
internationally agreed-on procedures (such as the WTO valuation agreement). While the draft customs
code will introduce modern provisions and principles, many importers fear that these shall not be
implemented by the Customs Service, or that sublegislation will strip them of any significance.
Performance Indicators
4.16. A review of overall performance indicators of the Customs Service shows an improvement
over recent years in terms of productivity, revenue performance, and cost-effectiveness (Attachment
21). In 2007, the average value of goods per import declaration was $US53.556 and per export
declaration, $US66.388. The corresponding figures for 2005 were $US39.915 and $US56.522,
respectively. In 2007, the total staff of 18,322 processed 3.3 million customs declarations. This is, on
average, 180 declarations per year, or slightly more than one per working day. Even when the operational
staff actually handling the declaration is only a part of the total staff, the efficiency rate is very low (and
below the SEE average of more than 340). The salary cost is also high (nearly $US700 per month per
officer an average, compared to $US450 in SEE countries), and allegations of corruption in the Customs
Service are numerous, showing that higher salaries do not automatically lead to a lowering of unethical
practices.34
4.17. However, these indicators globally show a slight improvement since 2005, indicating that
some reforms are under way and may show positive results. Junior staff are more motivated and
senior headquarters management have adopted a voluntaristic approach toward modernization, including
(i) the new customs code, (ii) new transit procedures, (iii) infrastructure development, and (iv)
introduction of risk management.
34
The salary cost includes social benefits and pension contributions, and is not the actual salary collected by
Customs officers.
Table 4.1. Overall Performance of the SCS
2004 2005 2006 2007 05/06 06/07
Total Customs Revenue (US$ million)
6,139 8,153 10,717
32.81% 31.44%
Total Customs Cost (US$ million)
170 242 261
41.93% 7.86%
Total Customs Staff
18,322 18,322 18,322
0.00% 0.00%
Total Customs Salaries (US$ million)
108 150 154
38.41% 2.47%
Annual Number of Declarations 1,288,385 1,474,429 1,686,207 1,877,960
14.36% 11.37%
Import 698,579 869,074 1,034,207 1,135,929
19.00% 9.84%
Export 589,806 605,355 652,000 742,031
7.71% 13.81%
Imports (US$ million) 28,450 35,554 43,232 60,836
21.60% 40.72%
Exports (US$ mmllion) 32,672 34,216 38,422 49,262
12.29% 28.21%
Total (US$ Million) 61,122 69,770 81,654 110,098
17.03% 34.83%
Revenue Collected/Customs Staff
335,051 444,995 584,909
32.81% 31.44%
Total Customs Cost/Revenue
Collected
2.77% 2.96% 2.43%
6.86% -17.94%
Salaries/Revenue Collected
1.76% 1.84% 1.43%
4.21% -22.04%
Trade Volume/Staff (USD)
3,807,990 4,456,610 6,009,060
17.03% 34.83%
Declarations/Staff
80.47 92.03 102.50
14.36% 11.37%
Economic cost per Declaration
115.50 143.34 138.82
24.10% -3.15%
Average Monthly Salary Cost
492.58 681.79 698.61
38.41% 2.47%
Average Revenue per Declaration
7,063.61 7,883.53 9,434.30
11.61% 19.67%
Average Value per Declaration 40,725.39 40,910.21 41,802.08 53,556.16
2.18% 28.12%
Ratio (effective rate)
17.27% 18.86% 17.62%
9.23% -6.59%
4.18. Overall, the customs administration is doing its best to achieve results, which can be put to
the credit of staff and management; however, customs functions are still very much obsolete. This
is widely reflected in an analysis of field operations
Border Operations
4.19. Border crossing times, while they could be significantly reduced, are not unusually or
unacceptably long by regional standards. While border procedures could definitely be streamlined and
simplified, they are not solely responsible for long waiting times. To some extent, they arise from the
spillover effect of bottlenecks in adjacent EU countries that was seen during several field visits
undertaken for the report preparation. Also, there are seven different border clearance organizations,
including customs, phytosanitary, sanitary, radiological, veterinary, road administration, and border
guards. It is necessary to obtain clearance stamps from each of these organizations before customs
clearance. Here, the problem is that documents are required by law to be presented to each of these
organizations irrespective of whether the documents are relevant to the competence of a particular
organization.
4.20. There is heavy traffic on Ukraine‟s western borders, which often exceeds the planned
capacity of the border facilities, and traffic volumes are increasing. Uzhgorod was designed to
handle 60 lorries per customs shift, and now has to cope with between 110 and 120, with an average load
of 500 lorries per day. Krakowiec had a design capacity of 400 lorries per day, but handles well over 600.
Plans for future development are based on an extension of the number of lanes, with additional
equipment, although little consideration is given to streamlining of existing procedures, which are the
main reason for congestion. In particular, border operations are characterized by frequent duplication of
controls between different agencies, and occasionally within customs
4.21. Entry into Ukraine involves complicated documentary processes and traffic flows that
would need to be streamlined. In a recent measure intended to facilitate cross-border movements and
reduce delays, the Customs Service introduced a preliminary notification scheme. It is intended to match
the new EU advance notification and be used as a preliminary control document for risk management and
to facilitate initial entry processing. All importers (except for some TIR shipments) must lodge the
preliminary notification (which is established on a specific form) before incoming lorries reach the
border. This document covers imports, but is not used for transit (except with Moldova). When reaching
the border, all entering lorries first stop at the station gate, which is kept by State Border Service Border
Guards, where all vehicles are logged in and drivers obtain a control slip on which all the different control
steps are listed. This control slip is subsequently collected at the exit gate. Lorries then drive on a
weighbridge operated by the Ministry of Transport; sometimes the same lorry is later reweighed by
customs on the same bridge.35
The passport control booth is located next, but although processing takes
place in the lanes, drivers usually have to exit their vehicles because the passport booths are not elevated
at the lorry cabin level. Lorries then park for the duration of documentary processing, which takes place
in the administrative building. At Uzhgorod, there are monitor screens in the public area informing
drivers and agents of the status of the shipment, and of potential difficulties (for example, overloads,
missing documents or preliminary notification, offense procedure).
35
There are plans to establish specific weighbridges for customs, which would practically result in systematically
double-weighing every lorry.
4.22. Single window operation is far from efficient. Processing takes place at two distinct locations
within the same building:
A ―single window‖ includes representatives of SPS, sanitary, environment, radiological
administrations, and (when customs requires it) SMAP and roads administration.
The customs window is in charge of all customs border procedures.
When the driver arrives, he should know the number of the preliminary notification for his vehicle, which
is then retrieved by customs, which matches the transport documentation with the preliminary
notification. The data are entered in the customs computer system, with the CMR number. Customs then
prints the computer screen, keeping one copy and giving the other to the driver. Customs claims there are
no cases where the preliminary notification is not available, but the driver must wait while customs
confirms the arrival of the goods with the consignee.
At the single window, the driver and/or agent must hand in the vehicle registration certificate, entry
control slip, invoice, authority from the importer, CMR, export document, foreign weight certificate, and
copies. Staff from each agency stamp the documents and record them in separate manual registers. The
lorries are then inspected, based on risk management in principle, but systematically in effect. Physical
inspection is done jointly by State Borderguard Service (SBS) and the Customs Service. After
Box 2. Border Processing Delays
The benchmark in the Customs Service is a two-minute delay maximum to release a private car
(unless there is a difficulty). At Chop border station, the average waiting time for a car is 10 minutes,
and 5 minutes at Krakowiec. However, observations on the ground significantly contradict these
figures.
First, they do not take into account waiting times and the amplification of the queue effect (when the
entire line moves at the pace of the vehicle longest to process).
Second, these delays do not take into account other agencies than customs. With immigration and
taking into account queues, a private car needs more than 30 minutes and often up to 50 minutes to
clear the border. During peak periods, car drivers have to wait between three and four hours.
There is a similar discrepancy for commercial traffic. The overall time for releasing a lorry is said to
be between 20 and 60 minutes at Uzhgorod, 40 minutes at Chop, and less than two hours at
Krakowiec. However, most importers or freight forwarders mention delays between five hours and
one day to enter Ukraine.
Some of the delays are to the result of exit procedures in adjacent countries. Poland sends outgoing
lorries in batches of 20 to 30, thus immediately creating a bottleneck. Entry delays in the EU also
can have an overspill effect on the Ukrainian side, especially when, on weekends, outgoing lorries
have to wait to enter the EU because of traffic restrictions on goods vehicles
satisfactory completion, drivers are allowed to leave the border station, and they hand in the control slip,
which is simply filed. At Jagodin, customs has an additional checkpoint at the exit of the facility, where
vehicles are reinspected
4.23. Exit procedures are somewhat simpler. Lorries drive through an entry gate into the facility,
collect a control slip, and are usually weighed by the roads administration.36
The characteristics of the
lorry are entered into the roads administration’s computer system, and some form of targeting takes place.
The roads administration also checks the vehicle’s accompanying documents, including those related to
freight. They are then processed by the border guards (passport control), and a customs dispatcher, who
decides whether a lorry should be inspected or not. In both cases, the driver needs to produce the export
declaration, which is checked against the record in the computer system. The control slip is then handed
in and the driver is allowed to proceed outward.
4.24. The main transit system is TIR for shipments into or through Ukraine. Internal transit is
also technically possible, but not very much used, because of technical difficulties. It requires a
specific declaration, and special types of guarantees depending on the categories of goods, which can
consist of a cash deposit, bank guarantee, convoy/escort (essentially for cars), or the use of a bonded
licensed carrier. Goods must be represented before 10 days maximum for road transport (28 days for
rail), but any customs house can in theory extend the delay if justified. The average delay allowed for
Kyiv is five days from entering the western border. The major difficulty for domestic transit is that there
is in practice only one guaranteeing entity. It makes it impracticable as a regular service offered by
freight forwarders. This particularly affects transport of alcohol and tobacco, which cannot be covered
under the TIR system. However, the government has recently approved several institutions for providing
guarantees, and a transit system according to international standards could thus be re-established.
4.25. The control mechanisms applied to transit appear excessive and may lead to abuse, although
this is not attributable to customs:
Seals are regularly broken by the border guards on TIR lorries, especially Russian ones, or ones
originating from Russia, on security grounds. This is against the TIR Convention, which allows
customs to break seals only in the case of suspected fraud, or other law enforcement agencies
only in emergencies.
Transit lorries must follow delivery times are set by customs according to official guidelines.37
When the drivers exceed these times, they can be fined. The road police (GAI) can stop transit
lorries and may ask for all shipment documents, but cannot break the seals. The GAI must in
theory provide a statement if they delay the vehicle.
Similarly, in the case of a breakdown, the drivers must report to an approved repair station; if the
driver repairs himself, he is accountable for the delay.
As mentioned in Section 1, overtime shipments must be discharged by the antismuggling and
delivery control departments of the Customs Service.
As a result, the rate of regular discharge is very high (with a 0.004 rate of unreported cargo), but this
should be measured against the relatively low usage of transit.
36
Occasionally including empty vehicles. 37
On average, five days from the western borders to Kyiv.
4.26. The more documents required, the greater the risk of problems in correlation between the
documents, particularly as they generally have to be obtained from different sources. Many of the
original documents are in English and some need to be translated. Indications are that the error rate in
declarations and support documents is considered to be relatively high. This results in clearance delays
while adjustments are made to the documentation and fines are levied, many of which are for relatively
minor infringements such as typing errors. The large volumes of documents required are demonstrated in
Table 3.2, which shows the documentation instructions issued by one of the major carriers.
Table 4.2. Documents Required for Presentation to Carrier and Customs
For Receipt of Cargo For Customs Clearance at the Bill
of Lading (or equivalent)
Port/Border
For Customs Clearance at Local
Clearance Office
Original Commercial Invoice (with
translation)
Copy of Commercial Contract
Copy of Accreditation Card
(appointing clearing agent)
Letter of Authorization of Clearing
Agent (if necessary)
Original Certificate of Origin
Quality Certificate(if necessary)
Packing List (if the invoice does not
contain the number of cases)
Conformity Certificate (if
necessary)
Sanitary Certificate (if necessary)
Veterinary Certificate (if necessary)
Bill of Lading (or equivalent)
Foreign Economic Contract (or
commission agreement)
Foreign Economic Contract
Registration Card or
Accreditation Card
Commercial Invoice
Confirmation of Goods Price (to
be issued by a relevant body)
Certificate of Origin
Letter Authorizing Clearing
Agent
Currency Declaration Conformity
Certificate (if necessary)
Sanitary Certificate (if necessary)
Veterinary Certificate (if
necessary
Commercial Invoice
Certificate of Origin
Consignee Accreditation Card in
the Customs Office of
Destination
Copy of Advance Notice and
Sight Entry
Conformity Certificate (if
necessary)
Sanitary Certificate (if necessary)
Veterinary Certificate (if
necessary
Source: Maersk line instructions to customers.
Issues
4.27. The organization of processes tends to generate congestion. Even though overall border
delays are not excessive compared to some other countries, they could be considerably shortened.
4.28. Duplication actions are often performed, including:
Weighing. Lorries are often weighed twice, once by the roads administration, and once by
customs. There are plans to establish specific weighbridges for customs, which would
practically result in systematically double-weighing every lorry. In addition, lorries are also
weighed in the country of exit. Not only is it a waste of resources and equipment, but also it
generates bottlenecks and overall congestion at the facility. In some cases (Jagodin on the
Polish border), the Polish exit weight ticket is used by the Ukrainian authorities, but at other
locations customs consider that foreign documents do not have sufficient legal standing to be
used in Ukraine.38
Weighing of commercial vehicles is also a major rent-seeking
opportunity.
Preliminary notification. While the EU advance notification system only envisages a few
data elements to be sufficient to carry out a risk assessment, the Customs Service insists on a
full set of data, which is approximately the same as what the importer will have to declare for
final clearance. Not only is the preliminary notification over-comprehensive, but it is not
used to automatically prepare the final clearance declaration and not the basis for any risk
management. In addition, the matching process between the vehicle and the preliminary
notification is awkward, as drivers do not always know its number, and it is alleged that some
customs officers ask for a bribe for simply retrieving it from the archives.
Unnecessary physical checks. The same vehicle is checked by customs and border guards,
albeit for different purposes, but this rapidly leads to a 100 percent examination policy.
Although the Customs Service is trying to put in place a computerized risk management
system, local staff does not use any targeting or other selectivity techniques. In addition,
these checks usually take place in the lanes, thus further delaying upstream traffic.
SMAP control the technical characteristics of lorries and driving times, but in effect review
all documents relating to the import. SMAP officials have some targeting information on
vehicles, which they share with customs, but customs performs practically the same checks as
SMAP a second time
4.29. The mandate of control agencies is unclear and efficiency losses from overlapping roles and
responsibilities exist.
Customs and border guards. The government has made efforts to clarify roles and
responsibilities of border control agencies, in particular between customs and the border guards.
Order No. 505/642 of 11 June 2008 sets down the principles of border control, but essentially
encourages joint inspections, with no real specialization of each agency. However, the Order
explicitly states the need for exchanges of information between the two administrations, and this
may solve the problem mentioned by drivers who complain about excessive requests from the
border guards for data that are normally required only by customs.
Delegation of controls. In some cases, there has been delegation of authority. Since 2007,
customs has been delegated responsibility for environmental control, but this has not been
extended to other types of control that customs could easily carry out on behalf of others (for
example, road vehicle checks on behalf of the Ministry of Transport). As an example, there was
an Order of June 2008 on joint weighing (although the sharing of the weight certificate should be
sufficient).39
4.30. The so-called single window is totally different from the international standards established
by United Nations (UN-CEFACT); it merely consists of a single office at border stations where most
agencies are located in one room. The procedure consists for drivers or their agents to lodge the entire set
of documents with one agency, which then passes them on to all the other administrations present in the
room. As a result, each agency scrutinizes every document, even those that are totally irrelevant, and logs
them in manual registers.40
This is a waste of time, even more so because every agency insists on
38
While this is a valid point, nothing would prevent customs from using a foreign weight ticket as a preliminary
indication, and weighing entering vehicles only in case of a suspected violation, rather than systematically. 39
The order was subsequently withdrawn, and is now in the Ministry of Justice for an additional review of its
legality. 40
It is characteristic that the agencies simply check the presence of documents and certificates, but never inspect the
goods. The documentary checks themselves could easily be done by customs only, given adequate training.
receiving copies of all documents. The system would be far more effective if customs simply notified
relevant agencies as needed when a particular import was made.
4.31. Infrastructure is considered to be a major problem. The EU is completing a €10 million
program destined to upgrade and equip border facilities. A new cargo terminal was built at Uzhgorod, and
a new passenger facility is now planned. An upgrade is also planned at Chop, with new lanes, and a
scanner and a weighbridge. Krakowiec has plans for a cargo clearance terminal, and there is a €9 million
estimate for the upgrade of Rava Ruska. At Jagodin, a new facility is under construction. EU funding
nonetheless implies long implementation delays.
4.32. While scanners play a major role in detecting some forms of contraband, they should not be
considered as a substitute for adequate and risk-based examinations; systematic 100 percent scans, as
practiced in other countries, have proved countereffective, and have increased delays. Thus, the plans for
scanners to be installed at the border would need to be carefully evaluated.
Box 3. Scanners: Policies and Issues
Scanners appeared in customs operations because they allowed nonintrusive inspections and were much faster than
traditional manual examinations. They were also considered to be more reliable than human verifications because
they left a record, somehow delocated the search (there was less interface between the importer and the examining
officer), and granted easy access to areas in a vehicle or consignment that would otherwise have been difficult to
inspect.
However, scanners are expensive to acquire and maintain, and their effective use requires special skills and an
adequate organization. Furthermore, while they are effective for detecting obvious smuggling (as evidenced by the
pictures provided by all manufacturers of scanners), their efficiency in terms of revenue reassessment (a frequently
invoked excuse by customs to justify the acquisition of scanners) is not demonstrated.
1. Scans are inspections. Although there is no manipulation of goods, scans serve the same purpose as a physical
examination: to detect illegal or misdeclared items. However, a scan is not a substitute for a physical check
resulting in the seizure of smuggled goods. It simply represents the identification phase of an inspection, which is
naturally followed by the actual interception of contraband. Therefore, scans should be considered as part of the
examination process and not as an excuse to reduce inspections.
2. Scans should be selective. One hundred percent screening is largely ineffective, as shown by airport security
checks. At the best, 100 percent scanning can have a deterrent effect, as long as every scan is thoroughly analyzed,
which is practically never the case (with the possible exception of detecting bottles of alcohol in some countries).
Scans should normally be decided on the same way a physical examination is, based on potential risk. As with
physical examinations, 100 percent control is largely ineffective (officers lose focus unless they know they should
be looking for something specific).
3. Scanners should be mutualized, that is, shared between agencies. Obviously, customs is the most important
user, but customs can either perform scans on behalf of other agencies, or give access to scanned images and scanner
displays to other administrations, even across the border (as is the case at Ras-Jedir between Tunisia and Libya, or as
was envisaged at Nujaamaa between Finland and Russia). An MoU with a cost-recovery arrangement is normally
sufficient to establish this kind of arrangement.
4. Scanned images can be useful. Many countries append a scanned image to the transit declaration and forward it
electronically to the point of destination. The idea, which is conceptually good, is that a destination scan would
reveal any illicit handling of goods. However, there have not been any reported cases of illegal unloading en route,
which is interpreted by customs as an indication of the deterrent effect of this procedure, but it is more likely that
corrupt practices, or skillful removal of smuggled goods, explain this. In any case, this should not be a justification
for 100 percent scanning.
5. Scanning takes time. Even though running a lorry through the scanner tunnel only takes a minute or so, the
analysis can take up to 15 minutes if it is done seriously (as in Jakarta port). Access to the scanner generates long
queues, as was the case in Sihanoukville in 2004, and still is the case at most seaports. This also encourages a
selective approach.
6. The debate on outsourcing is open. There are many cases where private companies install and operate, against a
transaction fee, scanners that countries otherwise would not have been able to afford. This leads to extensive
scanning, as the operator wants to maximize his profit. Despite claims to the contrary, these scans are expensive for
the importers, do not lead to any significant detection, and are seen as major impediments to trade (for example, the
Port of Maputo in Mozambique).
4.33. The traffic layout should be reorganized. Processing of vehicles at border stations in Ukraine
generates bottlenecks, as it does in many adjacent countries, partly because the successive control steps
are arranged in a linear fashion. As the different steps do not take all the same time, there is an accordion
effect when a vehicle is released at one position but has to join the queue for a longer process at the next
position. The accordion effect then overspills upstream, blocking earlier control positions that are
temporarily unemployed. There are three options to avoid this:
Create buffer zones that absorb traffic without fouling earlier positions; this requires space that is
not always available.
Create as many bypass lanes as possible to avoid congested positions when not all vehicles need
to proceed through them (for example, when there is selective examination, upstream vehicles
should not have to wait when they are not identified for a physical check).
Carry out off-lane checks, so that if a check is longer than the average, it does not penalize
vehicles waiting behind that might undergo a quicker verification.
4.34. Observations on the ground show that these principles are seldom if ever applied. When
there are several lanes, they are not always open. Dedicated lanes (green lanes for private vehicles,
specialized lanes for international transit or TIR) are often closed, or just as jammed because processing
takes the same time. Despite efforts of the border guards to keep the traffic flowing, the topography and
layout of most border stations do not lend themselves to dynamic queue management. Weighbridges are
usually placed immediately after the borderline, automatically generating a queue that spills over into the
country of exit. There is not enough distance between the access (usually a bridge spanning the border
river, with a limited number of lanes) and the facility. The overall design is based on a fanning-out
layout, whereas modern border stations are more elongated, with escape lanes and off-lane control
positions.
4.35. The second reason for bottlenecks is the length of the processes. When most routine
verifications could take place rapidly, they are delayed because drivers need to park their vehicles, and
walk into and queue up in an administrative building. When processes are carried out in the lanes, drivers
still have to leave their vehicles, because the booths are either not at cab level, or, as at Jagodin, they are
placed on the wrong side of the lane. All routine verifications (such as passport control or logging of
transit documentation) should take place in the lane, without the driver having to alight. Fast lanes for
expedited traffic (such as TIR) should be established, with minimal stops, and an off-lane control bay
when there is an anomaly that needs to be investigated. The control slip procedure, essentially used to
ensure that all legal procedures have been accomplished, is redundant and time consuming, and it
generates, however swiftly it is dealt with, additional queues. It could easily be replaced by a smart card
swiped at every control position (as in Poland or Finland).
4.36. Third, the control by default approach is wrong, and the concept of “visual inspection”
introduced in Order 505/642 reintroduces the concept that everything should be examined. There is
no such thing as a visual inspection as opposed to a physical inspection. An inspection is whenever a
vehicle is stopped because an official wants to have a look at it. The notion of visual control should be
replaced by targeting, and in any case when a vehicle is stopped, it should be taken out of the lane to
allow other vehicles to proceed. In that sense, the restriction of customs control to a narrowly defined
―customs control zone‖ is wrong. Customs should have the right to inspect vehicles anywhere within the
border facility, notwithstanding that, in many countries other than Ukraine, customs has powers of control
throughout the customs territory.
4.37. There is not sufficient synergy among the different agencies. The single window does not
bring any significant benefit that better interagency cooperation or delegation could not provide. Even
when control booths are unified, there is a total separation between customs and border guards, where in
other countries both often sit side by side (which creates the necessary conditions for better personal
relations, leading to closer cooperation). The government is aware of the issue, and has envisaged
removing all but customs and border guards from the border facilities (although recent examples in
Russia show that there is strong resistance to this, and in the Kyrgyz Republic when such a measure was
introduced, the ousted agencies immediately reestablished themselves a few hundred meters down the
road).
4.38. Cross-border cooperation is an essential element of facilitation. This can take the form of:
Cross-border coordination. A local border commission was established between Ukraine and
Poland on May 1, 2008. It is essential that local managers participate in this commission, which
should not be limited to general policy matters dealt with by national headquarters.
Sharing of information. This includes linking Ukraine to the NCTS, automatically exchanging
risk management data (there are plans with Slovakia at Uzhgorod, using a fiberoptic line under
installation, but they depend of a favorable decision by the European Commission). Sharing
commercial information is more problematic, as it raises issues of confidentiality, but the
preliminary notification is used in exchanges with Moldova. In addition, advance notification of
arriving lorries would be an important aspect of information sharing.
Mutual recognition or use of findings. While there are legal restrictions to using information
provided by the authorities of another country, data such as the weight of a lorry could be used
for targeting purposes. A mutual border agreement between the Ukraine and adjacent countries
could also allow the use of foreign weight tickets. In addition, Ukraine could use the provisions
of the 1982 Geneva Harmonization Convention on border controls,41
which introduced an
international weight certificate. This would eliminate the need for repeated weighing.
Co-location of border facilities. There are plans for co-location between Ukraine and Slovakia,
with a joint facility planned on Slovakian territory.
When significant aid budget is planned for the reconstruction of several major border stations on the
Western borders, these principles should be taken into consideration for future design options (or the
modernization of existing facilities)
41
International Convention on the Harmonisation of Frontier Controls of Goods (UNECE, Geneva, 21 October
1982).
Box 4. Railway Operations
The rapidly growing railway traffic (10 percent growth per year over last three years) is cleared very much in the
same way as road traffic, with some exceptions.
Immediately after crossing the border, goods trains are stopped at a ―block post,‖ where manifests and documents
are lodged and passports (those of the driver and guard) are checked. This process, which lasts one hour on average
is destined to prevent smuggling of goods, which would be thrown out of the train while it is driving to the nearest
station, although the way that is enforced is not altogether logical.
The train is inspected from the track by customs and border guards, but this is no guarantee that the doors of the
goods carriage will not be opened from inside once the train is moving again (supposing there is a smuggler or
stowaway hidden). When the train starts moving again toward the first main station in Ukraine, it is not supposed
to drive at less than 40 km per hour, which is deemed sufficient to deter smugglers from throwing parcels out of the
train.
The second stop is inside Ukraine, at the nearest railway junction, where the train is cleared. Some trains go to
private transloading facilities, where standard (European) gauge carriages are trans-shipped back-to-back into wide-
gauge Russian carriages.
Entire trains are cleared at the same time, and there is no possibility of clearing individual carriages.
B. Inland Clearance
4.39. Problems occur mostly at the point of destination. A major issue is a default approach, with
a permanent suspicion of smuggling. Foreign shippers are not always aware of Ukrainian procedures.
Clearance for Domestic Consumption
4.40. The Ukrainian transit delivery control system reportedly works well, with an insignificant
level of nondischarged transit operations. TIR Carnets or inland transit documents are registered at the
border and entered in the transit module linked to the customs computer system. The delay for transit and
delivery is determined at the border by the customs officer who opened the preliminary notification. Data
are then sent to a regional center, but the border station of departure is administratively in charge of
follow-up. The customs house of destination is not automatically informed, but can interrogate the
system, which is done systematically. The reason for this is that the customs house may forget to enter a
message, so discharge from the point of departure is preferable (and in line with international practice).
On arrival, the officer enters the registration number of the vehicle in the system. If no discharge message
from the point of destination has arrived five days after the expected termination of transit, the office of
departure sends a query to the office of destination, and then tries to locate the vehicle. If this is
unsuccessful, an infraction report is filed. Failure to report is covered under Article 38 of the TIR
Convention and Article 37 of the Ukrainian law on external economic activities. Fines are applicable, but
although they are high should the delay be to the result of simple negligence, they are too low to act as a
deterrent for large-scale smuggling operations.
4.41. Ideally, international transit should be discharged using the same procedure and informing
customs in the office and country of departure. To operate with the EU, the Ukrainian system would
need to be compatible with the EU’s National Car Testing Service (NCTS), which is currently not the
case, although EU technical assistance is working on solving it.42
In addition, Ukraine uses the Safe-TIR
procedure to confirm delivery of lorries traveling under the TIR system.
4.42. Clearance must take place at the point of destination, in the customs house for which the
importer is accredited, for revenue target reasons and as a tax requirement. Customs brokers must
be registered, tested by the Customs Service, and pay a license fee $US1,000, with a $US1,500 renewal
fee. There are 1,863 licensed brokers operating as companies or individuals. As discussed above, no new
licenses have been issued in the vacuum between the old and the new customs code, but the association of
clearing agents and a majority of importers and freight forwarders believe there should be new entrants to
create more competition.43
Brokerage fees are not set, and vary from one clearing agent to another. They
represent on average $US250 per declaration in the Kyiv region, and $US100 in the provinces. The
annual testing of brokers, which was excessive, no longer takes place. Unlike in Western European
countries, brokers do not need to provide a bank guarantee, but duties and taxes must be credited before
declarations are lodged.
4.43. The clearance process is based on the international Single Administrative Document (SAD),
and is still largely manual. The procedure consists of:
Arrival of goods. When lorries enter the customs area, a broker collects the transport
documents from the driver, prepares a declaration, saves it on a floppy disk, and reports to
customs with the hard copy and supporting documents (CMR, the invoice [which until the new
draft code had to be translated], contract, packing list, and, if necessary, relevant certificates and
permits).44
The agent makes an appointment with a customs inspector for clearance.
Declaration lodging. The chief of the customs house receives all declarations (in five copies,
plus the floppy disk), and assigns them to an inspector. The hard copies are stamped. The data
on the diskette are compared with the hard copies of the declarations, and a general consistency
check takes place. The transit procedure is discharged (a message must be sent to the office of
departure within four hours). Declaration data are entered at the local statistical division in the
customs computer system through the floppy disk, and the hard copy of the declaration is
stamped by customs.
Declaration review. The declarations are reviewed by the inspector and checked against the
accompanying documents for valuation and classification. According to importers, there are
numerous disputes at this stage.
Examination. The broker returns to the chief of the customs office, who assigns an inspector for
the physical examination of the goods. According to some importers, all declarations lead to a
physical inspection (but only 20 percent according to express courier companies), which is
42
An option envisaged by the EU is to extend its NCTS to Ukraine in the same way as it was extended to
Kaliningrad. 43
According to some importers, there are brokers who charge very high fees (up to five times the average), but have
discreet ways of avoiding difficulties with customs. 44
The fee for brokerage is not set; it varies from one clearing agent to another, but is on average $US250 in the
Kyiv region, and $US100 in the provinces. [[This was explained almost verbatim in text. Do you want it there or
here in a footnote?]]
carried out by an inspector and staff from the customs antismuggling department.45
The
declaration is passed on to the quarantine, phytosanitary, and radiological control officials.
Payment and release. After satisfactory examinations, the broker proceeds to the payment
section, which checks the duties and warehousing fees, when applicable, and verifies that
payment was made (generally through a bank), and the goods are released.
4.44. The draft customs code established a benchmark of one day for the clearance of goods assuming
everything is in order. Many of the other agencies involved in clearance objected to this, so the provision
was removed, and replaced it with a breakdown of maximum times according to different functions
(sampling, checking of the certificate of origin, valuation difficulties, and other cases when additional
information is requested). According to a majority of importers, clearance is not possible in less than two
to three days, including at seaports, except occasionally when there is no valuation difficulty.
Special and Temporary Procedures
4.45. Some express courier operators complain that there are no specific procedures for dealing
with their traffic. Because of value thresholds, most parcels need to be cleared as commercial imports.
Although there is a simplified declaration, advance clearance or predeclaration is not possible under the
current code because there is no functioning guarantee system. Auxiliary requirements (such as
certificates of quality or origin) are imposed irrespective of the value of the shipments. Samples need to
be assessed by Customs Service headquarters. Practically every shipment is physically inspected by
customs. As a result, clearance takes between two and three days, and in the case of DHL, two-thirds of
all shipments on hold in Europe are in Ukraine. In the absence of modern and flexible procedures,
clearance is sometimes impossible, and nearly one-third of shipments are returned to the sender.
4.46. Freight forwarders may open their warehouses for customs clearance. Even with low
volumes of traffic (one freight forwarder lodges only five declarations per day), the Customs Service
allows clearance on the premises. The time for clearance has dropped to one day for full- container Loads
(FCLs), and 48 hours for consolidated cargo. This is a major facilitation initiative, but it has a high cost in
terms of customs operations. There is, however, limited consolidation of freight, as freight forwarders
need to clear an entire lorry before it is released. When lorries reach the freight forwarders’ premises, a
declaration for warehousing must be lodged before unloading is permitted (Article 74 of the previous
code). Goods cannot be re-forwarded under a domestic transit system to other warehouses or customs
houses elsewhere in Ukraine until final clearance has been granted (according to Decree 260). It is
checked by customs, and there can be a physical examination. This prevents a full consolidation chain, as
operators need to use different lorries to further dispatch the goods, and these lorries have to be sealed by
customs at every step. The extra cost involved is considered a counterincentive.
4.47. There are only limited temporary import regimes.
Drawback applies only to gas transactions.
ATA Carnets were introduced in March 2008.
Temporary imports requires a conditional duty waiver (Article 206 of the previous code), and
apply only to exhibition items, commercial events, or the repair of ships). The condition is that
45
An earlier system of more selective examinations was based on a White List principle, but was abandoned
because it was not practical. To qualify for the White List, importers had to have a track record of full compliance
for five years, which is unrealistic, even by Western European standards.
goods should not change their properties and not create any revenue. This prevents the
development of value-added services, such as inward processing, which are in place in other
countries. Guarantees for temporary imports are provided through promissory notes, which are
discharged when goods are re-exported (within 30 days).
As there is no clearly defined re-export procedure in the customs law, temporary import regimes cannot
be used to their full potential.
Development of Risk Management
4.48. Although risk analysis with specified risk criteria is used by customs to define riskier cargos
for inspection, physical inspection rates continue to be very high. According to ASMAP estimates, the
rate of physical inspections for automobiles transport reaches 60 percent. As for the sea ports, interviews
with several logistics service providers and business associations and visits to ports suggest that physical
inspections reach levels close to 100 percent. Whereas in Western Europe the physical inspection rate is
usually below 20 percent, the developing countries might aim for higher rates of inspections because of
lower voluntary compliance. However, these rates rarely exceed 50 percent and are far below Ukrainian
ones.
4.49. In 2009, Ukrainian customs introduced a new risk management system, adopted by Custom
Services‟ Order in August. The risk management system focuses on creation of White and Green
Lists of companies according to different criteria. If the company was listed, it became the subject of
simplified custom procedures. About 170 companies were included on the lists on December 2009. The
concept of risk management appears to be well understood by customs, but its actual application is
proving more difficult. It is acknowledged that the lack of an effective national customs IT system
covering all borders severely restricts the ability to implement risk management in an effective, consistent
nationwide manner.
4.50. The system, which is already partly in place, is managed centrally by the Department for
Analytical Work and Information, using risk profiles designed and tested by an eight-member
commission chaired by the deputy chairman of the Customs Service and comprising all areas of customs
activities. The commission prepares profiles, taking into account local-level risk criteria; it meets once or
twice per month and is responsible for updating risk profiles in real time. The methodology is based on
statistical simulations that enable calculation of the efficiency of profiles, using case detection feedback.
The identified level of risk determines documentary or mandatory physical examination. When the
system is fully operational, it is expected to select 13 to 15 percent of all declarations for Yellow- or Red-
channel processing, with the remainder immediately released under the Green channel.
4.51. However, the Customs Service has geared its risk management system toward revenue
maximization (with a strong focus on valuation, classification, and VAT refunds) rather than the
detection of nontariff violations, such as inter alia smuggling of drugs and weapons. This may affect the
law enforcement credibility of the Customs Service at a time when it is seeking to develop its activities in
that field.
Issues with Clearance
4.52. A Cabinet decision (1730) established a postrelease control unit three years ago. The
approach to this type of verification is still relatively new, with no clear separation yet among deferred
checks, desk verifications, and field audits.
4.53. Physical examinations are currently countereffective. Although physical inspections are
expected to decline with the full introduction of computerized risk management, there is still a risk of a
lingering 100 percent examination syndrome, largely because of the focus on revenue targets and the
pretext of fighting smuggling.46
A culture of release by default, backed by good risk analysis (which is not
only computer-based) should be developed and supported by Customs Service senior management.
4.54. Risk management does not use all possible resources, and procedures are unpredictable. For
example, the preliminary notification contains data that could help identify suspicious suppliers or
commercial transactions. However, although it is matched for consistency with the final declaration
(which it is very similar to), there is no advance analysis of the information regarding expected shipments.
This could be done more easily if the preliminary declaration data could be transmitted electronically
from the border to the office of arrival. Evaluation methods are arbitrary and can lead to unethical
behaviors. Although for SPS control, the rates of fees differ unexplainably, and up to 45 days delays for
clearance are reported, there are arrangements for accelerating the process. Matching the customs
declaration with the transit arrival notice or the preliminary notification is said to involve an unofficial
payment of $US20. Whenever there is a clearance problem and goods cannot be released immediately,
the only option for the importer or freight forwarder is to unload the lorry so that it can be released. This
implies a warehousing declaration and subsequent warehousing fees.
4.55. The absence of an electronic signature system prevents full deployment of automatic
clearance, with no interface between customs officials and importers. Despite the efforts of the
Customs Service, an electronic signature cannot be implemented, as there is no intergovernmental system
to support it.
4.56. Control steps could be streamlined. First, the different procedural steps for lodging a
declaration should be significantly reduced. Second, the practice of checking floppy disks against a hard
copy, which is itself a printout of that same floppy disk, is ineffective.
C. Enforcement Perspective
4.57. Although antismuggling is an EU priority, and the Customs Service aware that it is an
essential component of customs activity, it is neither organized nor empowered to carry out
adequate antismuggling activities. It is hoped that the new customs code will provide a better
framework for customs enforcement, as the specialized Parliamentary Committee on these matters shows
a real understanding of the issue.
46
As experience all over the world shows, smuggling is never detected through 100 percent checks―on the
contrary.
4.58. Customs is not allowed to conduct intelligence activities and is restricted to a limited zone of
competence. Law on intelligence activities defines the bodies authorized to hire informants or use
sources of intelligence, and the Customs Service is not part of them. When customs obtains first-hand
intelligence on any type of smuggling activity, it must pass it on to internal security. Customs officers
can perform their checks only within a limited ―customs control area‖ at border stations, which prevents
officers from doing spot checks on vehicles parked elsewhere. They have practically no powers of
control inside the territory, although this is where customs checks could best detect undeclared goods. In
the few cases where customs officials operate outside, it is under joint operations of the customs guard
unit with the border guards, or with the traffic police on the motorways. Although customs has the right
to initiate such checks and prepare a joint plan of action, it has no autonomous powers of action should a
case require an immediate response.
4.59. The focus on revenue targets inhibits other antismuggling activities. All over the world,
customs is the main detecting agency for smuggled drugs. While recognizing that smuggling is an issue,
the Customs Service devotes its resources to revenue-raising activities, neglecting the link between
economic and criminal fraud. At the same time, the Customs Service considers that cigarette smuggling
is more a tax-related activity, and does not pay much attention to that type of contraband.
D. Proposal for a Streamlined Pilot Operation
4.60. Current customs operations are characterized by repetitive routine checks and lead to
significant delays. Routine checks are effective in so far as they provide the clearance of the paperwork,
and may give the impression that they secure revenue collection objectives, but they also either lead to
significant clearance delays, or allow discretionary decisions, that can result in allegations of corrupt
practices from the trade. In addition, it is not clear that they achieve the required level of compliance, and
even if they do, the marginal cost of compliance becomes very high, for both the administration and the
business community. At the same time, the Customs Service has undertaken vast measures to modernize
and streamline its operations, but most often this has taken the form of streamlining or attempting to
improve existing practices rather introducing modern standards based on international best practice.47
4.61. It is therefore suggested that the Customs Service pilot-test new standards and procedures
based on international best practice, at two selected locations, one a border station and the other an
inland clearance terminal. The postulate would be that, during the trial period, no revenue target would
be set, and the objective would be to drastically reduce times for clearance.48
In the event of a revenue
shortfall, a standby facility would be put in place to guarantee continued revenue performance. The
stepwise approach is described below.
1. Initial approach
Select a border and a related inland clearance location handling substantial traffic.
Carry out a brief survey of current clearance times at both locations.
47
An example is the newly introduced advance declaration, which essentially results in lodging three times the
same information, a far cry from the EU’s advance declaration information requirements. 48
According to a survey carried out in spring 2007, times were 24 hours on average, with a minimum time of
130 minutes and a maximum 63 hours. On average, over 80 percent of the trucks were examined.
Assess the effectiveness of the current control policy by measuring at the pilot inland clearance
location, over one year, the total number of declarations lodged, the total number of inspections,
the total amount of revenue declared, the total number of noncompliant declarations, and the total
revenue reassessed and fines and penalties incurred.49
Carry out the same assessment at the selected pilot border location, measuring number of trucks,
number of seals broken, and results of inspections (including border guard inspections).
Compare past year’s monthly revenue collections against specific revenue targets, and assess
current revenue expectations.
2. Preliminary inland procedures
Eliminate the preliminary notifications for all TIR shipments, as they already offer a guarantee of
delivery.
3. Border procedures
Institute the EU-recommended one-hour advance notification, using fax or e-mail messages, and
fast-track vehicles with evidence of that notification.
Do not break intact seals unless there is a targeted check for contraband.
Do not establish duplicate transit document if there is already a TIR Carnet.
Notify office of destination by e-mail or fax.
4. Inland procedure (this will require some reorganization of customs station work positions)
Require advance notification according to EU advance information standards, and assess risk.
Check seals and TIR Carnet if applicable, and notify border station of the arrival.
Accept declaration in any electronic format, and, assuming that the hard copy will correspond to
the diskette provided, register it immediately with no check other than computerized
acceptability.
Establish a daily management meeting setting risk profiles for the day and maximum rates of (i)
documentary control, and (ii) physical examination.
Perform a detailed documentary check, and decide if any of the daily risk profile elements are
contained in the declaration.
If this is not the case, release the declaration after payment.
If there is a risk profile, defer the declaration to physical examination (this may also include
antinarcotics investigations and joint inspections).
Similarly, refer the declaration to other agencies’ control.
Based on the results, update the local risk profile list.
Review all declarations after release for consistency.
In the event of subsequent detection of anomaly, refer to postclearance unit and update local risk
profile unit.
Assess daily collections and reassessments subsequent to documentary or physical checks and
evaluate against past revenue targets.
49
It is important not to focus on the actual amount actually collected, as the adjudication process may take
several years.
5. Status of Transport and Logistics Service Provision
5.1. Overall, Ukraine‟s trade connectivity in terms of transport connections is fairly good and
has improved during the past few years thanks to the increased frequency of services by sea and air
transport services, and by road services. The Ukrainian transport infrastructure and related operations
have been designed for large industrial shippers. Much of the nominal rail, road, and port capacity, for
example, was built before independence in 1991. In general, the largest shippers in the metal, minerals,
and chemical industries dealing with full wagonloads or shipments involving whole vessels have had
access to relatively affordable transport, even though the rising demand in 2007 and early 2008 created an
unprecedented lack of capacity in rail services (wagons) and created also severe port congestion,
especially in container operations.
5.2. SMEs are particularly vulnerable to the weaknesses in Ukrainian transport and logistics
markets; they cannot upgrade capacity because of the prohibitive cost of capital and their lack of
knowledge about market channels and transport networks. Going forward, the Ukrainian government
must prioritize the improvement in the border practices of customs officials and other technical
regulators, with an emphasis on reducing inspection delays and documentation requirements, improving
the interaction of customs officials with freight-forwarding companies, and, more broadly, limiting the
power of border officials to arbitrarily block trade. Furthermore, the government must urgently begin
working on identifying and investing in the weak links of the national physical transport infrastructure.
Complementary policies to enhance the capabilities of SMEs to participate in regional and global supply
chains, for example by strengthening their capacity to comply with nontariff trade barriers, would also be
useful.
5.3. As Ukraine moves up the value chain to gain market share in Europe and other developed
markets, its economy‟s transport intensity will gradually shift toward road transport. At present, the
modal split of cargo transport remains typical of a pre-independence economy—road transport contributes
relatively little. Official statistics show that only 5 percent of freight turnover (in ton kilometers) is road
transport, while rail and pipelines account almost equally for most freight volume. However, road
transport dominates short-distance transport of goods, accounting for close to 60 percent of the gross
freight tonnage, and this trend seems to be growing.
A. Rail Transport
5.4. Because of a common rail gauge, direct railway connections are limited to the CIS rail
network. CIS rail operations have traditionally been developed for full-wagonload traffic of bulk
materials between industrial sites and ports. This type of traffic requires little or no intermodal
connections that is, trans-shipments or coordination with other modes of transport. The rail processes,
including capacity reservation systems, are ill-suited for intermodal operations such as container
movements. LISKI, the container operation arm of UZ, has a rather modest capacity of 5,000 wagons and
apparently limited commercial incentive―or mandate―to develop this line of business.
5.5. At the western rail borders, cargo may need to be trans-shipped because the rail gauges are
different in the CIS and EU. Theoretically, eastbound cargo is trans-shipped on the Ukrainian side and
westbound on the EU side. However, in practice, importers prefer trans-shipment in the EU because
goods are transferred to road transport and brought in through the road border for final delivery. The
Ukrainian transfer activity is perceived as less reliable and efficient than the EU.
5.6. So-called piggyback operations (trucks on rail wagons) are practically nonexistent in
Ukraine, despite the relatively long distances that could render such combined transports profitable
in other countries. One factor that undermines the profitability of piggyback operations is the
oversupply of (often substandard) road transport capacity. Domestic operations, especially, were available
at very competitive rates by mid-2008. The oversupply in 2009 grew even larger as a result of rapidly
declining demand. The UZ is not providing less-than-wagonload services, and there are no plans to
diversify services in this direction. Rail connections have been affected by the lack of rolling stock and
cumbersome operations practices in international traffic. In short, the UZ freight operations are for full
wagonload of bulk, but intermodal operations are underdeveloped and are likely to remain so in the near
future.
5.7. UZ is part of the CIS countries‟ international freight tariff system and wagon pool.
Domestic freights are set by UZ and approved by the Ministry of Transport and Communications. UZ’s
freight operations―especially that of transit―are profitable, but passenger operations have been suffering
heavy losses. There is a strong need to cross-subsidize passenger and other operations of UZ with profits
generated from freight. In domestic operations, the legal possibilities for cross-subsidization depend on
the government and Parliament. In international operations, the CIS rail community negotiations and
coordination of tariffs are essential. International competition issues and WTO rules also need to be
considered (Attachment 22) where rail transport pricing for imports, exports, and transit were among
issues negotiated before the WTO membership. Ukraine became WTO’s 152nd
member in May 2008. The
attachment also includes a list of current legal acts that governed rail freight in Ukraine in early 2008.
5.8. Industry sources cite that unofficial payments are seldom solicited in connection to rail
tariffs. However, stealing of cargo is reported; anecdotal evidence suggests that it occurs in fewer than
5 percent of shipments. Also, when individual parts weigh less than 100kg and the goods are such that
there are second-hand markets, armed guards are often used. Stealing typically occurs with part of a
shipment. When there are irregularities, the shippers are likely to get a refund, if a formal protocol report
of the incident is made between the UZ and the shipper and the transport documents and procedures were
otherwise done properly. But producing such a protocol is not always easy.
UZ Freight Tariffs
5.9. UZ freight tariffs are based on transport distance (UAH/km) and vary by cargo and wagon
type. Freight setting by transport performance (UAH per ton-km) is not used. Between March-April
2007 and September 2008, the UZ rail tariff increased by 80 percent. Another tariff rise of 9 percent was
planned to take effect on October 1, 2008, but it was revoked. Nominal rail freights in international traffic
are low in relation to road transport freights. For example, the rail tariff for containers between Klaipeda
(Lithuania) and Kyiv in 2008 was $US0.16 per km. According to Liski, UZ’s container operating arm,
total transport cost for the 1,733-km route between Klaipeda and Illichevsk would amount to $US300.00
one way, including customs declaration, taxes, and charges. However, actual freight levels may be
significantly higher.
5.10. UZ freight tariffs have risen very fast since 2007. The increases came in irregular intervals,
with little time for adjustment. This was a concern for shippers using rail transport, but the way in
which UZ as a monopolist raised the tariffs was particularly annoying. This was seen in marked contrast
to the Russian rail operators RZD. It had increased tariffs by 12-18 percent per year in 2007-08, in two
steps: once in spring and the second time in autumn, and the increases were announced almost a year in
advance. Another feature irking large shippers is that there is no volume rebate in UZ tariffs, unlike in
RZD, for example. The freight rate is per one wagon and per kilometer, no matter how many wagons one
ships over a period of time.
5.11. To make tariff system more transparent, UZ agreed in CMU Decision #1392 dated
December, 16, 2009, to provide freight rail tariff indexation only once per year and complete it
before the new fiscal year started.
5.12. The actual freight levels vary by commodity and are based on distance; short distances are
relatively more expensive than longer distances. Inside Ukraine, the average length of haul is about
500 km, and the average rail freight was $US 93.00 per ton for steel (including loading and wagon rent)
in autumn 2008. This would correspond to about 10-20 percent of goods value, depending of the quality
and timing.50
In Russia, by contrast, a large steel mill could pay a rail tariff at $US92.00 per ton for
finished goods over a distance of 1,500 km. For some higher-valued goods, typical rail freight in autumn
2008 was $US45.00 to $US50.00 per ton for 100km, excluding loading and unloading and wagon rent.
For shorter distances, such as 250km to Mariupol port, the rail tariff in November 2008 was $US25.00
per ton. On an 800-km route to Illichevsk, the rail tariff would be about $US40.00 per ton, also excluding
handling and wagon rent. In fall 2008, rail transport costs (including handling and wagon rent) for lower-
valued commodities and raw materials amounted to one-third of the value of the goods.
B. Wagon Reservation Procedure with UZ
5.13. As the UZ operates only with full wagons, the reservation of wagons is an essential part of
the transport arrangement. The procedure is as follows:
First, the shipper announces its delivery schedule for the next full calendar month by the 15th
of the previous month, which is a strict deadline. This announcement includes the dates, point
of origin and destination, type and amount of cargo, and type of wagon requested. It is
submitted in a letter, not through any online or offline electronic version. This is the case
even when the shipper has its own wagons.
Second, UZ notifies the shipper of wagon availability by the end of the month, and pre-
assigns wagons according to it, if possible. This is the phase during which UZ prepares its
operational planning and plans full train production, which is a demanding task when the
volumes and the network are so large.
However, UZ notification comes very late in view of shipments that need to be dispatched
during the first days of the month. This creates a situation in which shippers may turn to
50
The commodity price of, for example, pig iron was between $US270.00 per ton in January 2007 and almost
$US700.00 per ton in November 2008; standard steel qualities experienced a similar price fluctuation. See e.g.
http://www.steelonthenet.com/files/pig_iron.html .
game playing, and reserve more capacity than is actually needed. While this comes at the cost
of a penalty fee for unused capacity, this penalty is often much smaller than the economic
value at stake to secure transport capacity. As a consequence, this affects UZ production
planning, and lowers the utilization rate of rolling stock.
Penalties for keeping empty wagons increase exponentially the more days the wagon is kept
by the shipper.
5.14. At the end of 2008, when the demand for rail transport already had dramatically fallen, UZ
refused to allow shippers‟ own wagons to be used. It based this decision on a contract clause stating
―the railways may approve an additional capacity [shippers’ own wagons] if UZ has own capacity…‖
Toward the end of year 2008, UZ had plenty of idle capacity, and used this clause to force its own rolling
stock to be used, even knowing shippers’ own rolling stock would remain idle. The largest shippers that
have their own rolling stock and transport metals and ores can get up to a 17 percent rebate on UZ tariffs
when they use their own wagons. Of the entire wagon rolling stock of semiwagons, about 38,000 are
owned by UZ and 30,000 to 40,000 owned by private or industrial firms. Shippers that own wagons
complain that UZ tariffs are ―absolutely nontransparent.‖ A typical claim was that it is impossible to
break down the tariff into cost elements for, say, infrastructure usage, transport operation, and other
services. Therefore, it is also impossible to calculate the economic rationale of investing in own rolling
stock. The main reason many large shippers have done so was the chronic shortage of capacity up until
mid-2008.
5.15. It is suggested that the UZ urgently review it booking procedures, so that the (i) lead time
between requesting the wagon requests and announcing the availability can be shortened, (ii) the pricing
scheme encourages early bookings, but allows late reservation at a premium cost; (iii) wagon reservation
systems are made online, where changes are possible against payments, which would also facilitate UZ
production planning, (iv) volume rebates are considered; (v) tariff planning and decision making is more
predictable, and (vi) information to shippers and stakeholders is improved.51
C. Road Transport Services
5.16. In 2008 and 2009, about 25 percent of transport volume in Ukraine (170 and 140 million
tons, respectively) was carried by road. When measured in transport performance, the corresponding
share was 5-6 percent (25 and 30 billion ton-kilometers, respectively); 4.4 billion passengers used road
transport carriers, which was 4.7 percent more than in 2007. The EU TACIS project on International
Transport Conventions and Agreements (presentation by Scott Wilson Ltd.) estimated that 16,000 firms
offered road transport services, of which 3,500 were engaged in international road haulage in 2007. Out
of the total domestic fleet of 8 million vehicles in 2007, about 1 million (13 percent) were trucks and vans
over 3.5 tons. An estimated 100,000 of these were trucks over 10 tons.
5.17. According to the State Road Transport Research Institute, about 80-90 percent of road
haulage firms are firms with fewer than 10 trucks. For comparison, the average size of road haulage
firms in the EU is fewer than five trucks per firm. One incentive to keep firms size small―or even to split
larger legal entities into smaller ones―is the single tax law adopted in 1995-96. According to it, firms
51
An anecdotal notion is that UZ, with a staff of over 400,000, does not have a Web site in English.
with a turnover less than UAH 1 million (about $US200,000) pay significantly lower taxes than firms
over that threshold.
5.18. The fleet of trucks in international road transport in 2007 was about 23,300 vehicles
(TACIS programme). In June 2008, ASMAP i had about 2,500 members with about 27,000 vehicles,
some of which were used in domestic transport.52
ASMAP estimated that about 50 percent of trucks in
international traffic were in the EURO I and II classes, which are in traffic between CIS countries. The
rest (50 percent or about 10,000-11,000 vehicles) were in EURO III to V classes. However, the number of
EURO class IV and V trucks that are most suitable in EU traffic is possibly fewer than 2,000 vehicles. To
give an indication of the number of vehicles in classes IV and V, 1,454 Ukrainian trucks had an On Board
Unit (OBU) required by the German toll road system at the end of 2007.53
A similar number (between
1,400 and 1,600) of OBUs were also in trucks registered in Estonia, Belorussia, or Russia. The number of
OBUs in Lithuanian, Hungarian, or Slovakian trucks was between 8,000 and 10,000; in Poland the device
was in more than 50,000 trucks.
5.19. Industry sources cited that (for example, Polish) trucks with EURO Class 0 and I were used
in 2008 between Ukraine and some of its EU neighbours, even though this category of vehicles is not
permitted to enter EU countries. Ukrainian carriers, however, are requested to have either an ECMT
quota certificate for EURO III vehicle, or operate with EURO IV or V equipment. Similar information
was also cited in Albania in spring 2008: trucks in EURO 0 and I categories were reportedly used in
traffic between Albania, Greece, and Italy. This indicates that the control of vehicles and documents may
be rather lax in EU countries bordering Ukraine.
Road Transport Cost Structure of Carriers
5.20. In domestic road transport, fuel and lubricants make up the largest cost share for carriers,
accounting for 50-60 percent of costs. Driver wages account for about 20 percent, and technical
maintenance staff for another 5 percent of costs in a road haulage firm in domestic operation. In
international operations, the carriers’ cost structure in 2008 was estimated by ASMAP as similar, with
fuel costs being 40 percent, wages 20-25 percent, and all other costs 35-40 percent of total costs of the
road haulage firm. Capital costs are high because of high interest rates and unfavorable financing terms
(including leasing). In Russia and Belorussia, carriers are now exempt from vehicle tax and VAT on
purchased vehicles. This means that they can purchase (new) equipment at 30 percent lower cost than
Ukrainian carriers.
5.21. While Ukrainian unit costs are lower compared to, for example, Polish carriers, the cost
advantage is undermined by delays in issuance of visas, traffic licenses, and so forth. According to
ASMAP, a Polish vehicle in international traffic makes on average 120,000 km per year, whereas a
Ukrainian one typically makes 70,000-80,000 km per year. Driver wages, especially on international
routes, are high compared to wage levels in general, so there has been no immediate shortage of drivers.
However, Ukrainian drivers have also been hired by firms in, for example, Russia and the Baltic States. In
domestic, short-haul traffic, the wage levels are not always attractive, and especially outside the capital
region, driver unemployment is common, even high.
52
The largest members include firms based in Kyiv: Rapid, BM-Trans and Orlan Trans; in Lugansk: Laatrans; in
Lviv: Ukrzakhidtrans; and in the Transcarpathian region: Autoplus and Autolux. 53
http://www.asecap.com/english/documents/AlainEstiotTollCollect.pdf .
5.22. Ukrainian carriers‟ competitiveness seems to have sustained the economic crisis relatively
well. There is a paucity of comparative data on international road transport markets,54
but the number of
TIR Carnets issued to national road haulage associations provides an indirect way to estimate which non-
EU carriers have increased their market share. Between 2008 and 2009, Ukrainian ASMAP’s share of all
TIR’s issued increased from 9.7 percent (317,000 TIRs issued) to 13.1 percent (297,000 TIRs issued).
This means that Ukrainian carriers’ market share in this type of transit traffic has increased in most
countries. The total number of TIRs issued by IRU diminished substantially, from 3,253,800 in 2008 to
2,230,400 in 2009, or by 31.4 percent.
Indicative Road Freight Levels
5.23. In domestic road transport, typical freights paid by large shippers for full truckloads of
commodities (such as metal products) were in the range of $US0.5-0.7 per kilometer for a 20-ton
truck in 2008. This is equivalent to $US0.025-0.03 per ton-km, which is low; inin EU countries similar
freight would be at least three times , possibly even four-five times higher (at around $US0.1-0.15 per
ton-km). The availability of road transport capacity for domestic routes is good, as the fleet of especially
older vehicles is large and underused. There are also large differences in capacity by region. In the eastern
regions, where there is much overcapacity, road freights tend to be 30-40 percent lower than in western or
southern regions.
5.24. The existing imbalance between Ukraine‟s exports and imports is clearly reflected in road
transport costs. On average, import transports are two-three times more expensive than export transports,
though the distance and lead time can be the same. The less this imbalance is, the less is the price
difference between export and import shipments. Some indicative FTL freights at the end of 2008 are
shown in figure 20. In high seasons like the end of the year, import prices tend to go up and carriers prefer
to do empty runs to Western European countries just to collect goods there and bring them back to
Ukraine. As a result, they save time they could lose for loading, driving, or standing in queues on the
Ukraine-Poland or Ukraine-Hungary border. In Ukraine, it takes at least two working days to load the
goods and organize customs clearance. In this way, haulers earn more, because instead of 1.5-2 round
trips per month with cargo both ways they can do 3 or 4 by leaving Ukraine empty.
Figure 20. Indicative Road Freights for Full-Truckload (FTL) Shipments to and from Selected Sountries, 2008
54
For example, ITF’s quarterly road freight transport data are not available for Ukraine (and for a number of other
comparators) for 2008 or 2009; see: http://www.internationaltransportforum.org/shorttermtrends/.
Source: Compiled from industry sources.
5.25. Government regulations and economic relations between countries influence prices for
export and import transports as well. For example, when metal was exported in big quantities from
Ukraine to Western Europe (mostly Germany), the prices for export and import were almost equal. In the
case of milk products exported from Ukraine to Russia, the prices for export and import tend to be almost
the same as well. Also, when there were no limits for export of wood from Ukraine, prices for export
were higher than at end-2008, when the Ukrainian government decided to slow down wood exports. The
lack of bilateral permits to certain countries influences rates as well. Every year there are problems,
especially with Hungarian and Italian permits, which increase market prices for these destinations.
Competitive Position of Ukrainian Road Transport Firms in 2008
5.26. In international traffic, Ukrainian road transport firms seem to enjoy a competitive
advantage, as international logistics companies prefer to use Ukrainian trucks whenever possible in
movements to and from EU. This advantage is in part because Ukrainian trucks are generally lower cost
than, for example, Polish or Lithuanian trucks. In movements to and from CIS, Russian and Belarussian
trucks enjoy both cost and operational advantages against Ukrainian ones: they can purchase trucks
without VAT, and the operational costs are often lower, especially for Belarussian carriers.
5.27. The truck fleet size is constrained by (i) the multilateral quota system, which effectively limits
the number of existing Ukrainian trucks on European roads; (ii) bilateral quotas with main trading
partners such as Poland, Austria, and Germany; (iii) visa problems for professional drivers in EU
countries; and (iii) a weak financial position together with expensive finance, including high interest rates
and on the lack of standard leasing finance. The current fleet in international traffic is dominated by
EURO II and III type of trucks. As for the multilateral quota, which is in force till 2011, Ukrainian
operators could alleviate the situation by investing in equipment in the EURO IV or EURO V classes,
either second-hand or new, but this is often difficult because of carriers’ weak financial position. The
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situation is even more difficult because leasing legislation in Ukraine does not offer the same treatment of
leasing fees as is available in practically all competing countries, including Russia.
5.28. The waiting time for trucks at Ukrainian border-crossing points (BCPs) is long, typically 12-
16 hours when entering and 2-8 hours when exiting Ukraine in 2008, which is long compared to waiting
times at other BCPs in the region (Attachment 23). Seasonal variations can be quite substantial. In
January-March 2008, long waiting times were caused mainly by a strike of customs officers. Capacity at
the BCPs has not been sufficient, and more efficient organization of work of border guards and customs
offices is needed, as well as improved cooperation among Polish, Ukrainian, Belarussian and Russian
authorities. For example, at Dorohusk/Jagodin, Polish authorities can clear 300 trucks during one 12-hour
working shift; the Ukrainian side is much less productive. At the Polish-Ukrainian border, waiting times
practically vanished in November-December 2008; this, however, reflected the dramatic reduction in
traffic rather than significantly improved conditions at the BCPs.
5.29. According to ASMAP, the difficulties and recommended improvements at Ukrainian
borders are the following (IRU 2009):
Available border-crossing throughput capacities are underutilized at certain posts on the
Ukrainian side; a fully functioning border post should be ensured.
Lack of joint border controls with neighboring countries; joint controls should be introduced.
Nine different control services involved in checking vehicles and cargo on the Ukrainian side;
the number of controlling services should be significantly reduced.
Full or quasi-full customs and other controls conducted by Ukrainian customs officers at
borders despite an earlier Ukrainian government resolution (No. 269, dated 13 April 2005)
requiring only preliminary document control at borders and full controls at customs points
within the country[[recommendation?]].
Separation of traffic by types of cargo by the Russian Federation customs authorities at the
Ukraine-Russia border, and by the Ukraine customs authorities at the Ukraine-Poland
borders, causing significant detours for vehicles; review and eliminate traffic separation by
cargo types as much as possible, and/or introduce separate traffic lanes for empty vehicles.
Access roads to borders are in a poor state, terminal and throughput capacities of control
points are insufficient; roads and control points should be repaired/extended/newly built (for
example, between Rava-Ruska and Yagodin on the Ukraine-Poland border) in accordance
with the government resolution (No. 831, dated 13 January 2007).
Supply of Consolidated (Groupage) Transport Services
5.30. Consolidated or “groupage” cargo transport services are produced by major road haulage-
based operators or container shipping lines, which maintain regular and/or scheduled services.
Consolidated services may also be provided by freight forwarders, which reserve cargo space from road
haulage or container shipping operators, and sell it in ―retail‖ to small shippers.55
These services are
commonly used in developed markets. It is a process of consolidating cargo from several shippers, each
having insufficient cargo for a full container load or full truckload. In either case, the final part of the
actual delivery is almost always by road transport. This process is considerably more complex than
transport of FCLs or FTLs. These services consolidate Less Than Container/Trailer Loads or (LCL/LTL).
In brief, the process includes:
55
Such operators , which sell cargo services to all eligible shippers but do not have transport capacity of their own,
are also called non-vehicle operating common carriers, or NVOCCs.
Collection of shipment in the country of export using the domestic transport system
Unloading the shipment into exporting customs terminal
Export clearance and consolidation with other shipments for international transport
Loading the shipment into an international transport unit (container or road trailer)
International transport of this consolidated unit to the country of import
Unloading shipments from the unit into importing customs terminal
Deconsolidation of the shipments and import clearance by importer
Unloading shipment from the customs warehouse
Delivery of the shipment in the country of import.
Consolidated groupage services enable shippers to choose the most favorable shipment size and
frequency to optimize their logistics costs and service level. Groupage services are especially important
for small and medium-size firms, and with manufactured goods the unit value (or value-added content) of
which is high. Consolidated transport services are typically used for international shipments weighing less
than 2,500 kilos. For very small parcels (typically less than 20 kilos), either mail or express freight
(courier) services offer a better cost-service ratio for the shippers. Larger shipments are typically
transported directly, without unloading cargo to terminals.
5.31. The supply of scheduled groupage services in Ukraine has been limited until very recently.
Despite a slight increase in supply in the past years, few of the largest operators offer scheduled groupage
routes to or from destinations in the EU or Western Europe. Scheduled groupage services to and from CIS
are still rare. Customs requirements for cargo release are the main reason for the limited supply of import
groupage services. A truck with LTL parcels has shipments destined to numerous consignees, often in
different parts of the country. In Ukraine since end-2007 or early 2008, customs regions have (again)
started to insist that customs clearance for each parcel be made in the territory where that consignee is
located. Furthermore, the goods need to be physically transported in the same vehicle and trailer that
brings the goods into Ukraine. The purpose is to maximize the revenue from fees that the customs region
or local customs house is collecting. This practice is not mandated by legislation, but rather is the
interpretation of Ukrainian customs.
5.32. The process described above for LTL goods increases unit prices for those goods. The order
of magnitude of unnecessary extra freight cost for importers incurred by LTL customs
complication was $US500 million-1,000 million in 2007. The standard practice was that the goods were
collected in a customs-bonded warehouse (for example, in Kyiv), from which they were delivered
domestically after having cleared customs or sent by so-called customs transit to the customs house,
where the final clearance was made. This procedure dramatically increased unit prices for imported LTL
shipments, and has been particularly detrimental to manufacturing and trading firms in regions where the
level of economic activity is low that do not generate large or regular cargo flows. More than two or three
times more transport capacity is tied to operations than in, for example, Poland or Romania. This means
that unit freight costs for LTL imports to Ukraine are perhaps twice what they need to be. The distribution
inside Ukraine of imported LTL goods takes at least three-four days longer than, for example, in Poland.
This means that importers (and ultimately consumers) loose approximately $US10-20 million per year in
capital costs in unnecessary waiting time that logistics operators could eliminate immediately. Delays at
border crossings and in customs clearance in general mean that the process takes at least 3-10 days longer
than, for example, in Poland. This extra delay adds another $US10-60 million in capital costs alone for
importers of LTL goods.56
Elimination of this slack will require far more efficient customs and border
processes, and will therefore be difficult to achieve quickly.
D. Domestic Delivery Services by Road
5.33. Some large international logistics firms have developed scheduled domestic delivery services
between main cities in Ukraine. For example, Schenker has set up a distribution network for LTL
general cargo among 13 cities. Each of them is served daily with a semitrailer truck that can carry 33
standard pallets. Capacity on a particular route can be increased as needed. With Schenker, booking for
domestic delivery is done on Day 1, and the cargo has to be delivered to a Schenker terminal by 1 p.m. on
Day 2. Transport takes place overnight, and the goods can be collected on Day 3; or they can be delivered
to the customer’s door on Day 3 or Day 4. The pricing of the service is based on pallets, that is, the
volume capacity of the cargo in standard pallet terms.
5.34. There are also several operators that deliver small parcels by road between selected main
cities or regions, and competition is intensifying.57
Autolux is the only private firm that can also carry
mail (letters over 20 grams) and cargo. Country-wide services are not offered by others than by the
Ukrainian postal service. A very well-developed service network of small parcel delivery is maintained
by Autolux. Its delivery system relies partly on its regular bus services, but it has also developed a van-
based service network that in effect enables country-wide distribution. Today, about two-thirds of its
operations are cargo delivery and one-third is bus operations. With about 2,500 staff, it operates 170 small
trucks (Turkish-made TEMSA and five- to 6-ton Mitsubishi Canters), and a fleet of 55 modern long-
distance buses. Autolux’s distribution center is a 2,000m2 facility in Buyerka close to Kyiv on a 3-ha
plant, where it also has its major vehicle depot and repair shop. Autolux does not operate bus stations, but
it has delivery centers in Odessa, Charkiv and Lugansk. It has scheduled services to 70 cities, in some of
which there is more than one bus terminal. At the moment it does not engage in import or export
shipments or with customs clearance, but it has plans to expand operations to nearby CIS countries, and
possibly also to Bulgaria and Romania. Autolux handles about 6,000-7,000 parcels a day. Typical cargoes
are spare parts, drugs, apparel, small perishable goods, and small construction items. Only special types of
pharmaceuticals need delivery permission. No refrigerated capacity was available in 2008, but there are
plans to invest in such equipment. About 80 percent of the parcels are between households (consumer-to-
consumer). This is an indication of the unreliable or poor service of Ukrposhta. Only 20-25 percent of
parcels are business-to-business, and less than 10 percent is business-ro-consumer or consumer-to-
business. Practically all shipments handled by Autolux are terminal-to-terminal; only about 1 percent is
delivered to the customer/consumer door. Many of the international express couriers (UPS, DHL, FedEx,
Pony Express) rely on Autolux services for domestic delivery.
56
The estimates are as follows. In 2007, 1,135, 929 import customs declarations were processed, with an average
value of $US53,556.00 per declaration. A very conservative estimate is that half, or about 570,000 of these involved
a LTL or LCL shipment. These are typically manufactured goods with a unit value of about $US5-10 per kilo, or
$US10,000 -20,000 per declaration. A typical LTL freight cost to Ukraine is around 10 per cent of goods value, or
about $US1,000-2,000 per shipment. This value multiplied by the estimated number of LTL import declarations
(570,000) is $US500-1,000 million. 57
Such as Nocgnoi Express (Night Express), In-Time, Euroexpress, SAT, Delivery, Gunsel (bus and parcels),
Sheriff tours (bus and parcels), and Nova Poshta (New Post); in 2008, a Canadian –Ukrainian firm MEEST in Lviv
also applied for the license to carry mail.
5.35. The supply of domestic delivery services both for pallet-based LTL services for firms (such
as Schenker and its competitors) and small parcels used extensively also by consumers (such as
Autolux and its competitors) has increased rapidly during the past three-five years. Also the demand
has grown fast. Service is provided by the private sector, and competition is intensifying. The emergence
of truly door-to-door services is yet to come. The cost of the domestic services is low in international
comparison, but may be assessed as costly in Ukraine, especially by consumers.
E. Shipping Services, Including Inland Waterways
5.36. The data on shipping services in Ukraine are mixed. In 2008, the Ukrainian maritime and
inland waterway fleet transported 19.5 million tons, which was 19.6 percent less than in 2007, and in
2009 only 9.3 million tons, which was 50 percent less than in 2008 Of this, inland waterway volumes
decreased by 25.5 percent and those of the merchant marine by 9.8 percent.
5.37. The volume of cargo processed at ports increased by 4.4 percent to 184.2 million tons from
2007 to 2008 (including commercial, industrial and fishing seaports and river ports) and decreased
by 12 percent in 2009 to 161.9 million tons. . In 2008, export cargoes handled increased by 17.9
percent, and imports by 12.2 percent. Domestic cargos decreased by 17.6 percent, and transit cargoes by
4.1 percent. The number of processed vessels, both foreign and in-freight, increased by 7.2 percent to
21,300 units. In 2009, export cargo handled increased by 14 percent; import and transit decreased by 41
and 21 percent, respectively. Most Ukrainian ports deal mainly with bulk shipping. Because of the small
size of the Ukrainian merchant fleet, most vessels calling at Ukrainian ports are foreign-flagged.
Chartering operations are mostly managed by foreign brokers and shipping agencies.
Liner Shipping
5.38. Liner shipping by freight and passenger roll-on‒roll-off (roro) and ferries is available in
the Black Sea region, with regular routes to Bulgaria, Romania, Turkey, and Georgia. The lines are
served by several international shipping lines, mainly from countries around the Black Sea. The main
Ukrainian ferry operator is Ukrferry, with rail ferry services between Varna, Illiychevsk, and Poti in
Georgia. In January 2009, timetables to Batumi were no longer available at the firm’s Web site
(www.ukrferry.com). Ukrferry also maintains a rail/roro ferry service to Derince in Turkey, as well as
container feeder operations with small ships, and a passenger ferry service between Istanbul and Odessa.
5.39. Several container feeder routes link Ukraine to transoceanic hubs in the Mediterranean
and in the Hamburg-Le Havre range. These provide feeder access with vessels ranging from 500 20-
foot-equivalent units (TEUs) to 1,500 TEUs to and by a number of shipping lines such as Maersk (with
Safmarine), CMA/CGM, COSCO, MSC, and Hapag-Lloyd. These firms offer practically daily departures
to most major hub ports in Europe and Asia via trans-shipment. In Ukrainian container ports (mostly
Odessa and Illichevsk), the vessels typically unload 50-200 containers, and load 40-100 mostly empty
containers per port call. In early 2008, approximately 80 percent of the imported containerized cargo
originated in East Asia, notably in China. Since 2007, direct transoceanic container services with ship
sizes exceeding 5,000 TEUs between Europe and East Asia have started to call at Ukrainian ports. Until
recently, they have been uneconomical for entering the Black Sea. In spring and summer 2008, the
extremely slow throughput times resulted in long waiting times and congestion in ports, especially in
Odessa. This made it difficult for shipping lines to increase their services to Ukrainian ports, despite
reportedly significant transport demand. At the end of 2008, the container shipping business has been
profoundly hit by the plummeting transport demand and freight levels. As a consequence, shipping lines
have dramatically reduced their capacity worldwide. Its impact on service to Ukraine remains to be seen.
5.40. Ukraine‟s liner shipping connections have improved significantly over the past years, as
reflected in the improved ranking in UNCTAD‟s Liner Shipping Connectivity Index (LSCI). In
2008, Ukraine had climbed to 42th position among 162 coastal countries covered in the LSCI. LSCI
is calculated based on four components: number of ships, the container carrying capacity, the number of
container shipping-related services, and the maximum ship size, always referring to the ships that are
deployed to provide liner shipping services to countries’ ports. The underlying data are derived from
Containerisation International On-line, a trade journal database (Attachment 24).
Port and Terminal Handling of Containers
5.41. In the main container ports, the transport pattern of container movements measured in
TEUs in 2008 was heavily unbalanced. This is illustrated by the following statistics on container
movements.
65 % imports, of which
o 80% Ukrainian imports
o 20 % in transit to Lithuania, Russia, Belarus, Moldova, Kazakhstan
10 % exports, of which
o 70 % Ukraine’s own exports
o 30 % in transit mainly from Russia, Belarus, Moldova, Kazakhstan
25 % empty containers in export
Container handling in ports is done by private companies. This is mostly the case with other stevedoring
work in main ports.
5.42. About 90 percent of pre- and on-carriage of containers is done by road transport. The most
important reason for this is the flexibility. Indicative road freights paid by shipping lines from Odessa in
2008 with a 40-foot container on a trailer are as follows (using container chassis trucks would cost
approximately 40 percent more):
Odessa- Kyiv USD 1,300 – 1,500 roundtrip
Odessa – Moscow USD 4,500 – 5,000 roundtrip
Odessa – Vienna USD 3,300 – 3,500 one way with a tarpaulin truck
Roundtrip Odessa- Kyiv took on average seven-eight days in summer 2008 because of extensive waiting
and processing times at the port. This meant that a truck could make about 4,000 to 4,500 km per month,
which is too little to allow for fleet renewal. In Romania, for example, a comparable truck would drive
three-four times more kilometers per month, which generates a much higher income for the road carrier.
5.43. As indicated by one major shipping line, the standard waiting time to move a container
from shipside to port gate in Odessa was 10-11 days in summer 2008. In Rotterdam or Le Havre, the
same operation takes 24 to 36 hours, or 1 to 1.5 days.
5.44. Rail transport share is low because of lack of capacity, inflexible connections, long transit
times, and low level of service (mainly by UZ’s subsidiary Liski, which handles only full units). This is
despite rather low tariffs, reportedly at $US900 both ways, including all handling charges for a 40-foot
container between Ukraine and Poland. The rail tariff for containers between Klaipeda (Lithuania) and
Kyiv in 2008 was $US0.16 per km. The route between Klaipeda and Illichevsk is 1,733 km, with a transit
time on average of 57 hours by rail. According to Liski, the total transport cost would amount to $US300
one way, including customs declaration, taxes, and charges. In 2008, the balance of traffic on this
―Viking‖ train connection was 10:1 from Illichevsk to Klaipeda. However, industry sources cited rail
freights for a standard 40-ton wagon from Odessa to Moscow at $US2,500 for a 1,200- to 1,300- km
distance. On the same route, the rail freight for a 40-foot container on a container platform wagon was
$US3,100-3,200 in summer 2008. In rail tariffs, unofficial payments occur rarely.
5.45. Costs for handling containers in ports vary from port to port. Over 90 percent of all container
movements in 2008 were through the ports of Odessa and Illichevsk, so their cost indications in June
2008 are representative. An increase in total handling costs of $US60.00 took effect in July 2008, but
some costs were also reduced at end-2008. Indicative container handling costs from shipside to port gate
in June 2008 (including frequently solicited unofficial payments) were as follows.
Container handling costs from shipside to port gate, June 2008
20„ container 40‟ container
Odessa USD 500 USD 600
Illichevsk USD 560 USD 660
The unofficial payments are solicited frequently in a number of stages, but their level varies case by case.
A total of UAH 400 (about $US50.00) was cited as a typical level to expedite the process through the port
and/or avoid physical inspection of a container. It is not uncommon for unofficial costs to exceed
$US100.00 per container.
5.46. Container handling costs in Ukrainian ports are high in international comparison even
without unofficial payments, and the service performance measured in typical throughput times is
poor. This is a significant cost and time barrier for Ukraine’s trade, with severe indirect consequences for
importers, exporters, and the transport sector. Increases in port capacity (such as those in Yuzhny, and
those planned in Odessa and Illichevsk) are small compared to the need. The major bottleneck is not the
lack of physical port capacity, but the customs, border, and port agency procedures.
F. Air Transport Services
5.47. International air traffic has developed rapidly during the past few years, and several new
destinations have been opened. Boryspil, the main international airport in Kyiv, offered scheduled
flights to more than 72 destinations in 2009 by more than 25 international airlines and the two main
Ukrainian operators, Ukraine International Airlines and AeroSvit, which are privately owned. The
government-owned Ukrainian Airlines, has a limited capacity compared to the two others. Domestic
scheduled services are still underdeveloped, and most domestic traffic still goes through Boryspil airport,
as direct domestic connections between regional cities are scarce.
5.48. In 2008, 101,400 tons of cargo were carried by air transport, which is 2.6 percent less than
in 2007. Air transport performance was 378.4 million ton-kilometers, which is 2.6 percent less than
in 2007. In 2009, air freight volumes decreased by 17 percent to the 2008 level. Apart from some
regular courier and express freight flights with limited capacity, there are no dedicated scheduled air
cargo connections to or from Ukraine. The still rather small air freight volume―about 140,000 tons in
2007―is mainly carried as so-called belly air freight, that is, in cargo holds of regular passenger lines.
5.49. Ukraine‟s fleet of large cargo aircraft is mainly used in international airlift operations, for
example, in relief or peacekeeping operations. Regular passenger services have developed rapidly
with an expanded service network and operator range, but the capacity at airports is a serious
bottleneck. There is a large Ukrainian-registered fleet of heavy-lift cargo aircraft. These are mostly of
Antonov type, which are manufactured in Ukraine, or Soviet/Russian-built aircraft. This fleet has a rather
high average age (around 20 or more) and is operated by a number of separate carriers. Little of this
capacity is used to carry cargo inside, to, or from Ukraine. Some Ukrainian aircraft, especially in the
1990s, were linked to illicit arms operations.
5.50. Air freight accounts for less than a 0.5 per mille of Ukraine‟s trade by volume58
(weight),
but its importance is gradually growing. While Ukraine has a large fleet of aircraft dedicated for air
cargo, these are mostly employed between third countries. These are also used mostly for irregular and
oversized shipments. Majority of regular air freight uses the cargo holds’ capacity of scheduled passenger
flights as so-called belly cargo. Air freight quotations for these follow the international industry tariffs by
IATA, which is a reference base used in most parts of the world. In end-2008, a typical freight from Kyiv
to the East Coast, of the United States, for example, was $US2.5-3.00 per kilo, which is at par with air
freight from most nonhub airports in Europe. Air freight can be transported at similar costs, especially
from Kyiv, as from similar European airports. In imports of air freight, the customs procedures have also
been faster than with, for example, road-based imports.
G. Freight-Forwarding Services and Multimodal Transport Operations
5.51. Freight-forwarding operations are provided almost entirely by private sector operators. The
Law of Ukraine in Forwarding Activity of 01.07.2004 N 1955-IV formalized the industry, and the
national association now offers diploma courses. Two professional associations exist in Ukraine:
Ukrzovnishtrans, the Association of Transport and Freight-Forwarding Organizations of Ukraine (UZT)
and the Association of International Freight Forwarders of Ukraine (AIFFU), which are briefly described
below. According to (UZT),59
there are about 300-400 ―serious‖ firms in the business. By comparison,
1,561 freight forwarder licenses were issued in Belarus according to UZT.
5.52. UZT, which is a member of International Federation of Freight Forwarders
Associations (FIATA) and European Association for Forwarding, Transport, Logistic and
Customs Services (CLECAT), had 36 members in March 2009. About half of these had their own
58
At 0.1 million tons, air cargo is <0.25 per mille of total trade volume, when transit cargo is included. 59
See: http://www.uzt.kiev.ua/clients/uzten.nsf.
truck fleets, and many were also providing related services such as warehousing, cargo handling, and
customs brokerage. Those with their own trucks commanded fleets ranging from about 10 to more than
100 units (for example, Illichevskvneshtrans). Most UZT members are in the Odessa region and close to
other major ports, and about half of UZT members’ turnover is related to transit traffic. UZT has been in
the process of renewing its charter from the year 1992 to allow other transport operators to join, but this
work is still pending. Extending the membership to ―nonresidents,‖ that is, fully foreign-owned firms,
seems difficult, even though two-three members are already join ventures. UZT has also been drafting the
new draft of Ukrainian Rules for Freight Forwarding Services, but this work is also ongoing, as can be
seen on their Web site (March 2009).
5.53. AIFFU was established by more than 100 Ukrainian firms in 1994 as a professional,
voluntary, nonprofit union of international freight forwarders of Ukraine. AIFFU is a national
association of FIATA. AIFFU represents more than 170 freight forwarding companies, and 47 of them
are individual members of FIATA. About 50 percent of Ukrainian export and import and 70 percent
transit of goods turnover are performed by AIFFU members. AIFFU and UZT, in cooperation with
PLASKE, an Odessa-based freight-forwarding firm that is also organizing training in this field, have been
organizing international freight forwarder conferences in Odessa since 2003. The 2009 event was June 8-
9(http://www.ffd2009.plaske.ua/en/).
5.54. Foreign-owned freight-forwarding and logistics firms have no dedicated association of their
own, but have acted primarily through working groups of the European Business Association (EBA), or
within other logistics-related associations, such as the Logistics Platform
(http://www.logisticsplatform.com.ua/), the Ukrainian League of Logistics and Warehousing, and the
Ukrainian Logistics Association (http://www.ula-online.org/). The main concerns of freight forwarders
relate to customs legislation and improving customs procedures. The concrete issues relate to the high
level of discretion in goods valuation and inspection, especially in imports, which significantly hampers
the provision of efficient logistics services.
5.55. The forwarding market in Ukraine can be tentatively divided in several segments by size of
operators and type of services. First, there are a large number of small forwarders acting as ―fixers‖ for
the number of small importers. Their main function is negotiating through the nontransparent clearance
processing. This segment of the market is not in a position to offer multimodal services because they have
only a few clients. There are approximately 2,100 registered freight forwarders, but no more than 10
percent are members of the national associations. The international forwarders or joint ventures having an
extensive network of own offices around the world that create another segment. In the Ukrainian market
there are international companies such as Kuhn & Nagel, Panalpina, Danzas, M&M, and TransRail. In
Ukraine, their offices are predominantly respondent offices. Contracts for multimodal or standard
forwarding activities are mainly arranged overseas; the offices in Ukraine are responsible only for
handling the goods when they arrive in Ukraine. This type of organization is dominant in handling
multinational company traffic. The last segment is the big national forwarders, such as
Ukrinterexpedition, Yugointrans, and Intertrans. These organizations have evolved to handle traffic for
the international transport operations of large industrial enterprises, particularly road and rail services.
These companies tend to be dominant in handling traffic to and from CIS.
5.56. The market of multimodal transport services within Ukraine is much lower than in EU
countries. The main container shipping lines serving Ukraine stated that only about 10-15 percent of
container traffic is carried on through bills of lading, that is, using multimodal transport. This percentage
is low compared to international practice, but reflects the specific situation in Ukraine. Most Ukrainian
importers prefer to take delivery of their goods at ports and clear the goods there, then arrange for
domestic transport separately. The same export shippers tend to deliver their goods loose by surface
transport to the seaports or their environs and then load them in containers. Importers and exporters are
generally retaining traditional unimodal transport arrangements, using a number of different parties to
undertake specific tasks within the logistics chain, rather than using a shipping line as an multimodal
transport operator.
5.57. There are no any legal frameworks for operating multimodal transport services. Draft
legislation has been in the development and review process for several years. The latest proposals do not
appear with wording in the UN Convention and UN/ICC Rules. There is still debate as to whether the
new law is for a multimodal or combined transport law. There is also concern that the draft is being
undertaken by Ukrzaliznytsia and therefore the legislation may be too rail-oriented, whereas most
multimodal traffic is expected to be maritime and road.
H. Ukrainian Postal Services
5.58. The Ukrainian State Enterprise of Posts (Ukrposhta) is the national postal operator
governed by the Ministry of Transport and Communications of Ukraine.60
It has more than 15,000
post offices (over two-thirds of these in rural areas) and more than 115,000 staff. The total income of
Ukrposhta was UAH3,014.9 million in 2007, which was 20.2 percent more than in 2006. The revenues
from postal activities before taxation amounted to UAH32.3 million in 2007 (0.6 percent.of turnover)
(Ukrposhta Annual report; www.ukrposhta.com).
5.59. Ukrposhta‟s services are divided into three main groups. Postal operator services include
transmission of ordinary and registered postcards, letters, wrapped items, and uninsured parcels under 10
kg, and delivery of periodicals within the country. Financial services include traditional money orders and
cash payments (mostly pensions), but no banking activities. Other commercial services include providing
internet access on the premises, transport services, and other support services.
5.60. Performance indicators presented by Ukrpostha show that quality of service in its
traditional operations is still rather modest by international comparison: 95 percent of letters
between the oblast centers are delivered within four days of posting; 19 percent of letters sent from the
oblast centers to Kyiv are delivered in two days, and up to 93 percent in three days. The most efficient
European postal services (Switzerland, Sweden, and Finland) exceed 95 percent of next-day delivery
within the country. Ukrposhta’s operational links to foreign postal services follow the pattern of the
International Postal Union (IPU) rather than that of active commercial partnerships.
5.61. The development plan of Ukrpostha or MoTC plans for it do not seem to include its
transformation into a logistics service provider, as has been the case with postal services in more
60
Order of the Cabinet of Ministers, January 10, 2002, No. 10-p; the Law on Postal Service of October 4, 2001.
developed markets. In the medium term, this could be an option, but would require a radically more
business-minded approach from the MoTC and Ukrpostha’s management.
6. Assessing Ukraine’s Trade Logistics Costs
6.1 The World Bank‟s Transport Sector Policy Note in 2006 estimated the total costs of
barriers to efficient trade and transport at Ukraine‟s border at nearly $US3 billion in
1998. This would be over 10 percent of total merchandise trade or GDP, which is a very high
number, compared to most of the developed or middle-income countries. This section revisits
this estimate, and attempts to put a rough order of magnitude to Ukraine’s trade logistics
costs―and related trade and transport barriers―using official trade and GDP data in 2008
and market information derived in field missions in 2008.
6.2 The assessment is based on the following findings and assumptions on the cost impact
on traders:
Large exporters of full units or bulk typically enjoy:
o Relatively low transport costs
o Relatively few border crossing problems
Importers with small or time-sensitive flows face:
o Cumbersome border-crossing and clearance procedures
o Expensive scheduled groupage services
o Substantially higher inventories than in EU
Storage and warehousing costs are high.
Port charges and handling costs are rather high, except for some bulk cargo.
Domestic road transport costs are low in absolute terms.
Domestic and international full wagon load freights have been rather low, but their level rose
substantially in 2008 and fell in 2009.
Imbalance of trade: import freight/unit can be two-three times higher than in export
Unofficial payments are commonly solicited in border crossings and cargo release.
Importers―especially wholesalers or firms maintaining equipment and an inventory of spare parts―are
estimated to have about three times higher inventory levels than similar firms in EU countries, thus tying
up capital and driving up costs for carrying inventory. Therefore, the average turnaround rate of (all)
inventories is set at three in the estimate. This means that the goods spend, on average, 120 days in
storage. This is roughly three times longer than in the EU.
The trade-related transport costs are based on market indications on typical freight costs for Ukraine’s
imports and exports. They are calculated separately for the top 20 import and export countries by
transport mode, and checked against the cargo composition of imports and exports by top 10 commodity
groups (chapter 4, Attachments 5-14). This allows for weighing in different transport conditions and
related cargo-handling costs by route and type of cargo.
Export shipments are treated on a Free on Board (FOB) basis. The F-clauses are also by far the most
widely used delivery clauses in Ukraine exports. Imports are treated on a ―Cost, Insurance & Freight‖
(CIF) basis to ensure consistency with the standard presentation of import data in trade statistics. In the
case of Ukraine, a significant share of manufactured imports is actually bought by using ―Delivered at
Frontier‖ or other variations of the D-clauses, rather than by using C-clauses. Nevertheless, the logistics
costs are ultimately borne by importers one way or the other, even if the seller is responsible for
organizing the transport.
The division of logistics costs follows that shown in Attachment 1, where the costs are divided into direct
and indirect logistics costs of trade. The sum of these two components is called ―Total Logistics Costs of
Trade‖. Note, that ―Total Logistics Costs of Trade‖ excludes logistics costs for purely domestic
operations. These will have to be estimated separately, which is unfortunately beyond the scope of this
assignment. Inferring a range from other available sources (Attachment 25, Ukraine’s ―Domestic
Logistics Costs‖ could be between 5 and 7 per cent of GDP.
The direct logistics costs are broken down by transport mode (road, rail, air and maritime) excluding
pipeline transports and transit movements. In addition, this direct component includes costs for (i) cargo
handling in ports and terminal and (ii) pre-carriage (exports) or on-carriage (imports) in Ukraine. Indirect
logistics costs are broken down to (i) administration and documentation costs; (ii) inventory handling
costs in warehouses; (iii) inventory carrying costs; and (iv) unofficial payments, the level of which is
based on anecdotal evidence at 1 percent of trade value in imports and exports. It is further assumed that
(i) administration and documentation costs are 2.5 percent of trade value for imports and 1 percent for
exports; and (ii) inventory handling costs are 2 percent of trade value for imports and 1 percent for
exports. Inventory carrying costs are based on an inventory turnaround rate of 3 (see above), and an
interest rate on capital at 20 percent, which has been the actual level in UAH-based lending in 2008. This
level might actually overestimate the costs when they are calculated in U.S. dollars. An average rate of 5
UAH to 1 U.S. dollar has been applied.
6.3 Despite these precautions, the estimate will only give a rough estimate of the costs incurred,
and the figures should be treated as indicative only.
A. Assessment of Total Logistics Costs of Trade
6.4 The estimated total logistics costs of trade, at $US23 billion, was 15.1 percent of total trade value
in 2008. The corresponding share is 16.9 percent for imports and 12.8 percent for exports. This is
significant, because the unit value in imports is much higher than in exports. Ukraine's nominal GDP in
2008 was UAH950.5 billion,61
according to a report of the State Statistics Committee issued on February
27, 2009. The export of goods was $US67.0 billion, and imports $US85.5 billion, in 2008 (Attachment
26).
6.5 The logistics costs seem to be much higher a burden for import, and these “additional”
costs are ultimately borne by end-users and consumers in Ukraine. Export shipment can
be dispatched with rather low transport and other logistics costs despite the fact that they are
mostly bulky and low-value goods.
6.6 The overall logistics costs of Ukraine would be 18-20 percent of GDP. Compared to Ukraine’s
GDP in 2008, total logistics costs of trade are 12.1 percent. Based on available data from other countries,
a possible range of domestic logistics costs for Ukraine could be 6 to 8 percent of GDP. This is a high
figure, but not exceptionally high for a large country at the same level of development (Attachment 27).
B. Assessing Avoidable Logistics Costs of Trade
6.7 This assessment should be treated with additional caution, since it is based on a simplified
tabulation that relies on rough assumptions. The next step is to use the tabulation to assess the range of
61
The committee confirmed that real GDP grew by 2.1 percent in 2008 (7.6 percent in 2007).
avoidable logistics costs of trade in order to find out the level of total costs of barriers to efficient trade
and transport in Ukraine. A tentative level of practically avoidable costs is illustrated in Attachment 25. It
may be argued that it is not realistic to try to abolish unofficial payments altogether, but the point is to
show the relative importance if that could be achieved.
6.8 Quite separately from the issue of unofficial payments, some other savings could be reached
by streamlining the border-crossing and customs clearance procedures. Here, the indirect impact
would be significant through shorter turnaround times, resulting in smaller inventories, which reduces the
cost of capital tied in inventory.
6.9 The largest gains would be in indirect logistics costs, about $US5 billion, whereas direct
logistics costs could have been about $US1 billion less. For every direct saving of one UAH, up to
five times as much could be saved indirectly. Using the available transport capacity much more
efficiently could reap several benefits, as was illustrated with LTL shipments, including higher utilization
of transport capacity. The severe oversupply of transport capacity both domestically and internationally in
2009-2010 may, however, prevent efficiency gains in reality, but they could have materialized in 2008.
6.10 The 1998 estimate of trade barrier costs was $US3 billion, or 10 percent of trade value or
GDP. The absolute amount of the estimate for 2008 appears to be about twice as big, slightly over
$US6 billion. Relative to the size of the economy, however, the estimate for 2008 would be about 4
percent of trade value, or 3 percent of GDP that year.
7 Ukraine’s Potential to Become a Regional Logistics Hub
7.5 Figure 21 presents four different patterns of international cross-border distribution. The typical
patterns of imports applied today are Type I and III. The warehousing business is underdeveloped in
Ukraine. Only small volumes are handled through customs bonded warehouses because of customs
procedures (as exemplified in the LTL section). Warehouses are often operated by manufacturing and
trading firms rather than by logistics firms specialising in warehousing or third-party (W/H & 3PL)
logistics business.
Figure 21. Illustration of Four Basic Options of Cross-Border Physical Distribution in Three Sample Countries
Note: UA= Ukraine; MD = Moldova; RU= Russia.
7.6 The domestic market for W/H & 3PL in Ukraine is small compared to the size and population of
the country. It has attracted three-four large international logistics operators in the country, but market
growth has been rather slow, and profitability for some of them unsatisfactory. This, along with doubts
about the predictability of customs regulations and procedures, has been cited by large international
logistics firms as the reason not to invest directly or start their own operations in Ukraine. At least three
medium-size European W/H & 3PL operators also cited the (perceived) high level of corruption as the
reason for not entering the Ukrainian market.
7.7 The regional warehousing (Type II) pattern could in theory hold potential for Ukraine, but the
market demand for it in Belarus or Moldova is minimal, and in Russia would be mostly unrealistic to
serve from Ukraine. Under no circumstances could Ukraine serve as a genuine logistics hub for EU
countries around the Black Sea, Poland, or Turkey. The challenge of regional warehousing operations lies
in its complexity and cost. In order to be feasible, all clearance procedures would need to be very
streamlined on both sides of the borders. This is unlikely to happen in Ukraine or in its non-EU
neighbors in the near future.
The potential Free Trade Agreement with the EU would enlarge the potential market inside Ukraine.
However, this is not enough to make Ukraine more attractive as a location from which regional
warehousing and distribution operations could be conducted
7.8 Type III and IV operations are the likely modes to reach Ukraine and some of its neighbours.
Pure transit operations to/from Russia (mostly by rail) and also to Moldova through Black Sea ports will
continue. These require transport and stevedoring services, but little or no value-added logistics.
7.9 Ukraine is not likely to become a significant logistics hub, and the potential to develop
regional distribution activities beyond Ukraine is small. This opinion was also widely shared by the
logistics community interviewed in and outside Ukraine. Any logistics center developments can only
serve a local or at best a national market within Ukraine.
7.10 However, in order to facilitate the trade and transit in Ukraine, different opportunities and
problems must be taken into account. The figures below represent strengths, weaknesses, opportunities,
and threats (SWOT) analysis for Ukraine that is helpful in identifying potential for development and
problems that require urgent attention.
Figure 22. SWOT Analysis for Ukraine
Attachments
Attachment 1. Ukraine at a Glance 2009
Attachment 2. Indicators of the Business Environment in the BEEPS Study
.
Attachment 3. Selected Modal Split and Transport Intensity Graphs
Source: UNECE EECCA = Eastern European, Caucasus, and Central Asian countries
Attachment 4. Main Airport Network in Ukraine, 2009
Town Airport name ICAO IATA Customs Runway IFR Runway length
Cherkasy Cherkasy UKKE CKC Yes Paved Yes 8200 ft
Chernivtsi Chernivtsi UKLN CWC Yes Paved Yes 7218 ft
Dnipropetrovsk Dnipropetrovsk UKDD DNK Yes Paved Yes 9300 ft
Donetsk Donetsk UKCC DOK Yes Paved Yes 8200 ft
Ivano-Frankivsk Ivano-Frankivsk UKLI IFO Pto. Paved Yes 8200 ft
Kerch Kerch UKFK KHC Yes Paved No 5420 ft
Kharkiv Osnova UKHH HRK Yes Paved Yes 7200 ft
Kiev Antonov UKKM - Yes Paved Yes 11483 ft
Kiev Borispol UKBB KBP Yes Paved Yes 11400 ft
Kiev Zhulyany UKKK IEV Yes Paved Yes 5900 ft
Kryvyi Rih Lozovatka UKDR KWG No Paved Yes 8200 ft
Lvov Lvov UKLL LWO Yes Paved Yes 8200 ft
Luhansk Luhansk UKCW - Yes Paved Yes 9318 ft
Mariupol Mariupol UKCM - Yes Paved Yes 8425 ft
Mykolaiv Mykolaiv UKON NLV Yes Paved Yes 8300 ft
Odessa Odessa UKOO ODS Yes Paved Yes 9100 ft
Rovno Rovno UKLR RWN Yes Paved Yes 8600 ft
Simferopol Simferopol UKFF SIP Yes Paved Yes 12100 ft
Ternopil Ternopil UKLT - Yes Paved Yes 6562 ft
Uzhgorod Uzhgorod UKLU UDJ O/R Paved Yes 6600 ft
Vinnitsa Gavryshivka UKWW VIN No Paved No 8200 ft
Zaporozhye Mokraya UKDE OZH Yes Paved Yes 8200 ft
Attachment 5. Ukraine’s Imports, by Country of Origin, 2001–09
Imports 2001 2002 2003 2004 2005 2006 2007 2008 2009 (*)
USD mln 15775 16977 23020 28997 36136 45039 60669 85534 40418
Index 2001=100 100 108 146 184 229 286 384 542 256
Russian
Federation 5813 6317 8646 12128 12843 13787 16837 19414 11322
Germany 1380 1658 2273 2773 3384 4268 5829 7165 3468
Тurkmenistan 1654 1886 1746 1954 2678 3492 4266 5631 11321
China 196 260 519 741 1811 2310 3307 5601 2446
Poland 451 537 802 1008 1406 2109 2920 4280 1962
Italy 412 463 646 880 1030 1467 1789 2431 1015
Belarus 407 263 344 545 940 1255 1444 2809 1015
France 296 349 530 655 799 990 1330 1682 874
Kazakhstan 666 383 493 395 186 9966 1591 3118 1994
Korea, Rep. of 102 126 229 327 649 935 1564 2046 523
Top 10 total 11377 12242 16228 21406 25726 40579 40877 54177 35940
Top 10% of total 72% 72% 70% 74% 71% 90% 67% 63% 89%
CIS countries 8832 8968 11508 15208 17029 20185 25629 33569 17390
% of total 56% 53% 50% 52% 47% 45% 42% 39% 43%
Europe 4982 5751 8166 9887 12666 16804 23048 30475 14538
% of total 32% 34% 35% 34% 35% 37% 38% 36% 36%
Asia 971 1172 1971 2574 4645 6071 8940 15306 5834
% of total 6% 7% 9% 9% 13% 13% 15% 18% 14%
Africa 199 177 249 280 426 413 673 1559 549
% of total 1% 1% 1% 1% 1% 1% 1% 2% 1%
USA 741 857 1072 966 1266 1465 2248 4190 1964
% of total 5% 5% 5% 3% 4% 3% 4% 5% 5%
All others 50 52 54 82 104 101 129 433 140
% of total 0,3% 0,3% 0,2% 0,3% 0,3% 0,2% 0,2% 0,5% 0,3%
(*) January–November 2009
Source: SSCU
Attachment 6. Ukraine’s Exports, by Country of Origin, 2001–09
Exports 2001 2002 2003 2004 2005 2006 2007 2008
2009 (*)
USD mln 16265 17957 23067 32666 34228 38368 49248 67002 35603
Index 2001=100 100 110 142 201 210 236 302 412 154
Russian Federation 3680 3189 4311 5886 7490 8651 12669 15739 7518
Turkey 1009 1235 902 1869 2027 2390 3650 4633 1893
Italy 832 839 1268 1620 1893 2503 2675 2911 1085
Poland 497 506 763 980 1010 1345 1636 2338 1090
Germany 711 755 1423 1891 1285 1284 1644 1836 1118
Belarus 244 261 340 551 891 1223 1561 2105 1177
USA 569 519 719 1507 957 1209 1058 1949 209
Hungary 469 525 850 808 689 946 1235 1367 668
India 130 158 203 482 737 850 744 1005 1060
Kazakhstan 117 200 307 623 667 826 1433 1832 1324
Top 10 countries -
total 8258 8187 11086 16217 17646 21227 28305 35715 17142
Top 10% of total 51% 46% 48% 50% 52% 55% 57% 53% 48%
CIS countries 4675 4377 6044 8557 10730 12633 18615 23819 12112
% of total 29% 24% 26% 26% 31% 33% 38% 36% 34%
Europe 5721 6516 9147 11764 10881 12625 14774 19736 9131
% of total 35% 36% 40% 36% 32% 33% 30% 29% 26%
Asia 3970 5068 5401 8031 8377 8134 10364 15263 10979
% of total 24% 28% 23% 25% 24% 21% 21% 23% 31%
Africa 877 1055 1250 1758 2394 2374 2792 3903 2321
% of total 5% 6% 5% 5% 7% 6% 6% 6% 7%
America 1012 937 1219 2544 1831 2551 2686 4144 995
% of total 6% 5% 5% 8% 5% 7% 5% 6% 3%
All others 10 4 6 12 15 21 16 134 19
% of total 0,1% 0,0% 0,0% 0,0% 0,0% 0,1% 0,0% 0,2% 0,1% (*)
January–November 2009
Source:SSCU
Attachment 7. Ukraine’s Imports, by Commodity, 2001–09
2001 2002 2003 2004 2005 2006 2007 2008 2009 (*)
Total imports, goods USD mln 15775 16977 23020 28997 36136 45039 60669 85534 40418
Index 2001=100
100 107,62 135,60 125,96 124,62 124,64 134,70 140,98 47,25
Top
10
co
mm
od
ity
clas
ses
(1-s
t le
vel i
n 2
00
8)
V.Mineral products 6752 7047 8479 10845 11567 13506 17280 25441 13935
ХVІ. Machines, equipment and mechanisms, electric and technical equipment, audio and video equipment, TV equipment
2378 2502 3478 4741 6340 7878 10571 13378 5508
XVII. Ground, air, and water transport facilities
746 1022 1874 2494 3220 5147 8216 12091 1945
VI. Products of chemical and allied industries
1127 1375 1771 2248 3097 3889 5316 6959 4731
XV. Base metals and preparations thereof
821 811 1197 1753 2469 3327 4742 6390 2426
VII. Plastics and rubber
697 736 1035 1407 1938 2527 3412 4476 2413
IV.Finished food industry products
590 641 1099 1005 1455 1655 2090 2679 1794
X. Paper bulk from wood or other vegetable fibers
538 682 825 785 1004 1173 1523 1835 1231
ХI. Textiles and articles of textiles
647 673 852 992 1406 1366 1486 2099 1290
XIII. Products from stone, gypsum, cement, asbestos, glass
185 202 281 391 516 738 991 1276 572
Top 10 total 14481 15691 20891 26661 33012 41206 55627 76624 35845
Top 10% of total imports 92% 92% 91% 92% 91% 91% 92% 90% 89%
Top
5 c
om
mo
dit
ies
at 2
-lev
el
27 mineral fuel, petroleum, and petroleum distillation products
6254 6653 7857 10161 10661 12712 15984 22832 13007
87 ground transport facilities, excluding railway
637 927 1698 2247 3023 4899 7770 11370 1786
84 machines and equipment
1661 1818 2468 3214 4050 5196 7436 6570 3477
85 electric machines 717 685 1010 1526 2290 2682 3135 3808 2030
39 plastics and articles of plastics
464 553 792 1071 1497 1989 2693 3519 1942
Top 5 commodities total 9733 10636 13825 18219 21521 27478 37018 48099 22242
Top 5 % of total import 62% 63% 60% 63% 60% 61% 61% 56% 55%
(*) January–November 2009
Source:SSCU
Attachment 8. Ukraine’s Exports, by Commodity, 2001–09
(*)
Total exports, goods,
USD mln
2001 2002 2003 2004 2005 2006 2007 2008 2009 (*)
16265 17957 23067 32666 34228 38368 49248 67002 35603
Index 2001=100
100 110,40 128,46 141,61 104,78 112,10 128,36 136,05 53,14
Top
10
co
mm
od
ity
clas
ses
(1-s
t le
vel i
n 2
00
8)
XV. Base metals and preparations thereof
6720 7126 8492 13048 14009 16426 20787 27633 11639
V.Mineral products 1750 2245 3500 4324 4705 3872 4275 7046 3397
ХVІ. Machines, equipment and mechanisms, electric and technical equipment, audio and video equipment, TV equipment
1714 1759 2322 3032 2839 3329 4976 6341 4441
II. Plant products 693 1121 746 1136 1695 1951 1726 5577 4525
VI. Products of chemical and allied industries 1478 1397 1943 2782 2988 3387 4047 5045 2311
XVII. Ground, air, and water transport facilities 549 689 984 2035 1648 2079 3304 4324 1397
IV. Finished food industry products
451 546 904 1141 1291 1394 2056 2524 1871
III. Animal or plant fats and oils
226 342 559 546 587 971 1717 1945 1574
ХI. Textiles and articles of textiles
614 655 765 883 914 915 990 984 647
VII. Plastics and rubber 256 263 361 439 575 803 987 997 513
Top 10 total 14451 16143 20576 29366 31251 35127 44865 62416 32315
Top 10 % of total exports 89% 90% 89% 90% 91% 92% 91% 93% 91%
Top
5 c
om
mo
dit
ies
at 2
-lev
el
72 ferrous metals 4977 5367 6728 10766 11451 13057 16743 22991 9287
27 mineral fuel, petroleum, and petroleum distillation products
1186 1646 2753 3387 3343 2553 2630 4109 1807
10 cereals 484 998 402 843 1383 1354 763 3703 3182
73 preparations from ferrous metals 649 561 1071 1448 1848 2362 2912 3534
1796
84 machines and equipment 1249 1282 1426 1803 1922 2050 2738 3497
2475
Top 5 commodities total
8545 9854 12380 18247 19947 21376 25786 37834 18547
Top 5 % of total exports
53% 55% 54% 56% 58% 56% 52% 56% 52%
Note: 2009 data includes only the data for the first 11 months
Source: SSCU
Attachment 9. Ukraine’s imports, by Country of Origin and Mode, 2008
Countries In '000 tons Total (incl.
pipelines)
% of
total Road Rail Sea
All 10165,02 33275,17 3254,53 94391,46 100%
Countries CIS 1657,56 23334,97 99,37 64613,88 68,45% Countries EU 5800,35 3739,14 182,12 11790,14 12,49%
Europe 79,25 27,04 12,58 196,29 0,21% Asia 2287,37 2435,03 150,83 7562,64 8,01%
Africa 24,22 1768,54 1551,87 4481,35 4,75% America 302,85 1550,96 1069,48 3981,82 4,22%
Other 13,42 419,49 188,28 1765,34 1,87%
1 Russian Federation 1271,18 18106,96 96,35 28138,2 29,81% 2 Turkmenistan 0,12 23,56 - 23064,39 24,43% 3 Kazakhstan 37,26 3121,12 - 6428,4 6,81% 4 Uzbekistan 1,64 201,16 - 3603,86 3,82% 5 Poland 1944,89 1355,84 0,07 3530,12 3,74% 6 Belarus 217,12 1464,1 - 2686,17 2,85% 7 China 1306,6 315,83 0,9 2632,74 2,79% 8 Guinea 0,06 82,67 1551,67 2619,6 2,78% 9 Turkey 380,02 239,07 148,68 1979,82 2,10%
10 USA 161,94 861,86 261,38 1681,52 1,78%
11 Germany 1013,68 126,64 3,33 1292,27 1,37% 12 Romania 138,03 150,17 98,55 1203,41 1,27% 13 Indonesia 26,76 1111,64 0,02 1193,31 1,26% 14 Ghana 0 949,79 - 950,26 1,01% 15 Brazil 78,16 585,51 222,19 922,81 0,98% 16 Australia 1,41 375,51 188,3 882,35 0,93% 18 Lithuania 129,83 557,07 - 826,05 0,88% 19 Ghana 0 - 560,78 788,57 0,84% 20 Hungary 343,15 226,64 0 591,21 0,63%
21 Slovak Republic 262,91 303,63 0,05 588,62 0,62% 22 Italy 293,21 27,67 15,08 575,33 0,61% 23 Syria 12,8 414,11 0,01 436,72 0,46% 24 Korea, Rep. of 147,77 118,57 - 370,86 0,39% 25 Netherlands 269,16 46,94 2,13 354,46 0,38% 26 Finland 76,58 274,6 - 352,56 0,37% 27 Greece 76,51 143,74 18,35 350,25 0,37% 28 Gabon 0,05 349,88 - 349,93 0,37% 29 Czech Republic 182,34 151,61 1,39 349,45 0,37% 30 Moldova 82,13 236,41 0,02 324,31 0,34%
31 South Africa 3,71 305,81 - 322,92 0,34% 32 Ecuador 2,85 - - 295,32 0,31% 33 Spain 123,85 43,49 6,3 265,94 0,28% 34 Estonia 102,31 92,5 - 196,46 0,21% 35 Georgia 13,85 43,12 3 193,97 0,21% 36 Belgium 173,66 3,75 0,01 193,66 0,21% 37 Austria 127,65 50,72 0 191,84 0,20% 38 Bulgarian 69,23 12,73 34,51 180,06 0,19% 39 Latvia 51,9 115,18 - 171 0,18% 40 UK 124,31 25,21 - 166,8 0,18%
Source:SSCU
Attachment 10. Ukraine’s Exports, by Destination and Transport Mode,
2008
Countries In '000 tons Total
(incl.
pipelines)
% of
total Road Rail Sea
All 5395,66 66246,41 1587,93 136625,27 100%
Countries CIS 2390,38 33087,76 208,71 38174,60 27,94% Countries EU 2516,19 20858,2 431,6 46112,38 33,75%
Asia 298,75 8352,77 630,22 33164,35 24,27% Europe 74,5 1333,72 91,66 4704,16 3,44% Africa 40,39 1934,06 199,31 7852,75 5,75%
America 73,31 651,2 26,44 6524,27 4,78% Other 2,14 28,70 0,00 92,76 0,07%
1 Russian Federation 1561,77 24456,76 168,3 28035,95 20,52%
2 Turkey 132,28 1767,09 543,52 9733,46 7,12%
3 Poland 493,51 6996,97 - 8146,14 5,96%
4 Italy 301,81 513,23 109,05 6452,42 4,72%
5 China 9,63 2959,05 0,43 4737,83 3,47%
6 Czech Republic 91,14 3817,62 - 4702,88 3,44%
7 Belarus 293,93 3627,93 - 4198,83 3,07%
8 Spain 28,99 117,83 39,89 3976,90 2,91%
9 Slovak Republic 86,19 2269,69 - 3576,46 2,62%
10 Bulgaria 57,03 684,92 167,76 3429,65 2,51%
11 Austria 90,94 835,38 1,02 3423,72 2,51%
12 Egypt, Arab Rep. of 15,56 482,36 139,49 3307,70 2,42%
13 Saudi Arabia 5,94 176,84 46,31 2936,50 2,15%
14 USA 41,8 69,33 0,07 2663,00 1,95%
15 Serbia 43,08 920,68 71,81 2502,50 1,83%
16 Syria 27,07 505,08 20,61 2207,83 1,62%
17 Moldova 385,21 1444,69 12,01 1879,92 1,38%
18 Jordan 2,78 801,47 0,58 1833,79 1,34%
19 Iran, Islamic Rep. of 7,92 398,62 - 1781,54 1,30%
20 Lithuania 66,67 1606,95 - 1746,32 1,28%
21 Hungary 203,09 1184,47 1,09 1595,48 1,17%
22 India 7,47 110,39 0,97 1559,91 1,14%
23 UK 13,81 283,89 21,65 1445,57 1,06%
24 Romania 73,5 864,74 67,73 1391,14 1,02%
25 Israel 25,65 94,49 4,55 1346,72 0,99%
26 Netherlands 109,91 176,12 6,86 1342,28 0,98%
28 Kazakhstan 53,79 1164,98 - 1227,20 0,90%
29 Korea 6,63 49,3 0,03 1212,21 0,89%
30 Switzerland 9,27 5,07 - 1184,93 0,87%
31 Azerbaijan 31,86 1049,65 0,02 1180,57 0,86%
32 Tunis 0,33 391,33 0,2 1179,62 0,86%
33 Germany 577,49 152,86 3,66 972,69 0,71%
34 Greece 30,88 72,17 7,52 950,95 0,70%
35 Cyprus 7,45 521,35 4,82 899,76 0,66%
36 Brasilia 3,73 95,5 2,47 884,80 0,65%
37 Indonesia 0,52 77,55 - 760,46 0,56%
38 Georgia 37,67 490,9 18,74 721,34 0,53%
40 Belgium 57,58 31,54 - 681,70 0,50%
Source: SSCU
Attachment 11. Top 10 Commodity Groups in Ukraine’s Transit, Export, and
Import Movements, by Volume (Thousand Tons), Total, and by Rail, 2008
The top 10 commodities, by export, import, transit
Exports, '000 tons Imports '000 tons Transit '000 tons
Total exports 136625,27 Total imports 94391,46 Total transit 325423,03
Total exports by rail 66246,41 Total imports by
rail 33275,17
Total transit by
rail 93347,60
Mineral products 40651,69 Mineral products 24159,71 Mineral products 63022,65
Base metals and
preparations thereof
14134,00 Base metals and
preparations thereof
2970,90 Base metals and
preparations thereof
11418,39
Products of chemical and
allied industries
3146,02 Products of chemical
and allied industries
2197,62 Products of
chemical and allied
industries
10414,42
Plant products 2194,77 Products from stone,
gypsum, cement,
asbestos, glass
1023,80 Plant products 2536,11
Finished food industry
products
1846,16 Paper bulk from
wood or other
vegetable fibres
785,80 Products from
stone, gypsum,
cement, asbestos,
glass
1351,23
Timber and timber
products
1384,44 Plastics and rubber 644,42 Paper bulk from
wood or other
vegetable fibres
1099,44
Products from stone,
gypsum, cement,
asbestos, glass
847,67 Motor vehicles,
haulage trucks, and
others
341,69 Finished food
industry products
1021,28
Motor vehicles, haulage
trucks, and others
840,72 Timber and timber
products
315,64 Plastics and rubber 752,60
Animal or plant fats and
oils
471,04 Finished food
industry products
310,94 Timber and timber
products
606,88
Machines, equipment and
mechanisms, electric and
technical equipment,
audio and video
equipment, TV
equipment
357,99 Animal or plant fats
and oils
140,86 Motor vehicles,
haulage trucks, and
others
342,07
Top 10 commodities
total 65874,50
Top 10
commodities total 32891,38
Top 10
commodities total 92565,07
Top 10 % in total
exports by rail 99%
Top 10 % in total
imports by rail 99%
Top 10 % in total
transit by rail 99%
% of exports by rail in
total exports 48%
% of imports by
rail in total imports 35%
% of transit by rail
in total transit 29%
Source: USC
Attachment 12. Top 10 Commodity Groups in Ukraine’s Transit, Export, and Import Movements, by Volume (Thousand Tons), Total and by Road, 2008.
The top 10 commodities in export, import, transit
export, '000 tonns import '000 tonns transit '000 tonns
Total exports 136625,27 Total imports 94391,46 Total transit 325423,03
Total exports by road 5395,66 Total imports by road 10165,02 Total transit by road 4908,71
Timber and timber
products
1165,67 Machines, equipment
and mechanisms,
electric and technical
equipment, audio and
video equipment, TV
equipment
1238,72 Plant products 740,6
Base metals and
preparations thereof
710,3 Plastics and rubber 1057,54 Machines, equipment
and mechanisms,
electric and technical
equipment, audio and
video equipment, TV
equipment
476,13
Finished food industry
products
675,1 Products of chemical
and allied industries
1053,08 Base metals and
preparations thereof
404,65
Products of chemical
and allied industries
450,01 Finished food industry
products
961,16 Plastics and rubber 343,55
Machines, equipment
and mechanisms,
electric and technical
equipment, audio and
video equipment, TV
equipment
435,06 Products from stone,
gyps, cement, asbestos,
glass
874,33 Products of chemical
and allied industries
322,8
Paper bulk from wood
or other vegetable
fibers
292,47 Base metals and
preparations thereof
851,12 Finished food industry
products
285,42
Plant products 291,02 Plant products 764,59 Textiles and articles of
textiles
259,7
Products from stone,
gypsum, cement,
asbestos, glass
284,46 Motor vehicles,
haulage trucks and
others
721,89 Motor vehicles,
haulage trucks and
others
244,68
Plastics and rubber 231,68 Live animals and
animals products (meat,
milk etc.)
591,03 Timber and timber
products
239,26
Motor vehicles, haulage
trucks, and others
206,32 Paper bulk from wood
or other vegetable
fibers
528,63 Products from stone,
gypsum, cement,
asbestos, glass
214,97
Top 10 commodities
total 4742,09
Top 10 commodities
total 8642,09
Top 10 commodities
total 3531,76
Top 10 % in total
exports by road 88%
Top 10 % in total
imports by road 85%
Top 10 % in total
transit by road 72%
% of exports by road
in total exports 4%
% of imports by road
in total imports 11%
% of transit by road
in total transit 2%
Source: USC
Attachment 13. Ukraine’s Trade in Transport Services, 2006–09 (*) January–November 2009 mln. USD
2006 2007 2008 2009
Total services balance 3693,1 4110,80 5047,46 3012,60
export 7505,5 8989,10 11694,24 6841,30
import 3812,4 4878,30 6646,78 3828,70
Transportation balance 4565,70 4985,40 5974,55 3765,44
export 5354,7 6102,30 7622,05 4484,64
import 789,0 1116,90 1647,51 719,21
of which:
Sea transport balance 709,50 779,10 1050,76 842,67
export 806,1 915,30 1297,92 936,17
import 96,6 136,20 247,16 93,50
Passenger transport by sea balance 2,80 -1,50 -4,12 -1,64
export 3,5 2,60 1,88 0,98
import 0,7 4,10 6,00 2,63
Freight transport by sea balance 31,90 46,41 -15,86 10,99
export 59,5 65,88 57,67 25,74
import 27,6 19,47 73,53 14,75 Supporting, auxiliary, and other services balance 674,80 734,08 1070,74 833,33
export 743,1 846,77 1238,37 909,45
import 68,3 112,69 167,63 76,12
Air transport balance 474,00 585,41 687,54 558,41
export 722,7 919,28 1229,06 810,02
import 248,7 333,87 541,52 251,61
Passenger transport by air balance 291,70 382,07 467,58 307,15
export 355,6 466,49 636,99 379,72
import 63,9 84,43 169,41 72,57
Freight transport by air balance 116,80 152,19 224,38 187,15
export 126,2 159,77 237,57 196,24
import 9,4 7,58 13,19 9,10 Supporting, auxiliary, and other services balance 65,50 51,15 -4,42 64,12
export 240,9 293,02 354,50 234,06
import 175,4 241,87 358,92 169,94
Rail transport balance 522,20 758,54 983,70 612,21
export 860,2 1261,34 1636,91 915,80
import 338,0 502,80 653,21 303,59
Rail passenger transport balance 34,30 70,87 86,10 104,05
export 160,0 238,81 295,16 233,21
import 125,7 167,94 209,06 129,16
Rail freight transport balance 264,70 331,47 477,55 250,02
export 327,8 428,99 585,81 289,26
import 63,1 97,53 108,26 39,25 Supporting, auxiliary, and other services balance 223,20 356,20 420,06 258,14
export 372,4 593,54 755,95 393,32
import 149,2 237,34 335,89 135,19
Pipelines balance 2495,40 2408,66 2555,89 1404,46
export 2500,6 2411,60 2560,37 1406,40
import 5,2 2,94 4,48 1,94
Other transportation (incl. road transportation
and logistics) balance 364,60 453,67 696,65 347,69
export 465,1 594,75 897,79 416,25
import 100,5 141,08 201,15 68,57
Passenger transport balance 12,90 12,30 15,11 12,87
export 14,8 15,28 18,41 14,66
import 1,9 2,97 3,30 1,79 Freight transport balance 213,10 261,33 326,72 100,26
export 250,3 305,01 382,64 117,18
import 37,2 43,68 55,91 16,92
Supporting, auxiliary, and other services balance 138,60 180,04 354,81 -21,41
export 200,0 274,46 496,74 28,44
import 61,4 94,42 141,93 49,85
Source: SSCU
Attachment 14. Ukraine’s Trade Movements, by Transport Mode, 2006–09
Transit Imports Exports
2006 2007 2008 2009 2006 2007 2008 2009 2006 2007 2008 2009
Ukr
ain
e’s
tra
de
mo
vem
en
ts b
y tr
ansp
ort
mo
de
, mill
ion
to
ns
Road 1,6 4,5 4,9 3,4 6,9 8,8 10,2 7,1 4,3 5,8 5,4 5,8
Rail 75,1 99,9 93,4 63,8 27,5 36,5 33,2 23,2 67,2 81,5 66,3 60,9
Maritime 2,5 2,7 3,5 1,9 7 9,3 3,3 0,6 41 39,9 37 1,8
Pipeline 143,7 279,8 223,5 267,8 33,5 50,8 47 37 0,2 0 0,09 0,09
Total 222,9 386,9 325,3 336,9 74,8 105,4 93,7 67,9 112,7 127,3 108,79 68,59
Change in
% 174% 84% 104% 141% 89% 72% 113% 85% 63%
Ukr
ain
e’s
tra
de
mo
vem
en
ts b
y
tran
spo
rt m
od
e in
%, s
har
e o
f
tota
l
Road 0,7% 1,2% 1,5% 1,0% 9,2% 8,3% 10,9
% 10,5
% 3,8% 4,6% 5,0% 8,5%
Rail
33,7%
25,8%
28,7%
18,9%
36,8%
34,6%
35,4%
34,2%
59,6% 64,0% 60,9% 88,8%
Maritime 1,1% 0,7% 1,1% 0,6% 9,4% 8,8% 3,5% 0,9% 36,4
% 31,3% 34,0% 2,6%
Pipeline
64,5%
72,3%
68,7%
79,5%
44,8%
48,2%
50,2%
54,5% 0,2% 0,0% 0,1% 0,1%
Total
100,0%
100,0%
100,0%
100,0%
100,0%
100,0%
100,0%
100,0%
100,0% 100,0% 100,0%
100,0%
Source: SSCU
Attachment 15. UNECE Transport Agreements and ConventionsStatus at 31 December, 2009
Source: http://www.unece.org/trans/conventn/agree_e.pdf.
Attachment 16. Number of TIR Carnets Issued by the International Road Union to Local Associations of Selected Countries
2001 2002 2003 2004 2005 2006 2007 2008 2009
Turkey 327,200 412,000 419,000 544,000 589,000 689,000 788,500 765 000 490 000
Russian Federation 192,800 263,700 313,550 375,650 424,000 499,900 660,900 696 600 404 800
Ukraine 200,000 190,000 222,500 251,000 266,000 324,000 345,000 317,000 292,200
Belarus 232,000 284,200 237,600 187,000 182,200 197,500 194,300 213,600 161,400
Estonia 97,000 90,000 91,000 56,000 43,000 47,000 51,000 39,000
39,0024
500
24,500
Slovak Republic 31,100 28,050 34,800 18,450 20,900 23,050 22,550 21,850 12,550
Greece 22,000 29,400 23,600 40,500 33,200 30,700 19,800 21,900 9,550
Slovenia 19,300 17,800 18,600 22,000 6,550 16,400 12,000 14,350 5,750
Croatia 7,900 9,800 7,650 9,700 9,500 9,300 6,300 5,300 2,900
Albania 250 500 400 400 800 800 800 950 950
Total (56
countries) 2,710,150 3,095,200 3,298,000 3,211,050 3,240,650 3,599,850 3,076,250 3,253,800 2,230400
Source:[[move below table]] UNECE, 2010.
Attachment 17. ECMT Multilateral Quota Coefficients, 2007–10, Based on
Environmental Class of Vehicles
Source : ECMT (since 2008 called International Transport Forum, ITF), part of the OECD structure
Attachment 18. Ukraine’s Bilateral Road Transport Agreements
1. Austria Agreement of 19.5.95 on the international transport of goods by road
2. Armenia Agreement of 1995 on international road transport
3. Azerbaijan Agreement of 1.9.99 on international road transport
4. Bulgaria Agreement of 8.12.94 on the international transport of passengers and
goods by road
5. Belarus Agreement of 17.12.92 on international road transport (into force on
12.10.96)
6. Czech
Republic
Agreement of 1.7.97 on international road transport (into force on 7.1.99)
7. Germany Agreement of 7.12.93 on international road transport
8. Spain Agreement of 1995 on international road transport
9. Estonia Agreement of 6.7.93 on international road transport
10. France Agreement of 1993 on the international transport of goods by road
11. Finland Agreement of 5.6.95 on international road transport (not yet in force)
12. UK Agreement of 13.12.95 on international road transport
13. Georgia Agreement of 13.4.93 on international road transport
14. Hungary Agreement of 22.3.94 on international road transport
15. Croatia Agreement of 3.12.01 on international road transport
16. Iran, Islamic
Rep. of
Agreement of 1995 on international road transport
17. Kyrgyzstan Agreement of 23.2.93 on international road transport
18. Kazakhstan Agreement of 22.2.93 on international road transport
19. Lithuania Agreement of 7.7.93 on the international transport of passengers and
goods by road
20. Latvia Agreement of 23.5.95 on international road transport
21. Moldova Agreement of 20.3.93 on international transport
22. Mongolia Agreement of 1995 on international road transport
23. Macedonia Agreement on international road transport
24. Norway Agreement on international road transport (negotiated but not signed)
25. Netherlands Agreement of 7.9.93 on road transport
26. Poland Agreement of 1994 on international road transport
27. Romania Agreement of 29.3.96 on international road transport
28. Russia Agreement of 21.3.95 on international road transport
29. Slovak
Republic
Agreement of 15.5.95 on international transport
30. Slovenia Agreement on road transport (ratified 2002)
31. Turkmenistan Agreement of 25.2.93 on cooperation in the field of international road
transport
32. Turkey Protocol of 9.12.93 on international road transport
33. Uzbekistan Agreement of 1993 on international road transport
Source: IRU Database, accessed March 16, 2009
Attachment 19. EU-Financed Projects in Ukraine’s Transport Sector
since 2007 EU-Financed Projects in Ukraine‟s Transport Sector since 2007 (expected);
TA = Technical Assistance; TwP=Twinning Project. Source: Delegation of the EC to Ukraine, summer
2008
TA: Accession and Implementation by Ukraine of International Agreements and Conventions on
Transport Budget: EUR 1.5 million; Duration: August 2007–09
TA: Support to the Integration of Ukraine in the Trans-European Transport Network TEN-T
Budget: EUR 6 million; Duration: 2nd
half of year 2008–end of 2010 (expected)
TA: Ukraine Port Development Feasibility Study Budget: EUR 1.75 million; Duration: Second half of
year 2008–end of 2010 (expected)
TA: Integration of Transport Networks and Border Crossing Points Budget: EUR 2 million; Duration:
beginning of 2009 –end of 2010 (expected)
TwP: Harmonisation with EU Norms of the Legislation and Standards of Ukraine in the Field of
Civil Aviation Budget: EUR 1 million; Duration: September 2007–March 2009
TwP: Support to Transport Policy Design and Implementation in Ukraine Budget: EUR 1 million;
Duration: mid-2008–end of 2009 (expected)
TwP: Support to the Strengthening of Road Freight and Passengers Transport Safety Budget: EUR 1
million; Duration: mid-2008–mid-2010 (expected)
Attachment 20. EBRD Finance in Direct investment in the Ukrainian
Transport Sector, 1998–2008
USD millions (current rates).
Source: EBRD
Project name Class
Year of
signing
Project
Value Loan
Total
EBRD
finance
Sub-
sector
total
Air navigation system upgrade - Procurement and
installation of modern air traffic control equipment
and associated services. State 1998 31 19 19Ukraine International Airlines - Investment in
airline to meet market demand. Private 2000 4 4 4 22
Ukrrichflot - Acquisition of seven new general
cargo vessels. Private 2000 7 2 2Ukrrichflot - Acquisition of seven new general
cargo vessels. *) Private 2000 28 13 14 *)Ukrrichflot - Finance for part of the acquisition
costs of five new dry cargo buildings. Private 2005 34 9 9Black Sea Shipping Management Co.-
Construction and acquisition of five cargo ships. Private 2006 23 7 7Yugreftransflot (YTF) - Finance for the company's
fleet expansion programme. Private 2007 39 9 9Illichivsk Commercial Sea Port - Finance for the
modernisation of the port including berth
reconstruction and purchase of new equipment. State 2007 39 26 26 66
Railway development project - Purchase of track
maintenance machinery and track materials State 1999 6 35 35UZ - Introduction of fast train services
countrywide, maintenance work and reconstruction
of Beskyd tunnel. State 2004 196 82 82UZ - Ukraine Railways: (Freight) Rolling Stock
Renewal Project State 2008 750 385 385 502
Rehabilitation of M06 highway - Upgrade of
sections of M06 highway and purchase of road
maintenance equipment. State 2000 99 74 74Kiev-Chop road rehabilitation - Upgrading of the
M06 Kiev-Chop road and further reform of road
sector administration and financing. State 2005 138 100 100Kiev-Chop road upgrade - Completion of the
upgrading of M06 Kiev-Chop road to European
standards State 2006 486 200 200 374
*) Including a guarantee of USD 1.57 million Project value tot. 1 881 EBRD Total 965
Air
Po
rt &
Mari
tim
eR
ail
Ro
ad
Attachment 21. Performance Data Provided by Ukrainian Customs,
2005–07
2005 2006 2007
Total customs income, USD mln 6 138.8 8 153.2 10 716.7
Total expenditures of the state customs of Ukraine, USD
mln
170.3 241.7 260.7
Number of personnel of the state customs of Ukraine 18322 18322 18322
Wage Fund of the state customs of Ukraine,
USD mln
108.3 149.9 153.6
Annual total number of cargo customs declarations ,
including:
2 620 752 2 969 874 3 301 583
Imports 869 074 1 034 207 1 135 929
Exports 605 355 652 000 742 031
Imports, USD billion 35.6 43.2 60.8
Exports, USD billion 34.2 38.4 49.3
Average value by import declaration, USD 40 910 41 802 53 556
Average value by export declaration, USD 56 522 58 929 66 388
Source: State Customs Committee
Attachment 22. WTO Accession Issues, incl. Rail Transport
Transit
The representative of Ukraine said that transit of goods through the territory of Ukraine was regulated by Law
No. 1172-XIV On Cargo in Transit of 20 October 1999. In his view, the law complied fully with Article V of
the GATT 1994. "Cargo in transit" was understood as shipments by transport means, in transit subject to
customs control, through the Ukrainian territory between two points of entry or within one point—temporary
storage of goods in warehouses, customs terminals, and so on. The law guaranteed freedom of transit and did
not include any restrictions or distinctions based on the flag of vessels, the place of origin, shipping, entry,
departure, or destination, or on any circumstances that related to the ownership of goods, ships, or other means
of transport, in conformity with Article V:2 of the GATT 1994. The law provided for MFN treatment of goods
in transit. Pursuant to Article 157 of the new customs code, goods in transit could be moved along routes
determined freely by the carriers. However, the Cabinet of Ministers could set restrictions on the displacement
of excisable goods in transit (alcoholic beverages and tobacco products) along specific routes and through
designated points of entry at the customs border, as well as deadlines for transit of such goods by motorway or
railway (Resolutions Nos. 484 of 6 May 1996 and 938 of 12 August 1996).
Some members noted that the Ukrainian authorities could impose specific routes for the transit of excisable
goods, and questioned whether this provision was compatible with Article V:2 (first sentence) of the GATT
1994. It was argued that the government would not always be aware of what the most convenient route for a
given economic operator might be. Moreover, Articles V:3 and V:4 allowed only reasonable charges for
transportation, or those commensurate with administrative expenses entailed by transit or with the cost of the
services rendered. In addition, Articles V:5 and V:6 mandated "treatment no less favourable" rather than "equal
treatment" to be accorded to traffic in transit.
The representative of Ukraine replied that Article 201 of the customs code stipulated that carriers choose the
most economical transit routes, provided that requirements determined pursuant to the customs code were
complied with. The Cabinet of Ministers Resolution No. 938 of 12 August 1996 (with changes and
amendments) specified the designated border crossing points for the importation and exportation of excisable
goods. The representative of Ukraine noted that Article V:2 of the GATT 1994 stipulated freedom of transit via
the routes most convenient for international transit, which, in his opinion, confirmed the right of WTO members
to impose a "convenient route." Ukraine had designated such routes for specific types of goods to prevent
circumvention of controls on excisable goods; this would in turn discourage smuggling. The representative
confirmed that goods in transit were exempt from duties, fees, and taxes, (except for the unified fee), which, in
his opinion, corresponded to the cost of transit. The unified fee was not collected on empty railway cargo cars
crossing Ukrainian territory. Motor vehicles and containers crossing the Ukrainian border without cargo were
subject to one-fifth of the fee stipulated according to Article 5 of the law On the Unified Fee that is Charged at
Customs Points of Entry through the Ukrainian State Border. The fee for use of Ukrainian highways was
collected in full. Goods from any country were carried through Ukrainian territory on equal terms, and
Ukrainian law did not provide for limitations regarding the MFN treatment of transit shipments. The
representative considered Ukraine to be in full compliance with the provisions of Articles V:5 and V:6 of the
GATT 1994.
Transit cargo was subject to simplified and express control procedures (Article 9 of the law). Controls could not
be interrupted and—in the event of agreements with neighboring states—they were performed jointly. The
delivery of goods could be subject to security measures, including: a guarantee issued by the owner of the goods
and vehicles (or an authorized person) to the customs authority; escort by the customs authority; carriage of the
goods by the customs carrier; or transportation of the goods under the conditions of the 1975 Convention of TIR
(Article 161 of the customs code). These guarantee measures were compulsory (Article 165 of the customs
code) for excisable goods. Asked whether the security measures could be imposed on products other than
excisable goods and for what justification, the representative of Ukraine said that the security measures aimed to
guarantee the arrival of such goods at a designated customs office, and that the type of guarantee to be provided
was chosen by the owner of the goods (or his representative) pursuant to Article 165 of the customs code and
Cabinet of Ministers' Resolution No. 700 On the Regulation of the Furnishing to Ukrainian Customs Authorities
of Financial Guarantees Regarding the Mandatory Delivery of Goods to Designated Customs Offices of 29 June
1996.
The time limit for the shipment of goods to the destination customs authority was established by the entry
customs authority, in accordance with Ukrainian standards for cargo transport and on the basis of itinerary,
transport means, distance, and other shipment conditions. The time limit did not include the period of
warehouse storage needed for reloading the goods onto another transport vehicle, nor the time period required
for other cargo handling operations allowed by customs authorities. In the representative’s view, these
provisions provided for a reasonable deadline for transit, as stipulated in Article V:4 of the GATT 1994. He
added that the law did not include any specific requirements for aircraft in transit. Goods and in air transit and
cargo were subject to normal customs controls and clearance (chapter 33 of the new customs code).
In response to a specific question, the representative of Ukraine noted that, pursuant to Article 200 of the
customs code, Ukraine's transit customs regime covered both vehicles and cargo in transit. Therefore, an empty
truck transiting through the territory of Ukraine would be subject to transit customs procedures, but no cargo
customs declaration would be issued.
The representative confirmed that Ukraine would apply all its laws, regulations, and other measures governing
transit of goods (including energy), such as those governing charges for transportation of goods in transit, in
conformity with the provisions of Article V of the GATT 1994 and other relevant provisions of the WTO
Agreement. The working party took note of this commitment.
Rail transportation
Asked to provide information on Ukraine's system for setting tariffs (prices) for transport of goods by rail, the
representative of Ukraine replied that the Ukrainian railway was a natural monopoly, and as such, operated
within the regulatory framework that governed the activities of natural monopolies (including pricing policy).
Tariff regulation of railway services, in particular, was carried out in accordance with the laws On Transport, On
Railway Transport, On the Ratification of the Agreement on Carrying out a Coordinated Policy in Determining
the Transport Tariffs, as well as Resolutions of the Cabinet of Ministers Nos. 1548 of 25 December 1996, 457 of
6 April 1998 and 105 of 21 January 2003. The Ministry of Transport Communication and the Ministry of
Economy no longer had the authority to establish the tariffs for goods transportation by rail (pursuant to
Resolution No. 105 On Amendment of the Addendum to the Resolution of the Cabinet of Ministers of Ukraine
No. 1548 of 25 December 1996). A mechanism for introducing proposals by the Ministry of Transport
Communication to the Cabinet of Ministers was being prepared, but the procedure for the approval of tariffs had
not yet been established.
Some members asked Ukraine to accept a commitment to apply railway tariffs in conformity with WTO
obligations and to end any discrimination upon accession. One member asked Ukraine to adopt the harmonized
railway tariffs before accession and to submit them to WTO members for review. This member requested
Ukraine to clarify, in particular, the situation with regard to transit.
The representative of Ukraine replied that the process of harmonization of rail transport tariffs had begun with
the adoption of Cabinet of Ministers Order No. 91-r On Indexation of Tariffs for Transportation of Cargo by
Railway Transport and Related Services of April 1, 2005. As of June 2007, tariffs for transport of coal,
carbamide, timber, tar coal, ferrous metal scrap, rolled ferrous metal, and mineral fertilizers had already been
equalized. He added that before 2005, differential tariff rates had applied only to freight transport of ferrous
metals, fertilizers, timber, and tar coal in the direction of the Reny and Illichevsk ports. As for grain, Cabinet of
Ministers Resolution No. 295-p of July 29, 2005 had reintroduced lower tariffs for the transport of grain until
September 16, 2005. Differential tariffs still applied to the transport of certain products, notably coke, iron ore
raw materials, cast iron, foodstuffs, and oil products. The differential pricing had been authorized by the
Cabinet of Ministers at the initiative of several interested ministries. In the representative’s view, the difference
between tariffs applied to the transport of exports and imports and tariffs applied domestically was relatively
modest (1.19 times higher for transport of imports and exports) and of negligible economic impact as far as
exports were concerned. Concerning differential tariff rates accorded to certain trading partners, he said that
Ukraine had signed international agreements with CIS member states intended to coordinate tariff policies in the
railway sector. These international agreements defined the areas under which individual economic operators
were to sign special bilateral agreements, rather than detailing the preferential rates. He added that the Ministry
of Transport had prepared a draft order On the Indexation of Railway Tariffs for Freight Transportation aimed at
bringing railway tariffs into conformity with WTO obligations. After the adoption of this draft, a table setting
out harmonized railway transport fees by product would be published. He confirmed that Ukraine would
harmonize differential railway tariffs for the transportation of goods by the date of accession.
The representative of Ukraine confirmed that from the date of accession, Ukraine would apply price control
measures in a WTO-consistent fashion, and take account of the interests of exporting WTO members as
provided for in Articles III:4, III:9, V and VIII of the GATT 1994 and in Article VIII of the General Agreement
on Trade in Services (GATS). He also confirmed that in November 2006, Ukraine had repealed Article 8 of the
law On the State Support of Agriculture in Ukraine, which contemplated the application of minimum prices on
imports, on a temporary basis, and import and export quotas. He confirmed that Ukraine would not apply
mandatory minimum price requirements to any imported product. He also confirmed that, upon accession, all
rail transportation fees, including basic fees, surcharges and rebates, would be applied on a nondiscriminatory
basis in law or in fact, that is, without regard to their country of origin or destination, or to whether the goods
were transported between domestic locations, were imported or exported (by land or transported from or to a
port), or were in transit. He also confirmed that Ukraine regularly published notices of the goods and services
subject to state price controls and would continue to do so after accession. The working party took note of these
commitments.
Source: Report of the Working Party on the Accession of Ukraine to the WTO; WT/ACC/UKR/152,
25 January 2008.
Attachment 23. Average Waiting Time of Trucks at Selected Border
Crossing Points (BCP), in Hours, 2008
Source: IRU BCP Monitoring data in graphical form at:
http://www.internationaltransportforum.org/Proceedings/Border2009/09IRU.pdf
Country A Country B BCP in Country A BCP in Country B From A-> B From B-> A
Dorohusk Yagodin 16** 8**
Hrebenne Rava-Ruska 16** 6**
Korczowa Krakowiec 16** 6**
Medyka Szeginie 10** 2**
Hungary Ukraine Zahony Chop 5 2
Finland Russia Vaalimaa Torfyanovka 9 no data
Estonia Russia Narva Ivangorod 60 12
Kybartai Chernyshevskoe 12 8
Panemune Sovetsk 8 6
Medininkai Kamenny Log 5 no data
Salcininkai Beniakoni 7 no data
Latvia Russia Terehovo Burachki 12 no data
Poland
Russia
(Kaliningrad) Bezledy Bagrationovsk 12 2
Kuznitsa Belostoksaya Bruzgi 16 3
Bobrovniki Brestovitsa 16 2
Kukuryki Kozlovichi 12 5
*) Estimated from the IRU 2009 report graphs
**) In November -December 2008 practically no waitings times at all
Lithuania Belarus
Average waiting time*) at
BCP in 2008, hours
Poland Belarus
Lithuania Russia
Poland Ukraine
Attachment 24. Liner Shipping Connectivity Index Ratings and Ranks of
Selected Countries, 2004–08
Source: UNCTAD
LSCI * rank ** LSCI * rank ** LSCI * rank ** LSCI * rank ** LSCI * rank **
China 100,0 1 108,3 1 113,1 1 127,9 1 137,4 1
Hong Kong, China 94,4 2 96,8 2 99,3 2 106,2 2 108,8 2
Germany 76,6 7 78,4 7 80,7 7 89,0 3 89,3 4
Italy 58,1 14 62,2 14 58,1 15 58,8 15 55,9 15
Turkey 25,6 29 27,1 28 27,1 29 32,6 24 35,6 23
Malta 10,6 25 12,5 31 25,6 25 30,0 29 29,9 32
Greece 30,2 24 29,1 25 31,3 24 30,7 26 27,1 36
Romania 12,0 61 15,4 48 17,6 45 22,5 42 26,4 38
Ukraine 11,2 65 10,8 68 14,9 56 16,7 55 23,6 42
Slovenia 13,9 51 13,9 55 11,0 70 12,9 69 15,7 61
Russia 11,9 62 12,7 60 12,8 63 14,1 66 15,3 65
Bulgaria 6,2 103 5,6 112 4,5 122 4,8 120 5,1 117
*) LSCI 100 = top ranking country's (China) score in 2004
**) Rank out of 162 coastal countries
20082004 2005 2006 2007
Attachment 25. Estimate of Trade-Related Total Logistics Costs in
Ukraine, 2008
USD million
Import,
CIF
Export,
FOB Total
Value of merhandise trade in (2008) 85 530 67 002 152 532GDP in 2008 (UAH 950 bn; 1 USD = 5 UAH)
Direct Logistics Costs
Road freights 1 900 350 2 250
Rail freight 1 700 1 550 3 250
Air carriers 50 20 70
Maritime transport 200 400 600
Domestic distribution of trade shipments 860 550 1 410
Domestic cargo handling 780 330 1 110
Subtotal of Direct Logistics Costs 5 490 3 200 8 690
Direct Logistics Costs of trade in % 6,4 % 4,8 % 5,7 %
Indirect Logistics CostsAdministration and documents by shippers (2.5
% of import and 1 % of export trade value) 2 138 670 2 808
Inventory handling costs
(2 % of import and 1 % of export trade value) 1 711 670 2 381
Inventory carrying costs, based on 20 % annual interest
rate and 3 inventory turns p.a. 4 277 3 350 7 627
Unofficial payments, 1 % of trade value based on
anecdotal evidence 855 670 1 525
Subtotal Indirect logistics costs 8 981 5 360 14 341
Indirect logistics costs of trade % of trade value 10,5 % 8,0 % 9,4 %
Total Logistics Costs of Trade 14 471 8 560 23 031
Total Logistics Costs of Trade % of value 16,9 % 12,8 % 15,1 %
Total Logistics Cost of Trade, % of GDP 7,6 % 4,5 % 12,1 %
190 000
Attachment 26. Assessment of Avoidable Trade Barrier Costs out of
Total Trade Logistics Costs in Ukraine, 2008
USD million Total…
in %
in USD
millionValue of merhandise trade in (2008) 152 532
GDP in 2008 (UAH 950 bn; 1 USD = 5 UAH) 190 000
Road freights 2 250 22 % 500
Rail freight 3 250 8 % 260
Air carriers 70 5 % 4
Maritime transport 600 5 % 30
Domestic distribution of trade shipments 1 410 13 % 183
Domestic cargo handling 1 110 10 % 111
Direct Logistics Costs 8 690 1 088
Direct Logistics Costs of trade in % 5,7 % 0,7 %
Administration and documents by shippers
(2.5 % of import and 1 % of export trade value) 2 808 40 % 1 123
Inventory handling costs
(2 % of import and 1 % of export trade value) 2 381 10 % 238
Inventory carrying costs, based on 20 % annual interest
rate and 3 inventory turns p.a. 7 627 30 % 2 288
Unofficial payments, 1 % of trade value based on
anecdotal evidence 1 525 100 % 1 525
Subtotal Indirect logistics costs 14 341 36 % 5 175
Indirect logistics costs of trade % of trade value 9,4 % 3,4 %
Total Logistics Costs of Trade 23 031 27 % 6 262
Total Logistics Costs of Trade % of value 15,1 % 4,1 %
Total Logistics Cost of Trade, % of GDP 12,1 % 3,3 %
…of which avoidable
trade barrier costs
Attachment 27. International Comparison of Macro Logistics Costs In developed countries, overall logistics costs account for 10–15 percent of GDP. This figure is based
on different types of estimate, as there is no agreed method of estimating these costs in the accounts of
either businesses or the larger economy.
Internationally, logistics costs as a share of GDP have dropped since the 1980s. This decrease is
largely due to the management of more efficient supply chains and an attendant dramatic fall in
turnaround times.
An examination of logistics costs at the level of the national economy is somewhat hampered by the
lack of consistent record-keeping systems, inadequate access to information, and differences in data
quality.62
These constraints lead to a situation where figures differ considerably from one source to
another.
However, enough global data has been available from EU and OECD countries to make an estimate.
The latest comprehensive survey on the subject is the econometric model by Rodrigues, Bowersox,
and Calantone (2005).63
It states that global logistics costs in 2002 stood at $6,700 billion
(approximately €6,450 billion). This would correspond to around 13.8 percent of global GDP. By
1997, costs had risen by 32 percent and by 2000, by around 5 percent (table A1).
Table A1. Global Logistics Costs in Different Areas of the World in 1997, 2000, and 2002.
Source: Rodrigues, Bowersox, and Calantone (2005)
In the model proposed by Rodrigues et Al. (2005), logistics costs fell in most developing countries
outside Europe. Costs in North America were the lowest of all (Table A1). In Europe, costs rose in
Germany, the UK, Belgium, Denmark and other countries that engage in a good deal of foreign trade
(Table A2). The share of foreign trade receives a fair amount of attention64
in the article and seems a
reasonable explanation for the findings, though the model itself makes no such claim.
According to Rodrigues (2005), logistics effectiveness in developed countries has risen, but no
equivalent rise is discernible on the global scale. Estimates presented in the Rodrigues model may be
criticized as inexact, but the study shows fairly reliably the vital importance of infrastructure
investment and its connection with logistics costs.
The Council of Supply Chain Management Professionals (CSCMP65
) estimates India’s 2005 logistics
costs as 11 percent of its GDP and China’s as much as 21 percent. In the US, the figure is thought to
have fallen over 25 years from 14.5 percent to 8 percent in 2005.
62
Key factors include how transportation infrastructure and public sector logistics costs have been taken into
consideration. The figures in the Logistics Survey 2006 do not include these. 63
Rodrigues, A. M., Bowersox, D. J. and Calantone, R. J. (2005) Estimation of Global and National Logistics
Expenditures: 2002 Data Update. Journal of Business Logistics, Vol. 26, No: 2, pp. 1-16. 64
According to the OECD, the value of German trade in 2003 (exports + imports) was 57 percent of GDP, while
that for the USA was 17 percent of GDP. (OECD in Figures, Supplement 2005/1, Paris). 65
See www.cscmp.org.
1997 2000 2002 Log. costs Log. costs Log. costs
Region USD bill. % GDP USD bill. % GDP USD bill. % GDP
Europe 884 12.2 % 1,100 12.8 % 1,229 13.3 % N. America 1,035 11.0 % 1,240 10.6 % 1,203 9.9 % Pacific region 1,459 14.5 % 1,989 15.3 % 2,127 15.7 % S. America 225 14.3 % 280 14.4 % 272 14.3 % Other areas 1,492 15.4 % 1,778 15.7 % 1,902 16.0 % Whole world 5,095 13.4 % 6,387 13.7 % 6,732 13.8 %
Table A2. Comparison of Logistics Costs in European Union Countries.
Source: Rodrigues, Bowersox, and Calantone (2005)
This estimate differs somewhat from that proposed by Rodrigues (Table A1). It is the dramatic fall in
costs of capital tied up in stock that largely brought about the change in the US. The CSCMP
estimates that logistics costs in Europe account for at least 11 percent of GDP (The Economist, 2006).
billion
USD% of GDP
billion
USD% of GDP
billion
USD% of GDP
Belgium 27 11,4 % 33 11,6 % 35 12,1 %
Denmark 16 12,9 % 20 13,0 % 23 13,6 %
France 158 12,0 % 177 11,9 % 186 11,6 %
Germany 228 13,1 % 323 15,3 % 374 16,7 %
Greece 17 12,6 % 24 12,9 % 26 13,0 %
Irland 8 14,0 % 19 15,3 % 21 14,9 %
Italy 149 12,0 % 167 11,8 % 186 12,2 %
Holland 41 11,9 % 50 11,8 % 56 11,8 %
Portugal 19 12,9 % 24 13,6 % 25 13,4 %
Spain 94 14,7 % 107 13,3 % 124 14,1 %
UK 125 10,1 % 157 10,7 % 174 11,3 %
1997 2000 2002
Attachment 28. Some Key Terminology
Attachment 29. An Industry Highlight: Retail Trade Any organization selling goods or services to end consumers is called a retailer or a retail store. The
definition of retailing neither defines the way of distribution nor the kind of goods distributed.
The retail industry in the industrialized countries is substantially consolidated and mature; the
globalization of big retail organizations therefore accelerates. According to the Global Retail
Development Index 2006 (GRDI), published by the consulting company A.T. Kearney, the most
attractive emerging markets for the retail industry are in Asia, followed by Eastern Europe, the
Mediterranean, Latin America, and Africa.
The leading market in terms of GRDI scores is India, which are based on the criteria country risk,
market attractiveness, market saturation, and time pressure. Table 3 presents the GRDI’s top 10
emerging markets for the retail industry. Potential markets are presented in visual format in figure 22
based on market attractiveness, market saturation, and time pressure, which are consolidated in the
criterion ―market potential.‖
Table A3. Global Retail Development Index 2006 (GRDI) of Top 10 Emerging Markets
Source: A.T. Kearney.66
As indicated by the A.T. Kearney study, the realizable retail market potential of Ukraine is limited,
considering its population. The emergence of countrywide retail chains in, for example, groceries, do-
it-yourself hardware, apparel, automotive, and similar products is at an early stage.
The largest foreign-owned retail operator is the German-based METRO group, which is among the
top five retailers in the World. Its 20th ―Cash and Carry‖ outlet in Ukraine was opened in Ivano-
Frankivsk in mid-July 2008. These outlets are used by smaller retail firms, and are not open to
consumers. In mid-2008, METRO Cash & Carry’s total investment in Ukraine reached nearly € 380
million, and its a staff was nearly 7,000.
66
http://www.vics.org/docs/committees/cpfr/cpfr_white_papers/CPFR_for_Automotive_Industry.pdf.
Figure 5. Global Retail Development Index 2006 Market Attractiveness. Source: A.T. Kearney (op. cit.
University of Bolton, 2008)
METRO Cash & Carry is also one of Ukraine’s largest users of third party logistics services. In
December 2008, for example, the Polish-based Raben Group announced that it had secured an
extensive 3-year contract for METRO’s warehousing and logistics operations in Ukraine.
In the retail sector, IKEA also has made sizeable investments in its Ukraine operations, including, for
example, its 2007 investment project of over € 175 million, financed in part by EUR 10 million From
EBRD.
On the consumer side, there were approximately 15 super/hypermarkets in Kyiv in mid-2008, though
in the industrialized world a similarly-sized market would typically accommodate about three
times as many. The number of large shopping centers is even less in smaller cities.
In summary, the supply of reliable logistics and warehousing services in Ukraine has been a
significant factor that has hindered the development of more efficient retail operations. It is
anticipated that—the current economic downturn notwithstanding—consolidation of the retail sector
will occur, and the share of large-scale retail outlets will increase substantially in the next few years.
These operations, in turn, depend on reliable logistics, including predictable border crossing and
clearance operations for imported consumables.
Attachment 30. Comments on the Fall 2008 Version of the Draft Customs
Code
The latest draft is long and detailed, to an extent not usually seen in other countries. The reason is that it
contains numerous explanations and operational rules that would normally appear either under sub-legislation
(for example, the detailed provisions regarding the interpretation of the GATT valuation methods under section
XIII), or even under standard operating procedures. Detailed provisions also tend to be enumerative rather than
categorizing, thus introducing the risk of omission and neglecting future evolution in foreign trade techniques.
The overall result may be a certain lack of flexibility and the inability to adjust from time to time the operational
rules using secondary-level legislation—a normal feature of customs legislation.
Moreover, the draft code is not always very clear, and does not quite follow the logical pattern found in
international documents considered as standards, such as the revised Kyoto convention and the EU’s customs
code. For example, some provisions (such as warehousing) are scattered throughout the code.
The draft contains a few contradictions, and the definitions section refers to principles that are not always found
again in the body of the text. This is the case for Article 1 for example, which defines 64 items. It mentions
under Article 1-1 the cancellation of a customs declaration and later (1-6) the revocation of a declaration,
although the cancellation concept is not described later in the code.67
There is repetition—Article 50 on joint
border facilities is again mentioned under Article 67.
Last, the draft code combines both the customs law (that is, procedures and their enforcement) and the customs
service law (organization, staff issues, and rights and obligations of officials) that in most countries are separate
laws.
However, law drafting techniques may differ in Ukraine from other countries, so these remarks may not be
altogether relevant, as long as the lengthy explanations in front of the different articles and the over-detailed
listings do not lend themselves to too much interpretation in court.
The strong point of the draft code is that it introduces modern concepts (GATT valuation provisions, electronic
declaration and payment, modern warehousing and inward processing schemes, approved carriers, periodic and
simplified declaration, self assessment, and selectivity). On the other hand, it is rather weak on post- release
checks, with two seemingly contradictory Articles (81 and 82) on the inspection of enterprises, somehow
restricting more the routine inspections (Article 82) destined to verify compliance than spot checks (Article 81)
destined to detect fraud. It is essential that customs should have the ability, after release of goods, to call or visit
an importer to ask, without need for a full-blown audit, for additional information. Moreover, the draft does not
satisfactorily address express carriers’ activities or re-export and transport-related customs issues.
Apart from these comments, the following provisions have been identified as unclear, possibly illogical, and
sometimes contrary to international best practice.
1. The definitions may be useful but are unnecessarily detailed.
Article 1 includes 64 terms that are defined, although many are obvious (definition of a citizen or a resident,
definition of the calculation of duties—described as the computation of the duties to be paid), and some are
repeated (25 and 28 describe a customs declaration in different ways). Surprisingly, for a customs code, there is
no definition of smuggling, although item 58 implies one by describing the special measures of concealment
intended to avoid customs control (which is one aspect of smuggling). Many of these definitions could be
67
This could be a translation approximation.
placed under the relevant articles of the code, which would ensure better consistency and reduce opportunities of
diverging interpretations.68
2. The mandate of customs is unclear.
First, the draft code systematically mentions crossing the border (as defined under Article 7) as the act that
generates clearance, which is correct; but it neglects to specify that borders in the customs sense are not
necessarily territorial but rather often placed de jure where the goods are cleared, which can be inside the
territory. (As a result, there is an implicit notion that clearance occurs at the border by default, and inland
clearance is the exception. This has wide-ranging consequences, notably in terms of the liberty to choose a
point of clearance.) It also weakens customs’ ability to operate routinely inland (inland operations being
essentially the prerogative of an ill-defined ―specialized body‖ (Article 16) and a ―customs guard‖ (Article 20-1)
not allowed to operate at the border —a rather surprising restriction for a customs enforcement unit).
Second, while it sets sound principles of enforcement and control (Articles 73, 75, 79), and controlled deliveries
(Article 437), it has severe shortcomings: (i) It still does not recognize the status of Customs as a law
enforcement agency (Article 29 mentions ―cooperation... with law enforcement bodies,‖ suggesting that
customs is outside that category); (ii) It fails to adequately address relations with other border regulatory
agencies (Article 30), although a fundamental principle of the 1982 UN convention on border controls is that
customs should coordinate and lead all controls over cross-border movements of goods; and (iii) although
Article 50-1 provides that customs may establish joint border crossings with adjacent countries, Article 51
requires the local border customs chief to seek permission from the border guards to hold routine meetings with
his foreign counterpart, and it is the Council of Ministers that approves such meetings.
Third, the actual places where customs is allowed to operate are too limited. The customs ―control zone‖ at the
border (Article 1-16 and 1-17) is usually a small sector where customs booths are located, within a much larger
border station. There is no reason why customs should not have blanket powers of control and search
throughout a border station, within the boundaries of an inland clearance station, at any designated place where
uncleared goods are stored, and, as partially provided under Article 20, throughout the territory, for the purpose
of detecting smuggling. Article 97 mentions a special procedure for ―stationary means of transport,‖ but this
may be a translation error.
3. Clearance procedures appear complicated.
a. The preliminary notification (Article 1-48) is somewhat akin to the EU’s advance notification relating to
security checks (that is, ensuring that no weapons of mass destruction and the like are shipped), but seems to be
more a part of the clearance process. It is used to checki the origin (Article 399-1), and Article 118 stipulates
only that the layout and scope of the preliminary notification will be determined by customs. However, under
current practice, this notification has become, in effect, a complete declaration lodged at the border, which then
needs to be renewed when the goods are cleared inland. It would have been useful to clarify this point in the
draft code, especially as Article 116 describes preliminary operations as intended to facilitate clearance, when in
fact the notification can become an additional bureaucratic step.
b. Definitions of different forms of customs control are awkward. Article 59 lists actions that refer to totally
different procedures (crossing the border, import, warehousing, post-release checks and audits). The duration of
control (it is not clear if this refers to the actual clearance or the possibility of carrying out subsequent checks) is
either stipulated in the code as 6 months for commercial consignments, and an unclear delay of 5 or 30 days at
the border (Article 62 paragraph 6), which is either too long or too short, or is delegated to standard operating
procedures. (It is a verified fact that setting a time limit on any procedure encourages officials to keep the goods
during the entire authorized period, thus preventing instant release, which should be the norm in a risk-based
control system.) A significant anomaly is in Articles 77 and 91, which exempt a list of officials and their
68
For example, the EU customs code only has 24 major definitions, and these could probably be reduced.
families from customs control. This is totally against international best practice, the only exception being
people with diplomatic status. For example, Article 3 of the French customs code stipulates that customs laws
and regulations apply to everyone, with no exception due to a person’s status, and further states that goods
imported by the state or on its behalf shall be subject to customs control).
c. Documentary requirements provide for electronic filing (Article 65), but do not mention the cargo manifest,
which is the fundamental customs cargo control document, except for air cargo placed under a transit regime
(Article 270).
d. Phasing is unclear. Preliminary operations (Article 116) are illogically mentioned after declaration
processing. Overall, the description of clearance is confusing, as clearance normally consists of successive
steps: (i) cargo reporting at the border; (ii) declaration of placement under a customs regime (essentially at the
border onward transit or outright clearance); (iii) verification of the declaration (includeing documentary,
physical, complementary, and post-release checks); (iv) payment; and, when applicable, (v) change from one
regime to a new one (for example, from transit to home consumption or warehousing, then from warehousing to
home consumption or re-export, and so forth). A subsequent verification consists of post release checks, then
audits, then investigations. Under the Ukrainian draft, these different sequences are scattered throughout the
code.
e. Transit and other suspense regimes need strengthening, as they sometimes lack significant features.
First, transit is not even defined under Article 1 (but is under Article 176) and is not considered a customs
regime, but a method of transport (crossing the border, Article 98), an exception to an (unwritten but implied)
rule that goods should by default be cleared at the border, and an ambiguous procedure (Articles 166 and 167)
that does not require a specific declaration as long as there is one (Article 167 paragraph 1).69
Goods in transit
may be unloaded, reloaded, and repackaged (albeit under customs control, Article 177), which defeats the
purpose of transit as a temporary suspense regime, intended to rapidly deliver goods for clearance under another
regime. Means of transport need to be declared (Article 109), although it is international practice to allow entry
without formalities for foreign trucks transporting goods into a country. Guarantees are not systematic and other
methods, such as escorting ,are allowed. (Under international best practice, convoys or escorts of transit
vehicles are not used, as they are ineffective and expensive.) In addition, violations or abuse of the transit
regime are rather slightly punished: (i) when seals are affixed to trucks in transit, breaking them is punished by
a fine of 10 to 20 times the annual minimum wage (Article 459); and (ii) overstay is punished by 5 to 10 times
that amount (Article 473). In Western countries, a violation of the transit regime is considered akin to
smuggling.
Temporary import is only partially addressed. Inward processing, an important economic feature of temporary
duty waiver, is addressed under chapter 50 (processing on the customs territory) and is not seen as an economic
regime. (However, the provisions are realistic and aligned with international standards.) Accidental destruction
of temporarily imported goods triggers systemati exemption from payment of duty (Article 286), while in
western countries, customs simply have the ability to waive the duty (this is an important provision, as it avoids
arson by the importer). Warehousing is adequately dealt with, but there is no guarantee mechanism to secure
duty on goods that may be misused and no provision to secure duty in case of disappearance or destruction of
the goods (Article 296).70
The three year time limit (Article 296), although inconsistent with EU practice, is,
however, reasonable.
69
This might be a phrasing or translation issue, as the declaration for transit, under international standards, can
be (i) an international transit document, such as a TIR carnet, or (ii) a transport document (CMR, bill of lading,
manifest). 70
The reason why western customs administrations are reluctant to waive duty on warehoused goods that
disappear accidentally is that, technically, they have been released, albeit unwillingly, for home consumption,
even though this was concomitant with their destruction. The appropriate way to deal with such goods is for the
f. Risk management is an important aspect of modern customs work. It is mentioned under Articles 60 and
61 (with a possibly artificial distinction between selectivity and risk management, when selectivity is the result
of risk analysis and management), and is recurrently mentioned throughout the draft. While western customs
administrations, who have used risk management extensively over the past 70 years, do not even refer to it in
their legislation, this may not be unnecessary in the Ukrainian environment, as there is often a misunderstanding
outside customs of the need for 100 percent checks. However, Article 357 (double channel processing) does not
sufficiently stress that (i) green channel traffic can be submitted to checks on a risk-based approach, and (ii) the
purpose of a green channel is to avoid all formalities, not simply the submission of a written declaration. In this
respect, the draft code does not sufficiently emphasize the green-by-default approach that is characteristic of
modern customs operations.
owner to pay the duty and claim insurance. However, the EU code does provide for relief from that obligation,
at the discretion of customs officials; this is an exception, rather than the rule.