Tariff System of Freight Transportation by Rail in Russia

The report of Vladimir Savchuk, Head of IPEM Railway Transport Research Department, TransRussia-2014, 22/04/2014

Over the last 8 years the rise of freight owners’ expenses on freight transportation by rail has negatively affected their competitiveness. Thus, the difference between freight owners’ expenses in Russia and the US reduced by 100% (in Russia, average cost of freight transportation of 1 ton rose from RUB 468 per ton in 2005 to RUB 1070 per ton in 2012, and it got close to the US costs of freight transportation which amounted to RUB 747 and RUB 1319 respectively). We should mention that the share of expenses on infrastructural maintenance and locomotive traction (expenses on RZD JSC services) in overall expenses on transportation in freight cars is about 55%. Remaining 45% are the shares of rental payments for cars and expenses on empty leg.

The existing tariff system is disproportional in some ways; it negatively affects the competitiveness of railway transport compared to other means of transport. For instance, there is a distinction of freight classes. First class freights are low-profit freights like coal; second and third class freights are high-profit freights with high level of processing (oil, metals etc.). The difference between costs for 1000 km transportation of first and second class freight is 58%, between second and third class freight – only 6.7%. If the distance of transportation exceeds 10 000 km, the cost difference between second and third classes almost disappears (0.5%), while the cost difference between first and second classes increases up to 71%. Moreover, there are special tariffs for long-distance transportation of certain types of freight (coal, ferrous metals, oil). But as there are various discount schemes and adjusting rates, the cost difference between the freight classes is vanishing. The example is as follows: the tariff on transportation of certain second and third class freights (e.g. glass bits, white salt) is equal to the tariff on transportation of first class freights, and on the contrary (e.g. alumina).

Tariff alterations influence investment processes in railway transport. In 2007 the Russian Federal Tariff Service implemented a new scheme of distinct tariff adjustment for private and inventory rolling stock. This decision resulted in significant increase of investments into private stock of open cars. It is worth mentioning that the self-regulation mechanism of the volume of rolling stock was not invented; it led to the overplus of rolling stock. The next stage of tariff system development was unification of international and domestic tariffs, which influenced the distribution of export freight traffic between border checkpoints and port stations.

IPEM analysts developed prediction calculations taking into consideration both innovative and basic scenarios outlined in the Transport Strategy until 2030. According to innovative scenario, average costs of transportation in 2030 will increase by 19% up to RUB 1.58 per ton-km compared to RUB 1.33 per ton-km in 2012. Weighted average cost of railway transportation will decrease by 5% and amount to RUB 0.7 per ton-km; the cost of road transportation will increase by 4% up to RUB 4.91 per ton-km.

According to the basic scenario, in 2030 average costs of transportation will increase by almost 30% and amount to RUB 1.68 per ton-km. Weighted average cost of railway transportation will increase by 1% up to RUB 0.75 per ton-km; road transportation; the cost of road transportation will increase by 6% up to RUB 5.04 per ton-km.

IPEM suggests the following solutions for tariff system improvement:

• implement unified principles for alterations of tariffs on rental provisions of inventory (RZD JSC) and private (private railway operators) rolling stock;
• determine rates for annual tariff adjustment based on rational allocation of trade markup in economic sectors, and paying capacity (using interindustry balance), creation of investment resources for the railway transport;
• establish long periods of tariff adjustment and revision of tariff schemes (rates and coefficients) provided by Price Schedule 10-01 at the end of this period;
• consider the cancellation of economic sectors’ support due to railway tariffs reduction; give preference to other mechanisms of state support (e.g. subsidies, tax cuts) which do not change the tariff system;
• accelerate the implementation of the “network contract” on freight transportation between RZD JSC and other market players.


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