If Ukraine is to survive, its industries need to survive. Ferrexpo, one of the country’s largest industrial companies, is enduring hard-to-imagine war-related obstacles. Its continuation plays a vital role in the nation’s survival.
The issue of industries continuing during a time of war cannot be understated. Ukrainian industrial champions, like Ferrexpo, provide jobs, support local communities, pay taxes, and fund humanitarian activities, all of which support the war effort.
Demand for its iron ore pellets, used in steelmaking, has fallen somewhat due to Russian activity in the Black Sea but was still $652m last year. Once markets fully reopen, that will likely return to a figure of $1bn-plus.
Wolfram Kuoni, Chairman of the Board of Directors at Ferrexpo, has experienced firsthand the extraordinary struggles required to keep the company operational in wartime.
“Let’s start with staffing,” Kuoni said in a recent interview. “10% of our workforce [now numbering around 8,000] is currently serving in the military, and, tragically, 44 have fallen in combat. This means that more than 700 brave individuals who once helped keep the company running are no longer available to us.”
Ferrexpo’s staffing challenge is further complicated by the military choosing individuals with critical skills. Inevitably, this leaves crucial manpower gaps in the company’s operations.
Still, Ferrexpo is managing to power through the staffing challenges. “The good news,” Kuoni said, “is we are still producing, paying salaries, taxes, and royalties. As a producer of iron ore pellets, a higher quality iron ore product, we are continuing to export to our European and Asian customers.”
A high-functioning workforce is critical, but it’s not the only factor required to maintain operations. “The power generation and distribution infrastructure has been massively damaged,” Kuoni points out. “The Russians have systematically destroyed power plants. As an energy-intensive business, we currently have to import 80% of our electricity from the EU, which comes at very high prices.”
This presents a major financial obstacle for Ferrexpo, as energy costs constitute half of production costs. To further complicate matters, suppliers from Ukraine’s occupied territories Ukraine are no longer accessible, and many local suppliers, who normally would be considered essential to maintaining factory operations, have gone out of business. “They were no longer able to pay their bills,” Kuoni said.
Staffing the plants and keeping them running is crucial, but that’s not the end of Ferrexpo’s trials. The next hurdle is supply chain continuity. To retain customers, Ferrexpo must remain a reliable supplier. By destroying power plants and making logistics close to impossible, the challenges might appear almost insurmountable.
Adding to the problem, as Kuoni says, “50% of our production was destined for Asia. When the Black Sea was fully closed, it was a logistical nightmare. Instead of using our efficient shipping system from Ukrainian Black Sea ports, we had to develop new export routes using the rail network and river barges out of Ukraine. It was a complicated and tedious export route.”
Despite these obstacles, Ferrexpo has managed to maintain production and sales volumes of up to 60% of its pre-war levels.
When asked about morale when dealing with all these problems, Kuoni answers: “The overall spirit is that we’re in this together and we must be resilient. There’s an incredible sense of duty on the part of every person, working as one team, to keep operating, to survive.”
The chairman concludes by saying that he takes pride that Ferrexpo continues to operate, but he also has a more personal reason for his satisfaction. “When I walk around our operations, I know everyone is experiencing uncertainty and turmoil in their personal lives. I can observe that the workplace here provides a semblance of stability and normalcy in the midst of chaos.”
Ferrexpo’s resilience in the face of war-induced challenges exemplifies the critical role that Ukrainian industries play in sustaining the nation’s economy and morale. As Kuoni puts it: “There’s an inextricable link between economic endurance and Ukraine’s fight for survival.”
Mitzi Perdue is a journalist reporting from and about Ukraine.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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