Ukraine has reduced port fees: What will this mean for Ukrainian economy?

Author : Oleh Nivyevsky

Source : 112 Ukraine

The Cabinet of Ministers has lowered the port fees by 20%
22:49, 18 January 2018

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January 11, Ukraine has adopted a long-awaited and very important decision on the average 20% reduction in port fees. These fees were 2-3 times higher than the corresponding fees in other ports of the region. It has made Ukraine’s logistics more expensive, and accordingly, reduced the competitiveness of the country and key sectors of its economy. Unlike the transshipment cost, the Ministry of Infrastructure of Ukraine together with the Administration of the Seaports of Ukraine set the main port charges in the country. Later, the government adopts it.

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This is a very important decision for the Ukrainian economy, if we take into account that at least two thirds of trade volume passes through the ports. Usually Ukrainian ports work for export, and the volumes of import are rather low. Moreover, the products of the agrarian-industrial enterprises (grain and oil goods) and mining and metallurgical complex (MMC) are mainly exported, which accounts for at least 60-70% of the total transshipment volume.

Port charges in Ukrainian ports are two to three times higher than in Australia, Canada, and Brazil. Actually, these are countries with which Ukraine is in a fierce competition, Ukrainian producers of iron ore particularly. The costs of grain traders in connection with high port fees in Ukrainian ports were also almost three times higher than in the ports of the EU and the USA. All logistics in the chain from the field to the port in Ukraine was on average 40% more expensive than in France and Germany, and 30% higher than in the United States.

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The situation with high tariffs on port fees is rooted back in 2008, when the government approved a decision to sharply increase port fees - by 58%. It was quite an artificial fee: they tied fees to the euro, which by that time was 58% more expensive than the dollar.

To a large extent, Ukrainian economy will benefit from the current decision of the government on the reduction of fees. Those funds that are exempted in ports would be redistributed in the supply chain. In this situation, everything depends on the structure of the chain. But as far as agricultural products are concerned, it can be argued here that due to the fierce competition between traders, the released funds will go to the producers in the form of increased purchase prices. On average, the port fees for grain are about $ 3 per ton, so we could speak about around 60 cents per ton.

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Each dollar that goes to the Ukraine's economy by reducing port fees covers at least 15% of the funds, which, according to our expectations, will be reinvested. In particular, the investments would go the infrastructure in the agro-industrial complex, mining and metallurgy, the construction of new transshipment capacities and, of course, in the port infrastructure itself.

In general, according to our calculations, the current decision of the government can bring to the economy of Ukraine at least 260 million dollars of additional income, which is approximately equal to 0.28% of GDP.

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