Ukraine grain ports outlook - 2018 The history of grain is the history of Odessa 2018- Population sensus 1892 1794-1917 1991- 1917 1917 1918-1920 1941-1944 1918 1918-1920 1920-1991 1794-2018 Humble beginnings – but not much change Comparison of cost – America vs Ukraine 1880 America - Ukraine River transport 7 22 Railroad 5 31 Transshipment 3 40 ‘’Kopek’’ per 360 pounds The port of Odessa is of particular disadvantage since only one railway line ties to the interior 1871 – 71% of grain reach Odessa by rail ‘’French Consul Odessa 1907’’ Grain export 1911 Odessa second rail line opens 1913 Odessa-Bakhmach Odessa – 1.6 mill tons Nikolaev – 1.5 mill tons Odessa is the only deep sea port and the other ports Nikolaev and Kherson have Kherson – 1 mill tons To send their grain in barges to Ochakov and Odessa to be loaded onto vessel ‘’United States Consul Odessa 1913’’ 1890 – First Grain Elevator is built 1860 Dreyfuss establish branch in Odessa Inland transport was (still is) a major problem – the cost of There is no roads outside Odessa transporting grain from suburbs of Odessa to port ‘’Italian 1905’’ was same as from Chicago to New York 1 silver penny sterling = 32 wheat grains ‘’French Consul Odessa 1879’’ 1 Sumerian shekel = weight of 180 wheat grains 1 Inch = 3 medium sized barley corns places end to end (2.54 cm) Challenges in 19th Century and today • Lack of Grain Quality control and standards • Poor infrastructure – roads and rail • High inland cost on railroad and lack of capacity • Transshipment rates high versus elsewhere • Buying / selling options and finance options expensive and few • Non ownership of land does not support development • Buying / selling options and finance options expensive and few • Barges are only competitive due to high railroad cost • Deep sea ports few • Congestion Despite challenges massive historical grain export growth From 2-6 mill tons in 19th century to todays 40+ mill tons of export Grain Cost parameters Top off - Barges Cost – USD 5-7 /ton Barges are less Name/port Draft / berth m Turnover Storage costly than rail 2017- Capacity 2018, 000’tons Nikolayev top off / Nikolaev 15.0 / --- 2.521 --- Railway cost per ton -2 -2 MVC / Yuzhny 14.5 / 385 0 290.000 Nikolayev cost versus Yuzhny TIS Grain / Yuzhny 14.0 / 250 4.907 460.000 TIS Fertilizers / Yuzhny 14.0 / 250 1.425 120.000 -2 -2 Borivage / Yuzhny 1.492 126.000 13.9 / 300 +4 +4 Risoil/Chernomorsk 13.5 / 250 1.435 110.000 Transservice 2008 /Chernomorsk 13.5 / 250 717 50.000 +4 Ukrelevatorprom/Odessa (ADM) 13.1 / 250 2.428 208.000 -2 Brooklyn/Odessa (Dreyfuss..) 13.1 / 225 1.191 180.000 Transbulk / Chernomorsk (Kernel) 12.3 / 250 3.209 210.000 -2 IGT / Chernomorsk (Glencore) 12.2 / 250 3.083 257.000 Deep sea ports Olympex / Odessa (Black Sea Commodites) 12.0 / 250 2.018 126.000 -2 Transservice / Chernomorsk 11.8 / 250 760 50.000 Yuzhy/Odessa/ChernoM. Novoteh / Odessa 10.6 / 225 865 37.000 Vessel size / cost benefit Nika Tera / Nikolaev (Firtash) 10.3 / 225 2.316 515.000 Greentour / Nikolaev (Bunge) 10.3 / 225 2.640 133.000 USD 2-9 / Ton Vessel Disbursement cost - USD DSSC / Nikolaev (COFCO) 10.3 / 225 2.864 130.000 Nibulon / Nikolaev (Nibulon) 10.3 / 225 2.273 173.000 Vessel Size Chornomorsk Odessa Nikolaev Yuzhny Odessa State Silo / Odessa 10.3 / 225 1468 98.000 Vessel draft 12-16 m Handymax 35.000 dwt 63.000 64.000 107.000 44.000 Portoson / Odessa 9.5 / 225 471 30.000 Berdyansk tradeport/Berdayansk 7.7 / 200 1.194 15.000 Panamax 75.000 dwt 110.000 111.000 200.000 78.000 Total 39.247 3.338.000 Others 0- 3.438 458.000 Note: Yuzhny have a 50% discount from state tariff The prospects are changing - Ports 2014-2018 Grain Transshipment rates Have dropped 50% in 5 years 40,7 42 38,5 40 despite the increase in 34,5 grain export volume 20 18 15 Other cost 12 10 Load out from inland terminal Rail forwarder fee 1 2 3 4 5 Railway charges at port terminal Transshipment rate - USD / Ton Mill. Ton grain export Top off charges Vessel shifting expenses Grain port terminals are increasingly becoming less profit contributor and more integrated cost center For agriholdings – the margins are getting closer to break even levels when including running cost / receiving rail charges and capital expenses Winners & Losers – Grain ports Winners Large facilities with economy of scale – low cost Deep water ports – lower cost Inhouse clients enabling better supply chain logistics Location near production area – lower rail cost Railway facilities enabling blocktrains / fast turnaround Losers Outports with low berthing draft Small scale facilities Terminals with no integrated logistics with their clients Limited access to grain sourcing area’s Congested rail facilities.