Ukrainian Railways may lose its cargo base due to tariff increases

The largest shippers will be forced to stop production due to rising logistics costs

The management of Ukrainian Railways (UZ) should return to the practice of public discussion and consultations with the largest shippers on key decisions, including increasing freight tariffs. Otherwise, businesses will close and the state-owned company will lose its cargo base.

This was stated at a press briefing by Konstantin Saliy, President of the All-Ukrainian Union of Building Materials Manufacturers.

In his opinion, if Ukrainian Railways increases freight tariffs, the largest shippers will be forced to stop production due to rising logistics costs, and the state-owned company will lose its cargo base.

“If Ukrainian Railways continues to operate with such losses for another six months, it may face the fact that it will have nothing to transport except passenger traffic or military cargo. It may lose its cargo base if companies stop and reduce transportation due to the increase in tariffs. It will be impossible to resume production quickly, and the market will already be redistributed by foreign players,” emphasizes Konstantin Saliy.

In addition, the construction materials industry faces the problems of untimely payments from the state for the delivered products, tax invoices, lack of any benefits and preferences, and staff shortages. In such a situation, the future reconstruction is in doubt.

“After such steps by Ukrzaliznytsia, we should not expect that building materials will be cheap now or during the post-war reconstruction. Our companies have often started transporting products by road because no one knows whether UZ will deliver railcars on time,” says Konstantin Saliy.

In general, the business believes that Ukrainian Railways’ initiative to harmonize freight transportation tariffs has no logic. The initial preparation for transportation and storage of different types of cargo, as well as the necessary infrastructure, differ significantly, and therefore have different costs. For example, transportation of a ton of grain is more expensive for UZ than a ton of ore, so the tariff for this transportation should be different.

The last time Ukrainian Railways raised freight tariffs was in June 2022. Back then, the tariffs were raised very strongly – the cost of transportation of coal, ore and limestone increased by 140%, grain – by 96%, steel – by 70%, and unexpectedly – without any discussion with the business.

As GMK Center reported earlier, Ukrainian Railways transported 118 million tons in January-August, up 23.1 million tons or 24.3% year-on-year. In total, in August 2024, UZ transported 14.18 million tons of cargo, up 4.2% m/m and 15.5% y/y.