The Ukrainian port bubble

The cafes, restaurants and bars were full in the evenings and life appeared normal. The bubble effect was that there is a civil war less than 500 km away and people are anxious, yet Brooklyn-Kiev Port (CMA CGM’s terminal) is busy expanding and Hamburg Port Consultant’s HPC Odessa port has just inaugurated its new Quarantine Mole terminal with 650 metres of berths. War with Russia? What war?

Despite the turmoil in the Ukraine all ports, terminals and carriers have continued to operate as normal. No one has applied a war risk premium and the reason for the dramatic drop in imports of 35% is put at the door of the dramatic devaluation of the national currency. Exports are marginally up even though freight rates have doubled this past year.

Shipping voyage and handling economics have had a major impact in the Black Sea basin. In 2008, there were nearly 1m teu transhipped, mainly at Constantza, Romania. In 2013, this was down to just over 115,000 teu and declining. The biggest beneficiary is Russia, specifically Novorossiysk which has now become the largest regional port surpassing the total Ukraine volumes. Romania has dropped to third position.

The Ukraine has suffered negative GDP for seven out of the last eight quarters with a projected annual of 6%-8% decline in 2014 compared with last year. Russia is expected to also end up with marginally negative growth.

Fundamental economic thought is that an economy in such a decline and in a civil/national war with Russia should not be performing at all. Yet container volumes are down only 6.5% in the first half of 2014 vs the same period last year. And the biggest surprise, trains are still running from Odessa to Russia.

Clearly the bubble is stronger than geopolitics and economic fundamentals, but bubbles have a tendency to burst. Let us hope that this one survives for the benefit of its citizens.