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Comparison of Freight Owners’ Expenses on Freight Transportation in Russia and the USA

According to IPEM estimations, in 2005-2012 average expenses of Russian freight owners on freight transportation doubled; the difference between Russian and American freight owners’ expenses reduced to 18.6%. It will negatively affect Russian economy, cause inflation and price rises on domestic market, lower competitiveness of Russian producers on world markets.

Institute of Natural Monopolies Research (IPEM) published the study “Comparison of Freight Owners’ Expenses on Freight Transportation in Russia and the USA”. American freight transportation market was chosen as American railway system is close to Russian railway system in terms of topology, market structure and total length of railroad track. Besides that in both Russia and the US railway transport is operated in various climatic and geographical conditions.

IPEM analysts point out the reduction of difference between transport expenses of Russian and American freight owners. In 2005 average expenses of American freight owner on transportation of 1 ton of freight were 34.6% higher than in Russia. In 2012 the same indicator was 18.6%. Lack of governmental regulation and lack of competition with inventory rolling stock managed by RZD JSC gave transport operators opportunity to raise tariffs on freight cars transportation.

There is also a significant reduction of difference between freight owners’ expenses on transportation of 1 ton of freight for average haul. In 2005 the difference was 41.1% while in 2012 – 19.7%. However it is necessary to mention the difference in freight transportation structure in terms of types of freight transported. In the USA high-profit freights take larger share in transportation structure; and freight is transported for shorter distances.

According to IPEM research, in the US expenses on transportation of 1 ton of coal are 2.6% lower than in Russia, expenses on transportation of 1 ton of chemical products are 43.2% higher than in Russia, 1 ton of ferrous materials – 29.5% higher, 1 ton of building materials – 66.9% higher, 1 ton of wood materials – 52% higher.

IPEM analysts also pointed out rapid growth of Russian freight owners average expenses (tariff per ton-km) on transportation of grain. In 2005 average expenses in the US were 35.9% higher than in Russia while in 2012 they were just 7.4% higher.

The difference in the types of freight transported in Russia and the US is as follows. In the US share of coal transportation is the largest, it accounts for 41% (in Russia coal transportation accounts for 24.2%). Other types of freight account for shares less than 10%, while in Russia transportation of mineral and building materials, oil and oil products accounts for significant shares – 21.3% и 19.4% respectively. It is important to note that transportation of all types of freight is profitable in the US, while in Russia tariffs for transportation of several types of freight (coal, building materials) are lower than the prime cost of transportation.

Key Findings:

• Freight owners’ expenses on freight transportation by rail grow faster in Russia than in the US. In the medium term freight transportation costs in Russia can equal similar costs in the US
• The general contribution in increase of expenses on transportation services is provided by non-regulated segment – operator services (operators in Russia, unlike those in European countries, do not own locomotives, such companies provide rail cars for freight transportation services and in some cases own cars)
• Rise of freight transportation costs for freight owners negatively affect Russian economy. It will cause inflation and price rises on domestic market, lower competitiveness of Russian producers on world markets
• Russian coal and grain produces have partly lost economic advantage on highly competitive world markets due to increased transportation costs
• Expenses on rail transportation of building materials, chemical products, metals and wood materials are much lower in Russia than in the US. Thus economic conditions appear to be more favorable for Russian companies operating in these sectors

Comparison of Freight Owners’ Expenses on Freight Transportation in Russia and the USA(pdf) 

 

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For the full version of the study or any additional information please contact: +7 (495) 690-14-26, ipem@ipem.ru