26 October 2021
Yuri Onofriychuk, CEO, Nika Trans Logistics: “Logistics is about accuracy”
In June, Group DF announced the launch of Nika Trans Logistics, a logistics operator. Evolving initially as a company catering mainly to the needs of the group, eventually Nika Trans Logistics gained enough experience to expand its services to all those interested, becoming essentially an independent business entity. Road and rail transportation, technological fleet, Nika Trans Logistics target is to become a logistics supermarket. According to the company estimates, grains and agricultural shipments will drive the market in the coming years. To a greater extent, the company is using these forecasts to arrange its logistics. Renting a unique barge with a deadweight of 15,000 t to work in a roadstead in the Mykolaiv region fits perfectly within this strategy. In an interview with Ports of Ukraine, Yuriy Onofriychuk, CEO, Nika Trans Logistics, spoke about how the company achieves leadership in the towing market in the Mykolaiv region, why he sees risks in the development of the railway business and many other issues.
— In June, Group DF announced the launch of Nika Trans Logistics. What does this makeover of the logistics business mean? What message did you send to the market and the customers?
— Initially, we were evolving as a company that was servicing the needs of the group, which generated a significant freight traffic on itself. Over the years, we gained extensive experience working in different areas, i.e. road and rail transportation, the seaport and technological fleet. It was sufficient to enter the wider market and offer our services. At the moment, Nika Trans Logistics is a separate and self-sufficient business.
The target that we are pursuing, is to disrupt the mode of operations and go beyond the frameworks of the group to become a separate and full participant of the logistics services market.
— Nika Trans Logistics consolidates the transport operations of the entire Group DF, but the company name contains a traditional link to the seaport business of the group. Is the focus on servicing the Nika-Tera seaport still a priority?
— Our company started out providing freight forwarding in seaports and ship’s agency services. That was only the beginning. From there we evolved into the logistics company offering railway and road traffic, both domestic and international, transport forwarding. Consequently, I would not say at this point that we are more committed to the seaport business.
Our vision, in fact, is a supermarket of logistics services. You can either buy a whole basket, or you can choose one package out of it. One can only be competitive by providing a range of services. Customers increasingly want to receive “all-in-one” services.
— What was the volume of traffic last year, what is the current ratio of intra-group and external traffic, and how do you see this correlation over a 3-years’ horizon?
— In 2020, we transported 3.5 million tons of cargo by rail. Most of it was transported across Ukraine, about 200,000 – 300,000 tons were delivered internationally, i.e. the Baltic States, Moldova, Hungary, and Romania. Of the total rail freight turnover, 90% is attributed to the traffic contracted by the group.
If we are talking about road transportation, in international traffic this correlation is 50/50 whereas in domestic traffic this ratio is 70/30.
Talking about the plans, in a three-year perspective we want to change the proportion to 30/70, where 30% will account for intragroup customers and 70% for external traffic, in all modes of transportation, except for the railway.
— What proportion do you expect on the railroad?
— I reckon, given today’s reality, it will be 50/50. This is my challenge! Though there are many contributing factors. This is an equation with many unknowns.
— According to the benchmarks set, the company must ensure the annual growth of traffic by 20%. Talking about the European direction of logistics, at the expense of what do you intend to secure this growth?
— The main growth is primarily driven by agricultural production and products consumed by agriculture, i.e. chemistry, fertilizers, seeds, etc. Agribusiness is the number two industry in the country. If prices for metallurgical products fall, it will become the number one industry in terms of the currency receipts.
I believe that the company can develop in this direction and increase the traffic for at least the next three to four years.
Sadly, at present, Ukraine is no longer a transit country it used to be, it no longer consumes nor generates traffic that it used to do.
Answering your question, I would say that in the new realities, agriculture drives the market and we are betting on it.
— Who are your regular customers and what traffic we are talking about?
— In terms of our seaport business, we effectively cooperate with the major international trading companies offering them customs brokerage services and freight forwarding services in the seaport. Our regular customers also include ship-owning companies taking advantage of our ship agency services. Talking about road transportation, we have already managed to build a high-quality client portfolio. Contracts have been signed both with end customers-cargo owners and eminent forwarders.
So far, we cannot boast of having our own logistics terminals for transshipment of goods, so we work together with those who are one step ahead in this direction.
— Grain and fertilizers are at the core of the company’s cargo base. What other types of cargo do you work with as a part of the intragroup traffic? What types of cargo shows the best dynamics in terms of traffic?
— Predominantly, these are the commodities for the same chemical industry, i.e. ammonia, mineral components, and acids. The dynamics match the output, which in recent years has been growing in proportion to the demand from the domestic farmers.
— Since the beginning of operations, $ 10 million has been invested in the company. Tell us where the funds were appropriated? What are the priorities for further investments? What areas of business do you plan to invest in?
— Key investments within this amount were appropriated for asset formation, i.e. fleet of vehicles, a technological fleet of vessels. Another part of investments was allocated for the development of the necessary software designed to manage these assets. We invest a lot of time and resources in the development of IT solutions intended to make our operations as efficient and transparent as possible.
The first solution we are currently implementing and planning to test in October is a mobile application for a truck driver. It will allow you to directly connect the customer and the driver.
— Do you intend to increase the fleet, including specialized one? Perhaps for transporting grain?
— The last year was quite a success. We have completed building the railway fleet. At the moment, we have a total of 2,500 freight railway cars, both new and used ones. Since chemical fertilizers and related products form the backbone of our traffic, we mostly buy specialized freight railway cars, in particular railway tank cars. We also have a large fleet of mineral hoppers, open railway freight cars.
Further investments will be appropriated for restocking the fleet since we have a large number of old railway cars which, sadly, can soon be disposed of. The fact is that Ukrzaliznytsia has on several occasions tried to change the rules for repairing and extending the service life of railway cars. I believe this will happen sooner or later, and it is extremely difficult to predict the final decision.
Talking about the development prospects, we imply grain and fleet of grain hoppers. We will touch base next year when we plan to purchase 200 grain hoppers.
— Are you talking about renting or buying grain hoppers?
— It is hard to say yet whether it will be the rent or purchase. Much will depend on the specific terms of financing to be offered by the banks or leasing companies. We consider different options, different offers and different business solutions.
In any case, a grain hopper and an open railway freight car are the two types of railway cars in which we see prospects in the coming years. We concluded that a grain hopper is a very versatile type of railway cars that can work efficiently with a wide range of products ranging from light grains to construction materials such as sand. This year we tested the grain hoppers extensively and transported everything that was allowed, i.e. urea, phosphorite, etc. Indeed, the company incurs additional costs for cleaning the railway cars to carry different cargoes, though it is still more profitable than standing idle during the off-season.
— Do you plan to develop railway container traffic? Perhaps, it is interesting in the European direction?
— At this point, we are only touching the base with the container transportation. The demand will grow, as there is definitely an interest in this market. However, container transportation with Europe will start working only after Ukrzaliznytsia becomes a little more stable. Another thing that will definitely influence this segment is the strengthening of trade relations between Ukraine and the EU countries. Once the trade turnover grows, the container traffic will increase. A lot will depend on the geopolitical relations between Ukraine and the EU.
— What do you think about Ukraine’s prospects as the transit market?
— It is my personal belief that the transit market has no credible prospects in the coming years. Dry ports are interesting, but not from the point of view of specific type of cargo. Inland ports should be transshipment bases that have access to all modes of transportation, including air, and which are capable of receiving cargo in any form and releasing it further in any other form.
— Are you interested in a private traction? Do you plan to roll out onto the Ukrzaliznytsia railways with your own traction rolling stock?
— I see no rationale for it as a business, a product, or a service.
— How do you evaluate the operation of the railway in general?
— The railway is the most powerful infrastructure in the first place. If it remains in the rough shape as it is today, or if it only gets worse, then it does not matter how many railway cars you purchase and whether you will have your own traction.
If we talk about our company within the frameworks of the development of railway transportation, we count on the positive transformation of Ukrzaliznytsia and accommodation of the interests of the business. Otherwise, developing a business in this area is simply pointless. You see, it is unprofitable to cover long distances by road. By and large, Ukrzaliznytsia’s performance affects the competitiveness of the entire Ukrainian economy. What do we observe? The Government keeps playing “a good business executive”, although it is not true for a long time. I truly hope that some other viable solution will be found in the foreseeable future. It is clear to me that Ukrzaliznytsia needs a complete reform, a total makeover. It is a full-service company dealing with the railway cars, traction, repairs, etc. In our realities, this multitasking is not effective. Many people see and understand it. The unbundling of these lines of efforts is the future of Ukrzaliznytsia. They might remain as state-owned businesses, but definitely separate companies. Only after unbundling, we can talk about responsibility. When you are running such a huge and complex organization, first, you can easily halt the entire national economy, and second, it is very easy to hide your inefficiency.
Ukrzaliznytsia now has a new management. I would very much want them to deliver. I keep an eye on their first steps; many of them are in the right direction. At the same time, there is a need for transformation at the strategic level. Ukrzaliznytsia’s values, approaches and philosophy need transformation. This is a very challenging task.
— According to the expert estimates, the volume of Ukraine’s market of road freight transportation is valued at 50 billion ton-kilometers per year. What share of the market Nika Trans Logistics is intending to take? Do you plan to expand the fleet of trucks?
— We started forwarding transportation by road at the end of 2019 - beginning of 2020. Initially, it was only about domestic transportation. We expanded into international freight forwarding around July 2020. At the end of 2020, we began building our own fleet of trucks.
At present, our fleet includes 75 trucks carrying cargoes both domestically and internationally. By the end of the year, we shall receive another 15 trucks. We put our money on DAF trucks. We do not rent trucks, though we signed contracts with more than 100 transportation companies with the fleet of trucks ranging from 5 to 400 cars operating both within Ukraine and internationally.
We plan to continue to develop in this direction. Our target for the next three years is to expand the fleet to 200 trucks. Even when we have 200 trucks, we will keep on forwarding because it is efficient.
— The company owns three towboats performing maneuvering operations with vessels in Mykolaiv seaport. How does the towing business develop? What about supply of towing services to third party companies?
— Talking about Mykolaiv region, this market is only at the initial stage of development. At present, in addition to towing services offered by the state-owned seaports, a number of private companies offers similar services. However, we are the only private towing company, and I believe that we will remain the only company that has our own port of registry. I reckon that this is a key to our future success.
We do not have a need and it is not a target in and of itself to become the only player or the number one player in this market. Rather, our target is to become one of the players, because the fleet and the towing business still are so unpredictable that it is difficult to guess who will become the leader in this industry and whether we should strive for this.
It is premature to say that this can be a separate and independent business. I believe that it can rather be an addition to some other business. I believe in cabotage and that we should go for it.
— Do you plan to expand your technological fleet?
— We took a serious step and brought a unique technological fleet to Ukraine, i.e. the largest barge with a deadweight of 15 thousand tons, taking it on a bareboat charter. Its feature is that it uses Articouple system for rigid connection of the stern to the powerful push towboat becoming a single vessel.
We plan to use this barge at the Bugsko-Dneprovsko-Limansky Canal (BDLC). All barges working at BDLC go either “over the edge” (these are the barges that cannot take more than 5,000 t of cargo), or in the canal, though they are quite slow. Their maximum speed is 4 knots. In our case, we can go at 8 knots, i.e. this is practically the speed of the vessel. We plan to use this barge to deliver grain or other cargo from the ports of the Mykolaiv region to the roadstead.
If, in the short term, our solution works in terms of business, market and economy, next year we shall expand this function, and nothing will prevent us from becoming a separate stevedoring company that operates exclusively at sea.
When we succeed, we will consider either purchasing similar barges, or placing orders to build them at some shipyards.
— What are the terms?
— The barge used to work on the Baltic sea. We signed a bareboat charter, i.e. the rent of the vessel without the crew, and we bear the full responsibility. Our crew works on this vessel, fully servicing it. This is a one-year contract with the right of renewal.
— Who is interested in this service?
— At present, more than 1 million tons of cargo coming from Mykolaiv region are unloaded in the harbor destined for supramax, panamax and bigger class vessels with the draft of more than 10.3 m. They load some part of the cargo in the seaport, while the rest is loaded in the harbor. Objectively, there is a demand for this service. I know that our clients use the services of other companies. We have negotiated with some of them and hope to put this fleet into operation in October-November.
— Many stevedoring companies are now declaring their intentions to develop river logistics. Does the group have similar plans?
— Talking about river transportation, we imply only the Dnipro. This river has some potential. It is very good that the law on inland water transportation was adopted in some form, even though that some might not like it. However, until a separate service is created that will manage the river infrastructure, just like USPA manages the seaports; as long as there is no common approach to the issue of excise tax on fuel used to refuel the vessels, river logistics will not be an option.
Dnipro is a very mighty and wide river, though it is not deep. A barge that can pass there along its entire length can take only 3,000 tons of cargo. The situation with the locks is still unclear. In addition, the river has its own restrictions in terms of the navigation seasons. However, the key issues are about freight traffic. They often misrepresent the information saying that the river allows transporting 40 million tons of cargo per year. This is true; however, let us look at the nature of these cargoes. There was a large construction so cargoes included timber, sand, metal, equipment and structures for factories. We are not talking about 40 million tons of grain. Do we have this traffic now? More likely no than yes. So I believe in the prospect of the Dnipro, I reckon that it can be an alternative, but I will never believe that it can replace any type of transportation and that heavy loads will leave the roads for the river.
We would very much like to expand our presence on the river (and I see a need for this), but I cannot say that this business can generate high margins.
— How do you see the further development of the company?
— We understand that there was a good grain harvest. We invest in the fleet because we expect there will be many vessels that will require towing service. This line of business will be cricial this year.
We plan to complete building the technological fleet and consolidate our position in Mykolaiv region as a company providing the services of technological fleet. We see this prospect and plan to take advantage of it in the coming two to three years.
We have the same plan for road transportation in terms of the timing.
As I said, in terms of the railway transportation, it is difficult to make any forecasts. Ukrzaliznytsia has become inconsistent and unpredictable; we see very high risks.
— What do you consider your most important achievement as the head of the company over the last years?
— My first achievement is the organization of the technological fleet. The second achievement is the organization of road transportation, including international traffic. All of it was made from the scratch. The third achievement is the team that we managed to build. I put a lot of effort into this, and these are top talents.
— What does logistics mean to you?
— The economy began when a primitive man brought a piece of mammoth meat to another primitive man. At present, logistics is a reflection of any economy. If you have everything in order in the country and the economy looks good, it will find expression in logistics. The same hold the other way around.
What does logistics mean to me personally? I thought a lot about it. Logistics is about time, speed and responsibility. If you pull it all together, then for me personally, logistics is about accuracy.
How did I come to this conclusion? For example, time is a very important factor. However, to do something fast does not necessarily mean to do it on time. If the customer is waiting for the cargo on Monday, then the customer does not need it either on Sunday or on Tuesday. It all comes down to one thing, i.e. to be accurate in every way at everything.
According to the results of 2020 and 2019, the National Maritime Rating of Ukraine ranked Nika Trans Logistics among the winners of the Forwarder of the Year nomination among the companies forwarding the largest traffic through the seaports of the country.