Ukrainian farmers have started developing their own shipping projects. Over the past year, Andriy Verevskyi's Kernel holding has acquired a flotilla of three vessels, one of which is an oil tanker, and Serhiy Tigipko's TAS Agro promises to create its own fleet. This is in addition to Nibulon's armada of river grain carriers, which has been developing this business since the mid-2010s.

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What is shipping for agricultural producers – a promising area of development, a desire to follow the path of Aristotle Onassis (a famous Greek shipowner), or the first steps towards bankruptcy?

Breakthrough prospects and their end

In 2022 and until mid-2023, freighting cargo ships in the Black Sea cost a lot of money. The war made this business risky and highly profitable. In the summer of 2022, freight rates from the port of Reni to the nearest Mediterranean ports did not fall below $100 per ton.

With the opening of the Grain Corridor and the deepening of the Bystre mouth of the Danube, rates decreased, but remained in the range of $50-60 per ton.

"It is this time that shipowners will remember as a period of high profits," says Anton Shapran, director of Maritime Logistics.

High risks and stakes persisted after the breakdown of the Grain Corridor until the end of 2023, when the Ukrainian Corridor started to gain momentum. Its operation became possible after the Ukrainian military conducted a series of successful operations on Snake Island, Boyko Towers, the Crimean coast, and Sevastopol, and drove the Russian Navy as far away from the ports of Greater Odesa as possible.

What are the ports of Great Odesa
The ports of Greater Odesa are three commercial sea ports in Odesa in two nearby cities. 1. Odesa Sea Port, Odesa 2. Pivdennyi Sea Port, Yuzhne 3. Chornomorsk Sea Port, Chornomorsk.

It was at this time that it became known that the Kernel agricultural holding acquired two fairly new and large vessels: a grain carrier and an oil tanker. Earlier, LIGA.net wrote that grain from the Danube ports to the Black Sea was transported by the vessels of the "dwarf fleet" – old and relatively small. Kernel's acquisitions are designed to be loaded in large seaports. This investment, made in early 2023, indicates the owner's optimism and confidence in the development of events.

On the other hand, starting in 2024, more and more vessels began calling at Ukrainian ports and freight rates began to decline. At the beginning of summer, the rate from Odesa to Beirut was $20-21 per ton. According to Anton Shapran's calculations, under such conditions, a shipowner receives an income of $1,200 to $2,000 per day. If you take into account the costs of maintaining and servicing the vessel, crew, and insurance, the profitability is "vanishing."

Of course, "classical" farmers who do not own ships take advantage of the opportunity to reduce logistics costs. That is why exports through ports are growing.

However, there are more ships in the Black Sea than cargo. According to Maritime Logistics, between May 27 and June 1, more than 350 vessels were waiting to be loaded, which decreased freight rates by $0.5-1.5 per tonne (7%).

A little earlier, in early spring, it was reported that Kernel had purchased a third vessel. It became the company's flagship. It is the Rotterdam Pearl V, a member of the handymax class (large dry cargo vessels with a deadweight of 52,000 to 58,000 tons).

Around the same time, the Ukrainian company Argo Shipping also expanded its fleet. It purchased two small dry bulk carriers. Given the time required to formalize the acquisition of ships, Ukrainian companies made their decisions at a time of high freight rates.

Countercurrent

Gennadiy Ivanov, owner of BPG Shipping (specializing in ship operations), assures that there is no "low freight" crisis and that it is just a normal dead season. He expects a revival in the second half of July.

"Indeed, there is a certain cyclicality in the freight market, but at the moment I see no fundamental reasons for a freight crisis. Greek shipowners now have enough work for the medium term, and the world's leading shipyards have queues," says Gennadiy Ivanov.

In his opinion, the main thing is to understand that entering the shipowner market is "a marathon" and the payback cycle for investments can take five to six years.

"Of course, there are nuances with crewing, ensuring loading on the way back, and other details. That's why this business is for large companies that are ready to create their own shipping departments or outsource some of the work," says Ivanov.

In fact, Kernel has created a separate division, the Transshipment and Fleet Department. However, its head said in an interview with CTS that they would use "outsourcing for the technical management of our fleet." We should expect new vessels to appear, as Kernel plans to "constantly be... in the market of buying and selling the fleet."

To put things into perspective, such a "stay" costs a lot, from $5 million to $30 million per vessel. Moreover, among the fairly objective factors (tonnage, age, and condition of the vessel), the price is also affected by the shipping cycle, which is a rather unpredictable category.

As Anton Shapran told LIGA.net, in the mid-2010s, one of the Ukrainian shipowners decided to sell a vessel. At that time, market prices for this type and condition were about $2 million. He was persuaded to wait, and a few years later the deal was closed at a price of $5 million.

Andriy Vadaturskyi's Nibulon chose a peculiar strategy, creating its fleet with an eye toward working on the Dnipro, Southern Buh, and Danube. Along with the fleet, the company was building infrastructure, including ports and its own shipyard.

"Nibulon's example is a story of how a river-sea cluster was created and set up as an alternative to land transportation," says Yevhen Mashtakov, COO of Zaria Trade (a company involved in ship operations and grain trading).

Serhiy Kalkutin, Nibulon's logistics director, told LIGA.net that the company is currently solving the problem of evacuating its fleet from the Mykolaiv port hub.

"This will help solve the problem of the shortage of river-sea vessels that could operate efficiently on the Danube, but are now, unfortunately, idle," he says.

Such an evacuation would require de-mining of international and inland waterways on 16,000 square kilometers of water.

Seesaw, or What does agribusiness have to do with this?

The cost of maintaining a single vessel, not to mention the fleet, is hundreds of thousands of dollars per year. Therefore, in two or three years, such expenses—especially without a counterflow of money from operations—can bring ship owners to financial ruin.

"My experience shows that agrarians who decide to become shipowners, in most cases, end up bankrupting such a company because they have no experience in the maritime industry," says Yevhen Mashtakov.

He notes that maintaining a fleet requires hiring numerous experts with different specializations.

"Even buying a vessel in good technical condition is not easy for people outside the maritime market. I'm not talking about shipbuilding, where shipyards have queues from pools of shipowners and do not consider any requests from companies outside the maritime market," he says.

This opinion is shared by Ivan Niyakyi, co-founder and commercial director of Soul Marine.

"Owning your own fleet is a risky and complex business, where the cost of a mistake is measured in six figures. Tomorrow, deepwater ports will be blocked again, and we need to be ready to use this fleet in other markets. This is not about agribusiness, but about chartering and brokerage. In addition, grain cargoes are highly seasonal, and you need to load the fleet in the low months," says Ivan Niyakyi.

Against this background, the statement of Oleh Zapletnyuk, the head of TAS Agro, who said that they are considering the prospect of acquiring their own fleet, looks interesting.

"We are looking at what are the limiting factors and how to remove them over the next few years. Perhaps we will have our own barges, our own fleet, or a transshipment terminal. Today it is very important to be independent, that is, to control the entire logistics chain," he said in an interview with Forbes.