Freight volumes on the Russian rail network keep falling. Russian Railways (RZD) likely incurred a 50 billion ruble loss due to the decline over the first months of 2024. The trend is unlikely to reverse soon.

For the past seven months, freight volumes on the Russian rail network have been in decline. According to Forbes.ru, this is primarily caused by falling coal prices, lower oil exports, a completion of major construction projects and higher rental rates for gondola wagons.

The falling freight volumes hurt Russian Railways’ (RZD) business. The chief strategist of Russian investment fund “Vector X” estimates that RZD lost up to 50 billion rubles (500 million euros) in revenue during the first four months of 2024. Freight is particularly important for RZD. Last year, the company earned 74 per cent of its total revenue through freight transportation and infrastructure fees.

A coal downturn

Coal is RZD’s most important transportation material. Approximately 30 per cent of the company’s total freight volume consists of coal. For that reason, RZD is particularly sensitive to fluctuations in the coal business. Unfortunately for RZD, it is exactly this raw material that has been transported less via rails in recent months.

Lower global prices and high tariffs at Russia’s Black Sea port in Taman, Russia’s primary coal export port in Europe, have prompted coal companies to withdraw export contracts. Even though they offer lower tariffs and are closer to many coal mines, alternative ports in the country’s Far East cannot be used due to congested rail infrastructure.

As a result, coal loading on the Russian network dropped by over 5 per cent, to 115 million tonnes between January and April.

Oil embargo

After coal, oil takes second place on the list of RZD’s most important freight with approximately 20 per cent of total volumes, according to Forbes.ru. However, Russia’s oil industry has been under attack by Ukrainian drones, leading to a decline in production capacity. At the same time, much of Russia’s oil flows into the military to support its war efforts.

In order to mitigate the negative effects for the domestic market, Russia introduced an oil export ban from March to the end of August. This has suppressed the demand for RZD’s export services. The company transported 70,4 million tonnes of oil in the first four months of 2024, down by 2,4 per cent.

Construction and high wagon rental fees

Lastly, the amount of construction materials that RZD transported dropped by 14,6 per cent to 36,1 million tonnes. According to RZD, this is because major construction projects were completed. Meanwhile, rental fees for gondola wagons also made rail less attractive for those looking to ship construction materials. The fees increased by up to 6 per cent in the first months of 2024.

The downward trend for Russian rail freight volumes is unlikely to reverse soon, according to Forbes.ru. Coal prices are likely to stay low. However, a temporary lifting of the oil embargo, recently announced to be in effect until the end of July, could give RZD a little boost. Likewise, Russian sea ports are probably also content about that decision, since they show similar numbers to RZD. Their freight turnover fell by 4,3 per cent between January and April year-on-year due to the dynamics on the coal and oil markets.

Also read:

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• Russia approves 3,7 trillion ruble Far East rail modernisation
• Russian rail exports of petrol halved following embargo