Ukrainian Railways increases freight tariffs to ‘upgrade infrastructure’
Ukrainian Railways puts its plan of increasing the tariffs for rail freight operations in practice. The infrastructure manager explains that this is needed to support infrastructure upgrades. The rail freight industry however fears a shift away from rail, as the higher charges will not be accepted.
With the higher prices, the state-owned company’s revenues could increase by 2 billion UAH (63 million euros) this year and 10 billion UAH (316 million euros) by next year. These record-high revenues from the revised tariffs will not be in vain, claimed Alexander Kamyshin, chairman of the Ukrainian Railways. They will be used to fund infrastructure projects that have lagged behind for years in the country.
“The last large-scale modernisation of the railway infrastructure was carried out in 2011-2012. In the following years, the work almost stopped. We will change this trend. Everyone should benefit from increased investment in infrastructure upgrades. The railway will receive modernised tracks, and shippers and passengers will receive high-quality and fast transportation”, explained Kamyshin.
Two-stage increase
In collaboration with the Ukrainian Ministry of Infrastructure, tariffs were raised for two different groups. The tariff for goods of the extracurricular group increased by 25,9 per cent and was set at the current level for goods of the 1st tariff class. Moreover, the tariffs for transporting goods belonging to the 1st and 2nd tariff classes increased by 8 per cent. Charges concerning empty mileage of wagons from the 1st tariff class were not excluded from the scheme and saw an increase of almost 51,8 per cent.
However, the Ukrainian Railways have a second round of price adjustments that will take place starting from 1 January 2022. In this stage, 1st tariff class pricing will increase by 20,4 per cent, while 2nd class pricing by 6,5 per cent.
‘Extremely harmful development’
Shippers from Ukraine’s cement industry explained how this decision could impact the supply chain to the Interfax-Ukraine news agency. Increased tariffs will lead the prices of coal transportation to rise. Respectively, this will affect the transport prices of raw materials and additives used to produce cement. As a domino effect, consumers will have to deal with higher prices when buying the final products.
However, the tariff increase could have another, more devastating result, as explained by Liudmyla Kripka of the Association of Cement Producers and Volodymyr Husak of the Federation of Transport Employers. The business men agreed that the price increase for rail freight could lead logistics companies to use more road transport.
Both emphasised that logistics providers will not tolerate the higher tariffs and move their enterprises to road. Such a move could have a double effect. First, it will reverse the country’s modal shift by turning products from trains to road trucks. Ukrainian Railways will lose way more income compared to if they maintained their tariffs lower. Simultaneously, the road system of Ukraine could collapse because it could not handle the extra volumes moving from the railways.
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… so why not increase road tariffs too?