Reforms and reinvention in the Black Sea
The region appears to be on an upward trajectory again for both bulk and boxes, writes Stevie Knight
Black Sea economies may have turned the corner: last year the area's overall container throughput jumped by 10% to just under 2.5m teu. However, there are some intriguing stories behind the figures.
Ukraine seems to be advertising that it's a reformed character: it has overhauled its legal model, says Alistair Mackie of HFW, and now it's looking to attract foreign investment to help bring in $35bn's worth of infrastructure updates – at the same time straightening out some of its more intransigent restructuring issues.
The country's Minister of Infrastructure Volodymyr Omelyan's recent, blunt appraisal goes a long way to explaining the attraction: "By attracting foreign direct investment, we are changing the country... Global companies will not pay bribes – they are counting on a reasonable attitude... and need absolutely transparent procedures. In return, the state – and not individual people – receive jobs, budget revenues and a guarantee of development.”
One of these offerings is just 30 km from Odessa: Chornomorsk Port has a truly cavernous container capacity of 850,000 teu, says Alexander Khromov of Informall, able to swallow all Ukraine's boxes as the entire country's 2017 total came to just 723,000 teu. It seems a good bet and Hong Kong's Hutchison Ports has shown interest in six berths.
Still, Hutchison's entrance will mean changes, says Mr Khromov. If HPH comes in, it is expected to reduce the workforce – despite a clause to inhibit a dramatic reduction in staff – and that is going to be a worry for some.
Eye on the competition
There's also the local competition. On the opposite bank is Fish Port, a private terminal which has been catching a fair amount of export market share, recording 133,000 teu in 2017 - a rise of 32%. It has even taken a slice from the well-established CTO (formerly HPC Ukraine) facility at Odessa, “which is now becoming more import-oriented”, says Mr Khromov. Both, of course, are a little threatened by the possible entry of Hutchison. “CTO especially is now trying to speed up development; I wouldn't say it's worried, but it understands the competition will be tough. So it's trying to grab any advantage it can,” he adds.
It is worth asking why such a potentially huge container operation as Chornomorsk has entirely lost its box traffic. In fact, it's the renamed Illichivsk Port, a rising Black Sea star with the NCC-run terminal handling 300,000 teu in 2008. And then, suddenly, in 2009, despite having invested $56m, the state invoked a little-known law and NCC was peremptorily locked out of its own facility. Years of court battles were compounded by the global slump and the Crimea conflict, leaving containers to melt away.
However, although Ukraine is signalling it has changed, the new Chornomorsk deal might still have a bumpy road: a while ago the privatisation of Odessa fell through dogged by “alleged lack of transparency and unresolved issues”, says Mr Mackie's HFW colleague, Alex Kyriakoulis. Mr Khromov adds that the number of existing commercial operators at Odessa meant slim pickings for the final privatisation deal itself. Chornomorsk is a different story, but Hutchison hasn't committed as yet: “It's considering all the risks”, Mr Khromov says.
Ukraine's ports aren't the only ones with less-than-straightforward development.
“There is a lot of talk about building up a new container terminal in Anaklia, Georgia,” says Mr Khromov, but Poti and Batumi already have established links. “Due to the short, 70-kilometre distance between Poti and Anaklia it doesn't look feasible to invest a whole bunch of money in that new terminal. If it goes ahead it will simply kill APM Terminals’ Poti terminals,” he adds. “I can't see that it makes sense.”
One argument is that Anaklia would be a more efficient Silk Road port following what's been described as a 'monumental' free trade agreement with China. Cargo would come in from the east on the recently completed Baku-Tbilisi-Kars (BTK) Railway via Kazakhstan and Turkmenistan then cross the sea diagonally to Varna or Constanta.
Even so, there are inconsistencies. The narrative from the Anaklia Development Consortium (ADC) is that there are no other facilities that can handle much more than 1,500 teu feeder-sized ships but Poti has had its own expansion ideas for a while, just waiting for the right moment to execute. The existing APM Terminals' plans are for two new deep water berths able to accommodate 9,000 teu containerships and an annual throughput capacity of 1m teu. It is also hard to ignore Poti's recent stellar performance which raised throughput by 16% to 319,000 teu, pushing CTO aside for second place in the Black Sea box ranking.
Rumours about US political influence abound in the Anaklia project, but true or not, the project looks set to get going with US financial backing even if it's not, overall, in Georgia's best interests.
Despite Constanta remaining the largest terminal in the region by volume, operations in Romania seems to have hit a snag: overall cargo in its main port has sagged a little, total tonnes falling from 59.4m to 58.4m. HFW’s Mr Mackie says the fault doesn't lie with the ports; DP World is still doing a stalwart job, adding 8% to its box throughput despite the surrounding mire. He explains the real problem still lies in the parlous state of the country's infrastructure. “Here, it's all about interconnectivity... you need good hinterland connections to make a viable offering,” he says.
So while the authorities have some ideas about using the Danube as a 'blue link' to reach Poland and Germany, Romania has achieved little in the way of solid infrastructure in the last few years. Even its big Autostrada Transilvania motorway project recently had the plug pulled after spending €1.4bn on just 52 kilometres of highway, far short of the original, planned 415 kilometres.
However, just across the border is a pair of ports that might make the most of this slip. Varna and Burgas were once eclipsed by Constanta but the authorities are seizing the moment to push Bulgarian ports into the gap.
At present, Varna's traffic is around 152,000 teu (up 8% on last year, according to Informall) but the authorities have been allocating funds for infrastructure updates and it is also being backed by a port services framework legislation which should enable investment. However, most importantly, Bulgaria is aiming squarely at the kind of connectivity lacking from Romania's ports: for example, a rail project will link Burgas, Varna and Ruse with the ports of Kavala and Alexandroupoli, creating a freight corridor leading into the Aegean.
Could Romania turn the tables again? It's possible it might use Chinese know-how to get over its own project management shortcomings and the small nibble of a ring road built by Sinohydro may be a taster. As Mr Mackie explains: “China works like 'China Incorporated': once one business goes in, others will probably follow. The good thing is, they do exactly what they say they will.”
Surprisingly, the NUTEP terminal (now a partnership between Delo and DP World) in Novorossiysk gained over 70,000 boxes, handling a total of 304,000 teu – a stunning rise of 30%. A relatively high US dollar helped exports out, but it's also probably gaining sanction-ridden Crimean cargo. The Crimea issue is, of course, still rumbling on, but Mr Khromov describes it as “a kind of 'frozen' conflict” adding, “while it's not stopped, people are learning to live with it” so one way or another, the containers are moving again.
SUPPORTING THE REGION’S GOLDEN GRAIN
The Black Sea is about more than containers: Grain is the region’s new gold and ports are ramping up despite the demanding handling process and price volatility. In fact, Russian exports are reaching record levels, piling on the pressure at Novorossiysk's NKHP facility which is expecting a 16% jump to 7.1m tonnes this year.
There are plans for relief: for example, the port's PJSC terminal is expanding, further development is on the table and alternatives in, for instance, Taman are being considered. Despite this, capacity is still tight and looks like remaining so for a while.
However, the rest of the Black Sea region is willing and able to compete with Russia's rising grain output. In Ukraine, this year alone sees three new grain terminals with a combined capacity of 9.5m tonnes begin operations.
Interestingly, it's getting a hand from its eastern neighbour: Yuzhny port is using China Harbour Engineering Company (CHEC) to deepen both the approach and basin to support its Cargill-MV Cargo project. Chornomorsk too is using CHEC: a dredging contract worth $15.3m should firm up interest in its potential. Over in Bulgaria's Varna, CHEC is looking to take one step further with the establishment of a complete grain processing zone.
It seems as if the area's falling for China's charms in a big way.
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