Welcome to the U.S.-Ukraine Business Council

By Jim Davis, Business Ukraine magazine
Monday, March 3, 2008, Kyiv, Ukraine

Express operators - DHL, UPS, FedEx and others - pride themselves on
guaranteed, fast and reliable, on demand, worldwide, integrated,
door-to-door delivery.

However, express shipments headed for Ukraine are guaranteed only as far
as the country's borders where they collide with the State Customs Service,
which remains mired in Soviet-era bureaucracy and acts as a barrier to the
sector's development

In an increasingly integrated world economy, in which the velocity of
business has accelerated immensely over recent decades, the express industry
worldwide and particularly in Europe has played an essential role in the
"just-in-time" concept that serves to provide business and industry with the
essentials of modern business.


The express industry developed first in the United States and by the 1980s
began to make a major impact in Europe. The European Express Association
(EEA), a membership association covering all the major express operators,
says the industry has more than 250,000 employees with that number expected
to reach 500,000 by 2013. EEA members deliver more than 450 million
packages each year, almost half the intra European air cargo traffic.

In Ukraine, the express figures are less widely known, but two long-time
express market competitors, DHL and UPS, continue to grow and expand
their investments. DHL is number one in the market with UPS a highly
competitive number two.


Because the express business is so competitive and because keeping
customers informed of the status of their shipments is an integral part of
the competitive marketing process, all of the major actors in the sector
have extremely sophisticated tracking systems.

Also because of the high sophistication of the technology, they are
extremely adept at spotting and pinpointing delivery problems.

Unfortunately, in recent years, Ukraine has had more problems than any
other major express destination in the world.

At least one of the major express companies actually has as part of its
tracking system in its headquarters a large, flashing red light that goes
off when some part of the system seriously breaks down and is not delivering
within prescribed standards. When that red light begins flashing more often
than not the problems have been in Ukraine - and almost invariably related
to customs matters.

We should point out that this was not always the case. A few years ago - the
late 1990s and early 2000s, Ukraine had problems but not as many as Russia
and it was Russia that got the attention - and then responded to the obvious
flaws in its express handling procedures.

Today Russia is now rapidly becoming competitive with other advanced
European countries in the sophistication of its express industry, while
Ukraine, once a beacon of hope, has slid back into a bureaucratic miasma
of failed opportunities.


As Ukraine fell further behind the international standards common to express
companies, the carriers, both through their membership associations and
individually, began a series of efforts to help Ukraine attain higher levels
of compliance and competence. For example, in March 2006, a delegation from
the EEA visited Ukraine at the request of the Ukraine Express Association
(UEA) to discuss with Customs ways to improve operating procedures for

Following this visit, a delegation of senior Ukrainian customs officials,
accompanied by a number of company representatives, took a fact-finding
tour of the major European express interconnection hubs, located in
Brussels, Liege and Cologne.

The purpose of the visit was to enable Ukrainian officials to discuss first
hand with Belgian and German customs officials the application of simplified
electronic procedures for express operators and to observe these procedures
hands-on. The clear message following this tour was that Ukraine would
implement simplified electronic procedures as soon as practicable.


As of the end of February 2008, the express package customs clearance
situation in Ukraine, in spite of endless discussions between Ukrainian
customs officials and the express operators was little improved and some
would suggest even worse.

An example of good intentions gone wrong is exemplified by the following
excerpt from a joint implementation report of Ukraine-European Commission
work in 2003:

"Customs Regulations and Procedures. The New Ukrainian Customs Code,
which was signed in August 2002, will enter into force from January 2004 and
should allow for an efficient and smooth movement of goods into and out of
Ukraine and will eliminate the legal uncertainty and lack of transparency
for economic operators under which the customs authorities are currently

"The EC expects that the new Customs Code should also simplify the
procedures for customs clearance, e.g. by moving to a 'one-stop' system and
thus, eliminating the current complex and time-consuming procedures for
customs clearance. This would significantly facilitate trade."

Fine words, indeed, but rendered almost meaningless by time and an
unwillingness or inability of successive Ukrainian governments to turn the
words into positive and long-lasting changes.


There was a hope that the introduction of simplified electronic procedures
as of January 1, 2008 was a breakthrough that would replace documents
with electronic transactions. In reality, the new procedure appears to have
little value for customs clearance and involves intense amounts of added
work for express operators.

The new system so far consists of an electronic database into which
operators have to enter all import and export shipments. The data inputted
must include not only those shipments that are liable for duty, but also
document-only shipments that would carry no duty at all.

The new electronic files are apparently for customs hold management and
perhaps could eventually lead to the implementation of a risk management
system. However, for now and the foreseeable future, all that has been
accomplished is to pile greater work on the express companies and build up
files on electronic data that are of no current value to anyone.

The new data remains almost totally unused as customs clings to the old
practices - and the old paperwork - assuring it of 100% control of all
incoming goods.

The 100% control system is still ingrained in law, regulation and practice
in Ukraine. It is so totally antiquated and out of touch with 21st century
business practice that Ukraine is increasingly placed at odds with the world
express industry and the millions of customers worldwide who depend upon
it to meet their needs and to increase business efficiency.


Vadim Sidoruk, DHL's Ukraine commercial manager explained one of the
greatest problems with Ukraine's system: "Over and over again, companies
considering multi-million dollar investments in Ukraine come to us and asked
for an evaluation of the efficiency of the express delivery system here.

"We have no choice except to tell them the truth because we cannot afford to
mislead companies to make major decisions based on incorrect information.
"It is hard to imagine just what would lead the parliament and the Customs
Committee to make the changes necessary to remove the roadblocks.

"However, I cannot help but think that if they understood the many
development projects that have gone elsewhere in part because of the
antiquated customs procedures, that alone would have a very strong impact
on their thinking - and actions."

Sidoruk also related a recent incident that points up the attitude that the
Customs service takes toward express companies and their customers.

Within the last ten days, DHL has moved to a new 8,000 square-metre,
USD 12 million state-of-the-art package processing centre in Kyiv. DHL
provided the customs service with fully equipped facilities for the 20
officers who staff the centre's customs functions.

DHL provided moving services to the new centre to meet not only its own
needs, but also for the customs service. Once the move was complete, there
was a complaint that one box of personal effects belonging to a top customs
official was missing.

Rather than dealing with the issue in a reasonable fashion, customs
officials impeded the processing of incoming packages from all over the
world for two days while customs officers searched for the one box of
personal documents that had gone temporarily astray.

In effect, over 1,000 customers in a number of countries worldwide were
inconvenienced and their packages unnecessarily delayed because of the
pique of one customs official.

Sidoruk also pointed out that the new Ukraine DHL facility has what is
probably Europe's largest holding and storage facility for uncleared
incoming express packages. Unfortunately, the reason that such capacity is
required, he pointed out, is that of all the packages held by customs in all
of eastern and central Europe, 70% are being held in Ukraine.


Svetlana Tidyakina, country manager of the worldwide United Parcel Service
(UPS) system, believes that Ukraine's accession to the World Trade
Organisation could provide a part of the impetus needed for improvements
in the current situation.

"The structure of the customs service here is not attuned to change, but
change must be accelerated if we are going to deal with Euro 2012 and other
positive developments ahead," Tidyakina states.

Tidyakina, who has been with UPS in Ukraine since 1992, said that she sees
no solution in the short run, and believes that a complete rewrite of
Ukraine's Customs Code is essential for major improvements to the system.

"We expect our traffic to at least double and perhaps triple by 2012, which
requires that we all work together to effect system improvements now before
the current high inflow of express packages becomes a deluge," Tidyakina


There is consensus among major express carriers that one of the first
changes essential to the system is an increase in the value threshold for
dutiable packages. Currently, any incoming package to a company name
a value of less than EUR 100 is not subject to duty (packages for private
individuals are subject to duty starting from USD 0.01!)

This is also complicated by the way that Ukraine looks at the dutiable
value. In Europe, the duty threshold is considered only based on the
intrinsic value of the transported goods. However, Ukraine calculates
dutiable value based on the value of the goods transported and includes
the cost of express transportation as a part of the dutiable value.

"All we need is a EUR 200 de minimus valuation on incoming packages and
we could solve many of the problems that we face today. Moreover, if we
really want to make progress, we need to adopt another standard European

"In Europe, a dutiable package may be delivered to the customer, with the
customer then having 10 days in which to complete the formal declaration

"Implementation of these two changes alone would allow us to solve about 70%
of the express package problems that are fouling our system today. Give us
that 70% relief and the 30% of other problems we could deal with." DHL's
Sidoruk concludes.

LINK: http://www.businessukraine.com.ua/ukraine-s-express-delivery-in-of