5 hot trends hitting Russia’s railways
Published on 12/07/2017
There’s a whole lot of activity hitting Russia’s railways right now. Rail is a vital cog in the nation’s transport and logistics machine - so what are the big topics coming from the sector at the moment?
Here are five of the biggest trends affecting Russia’s rail network.
Russian rail freight volumes remain at billions of tons
Freight levels are expected to hit 1.2 billion tons by the end of 2017 – mirroring 2016’s levels. This is good news. It signals a recovery of Russian freight volumes. While they have yet to match pre-crisis levels, loads levelling out, rather than dwindling, heralds confidence in Russia; not just on its railways, but in its entire logistics network too.
Internationally, cargo trains continue to be a vital service for Russia. Traffic between some nations is rising exponentially. Belarus-Russia freight traffic rose 30% during January-May 2017, for example. And then there is China.
General rail freight, and container traffic, has grown 89% collectively between the two neighbours since 2015. By 2020, Russia and China want to see volumes double. It is hoped that transport corridors in Russia’s Far East will play a big role in achieving this goal.
Tariffs set to rise?
Railway tariffs are structured around two different systems in Russia: track access charges and locomotive traction hire services. Both are set universally by the state, with fees being payed to RZD (the state-owned monopoly responsible for running Russia’s rail network).
RZD was awarded the ability to alter traffic tariffs in 2013 between -25% and 13.4%. It has yet to do so, but from as late as October 2016, rumblings of a tariff hike could be heard. According to JOC, costs of transporting goods via rail in Russia have already risen 25-30% due to a shortage of rolling stock and other tariff changes.
In 2017, rates could rise a further 2% for track access. Freight car rental rates could also double from their current 500 rouble cost (roughly $8.25) to 1000 roubles ($16.49).
Why the hike? Well Russia has big plans for its railways, including big spending on high-speed lines, such as the $21 billion Moscow-Kazan link. To fund these ambitions, RZD is expected to bump up its fees and charges.
China to be a big influence on Russian railways
The influence of China on Russia’s railway operations was touched on earlier in this article, but it is worth reiterating. The world’s second largest economy sits on Russia’s eastern borders – and China is eyeing up Russia as a potential partner in its continent-crossing One Belt One Road scheme.
Estimates suggest Chinese transporters could save up to $700 million a year using multi-modal routes in the Far East of Russia.
China’s northern landlocked provinces are just that: landlocked. With the Primorye-1 and Primorye-2 corridors, Russia is proposing its pacific ports could be used ship Chinese goods to elsewhere in China – and use them as intermodal terminals to carry Chinese goods via train across the country too.
Regional freight volumes in this region have been growing steadily, prior to development of the Primorye corridors properly kicking off. 2014 saw freight traffic stand around 7.8 million tons. By 2016, it had risen to 11.3 million tons.
And after Primorye’s implementation? Traffic is tipped to peak at 45 million tons a year.
Russia invests less in rolling stock
95,000 wagons were written off in the first ten months of 2016, and a total of 292,000 since 2012. A total of 30,600 new wagons were delivered in 2016. From 2012, a total of 291,300 units have been delivered to RZD.
Despite the fact there is still a deficit in rolling stock, RZD is pairing back its spending on locomotives and wagons. Russia’s chief rail operator is forecast to purchase 450 wagons by year’s end 2017 – down from the 500 bought in 2015 and 2016 respectively.
Even so, this represents heavy invest – as much as $1.1 billion. Annual procurement rate going forward is anticipated to float around 420-450 units up until 2020. RZD’s bank balance is expected to be $4.3 billion lighter by that date if it keeps up this rolling stock buying programme.
In the passenger sphere, operators could be opening their cheque books and spending around $430 on passenger cars. Moscow’s Central Suburban Passenger Company, which operates urban rail lines in Russia’s capital, will be 2017’s chief buyer of EMU cars this year. 220 sets are to be ordered at a cost of approximately $167 million.
Higher shipping costs points toward more rail traffic
Ocean shipping rates to Russia’s western ports, such as the Port of St. Petersburg and its Baltic Sea facilities, have skyrocketed since last year.
Moving a container via sea from Shanghai to St. Petersburg, for example, now costs shippers $3,500 – almost double June 2016’s rate of $1,800 dollars. Costs from Singapore and Japanese ports are even higher.
Pacific-based shipping companies are therefore checking out other routes – and that means potentially more traffic for Russian railways. Asia rail traffic passing through Russian border crossings has risen 81% between January-April 2017.
Ocean rates are more sensitive to exchange rates, as they are calculated in dollars. As Russia’s rail fees are, obviously, in roubles, and the currency has lost value since 2017, it means shippers can enjoy cheaper transportation costs using Russia as a multi-modal hub.
As 2017 progresses, it will be interesting to see how Russia’s railways continue to develop in the face of heavy Asian influence, stabilising freight traffic volumes and potential tariff bumps. One thing is clear though: Russia’s rail sector is not one to miss.
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