Ukrainian Railways pushes the market with more tariff increases
Rail tariffs concerning the transport of goods belonging to the 1st tariff class in Ukraine will increase by 9 per cent as of January 1 2022. The decision affects primarily the transportation of iron ore and coal and puts industrial rail freight in danger.
1st class product tariffs were already increased by 8 per cent in August 2021. The Ukrainian ministry of infrastructure stated back then that in 2022 1st class tariff pricing would increase by 20,4 per cent. However, now it says that the government will implement gradual price raises to “reduce the risks for the country’s economy and domestic producers”.
Acknowledging the danger
The Ukrainian government aims to use the revenues coming from the increased tariffs to carry out infrastructure and equipment upgrade projects. “In 2021, the change in the level of tariffs should bring the Ukrainian Railways an additional UAH 2 billion ( roughly 66 million euros). The company expects to receive another UAH 10 billion (332 million euros) in 2022. Given the additional increase, the total projected revenue next year will be UAH 12,3 billion (409 million euros), explained the Ukrainian infrastructure ministry.
Nevertheless, it is crucial that the government decided on a more gradual price increase. The initial decision for more expensive rates found Ukrainian shippers reacting negatively to it and raising concerns about a pricing domino effect in the whole supply chain of industrial products. Representatives from the cement industry were even worried about a reverse modal shift from rail to road.
The situation does not seem that will change in the future. Prices will remain higher with the risk of jeopardising rail freight volumes. Nevertheless, the relatively more moderate price increase could help the market adjust to the changes easier.