“Ukrzaliznytsia has recently announced its intention to unify freight tariffs. This means that the same tariffs will be set for all types of cargo, regardless of the technology and cost of transportation.
What are the intentions behind the changes declared by the national carrier and how the tariff unification may end up in the end, in an exclusive commentary Komersant ukrainskyi
yuriy Shchuklin, a logistics market expert and member of the EBA Logistics Committee, told in an exclusive interview with Komersant ukrainskyi.
According to him, it is worth starting with the fact that the different cost of railway transportation of different cargoes is not a purely Ukrainian unique story. For example, the cost of raw materials for construction materials (crushed stone, sand, clay, etc.) is so low that rail transportation of these goods a priori does not support the application of economically justified tariffs. That’s why other countries, for reasons of ensuring the construction of roads, housing and infrastructure facilities, practice transporting construction goods at the lowest cost.
“But there is something else that is unique to Ukraine: the owners of the industries that produce cargoes of tariff class 1 are oligarchs who have a much more powerful influence on MPs and the government than producers of cargoes of class 2. Some managers of Ukrzaliznytsia (Wojciech Balczun and Volodymyr Zhmak) have tried to introduce unification of tariff classes. However, the implementation of these intentions was always hindered by the resistance of the metallurgical lobby in the Verkhovna Rada and the Government, which have carte blanche to shape the tariff policy of Ukrzaliznytsia,” the expert explained.
Yuriy Shchuklin believes that the intentions declared by Ukrzaliznytsia this year to unify tariff classes are nothing more than an information background on the eve of another tariff increase. Businesses whose cargoes generate a positive financial result from transportation are promised convergence of classes. Meanwhile, businesses whose cargoes do not even pay for the cost of transportation are being bargained with.
“They are first told: we will raise your tariff by 30%, and then they bargain and agree to reduce the increase to 15%. But there is no real convergence of classes, the gap continues to exist, and some cargoes continue to support the passenger section of the railway, while others do not even pay their cost. If we were talking about a real discussion of tariff reform, we would see specific figures. But they are usually hidden because there is bargaining with those who can block it,” said the member of the EBA Logistics Committee
How difficult is it to unify tariffs – technologically, organisationally and administratively
The logistics market expert explained that technologically, unification is carried out within 2-3 minutes: the programmer of the Ukrzaliznytsia unit has to change 4 digits of the coefficient and the automated system of workplaces of commodity cashiers starts accounting for the tariff in a different way. Changing the numbers generated by the automated system does not require any reorganisation of the work of officials and specialists. That is, there will be no technological or administrative difficulties.
The only segment that may be affected by organisational difficulties is cargo owners, users of Ukrzaliznytsia’s services who have already contracted with buyers. They will either have to revise all their agreements and commitments or find funds in their budgets to cover the difference between their planned transportation costs and those that will arise as a result of unification.
“It would probably be the right step to set a transition period so that cargo owners have time to change the terms of their contracts with buyers,” Shchuklin said.
He stressed that it is precisely because of the underpayment of large amounts of tariff (and Class 1 accounts for 60% of traffic) that Ukrzaliznytsia does not have the funds for major repairs and renewal of locomotive fleet, and track repairs are carried out within 5-10% of the needs. This, in turn, has led to a significant drop in speeds, as drivers are forced to drive slower on worn tracks to ensure safety. After all, the slower the freight turnover, the slower the economy functions.
“If Ukrzaliznytsia receives at least the money it spends on freight in tariff class 1, it will have additional resources to modernise its locomotive fleet, repair tracks and increase its employee payroll. The consequences of this positive impact will be felt indirectly by business,” the expert said.
According to him, repairs of problem areas and an increase in the number of modernised locomotives will reduce the turnaround time of wagons, so cargo owners will spend less money on transportation.
However, there is a downside to the issue of tariff class convergence. It is a rise in the cost of transporting construction raw materials.
“This will not be felt now, because there is no such volume of construction during the war. But when we start the post-war recovery, it will matter. Whatever one may say, there is no way to pay the same amount for crushed stone and sand as for grain. On the other hand, the state can separately subsidise the transportation of these goods within the country for post-war construction and recovery,” said Yuriy Shchuklin.