Ukraine Market Report — Q2 2022
Land corridors to the EU absorbed what the ports could not, candidate status was granted in June, and the constraint on the entire economy became the throughput of four western border crossings.
Overview
Land and river routes through Poland, Slovakia, Hungary and Romania carried the export traffic that the closed ports could not.
EU candidate status was granted in June.
Why border throughput became the whole economy
Ukraine's exportable surplus in grain and oilseed was very large and its storage capacity was finite. Without an outlet, the harvest coming in the autumn would have nowhere to go.
The alternative routes existed but were built for a fraction of the volume. Rail faced a gauge change at the Polish and Slovak borders requiring transhipment. Road crossings had queue capacity measured in hundreds of trucks, not thousands. The Danube ports were shallow, small and had been underused for two decades.
Every one of those constraints was physical and could only be relieved by investment in handling equipment, dredging, additional crossing lanes and transhipment terminals — which is what was done, at speed, through the rest of the year.
The archive's earlier reports had described these neighbours as underrated relationships and the Danube ports as underused capacity. This quarter is where that assessment stopped being an observation and became the entire export economy.
Candidate status
Granted in June, it converted the EU relationship from an association agreement into an accession track.
Its commercial significance is medium-term rather than immediate: accession negotiations generate a defined programme of regulatory convergence, and regulatory convergence generates demand for compliant equipment, certification services and advisory capacity. For a supplier of any of those, candidate status is the beginning of a pipeline.
Macro position
Severe output contraction. Fixed exchange rate maintained with capital controls. Inflation rising. External financing carrying the civilian budget.
Sectors
Agriculture — a full harvest with no adequate export route.
Logistics — the sector everything else depended on.
IT services — continuing to deliver from relocated positions.
Metals — severely reduced.
What the quarter settled
That a country's export capacity is set by its narrowest physical bottleneck, and that redundancy which looks wasteful in normal conditions is the only thing that matters when the primary route closes.
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