Future of Freight Cars Hinges on Economic Viability

23 august 2016

The Analytical Center has discussed whether the demand for freight cars will recover, how rolling stock manufacturers and operators can achieve the break-even point, and whether government support is efficient. The experts have also focused on the demand and supply balance by freight car type as well as the impact of lease rates on rolling stock renewal.

Georgiy Zobov, a representative of the Institute of Natural Monopolies Research, believes that until operators’ rates grow to RUB 700–900 per day, there will be no large-scale purchases of all-purpose rolling stock. The expert says: “The increase in daily rates for all-purpose rolling stock is driven by whether car modernization is economically viable rather than by the ban to extend their service lives.” Transportation costs risk growing, but there is also a hazard that such cargoes as food, chemicals, etc. would remain undelivered due to the lack of specialized cars, Mr. Zobov points out.

He thinks it is necessary to find a balance between real capabilities for manufacturing various models of specialized freight cars and attempts to prevent shortages of such cars that could result from the modernization ban. “We need to strike a balance between the certification costs of new specialized models and car modernization with service life extension,” Mr. Zobov says.

Sergey Goncharov, Deputy CEO for Technical Development at Freight One JSC, thinks that understanding key market trends would help avoid future errors. “We were able to extend the lifespan for individual cars if they were technically fit to be operated beyond the expiry of their current service life as confirmed by the commission,” the expert says. “The Government, however, was supportive of the idea to put a ban on operating cars with extended service lives to maintain the level of output by rolling stock manufacturers.” The use of such a non-market mechanism has resulted in lower surplus of cars, heavier shortages in the transportation sector in high season and higher operating rates, Goncharov says. In his opinion, the decrease in rolling stock and local seasonal shortages would lead to higher operating rates and, accordingly, total transportation costs for freight owners.

Experts presume that any increase in demand for new cars hinges on whether operators are economically stable. They are positive that reviving the rolling stock renewal requires beneficial economic conditions, with car payback being the key driver.

The roundtable included representatives of federal executive authorities, sectoral companies, expert organizations and the academic community.