High logistics costs in addition to rising energy prices and tariffs lead to losses for companies in the industry

The importance of logistics for Ukrainian steel industry in the current conditions is that the production activity of enterprises depends on the openness of key routes. Steel companies are not ready in the current conditions to work «for a warehouse».

In addition, logistics is now one of the largest components in the price of finished products, so the cost of transportation costs is taken into account when deciding on the economic feasibility of exports and production in general. That is why steel companies now more than ever are fighting for every dollar of production cost and are looking for opportunities to optimize logistics costs and routes.

GMK Center tells about the current situation in the iron and steel cargo transportation sector.

Situation in steel companies’ logistics market

Following the launch of the sea corridor in August 2023, which enabled companies in the industry to significantly increase exports and production, logistics approaches and routes have not changed much. This is mainly about optimizing existing logistics supplies and responding to emerging force majeure events.

The latter include the loss of coking coal mines in Pokrovsk. According to GMK Center estimates, the loss of this source leads to the need to import 2.5 million tons of coking coal and adds $20-30/t to the cost of steel.

The following main current trends in the logistics of iron and steel companies can be noted:

1. Adaptability of logistics and rapid rerouting

The operation of the sea corridor and periodic blockades of western road crossings led to the reorganization of many supply routes. In particular, after the launch of the corridor, the railroad faced a multiple increase in shipments to the ports of «Greater Odessa», while the Danube ports lost most of their cargoes for the same reason.

2. Inflexible tariff policy of state monopolies

In the current environment, the state needs to respond more flexibly and promptly to emerging challenges. For example, business proposes to introduce a 30% discount to stimulate the delivery of export products to Danube ports, where cargo turnover has significantly decreased after the opening of the sea corridor. With the right approach, this direction will be in demand. For example, in January-June of this year Ferrexpo exported by river barges along the Danube 5% (the average figure earlier was 10%) of the total sales of iron ore raw materials. However, so far the state has not made any decisions to support the Danube ports.

However, the main point is different – high tariffs hinder the development of the real sector of the economy. High logistics costs, supplemented by the constant growth of prices and tariffs for energy resources, make the work of iron and steel companies unprofitable, putting them on the brink of survival.

«When we add high electricity costs to our logistics costs to reach these markets, we’re no longer competitive – our total costs often exceed that of our European rivals,» emphasizes Mauro Longobardo, CEO of PJSC ArcelorMittal Kryvyi Rih.

3. Cost optimization

In order to reduce the cost of logistics, steel companies are constantly assessing the economic efficiency of routes. For example, as part of this approach, Interpipe moved bulk carrier operations from the port of Constanta to Varna, from where containerized cargo is already shipped around the world, and took a vessel on time charter.

4. Increase in the impact of unpredictable factors

These include the blockade of western crossings, missile and drone attacks against ships in the Red Sea. In particular, the latter resulted in ships having to bypass Africa (+10-14 days) and, as a consequence, increased insurance costs (up to 1% of the ship’s value) and cargo delivery costs. This affected Ukrainian steel exports to the Middle East and China.

5. Growing use of intermodal and multimodal transportation

The instability of logistics routes and cost optimization forces to look for “complex” options for exporting products with a combination of different modes of transport. For example, Interpipe delivers products to customers in Central Asia in three stages – by road to the ports of Greater Odessa, then by sea to Poti (Georgia), and from there by road or rail to customers.

6. Questionable actions by government agencies

The prosecutor’s office arrested the bulk of Ferrexpo’s existing fleet of freight cars – 2.3 thousand units. As a result, the company is forced to use railcars of third-party companies for transportation of export products. As of May 2024, Poltava Mining’s direct damage from the ban on the use of railcars amounted to more than UAH 100 mln.

Logistics costs

At the beginning of the full-scale aggression there was a logistical collapse. In those conditions, steel companies were forced to radically restructure export routes from «Greater Odessa» to the ports of Poland and Romania, as well as to the Danube ports, railroads and partially by road. This led to lengthening of routes and delivery times, as well as to an average 3-4 times increase in logistics costs.

Since then, logistics costs have come down, but still remain at high levels. GMK Center estimates that in 2024 average logistics costs were twice as high compared to pre-war levels, which is particularly painful for the iron ore segment.

For the sake of example, let us consider the logistics costs of Metinvest Group. By the end of 2024, they amounted to $1.17 bln, which is twice as much as in 2022 ($574 mln) and 21% more than in pre-war 2021 ($962 mln), even though the scale of cargo shipments has sharply decreased. A similar picture is observed in other iron and steel companies.

Railway

At the beginning of the full-scale war, railroads became one of the key ways to export bulk AIC and steel cargoes, but these opportunities were limited to the transportation of goods to the ports of Romania and Poland. After the opening of the sea corridor in August 2023, the importance of rail logistics became secondary, but remained important for iron ore exports to Europe. For example, Ferrexpo exported 35% of its total iron ore sales by rail in the first half of 2025.

The current decline in economic activity in the country has led to a reduction in rail freight transportation. Iron ore shipments in January-June fell 0.2% year-on-year – to 22.8 million tons, while export shipments fell 4.2% year-on-year – to 17.1 million tons. At the same time, ferrous metal transportation in the period under review grew by 1.3% year-on-year – to 4.4 mln tons, while export transportation grew by 9.5% year-on-year – to 2.7 mln tons.

The key challenge for shippers is the rising cost of railroad logistics. From July 2022, Ukrainian Railways (UZ) raised tariffs for rail freight transportation to 140% for ore, coal and coke and 70% for ferrous metals. This led to a 1.5-fold increase in tariffs in dollar terms. Due to high tariffs on logistics, many enterprises, in particular, Ingulets Mining, have already stopped work.

Also in 2024-2025, Ukrainian Railways tried to increase its revenues by establishing a single tariff for all types of cargo and indexing tariffs. Ukrainian Railways tried to increase its revenues by establishing a single tariff for all types of cargo and indexation of tariffs. If such plans were to be implemented, the cost of rail transportation of ore, coal and other bulk cargoes for steel companies would increase significantly, which could affect the competitiveness of the industry.

Railroad logistics is significantly limited by the throughput capacity of western crossings. As practice shows, this figure is actually in the range of 2.6-2.9 million tons per month. Since the beginning of the war, Ukrainian Railways, the Ministry of Infrastructure and neighboring countries have made great efforts to expand them, but statistics since the beginning of the war show that there has been no significant growth and the throughput limit is at about 3 million tons. Previously, many shipments stood at the border for weeks or even months, although the situation has now improved, with the average border crossing time not exceeding 7 days. In any case, the cost of downtime is included in the cost of logistics and is not cheap.

Railroads are becoming an increasing logistics bottleneck. It is not only about the constant shelling of railroad infrastructure, but also the fact that the financial situation of Ukrainian Railways is worse than one would expect. This led to the fact that the Cabinet of Ministers was forced to allocate UAH 4.3 billion to pay UZ salaries. At the same time, UZ’s infrastructure projects are largely carried out at the expense of Western grants and direct aid.

Maritime export

The importance of ports for Ukrainian steel exports can hardly be overestimated – more than half of steel exports, especially iron ore, are routed through them. For example, in the first half of 2025, Ferrexpo exported 60% of its total iron ore sales through ports. Maritime transportation is equally important for steel imports of coking coal, pulverized coal for blast furnaces and bentonite.

At the same time, the companies of the industry, which at the beginning of the war transferred their export shipments to the ports of Poland and Romania, continue to use them in some cases.

The cost of maritime logistics consists of several components – the cost of freight, insurance and transshipment. All components are constantly changing depending on market conditions and the security situation.

Average freight rates have been gradually decreasing through 2024, although they are still far from pre-war levels due to additional costs due to current war risks. According to Spike Brokers, current transportation rates from seaports have changed compared to the end of 2024 as follows:

• Chornomorsk – east coast of Italy (30-35 thousand t) – down to $16-17/t from $17-18/t;
• Chornomorsk – east coast of Spain (25-30 thousand t) – down to $17-19/t from $22-24/t.

The cost of insuring vessels within the maritime corridor varies depending on a wide range of factors. In particular, military risks are strongly influenced.

«The rate can range from 1% to 3% of the vessel’s value. Repeated Russian shelling of port infrastructure creates such a general context in maritime cargo insurance that rates cannot be lower. Each shelling breaks the shaky stability in this matter,» emphasizes Dmitry Kazanin, director and owner of TEUS transport and logistics company.

The cost of transshipment in Ukrainian ports is dynamic and depends on a number of factors. If we trace the pre-war dynamics, there were periods when it reached $20/t, which was three times higher than in European ports. However, in 2021, transshipment rates have significantly decreased – down to $7-8/t.

«Approximately the same dynamics can be traced since the full-scale invasion. When agro-products were transported by the grain corridor, and there were not enough terminals, transshipment rates could reach $25/t. Today they have tripled again,» says Dmitry Kazanin.

At the same time, the success of the corridor and Ukrainian maritime exports remain under the constant threat of shelling of port and energy infrastructure. In addition, all exporters of steel industry face priority in favor of agro-products when transporting by rail in the direction of ports. There are also physical capacity constraints – Ukrainian Railways can only transfer 49 trains (approximately 2,800 railcars) per day to seaports. This is several times less than the ports of Greater Odessa can handle.

Road logistics

After the start of full-scale aggression, the volume of cross-border road transportation increased significantly. Problems in exporting by rail – limited capacity of border crossings and infrastructure of neighboring countries, queues of railcars at stations – also contributed to this.

A number of steel companies still actively use road transportation to deliver cargo to customers in Europe. They are also considering options of contrailer transportation or transloading goods at the border from railroad cars to motor vehicles.

The main problems of this type of cargo transportation are periodic risks of renewed blockade of border crossings, shortage of Ukrainian drivers and inflexibility of European transportation companies.

«European carriers due to military actions in Ukraine and increased risks do not want to deliver to frontline zones – Kharkiv, Zaporizhzhya, Sumy, Dnipro, Kherson. In turn, Ukrainian trucking companies are experiencing staffing difficulties, including due to mobilization and difficulties with booking,» says Igor Udovichenko, Marketing and Sales Director of TACT Metal.

To level these problems, companies in the industry in some cases even consider the possibility of creating their own trucking division. In any case, the disadvantage of this method of delivery is the high price.

Conclusions

Logistics is an important component of the cost of finished products of iron and steel companies, and everything that happens in this area is directly related to the results of the industry. As a summary of the above, ArcelorMittal Kryvyi Rih highlights the following logistics problems and their consequences:

1. Military actions and infrastructure destruction

Destruction or damage to port, rail and energy infrastructure. Restriction of navigation, temporary closure of sea routes (e.g. Black Sea). Increased danger to personnel and machinery on transportation routes.

Consequences: delivery disruptions, re-routing, tariff increases, need for emergency relocation of cargo.

2. Limited throughput of alternative routes (Danube, western border)

Complex logistics of Danube terminals, overloading at crossing points on the western border. Restrictions from border and customs services of neighboring countries.

Consequences: delays, queues, additional storage and transloading costs, reduced efficiency of multimodal schemes.

3. Energy instability (blackouts, fuel shortages)

Power outages affect the operation of railroads, terminals, warehouses, and customs. Disruptions in the supply of diesel fuel for vehicles and tugboats.

Consequences: disruption of transportation schedules, need for alternative solutions, downtime.

4. Tariff and regulatory uncertainty

Sharp or unexpected increase in tariffs (by UZ, ports). Frequent changes in regulatory norms, in particular import/export, paperwork, currency control.

Consequences: complication of planning, need for urgent negotiations and adaptations.

5. External economic restrictions and demand fluctuations

Changes in the export policy of the EU, USA, China in relation to Ukrainian products. Dependence on international markets for raw materials (coal), instability of freight rates.

Consequences: uneven loading of logistics capacities, revision of contracts, loss of contractual windows.

6. Inflation and devaluation

Increase in the cost of logistics services in hryvnia equivalent due to currency fluctuations. Increase in the cost of imported components, logistics equipment, fuel and lubricants.

Consequences: growth of logistics costs, complication of budgeting.

All these factors require from the industry enterprises high adaptability of logistics strategies, diversification of routes and flexible tariff planning. All of the above risks not only complicate operational logistics, but also affect the long-term strategy of companies in the industry in the field of cargo transportation.