Russian Railways Unlearned How To Transport Cargo

17.09.2009 — Analysis

The JSC Russian Railways reform has seriously complicated the life of business community. The share of empty mileage reached 42% while industrial companies are stuck for weeks with cargo they cannot shift due to railway car shortages. Only the reduction of production volumes is preventing the total paralysis of the Russian economy. RusBusinessNews observers have established that the chaos in this sphere is a consequence of the sharp drop in investments into the rolling stock and the lack of simple order in the railways.

The third stage of the railway holding reform is carried out at the moment in Russia. According to the structural reform programme approved by the RF Government the railway transport is being transferred onto the market rails of cargo in the country. Oksana Butorova, a representative of the public relations service of the Sverdlovsk Railway Headquarters, points out that the structural reform is occurring in evolutionary fashion, without upheavals. In the first eight months of 2009 SvRW has fulfilled the planned performance indicators on the budget revenues and the capital repair of railtrack. Rolling stock has been used with much higher quality than last year.

The railways admit that the Russian fleet of the cargo cars has been reduced since 2009 by 15 thousand cars (1.5%) through the decommissioning of rolling stock with expired service lifetime, which in itself is not an obstacle for transportation. According to Oksana Butorova, SvRW is doing everything necessary to ship out the products. In the meantime the fall in the production at metallurgical and machine building companies in the Urals has decreased the cargo volumes to 70.4% of the 2008 level.

Employees of the South Urals Railway do not see any cause to be concerned either, as of September 2009, the public relations service claims, the regional forwarders are not experiencing any rolling stock shortages. Cargo delivery timeframes by rail remain at the pre crisis levels.

Entrepreneurs, however, do not see as pretty a picture. Pavel Tatyanin, the Senior Vice President of the Evraz Group S.A., made a statement in early September that the relationship with the Russian Railways is very bad. The delivery times have increased significantly. There have been shortages in raw materials for some companies of the metallurgic holding during the summer and the Russian Railways were to blame. According to Mr. Tatyanin these shortages occurred due to the reduction of the rolling stock and the railway being unable to cope with the summer transportation volumes.

Alexei Minullin, the acting Logistics Director of ChTPZ Group, informed RusBusinessNews that the shortage of carriages is always there but especially acutely in the last third of the month.

Viktor Kladov, the Executive Director of the Urals Union of Timber Industry, calls the situation with shipping out appalling. According to him there are shortages not only of carriages but of locomotives too which is why loaded trains are standing immobile on the tracks. The expert claims, however, that all sidetracks of Karpinsk and Serov stations are busting at the seams with defective carriages. There are difficulties with shipments of cargo to Kazakhstan, there is no railway car return contract with them. Causes of the discord between the Russian and Kazakh railways are not known to Viktor Kladov  as it is impossible to get any information out of the Russian Railways.

Mr. Kladov  points out: "We are only working to a third of out full capacity. If our plants were producing as much as in the soviet times all our warehouses would have been full to the brim with timber. It seems to me that the railway cannot cope with its commitments. This is all emotions as I do not have any statistical data confirming the shipping situation. I want to ask, how many carriages should have been supplied by the hauliers and how many have actually been supplied? The railway does not give us the figures, the plants do not either, crying out but too scared to give the statistics. They say if they do, the haulier will stop transporting their products altogether.”

Production people are sincere when saying that there is a lot of noise around the renovation of the rolling stock but very little is actually happening. The Ekaterinburg NPO Automation participates in the modernisation of carriages and locomotives claim that the Russian Railways do not pay on time for the work completed. Equipment ordered by the railway often remains unclaimed as all car repair plants only work to a half of their capacity.  

The situation does look strange, in Belarus the Gomel car repair plant works six days a week because 80% of their workload is provided for by the governmental contract. The company finds other work, and this includes orders from Russia. Joint ventures are being set up for this purpose, Russians, according to the Marketing Department of the Gomel plant “turn a few bolts and then report the successful cooperation”. This work scheme lets the Belarusians load their production capacity and keep their carriage fleet in order.  

The situation is just as unclear with the production of new carriages. Not many experts can believe that the lack of orders for OAO NPK Uralvagonzavod (Ural Railway Car Plant) which makes only a hundred open top cars per month instead of possible 8,000 is caused by the Russian Railways’ lack of money. Transportation tariffs are increased regularly.

Cargo forwarders react differently to the price pressure. Metallurgists are planning to raise an argument. Andrei Lazarev, the Manager of the Railway Workshop of the Nevyansk Cement Plant, claims that cement makers, however, are not protesting after yet another tariffs raise, because the consumer will bear the cost of it all in the end.

Serghey Ilyinskiy, the Deputy Director General of the Rezh Gravel Plant  reckons that we can dispute for a long time the fact that the State raises tariffs and does not invest into the railway industry, but it would not be much use. Industrialists just state the fact that it is very expensive to transport their products which in the end affects the amount of construction and people's living standards.

On the background of the incorrect pricing policies in the railway industry policies of some subsidiaries of the Russian Railways seem strange. OJSC TransContainer has made the announcement to Ekaterinburg entrepreneurs that now they will have to work via an intermediary called SDS-Express. This company, claims Gleb Kinder, the Chairman of the Regional Committee on Industry and Transport of the Entrepreneurs’ Union “Opora Russia”, has been set up by some private individuals who do not quite understand what the work in the market of logistics services involves and thus will not be able to work without the support from TransContainer. He reckons that this middleman company will just resell the services raising the already high tariffs even further. The Federal Antimonopoly Service is already interested in this fact.

Experts do doubt, however, that FAS will be able to change the situation in the market. Special tariffs for certain types of transportation notwithstanding, the State in the current condition of the budget will not go for the reduction of transportation tariffs. Gleb Kinder is convinced that JSC Russian Railways is regularly raising the tariffs thus trying to make up the revenue lost to the budget due to the chaos reigning on the track.

Gleb Yakunin, the President of JSC Russian Railways, had to admit the lack of order in the organisation of transportation: “Ensuring the shipment out of given volumes of cargo is becoming impossible without coordinated effort on behalf of all players of the hauling market.”

The railway has begun the development of car fleet management system when cars are owned by different companies. At the same time the Russian Railways started signing contracts with the country’s leading industrial companies obliging itself to plan its work better.  

Business community, however, does not quite believe that haulage by rail would become more affordable, some of the cargo has been lost to trucking companies, says Gleb Kinder. Truckers are more flexible in their pricing policies and offer better delivery times. According to him, 90% of haulage up to 3,000 kilometres, e.g. to the Saint Petersburg port, the Urals manufacturers do by trucks.

Pavel Kober, Vladimir Terletski