On Ukraine’s Logistics Market in the Context of Martial Law
International carriers have received one more Christmas surprise represented by the martial law in 10 Ukrainian regions. In other words, besides the shortage of Russian-Polish and Ukrainian-Polish permits, the carriers are facing serious restrictions working on the territory of Ukraine.
At the same time, according to Dmitry Stasevich, Head of TELS Kiev branch office, it is important “not to heat up tensions more than they are in real life”.
Let’s go into the real situation.
The martial law was introduced in Vinnytsia, Luhansk, Mykolaiv, Odessa, Sumy, Kharkiv, Chernihiv, as well as Donetsk, Zaporizhia, Kherson regions and the Ukrainian inland waters of the Azov-Kerch water area for the period until December 27, 2018.
According to Dmitry Stasevich: “Martial law” is not the same as “war”. We continue working as before. The decision to impose the martial law has a bad influence on country’s economy, but so far, there is no evidence that the government is intending to take the measures in the adopted law. It is important to take preventive measures right away, monitor current incidents carefully and respond quickly to them”. At the same time, Dmitry agrees that the risks associated with the delivery of goods to the regions under the martial law are obviously high.
What do the risks imply?
First of all, martial law is the legal status of the territory where rights and freedoms are restricted (changed) significantly. “The special legal regime provides for the possible introduction of a number of restrictions of the rights and legitimate interests of legal bodies as needed to ensure national defense. For this, specially created military administrations can make decisions on such matters as the introduction of special entry, exit and traffic movement conditions; seizure of privately owned goods as well as confiscation (nationalization) of business property and goods for country’s needs,” comments Evgenia Golub, Head of Legal Department, TELS Group of Companies.
Following the martial law, insurance policies (liability, property, etc.) of a number of insurance companies cease in these territories. As the expert states, insurance companies do not usually provide cargo insurance covering military or strike risks. Of course, certain companies might still provide cargo insurance covering the risks mentioned above.
The introduction of the martial law is the stumbling point for Russian carriers preventing them from working in these territories. Andrei Abragimovich, Head of TELS CARGO: “In fact, CASCO, CMR or Green Card insurance do not work in these territories. So you understand the risk of having your transport worth of $100,000 seized along with the cargo without any hope of compensation. Supposing the risk is that, it becomes a compelling reason to refrain from working in these territories. By agreement with our customers, we cancel contractual work involving loading / unloading procedures in the areas under the martial law and maintain only transit traffic via western territories as the insurance coverage is still effective there.”
Just as the expert advised, ASMAP made the following statement on Tuesday, November 27: “On receiving information that Russian vehicles are detained in certain Ukrainian regions by the members of Ukrainian radical organizations and due to the martial law effective in Ukraine from November 28, 2018, we advise to temporarily stop any transportations via Ukraine until the situation clears up.”
Along with with Russian transport companies, some Polish carriers have stopped transporting to Ukraine. “Influenced by information attacks (“martial law imposed in the country!”), part of Polish contractors suspended partnership with us on the territory of Ukraine. This has also complicated th situation because our carriers are facing the shortage of Polish permits, and Polish contractors (having a large number of Ukrainian permits) become a good alternative,” explains Dmitry Stasevich.
So the current situation can be described by:
1. The reduction of carrying opportunities in Ukraine’s market and an increase of risks resulting in stratospheric, as Dmitry Stasevich says, freight rates.
2. Possible reduction of freight traffic to Ukraine as a number of cargo owners and transport companies refuse to continue working in the regions under the martial law.
3. The decline in business activity and business opportunities in Ukraine. The decision on the martial law inevitably reduces the investment potential of country’s economy, which is likely to result in economy contraction and will stir further development of social crisis.
Those market players who will continue working in Ukraine in the new environment need to understand clearly and measure all the risks and opportunities. The cargo owners aiming to transport the goods to the Ukrainian regions under martial law and the carriers who will agree to transport the cargo may suffer uncompensated losses in case the restrictions implied by the martial law are introduced.