Following 2011, in which BMI believes the recovery continued in all freight modes but one, there will be growth across all freight transport sectors in 2012. Total trade is projected to pick up, with our Country Risk desk forecasting a year-on-year (y-o-y) increase of 8.55%, following growth of 5.09% in 2011.

Road freight will continue to dominate the sector and is projected to grow by 1.5% in 2012. Ukraine is not an EU member and thus is not under the same pressure as EU states in reduce road haulage. The mode is expected to be the quickest to recover to its pre-downturn freight levels over the medium term, to 2016.

Headline Industry Data

- 2012 air freight tonnage is expected to grow by 2.4%;
- Rail freight is forecast to grow by 1.6%;
- Port of Odessa throughput is forecast to grow by 2.5%;
- Road freight is forecast to grow by 1.5%;
- Inland waterway freight is forecast to grow by 3.6%;
- Total real trade growth is forecast at 8.55%.

Key Industry Trends

State And Private Rail Operators Upgrade Fleets

The European Bank for Reconstruction and Development (EBRD) provided Interleaseinvest, a private rolling stock owner and operator incorporated in Ukraine, a senior loan of US$$90mn to part-finance the acquisition of around 2,500 freight wagons. In October 2011 Ukrzaliznytsia signed a contract for the delivery of 110 freight electric locomotives VL11M/6 in 2012-2016.

Deep Water Port Plan For Greater Black Sea Share

Ukraine is seeking a greater market share of Black Sea shipping, with a deep water port plan. BMI considers the countrys decision to develop a deep-water facility a wise move, as the current trend in both the container and bulk sectors is to operate larger vessels. A port that caters for this trend will ensure its position in the global shipping supply chain.

Port Diversification With Box And LNG Strategy

Currently geared toward catering for the bulk shipping sector, the port of Yuzhny is likely to seek a role in the box and liquefied natural gas (LNG) sectors in the medium term.
Port Privatisation Bill On Hold

Ukraines president, Viktor Yanukovych, vetoed a bill related to the privatisation of the countrys seaports. Several private terminals already exist in the country, with private operators managing between 35% and 80% of its ports.

Privatisation Of UIA Completed

At the beginning of 2011 the state sold its 61.58% stake in the Ukraine International Airlines to other existing shareholders.

Strong 2011 Results Expected For UIA Cargo; Optimism For 2012 UIA Cargo, the freight unit of Ukraine International Airlines, is expected to have had strong growth in cargo volumes in 2011, after exceeding 2010 tonnage in just seven months of 2011 and its yearly target of 2,500 tonnes by September-October 2011. 2012 air freight volumes are projected to be boosted by the UEFA EURO 2012 football competition.

Maersk Line Launches Banana Boat To Black Sea

The worlds number-one container carrier, Maersk Line, has increased its exposure to the Black Sea, with a service linking Latin America with ports on the Black Sea, including Ukraines Yuzhny. The service shows the carriers ability not only to cater to major trade routes but also niche markets that lack competition. BMI believes that the Maersk Line service offers upside potential for the Black Sea ports on the route.

Odessa Reduces Rates To Entice Clients

The port of Odessa has cut its rates in a bid to woo clients. The port is still recovering from the downturn, which saw its box volumes drop by a massive 55.35%. From May 1 2011 it was offering a 20% discount on new container goods traffic through the port, which was to be in place until the end of 2011.

Azerbaijan Eyes Vikingas

Azerbaijan has expressed an interest in joining the Vikingas route, which connects the Ukrainian ports of Odessa and Illichivsk with Belarus and Lithuania.

Risks To Outlook

The base for growth in Ukraines freight transport sector stems from BMIs positive outlook for the Ukrainian economy and, in the shorter term, the UEFA EURO 2012 football competition, which Ukraine will co-host with its neighbour Poland. Container throughput will be driven by consumer household consumption, a section of the countrys economy that is still strengthening. We see Ukraine gradually rebalancing its economy away from the debt-fuelled consumer spending model seen over 2005-2008 as exports continue to drive the economy and consumer credit growth resumes at a sustainable pace. The countrys real GDP is forecast to increase by 4.1% in 2012.

Our Country Risk team sees some IMF programme implementation risks for the country. While our core view calls for Ukraine to adhere to the conditions under its IMF stand-by arrangement, a breakdown in relations between Kiev and the international lender would undermine confidence in the domestic economy. However, we forecast investment expenditure in Ukraine to increase in the years ahead as the government and private enterprises finally focus on upgrading ageing Soviet-era infrastructure. This, coupled with plans for deepwater terminals at the countrys ports, creates longer-term upside risks to our throughput forecasts for Ukraines freight transport sector.