Expert: Railway freight enjoys highest demand

4 august 2015 | RZHD TV

Elena Parshina, Expert of the Analytical Center, explained in the 1520: Transit program at RZHD TV channel why the Federal Antimonopoly Service had taken over the Federal Tariff Service, how cargo delivery rates were calculated and why railway freight was still more cost-efficient than road freight.

Elena Kovaleva
Elena Kovaleva
Department for Competition Policy

“The Federal Tariff Service used to implement the rate policy with respect to the rail transport and dealt with rates setting and railway carriage rates indexation,” - she said. “Since 2013, the Federal Tariff Service has had a range for more flexible pricing, developing rate calculation methods, and was able to provide various preferences to some market players. The Federal Antimonopoly Service ensures non-discriminative access of freight operators to the railway infrastructure and the scope of its activities covers all sectors of the economy, while the Federal Tariff Service is responsible for natural monopolies.”

Mrs. Parshina reminded that the merger of the two authorities was discussed as early as in 2014. “This matter was discussed in the expert community for a long time, various models were considered and foreign experience was taken into account,” - the expert said. Currently, the distribution of functions and powers between the Federal Tariff Service and Federal Antimonopoly Service remains quite unclear that misinforms market players. The merger could solve this problem, Mrs. Parshina thinks. “However, if the merger becomes formalistic, it will not actually change goals of the departments and will not eliminate the conflict. Besides, there are trends towards wider economic regulation on the part of the Federal Antimonopoly Service, so the merger may result in a switch from the antimonopoly regulation to the direct economic regulation. This is a great risk,” - summarized the analyst adding that it was difficult to evaluate an effect of such merger.

As to rate proposals, the Government makes them to the Russian Railways and the Federal Tariff Service approves decisions made, Mrs. Parshina says. It was supposed to increase rates based on inflation expectations, but this idea failed. Currently, the growth of railway carriage rates is ahead of the inflation, she says.

“The share of cargo carriages is around 85% of the cargo turnover, so the size of rates influences on the competitiveness of products in many industries of the economy,” said Mrs. Parshina explaining that cargoes are divided into three types: low-margin, medium-margin and high-margin ones and rates for their carriage are defined accordingly. The Expert cited as an example coal that belongs to the group of low-margin bulk cargoes and had a rather high transport component share. It is impossible to set a high rate, as the elasticity of demand for such carriages on the part of consignors is quite high. The expert also mentioned such detail: most coal is exported and, consequently, the Russian Railways earn revenues from exports and simultaneously benefits rate preferences in the domestic market.

The share of cargo carriages is around 85% of the cargo turnover, so the size of rates influences on the competitiveness of products in many industries of the economy.

Elena Parshina, Expert of the Analytical Center

The Expert says railway carriage enjoys highest demand. “The key factor is the presence of railways almost in all regions of the country,” - said the expert. “In addition, the road transport may compete with the rail transport only if cargoes are transported to a relatively short distance up to 2,000 km. If the distance is longer, carriage with road transport becomes economically inefficient”. However, high-margin cargoes (food products and construction materials) have been recently trending to switch from the rail transport to the road transport, says Mrs. Parshina. According to the expert, this is caused not so much by rates as by the new capacity that emerged. Besides, according to the expert, the rail transport implies higher costs due to servicing the infrastructure, while in the event of road carriages the maintenance of motor roads is at the expense of the state budget. As to the water transport, it is rather limited for geographic reasons, so it may not be regarded as a strong competitor, considers the expert. However, volumes decline for all transportation means due to a general economic recession in the country, says Mrs. Parshina.

Details are available in the story at RZHD TV.