The full-scale war significantly changed the volume and structure of Ukraine’s export and import operations, as well as supply routes. Entire industries and individual companies are forced to adapt to new realities .
Ukraine’s international trade collapsed with the start of the Russian invasion, and logistics problems became a key challenge for most companies, both exporters and importers. The business had to quickly rebuild processes to ensure the purchase of goods, raw materials or components or, conversely, the delivery of its own products abroad. In the conditions of the occupation and blockade of Ukrainian seaports, termination of air traffic, as well as the breakdown of trade relations with the aggressors (the Russian Federation and Belarus), the western border of Ukraine became the main portal to the world.
Unfortunately, the capacity of rail and road routes and border crossings is limited, which leads to delays or even the impossibility of delivering products on time. Suffice it to mention the kilometer-long queues with gasoline trucks heading to Ukraine in the spring and summer, as well as continuous problems with the export of grain and metal products by rail. The international community managed to unblock our Black Sea ports, but only for agricultural exports. It seems that Ukrainian exporters and importers will have to get used to the new reality for a long time, when logistics becomes not only longer and more complicated, but also sometimes more expensive, which calls into question the profitability of operational activities.
According to the data of the Ministry of Economy for January-August of the current year, with the beginning of the full-scale war, the volume of international trade in goods fell several times. And later, imports began to recover much faster than exports (by the way, this is one of the reasons for the collapse of the hryvnia exchange rate). The situation began to change only in July, when deliveries from abroad decreased slightly. And operational data for August showed an already noticeable increase in exports to $3.36 billion against the background of a reduction in imports to $4.4 billion (for comparison, in July 2021, exports were estimated at $5.6 billion, imports at $6.12 billion). It is clear that this is primarily due to the partial unblocking of Ukrainian seaports and the return of import taxes that were canceled in March (to stimulate the importation of critical products into Ukraine).
The most recent information on the structure of Ukraine’s trade in goods with the world, provided by the State Statistics Service based on the results of July, shows that agricultural products and ferrous metals and their products, as well as mineral products (mainly ore), remain the basis of our exports. But all this is many times less than the results of July 2021. Undoubtedly, according to the official results of August (and then September), there will be a significant increase in agricultural exports, thanks to which the cut of the total indicator published by the ministry. After all, since August 1, the day the first ship with Ukrainian grain left the unlocked port of Odesa, more than 5 million tons of agricultural products have already been exported, and the total number of ships sent to the countries of Asia, Europe and Africa has reached 232.
The prospects of the mining and metallurgical complex (MMC) are much less optimistic. Marine logistics, which is still inaccessible to the industry, cannot be replaced by rail transportation to the EU both in terms of volume and cost (especially since Ukrzaliznytsia’s tariffs have increased significantly since July). Expensive transportation services against the backdrop of a decrease in world prices for metal products make economically justified production of iron ore products and metal impossible in Ukraine. Therefore, the unblocking of the sea route, which will allow to significantly increase the volume of exports and reduce the cost of logistics by approximately three times, is critically important for the industry.
The overall decrease in exports is recorded for most articles, although the situation is already leveling off for some (for example, last year in July pharmaceutical products were exported for $28.6 million, and this year for $24 million).
Among the main articles of import are traditionally mineral products ($1.19 billion), namely, mineral fuels, oil and products of its distillation ($1.16 billion). Moreover, the drop in fuel imports, compared to the last pre-war July, amounted to only a few percent, because, after breaking ties with Belarus and Russia, the basic need for this product against the background of the destruction of Ukrainian refineries still had to be satisfied through the establishment of additional supplies from the European Union. But according to the second large article “Machines, equipment and mechanisms; electrotechnical equipment” recorded a year-on-year decrease in deliveries by almost half.
As for services, at the moment there is only generalized data from the National Bank (the State Statistics Service does not provide information): if last year exports consistently exceeded imports (for example, in July: $1.59 billion versus $1.34 billion), then since the Russian invasion everything has been the opposite ( for example, in July: $1.21 billion against $2.34 billion). This further worsens the trade balance between Ukraine and the world.
In general, trends in Ukraine’s international trade are quite predictable. Expected and obvious collapse after the start of a full-scale invasion of the enemy, gradual recovery – first of all, imports (due to the need to meet needs against the background of undermining domestic production, reduction of tax pressure on importers), and later exports (partial unblocking of logistics routes). Finally, we are moving into the phase of reducing the difference between the volumes of sales abroad and purchases from abroad (negative trade balance), because the so-called “internal stabilizer” is activated in the crisis: imports are reduced due to a decrease in solvent demand (plus, since July, the Council has returned customs duties and VAT for importing goods). However, in general, the situation in international trade remains difficult, and the return of its volumes to the pre-war level should not be expected. The key challenge is to unlock the Black Sea ports for the transportation of not only agricultural products. It would be a military-political decision that would have a strong impact on the economy.
However, in the shadow behind the aggregated indicators of the trade balance and large industry data, the most important thing remains — specific decisions of importers and exporters that adapt business processes to the new reality. How to do it right? The answer depends on the specific conditions in which this or that business found itself. That is why we have collected case studies of companies working in various industries and engaged in international trade. For some it was and is easier, for some it is much more difficult. But each example is an experience worth learning and developing.
ATB, supermarket chain, importer
Before the invasion of the enemy, the ATB network had the widest coverage in the country: more than 1,000 discounters with an assortment of more than 3,500 items. But the blockade of Ukrainian ports brought about serious changes in the structure of import-export operations, it was necessary to promptly make corrections in logistics: the company signed more than a hundred new agreements with regional suppliers, partially updating the assortment. The so-called green corridors, which were formed in contact with government and power structures, became an alternative to traditional sea routes. Part of the cargo flows were redirected to ports in Turkey and Romania. Further, products are delivered by road transport: ATB has its own fleet of over 750 trucks. Currently, each of them covers a distance of 5.2 million km every month.
The corporation launched its own direct deliveries from Poland, the Baltic countries and Turkey. Among other things, they import canned meat and fish, pasta, soup and porridge concentrates, cheeses, confectionery, teas, coffee. The list of household goods includes napkins, diapers, hygiene products, household chemicals, etc. These products are delivered mainly to stores in the Kyiv, Odesa, Mykolaiv, and Kharkiv regions.
Due to the large number of novelties on the shelves of ATB supermarkets, the company was even accused of allegedly selling humanitarian goods from a warehouse in Zaporizhzhia. However, at the request of the ATB, the NABU officially denied such information.
In general, the shelves of the chain’s stores are filled every day — the range is 2.5-3.5 thousand items. The exception is the hot front-line zones, where 1.5-1.7 thousand items are available. They also offer 400-500 items of “military” goods that are critically important for life. For the sake of prompt and maximum filling of stores, the company used the relevant permission of the Cabinet of Ministers and partially sacrificed labeling in Ukrainian, however, they provide all the necessary information upon request.
Although ATB has already renewed relations with permanent suppliers who stopped cooperation due to the war, logistics has undergone significant transformations. To compensate for the lack of transport and drivers, the company switched to a special mode of operation from the first days of the invasion. But the price policy remained unchanged: ATB works with a fixed premium, keeping prices 10-15% lower than the average market.
“Metinvest”, international mining and metallurgical group of companies, exporter
In Ukraine, the Metinvest Group, which temporarily lost control over two plants in Mariupol during a full-scale invasion (and more than $150 million worth of products in the port, which Russia is trying to steal) and forcibly shut down some other enterprises, today operates at less than 40% capacity due to acute problems with logistics. The increase in production is possible only under the condition of ensuring the supply routes abroad, namely, the restoration of sea exports and the increase of goods flows through the western border railway crossings, the capacity of which does not correspond to the demand from Ukrainian shippers.
Through the Black Sea ports, which are now blocked by the Russians, “Metinvest” exported iron ore and metal products to Asia and Europe. And no other way of delivery will be able to ensure economically justified production of the specified goods. Now the company has to use only rail transport, and this increases the cost of logistics by about three times. At the same time, the volume of railway transportation through the western crossings of 1,900 wagons is still insufficient, in the future it should be increased by at least a third.
In addition to actual export products, “Metinvest” also supplies semi-finished products abroad for its enterprises in the EU, in particular, slabs from “Zaporizhstal” go to European assets and are rolled into sheets.
Metallurgical exports have recently been hit by increased tariffs (Ukrzaliznytsia) and separate taxes. In particular, the rent for the extraction of iron ore, which has increased significantly against the background of record prices for it in 2021, seems too high today. After all, now ore prices in China have fallen to the level of $100-120 per ton, and the cost of logistics to China (which is not included in the formula for calculating the amount of rent) has increased by 2.5 times. In such a situation, sales at the prices available on export markets do not cover the costs of Ukrainian metallurgists (in particular, taxes and tariffs).
Farmak, pharmaceutical company, exporter
From March to June 2022, almost all production capacities of the Farmak company were given over to the needs of the domestic market, so a drop in exports was expected. But as of today, cooperation with international partners has been fully restored: the company exports medicines to more than 35 countries.
Supply chains have become longer and more expensive. The products are now transported by road to Europe, from where sea and air deliveries are arranged to the final destination. The increase in the transport leverage led to an increase in the price of logistics against the background of the increase in the cost of fuel, sea and air transportation.
However, the Ukrainian product remains profitable. Geographically, “Farmak” continues to supply products to the countries of the EU, Central and South America, the CIS, the Middle East and Asia. The only state with which cooperation has been terminated is the Republic of Belarus. Farmak closed its representative office in the Russian Federation back in 2014.
Products are still delivered to European countries by road transport. To such distant countries as Mexico or the Philippines, it is shipped through European ports and airports.
Delivery to Uzbekistan and Kazakhstan, which account for a significant percentage of Farmak’s exports, has become very difficult. Previously, supplies of drugs to these countries took place via transit through the Russian Federation or by ferries from the ports of Ukraine. It took about 10 days. Today, products are delivered bypassing the aggressor country through Romania or Turkey, so the delivery time has tripled.
Philip Morris, tobacco company, importer
Before the full-scale Russian invasion, the Philip Morris Ukraine factory in Kharkiv produced approximately 20 billion cigarettes, half of which were exported. The products were delivered to almost 30 countries, including Japan, Georgia, Israel, South Korea, Montenegro, Lithuania, the Czech Republic, and others. But due to constant hostilities and shelling of the city, production at the factory stopped. The entire export volume was transferred to other factories of Philip Morris International.
In April, the company started importing products for stable supply of products to Ukraine. Eight factories of Philip Morris International worked to supply the Ukrainian market. They supplied products from Switzerland, the Czech Republic, Poland, Portugal, Kazakhstan, Turkey, Mexico and Brazil. However, there were still shortages of certain brands of cigarettes in the spring and early summer.
There are two problems associated with imports. First, these are additional logistics costs and customs duties (if the products are imported from non-EU countries). Secondly, it takes 2-3 months from the moment of purchase of excise stamps to receipt of products. That is why Philip Morris Ukraine signed a contract with Imperial Tobacco in April and started producing its products at their factory in Kyiv. This is the first case of cooperation between two companies in Ukraine.
To the increase in prices for logistics was added the traditional annual increase of excise taxes by 20% (which causes the price of a pack of cigarettes to rise by UAH 8-10) and a general decrease in the purchasing power of the population. According to the company, all these factors led to the development of the shadow market, which before the start of the full-scale war was estimated at 20.4%. After all, in difficult conditions, the consumer began to look for cheaper, albeit illegal, alternatives.
