Since 2009, land logistics and ports have been strongly developing in Ukraine, and grain exports have been increasing every year. Against the background of these changes, Ukraine actively strengthened its role as a global maritime hub, especially with its “Greater Odesa” system of 7 ports, commercially controlling up to 500 ships at a time at its peak, surpassing even the legendary Black Sea Shipping Company in its heyday.
However, this commercial success for the Ukrainian port sector needs to be supported with the right development strategy to seize the opportunities that will open up at the end of the Russo-Ukrainian war. To delve deeper into this topic, the Kyiv Post interviewed Gennadiy Ivanov, the Director of BPG Shipping and an expert in maritime economics and ship management.
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Tell us about your experience in shipping management.
At my former company (Phaethon international Co AG), where I worked as head of the freight department until 2017, we successfully operated 120 ships at a time, from 25,000 DWT [deadweight tonnage] to 180,000 DWT with loadings worldwide. Later, in 2017, when we established BPG Shipping we continued our commercial management activity.
Probably even then it seemed logical to me to move on to the next stage – reinvestment, first of all, by agro-trading companies in the purchase of their own fleet. However, we saw mainly an emphasis by our business environment about the expansion of land logistics and the warehouse capabilities of ports, which was certainly important in the context of increasing yields and export volumes.
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What is your view on the changes in the Ukrainian maritime sector?
Ukraine, with its 15 years of experience and reputation in commercial management of the fleet, as well as its own cargo base, has the huge potential to become a successful player in the global shipping hierarchy.
The maritime sector is very competitive and rich with skilled professionals. The basis of successful competitiveness is your efficiency, i.e. you work in a market with almost perfect competition with full business transparency.
Due to my many years of personal experience and professional contacts with the Greek shipping community, I had the idea to organize a rapid transformation and adapt the long and consistent history of ship ownership in Greece to the dynamic development model of Ukraine.
It is worth emphasizing that Greece controls 30% of the world mercantile fleet, which makes this country a big influencer on global maritime policies. Ukraine already had favorable conditions for this change of economic model:
- historical continuity of the Black Sea Shipping Company, which used to be the biggest in the world;
- modern commercial management/operating experience;
- considerable own cargo base.
Those factors, at that time, indicated strongly that the path Greece had taken over decades could have supported the emergence of Ukraine as a true maritime power. Unfortunately, Ukraine lost time due to lack of administrative resources and communication between the local officials and Ukrainian operators.
Can you explain what the Greek model consists of?
The Greek maritime sector created conditions to make investing in ship ownership very profitable. It is important to note that we are talking about an industry that transports 90% of all existing cargo in the world by sea and is closely integrated into the world economy.
These are the key factors:
- Integration into the international economic and banking system. The shipowner can receive bank loans and refinancing secured by his fleet.
- Favorable tax system. If we are talking about Greece, for shipping in Greece there is zero corporate tax.
- Tax advantages in ships trade. There is also no tax when selling a vessel. The powerful shipping eco-system plus this advantage allows shipping companies to keep their business in the country and at the same time “overload” their own banking system, keeping the economy afloat.
- A ship is a liquid asset that can be quickly sold. The freight market follows economic cycles. With proper management of the vessel, in addition to profits from the charter market, it is possible to sell the vessel at a high price. For example, in 2020 a ship with a displacement of 55,000 tons was worth about 10-13 million tons, and in 2021 its cost was 20-23 million.
- Possibility of using own fleet for one’s own commercial activities. For example, Ukrainian agro-companies can use the ship for transportation of its own cargoes and/or for hedging its export volumes in the context of the global freight market. (Having the cost of the vessel per day, the trader hedges freight on the part of his export flow from Ukraine. For example, if the vessel DWCC 30000 makes 12 voyages a year, then we are talking about 360,000 mt.)
- Geographical flexibility. A vessel can operate in any region of the world. For example, when the war began, despite the fact that part of our business was related to Black Sea area, my company remained a diversified one and switched to other markets like China, the US, Argentina and India.
These factors created a very favorable shipping business over the long term. In fact, it is like a “marathon” – to use a Greek metaphor. It is common to meet Greek shipowners of 2-3 generations.
What are the requirements to be accepted into the Greek business system?
In 2021, we launched the process of opening a BPG Shipping office in Greece, in partnership with a Greek shipowner with whom we have had a long-standing cooperation since 2010 and which over time grew into a partnership agreement.
One of the strategies for opening the office was to create the opportunity for Ukrainian companies to quickly integrate into the progressive shipping community, which in turn would allow efficient investment in the purchase of vessels, using the database and taking into account all practical aspects, as well as the rich experience of Greek partners.
These are basically the necessary steps for entering into the Greek system:
- You will need to pass KYC (Know Your Client) with counter-parties/institutions, develop a market reputation, credit, insurance, corporate history.
- In order to keep up with the markets, you need to have highly professional operational, freight, technical managers, or entrust the vessel to those who have been in the market for a long time and know how to operate the vessel.
- It is advisable to enter the market at the lowest point. And this usually happens when the market is stagnating. It is difficult to invest in an asset in a declining market with uncertain prospects.
My company has successfully completed KYC checks with banks, global multinationals and risk credit institutions, and we became members of the Hellenic-Ukrainian Chamber of Commerce and Industry. Since then we have built a portfolio of opportunities to attract financing from top-notch banks and investment funds.
With our 20 years of experience and reputation, today we can afford to advise on any issues related to the investment-purchase of ships, the creation of a structure-shipping company, selection-of commercial and technical management.
How do you see the impact of war in the Ukrainian shipping sector?
The war in 2022, as for many operators, has put our plans and motivation on hold. However, the launch of the grain corridor in August of the first year of war returned Ukrainian logistics and maritime businesses to world markets.
It is possible that in the future it will be the pool of Ukrainian shipowners that will be able to lobby and achieve qualitative changes in the Ukrainian economy, banking and tax systems, based on the progressive examples of Greece, Dubai, Singapore, etc.
Taking into account the complexity of post-war recovery in Ukraine, I am absolutely confident that a swift adaptation of legislation and the banking system to accommodate shipping, following the Greek model example, will create the foundation for Ukraine’s rapid development.
There’s no need to invent anything – everything has already been created and tested. We just need to take it and implement it. If this isn’t done, Ukraine will forever lose its prospects of becoming a world maritime leader
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