The recent recent signing of association agreements with the EU by Georgia and Moldova – as well as the turmoil surrounding Ukraine’s attempt to do the same – has put the Black Sea region firmly in the spotlight once again. The area is home to some of the world’s most dynamic emerging markets, with opportunities in agriculture, fuel and transport that go beyond the area’s confines. This is not new; the Black Sea region has been home to trade – and thus transport – since the Ancient Greeks colonised the sea’s north shore.

These days, the sea provides a vital link for goods moving between Asia and Europe, and especially the Baltic region. For some countries, such as Georgia, the Black Sea is just as vital for regional commerce. Whatever the origin and destination, though, the ports on the Black Sea have long needed modernisation and an administrative overhaul, with some managing to do just this. However, as the Eastern Partnership Summit in Vilnius, Lithuania, in November proved, the Black Sea region is still in flux, and opportunities in ports and multimode transport can still be found.


Making connections

According to a United Nations Development Programme (UNDP) report in June 2013, intraregional trade in the Black Sea region accounted for $300bn in turnover in 2012. This is one-quarter of the total trade for the whole area, and the UNDP’s Trade and Investment Flows in the Black Sea Region 2013 report points to the opportunity for greater trade connections. Turkey, for instance, could count only Russia as a top 10 trading partner in 2012 out of the Black Sea cohort, and at less than 5% of Turkey’s trade, there was significant room for improvement. 

Connecting the region internally as well as with the rest of the world is a goal for a variety of governments, international organisations and private companies. Some, such as the Organisation of the Black Sea Economic Co-operation (BSEC), support extended regional ties as part of their remit.

Dr Victor Tvircun, secretary-general of the BSEC permanent international secretariat, emphasises the organisation's role in improving trade conditions. “As trade growth requires reliable and economically viable means of transport, the transport sector constitutes one of the most dynamic industries in the region," he says. "This applies to all forms of transport, including road, rail, sea, air and pipeline transport. BSEC, in particular, is working on transport infrastructure development through the Black Sea Ring Highway and the Motorways of the Sea projects as well as on projects related to the facilitation of the road transport of goods."  As such, intermodal transport, especially involving ports, highlights the opportunities and weaknesses found in the region. 

Going the extra miles

Modern sea-rail-sea transport involving the northern Black Sea area has been ongoing since 2003, when HPC-Ukraina – the operator of the Port of Odessa – created the Viking line to send containers north by rail from Ukraine’s ports of Illchivsk and Odessa to the Lithuanian port of Klaipeda, and then by ship again around the Baltic Sea. Improvements to both the infrastructure at the Ukrainian ports and customs clearance countrywide have since enabled the shipping side of things to move from twice a week to five days a week in 2012. While the line has a strong Asia-Pacific focus, Turkish and Georgian ports are also increasingly important destinations.

The Viking line’s use may soon become an export of its own. Mr Tvircun says: “The development of intermodal transportation is a new direction in transport co-operation within the BSEC. In June 2013, the Council of Ministers of Foreign Affairs of the BSEC member states decided to establish a task force on intermodal transportation in the Black Sea region. Ukraine proposed to make use of the experience acquired by the Viking high-speed railway line for the purpose of further developing such transportation.”

In practice, some countries are already in gear. Georgia has become a logistics powerhouse on the Black Sea with the port at Poti an anchor. Again, sea-rail is the star, including a Poti-Baku container train gaining attention along with rail connections into central Asia as well as strong sea connections to EU ports at Varna in Bulgaria and Constanţa in Romania.

Novorossyisk is the Russian Federation’s major port on the Black Sea, and it handles 20% of Russia’s sea freight. While Ukraine as a whole shipped more containers – at 31% of Black Sea container traffic – in the first half of 2013, Novorossyisk leads in volume for a single port at 27%.

Investing and building

Getting the ports ready to handle modern transport requirements can require substantial investment. HPC-Ukraina, the operator of the Odessa Port container terminal, has already invested $100m over 12 years into the port to bring it to its current capacity of 750,000 20-foot equivalent units (TEUs), and is in the process of building an additional 600,000 TEU of capacity on an adjacent greenfield site on reclaimed land at an expected cost of $300m. When completed, the container terminal will be larger than that in the neighbouring Port of Illichevsk, which currently has an annual capacity of 1.2 million. In 2002, Port of Illichevsk underwent its own €36m modernisation programme with the aid of €26m in European Bank for Reconstruction and Development (EBRD) funding.

Of special note is an EBRD-supported Eurobond issue in Turkey in 2013 by a special purpose vehicle, Mersin International Port. EBRD purchased a $79.5m stake of the $450m seven-year bond. The purchase signals a landmark in the EBRD’s funding for large-scale projects in the region.

EBRD funding is used for more than just real estate and capital goods. Administrative reform has a central role in these projects as well, and the need to improve the bureaucracy involved in transport in the region is widely recognised. Edgar Martin, head of central and eastern Europe for UK-based shipping consultancy Infospectrum, says: “There has been much progress in recent years in the ports sector across the Black Sea, although more is required. Much-needed institutional reform and investment has begun at many Black Sea ports. For example, in Ukraine a port reform law came into force in June 2013, which is expected to benefit at least the country’s larger port facilities by encouraging private sector investment while the ports themselves remain state controlled.”

Mr Tvircun agrees: “It should be acknowledged that even the most perfect transport infrastructure would be meaningless without the administrative steps and reforms to facilitate transport and shorten border waiting times. The facilitation of border procedures is the key to an efficient transport system. That is why the proposed actions within BSEC are mostly related to the harmonisation of procedures for processing freight at the borders.”

Opportunities abound

As the new association agreement countries move to align their legislation and transport infrastructure with that of the EU, new opportunities will inevitably arise, not only because of increased demand, but also due to the fact that options such as using a particular port will become more economical or less risky. This new way of thinking may bring about other opportunities too. For instance, better use could be made of the Black Sea’s ports and river network, according to Mr Martin.

He says: “While rail and road transport operate at or near capacity in many locations or have limited opportunities for increased capacities, inland waterway transport – especially on the Dnipro and Danube – has vast spare capacity and offers a cheaper, greener and higher capacity alternative.”