Coal is the most massive cargo for Russian Railways / A. Gordeev / Vedomosti

Loading on the Russian Railways network has been declining for the third year in a row (see chart), which is why wagon rental rates (what railway operators earn on) are at a minimum. Russian Railways' forecasts for loading in 2015 are not optimistic: it will decrease by another 1.3% to 1.209 billion tons, according to the updated financial plan of Russian Railways for 2014-2016. The monopoly fears a reduction in the volume of oil cargo transportation and export coal transportation. However, already in 2016, loading will grow by 1.1%, reaching the 2014 level, according to the financial plan. The monopoly does not disclose what will serve as the driver of growth.

The key problem

At a meeting on the situation on the railway rolling stock market (held in Tikhvin in March), Minister of Industry and Trade Denis Manturov outlined the key problem of the industry – the excess of old cars. According to the minister, there are 150,000–250,000 of them (24% of all cars). At the same meeting, Manturov proposed ways to reduce the surplus: the key measure is to increase the tariff for empty runs of cars, the service life of which has been extended by 48%. According to him, this can help both operators and car builders, who, due to the decrease in demand for cars, sell them to affiliated structures. This measure can raise the average rate on the market from 500 to 830 rubles per day, Manturov’s presentation says. And such a rate will provide the cash flow necessary for operators to service loans, repair cars and lease payments. Increasing the operators' income will allow them to renew their fleet by purchasing 40,000 new cars per year. The draft protocol for the meeting also included a more radical measure to combat old cars - a ban on extending their service life. But the final version only included a clause on increasing the cost of empty trips.

However, the idea of the Ministry of Industry and Trade to increase the cost of transporting old cars by 48% did not find support from other ministries. The Ministry of Transport and the Ministry of Economic Development spoke out against it. But the government did not abandon the idea of making cars with an extended service life less profitable than new ones. For example, the introduction of fines for car breakdowns and insurance of operator liability are currently being discussed. These are measures of economic incentives for the efficient use of cars, and not an attempt to force operators to write off old cars, says a representative of the First Freight Company (PGK; owned by Vladimir Lisin).

Not only old cars will become more expensive to service, but also those that are not used to transport freight. Amendments to the Russian Railways charter came into force on April 1, introducing fees for the excess time empty freight cars not used for transportation stay on the tracks. If an empty car is on the Russian Railways tracks for more than 24 hours, the owner must pay 5 times more for its parking. According to officials, this should spur operators to write off old cars. But Mikhail Burmistrov, CEO of the Infoline-analytics agency, says that such a measure could, on the contrary, slow down the write-off of the old fleet and stimulate the growth of car rental rates. Owners of cars not used for transportation will try not to write off these cars, but to lease them out at rates below the market.

Buyers for new wagons

It remains unclear whether there will be demand for the new carriages that Manturov spoke about.

Federal Freight Company (FGC; a subsidiary of Russian Railways) intends to write off 33,000 old railcars this year (the company has a total of 62,320 railcars with expired service life, which is 40% of the fleet). However, as follows from the operator’s three-year business plan, in order not to lose market share, the company will buy 45,232 new railcars in 2015–2017 for 76 billion rubles (1.6 million rubles per railcar). However, so far the company has only bought 200 railcars, from Altaivagon. And it recently announced a tender for another 200 railcars.

Innovations in wagon building

The innovative car has an axle load of 25 tons (the other cars have 23 tons per axle), it can be used longer without repairs, but it also costs 30% more than regular cars – about 1 million rubles. The Federal Tariff Service provides discounts on several models of Uralvagonzavod and TVSZ for buyers of such cars – 6–30% of the Russian Railways tariff. In addition, buyers of innovative cars can count on subsidizing part of the leasing payments. The federal budget for 2015–2017 has allocated 7.1 billion rubles for these purposes.

FGC's closest competitor, First Freight Company, plans to write off 10,000 railcars this year (the company has 86,094 old railcars, or 44% of its fleet), said PGK CEO Oleg Bukin in March. It is unknown how much rolling stock the company will purchase. PGK's plans to purchase railcars in 2015 will be determined by "market factors, the economic situation, and government support for the purchase of new railcars," says a company representative.

Operators see a cheaper alternative to buying a new wagon in the wagons of leasing companies that they returned due to non-payments by lessees. The number of such wagons can reach 60,000. They are of interest to almost all operators. "If it is more efficient for me to buy new wagons - taking into account investments, rates, profitability that exists - I will undoubtedly buy new ones. If it is efficient for me to collect wagons from the market - I will collect wagons from the market," admitted PGK CEO Oleg Bukin at a Vedomosti conference at the end of March.

According to FGC CEO Vitaly Evdokimenko, cars with improved technical characteristics (the so-called innovative cars – they are produced by the Tikhvin Carriage Works and Uralvagonzavod) do not pay for themselves even with the existing preferences (see inset). “In order for cars with increased load capacity to become profitable for operators, either a reduction in their prices or a qualitative improvement in their technical and operational characteristics is necessary,” he said in an interview with Vedomosti in May.

For now, the main clients of wagon builders – in addition to their own companies – are shippers.

Old disputes about old carriages