FRTU urges the government to avoid raising tariffs for railway transportation

An increase in tariffs will have catastrophic consequences for entire sectors of Ukraine's economy

The Federation of Transport Employers of Ukraine (FRTU) calls on the government of Ukraine to avoid raising tariffs for rail freight transportation, which will have an extremely negative impact on the entire economy of Ukraine. This is stated in the FRTU’s appeal to Prime Minister Denys Shmyhal.

According to the draft order that Ukrainian Railways JSC (UZ) sent to the Ministry of Community Development, Territories and Infrastructure of Ukraine in August 2024, tariffs for the transportation of ore and coal by rail will increase by 19%, for coke – by 12%, and grain cargoes – by 11% (including increases for cargo and empty flights).

«FRTU categorically does not support the increase of freight railway tariffs, and believes that this will have catastrophic consequences for entire sectors of the Ukrainian economy, revenues to the budget of Ukraine, the loss of thousands of jobs, and as a result, it will negatively affect the defense capability of our state,» the message says.

Shortly before the full-scale Russian invasion of Ukraine, a series of unprecedented increases in monopoly tariffs for rail freight transportation took place. At the same time, in June 2022, in response to a significant reduction in freight volumes caused by the start of a full-scale war, the Ministry of Infrastructure was forced to resort to increasing rail tariffs by another 70% for all types of cargo.

«This increase, which had no analogues in previous years, was considered by cargo owners as a temporary measure to support UZ, which created expectations for their decrease after a partial recovery of the situation on UZ and an increase in the volume of cargo transportation. As a result of these changes, monopoly tariffs have increased by 2.4 times from the level of the beginning of 2021, and the cost of transporting empty wagons for 1st class cargo has increased by 2.6 times,” adds FRTU.

Currently, the real situation is such that UZ railway tariffs in dollars significantly exceed the level before the start of the war (2019-2021). Tariffs for coal and ore have increased by more than 120% since the beginning of 2019, and for grain cargoes – by 60%.

The unprecedented increase in tariffs became one of the main reasons for the unprofitability of numerous enterprises. The constant increase in logistics costs forces companies to reduce production volumes, which leads to a decrease in shipments of products by rail and the transition to alternative modes of transport. This not only worsens the financial results of enterprises, but also negatively affects the revenues of Ukrainian Railways from freight transportation.

«The arguments provided by the UZ to justify the need for the “unification” of tariffs for railway transportation do not stand up to any criticism, because in fact it is not about creating fair economic conditions and paying for services actually provided by a monopoly in accordance with their volume and real costs, but about another non-transparent and voluntary increase in the cost of transport», emphasizes the Federation of Transport Employers.

The appropriate approach with a constant increase in tariffs is dangerous both for the UZ and for the state. In this way, the railway operator destroys its freight base, and therefore the economical basis of its business. Some customers will continue the transition to motor transport, which has been observed for many years due to constant increases in railway tariffs. Even more dangerous for Ukraine is the fact that some enterprises will simply close and will no longer be able to resume their work.

«Taking into account the above-mentioned FRTU appeals to take into account the general state of affairs in the economy of Ukraine and the critical situation of the main consumers of railway services and to take measures to reduce freight railway tariffs by -20% from the current level by optimizing the costs of “Ukrzaliznytsia” and taking measures to restore and increase cargo base of UZ», the appeal states.

As GMK Center reported earlier, Ukrainian Railways increased freight transportation by 24.3% in January-August 2024 compared to the same period in 2023 – up to 118.04 million tons. 57.74 million tons of cargo was shipped for export (+65.8% y/y), in particular:

• iron ore – 22.83 million tons (+2 times y/y);
• grain – 23.5 million tons (+59.3%);
• ferrous metals – 3.49 million tons (+15.1%).

According to the executive director of the National Association of Mining Industry of Ukraine Ksenia Orynchak, the unification of tariffs of UZ will lead to an increase in business costs by 10-15%, which is added to the previous record increase in 2022.

At the same time, in the first half of 2024, UZ increased revenue from freight traffic by 17% y/y – up to 43 billion UAH. This allowed the rail operator to make a profit of UAH 3.1 billion, although in the same period of 2023 the profit was UAH 4.8 billion. This situation indicates that the costs of UZ are growing faster than its revenues, which is a wake-up call and requires an immediate revision of the spending policy.