Ukrainian Railways to raise freight tariffs by 37%: how it will affect the industry

The Supervisory Board of Ukrainian Railways (UZ) has approved a proposal to index railroad freight tariffs, which will lead to a 37% increase. This step will seriously hit the Ukrainian industry, which has repeatedly called on the state company not to resort to such decisions.

According to the company’s press service, on December 5, these proposals were approved by the UZ board. They will now be submitted to the Tariff Council under the Ministry of Community and Territorial Development.

The last time UZ 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%, metal by 70%, and unexpectedly – without any discussion with the business.

Now, the railroad has proposed a 37% tariff indexation, or about 13% year-on-year. UZ also plans to present the indexation proposals and explain them to customers. In addition, the company plans to discuss with them what compensations and operational improvements they expect.

It should be noted that the Ukrainian business community has consistently opposed any form of tariff increase (indexation, unification, harmonization, etc.). According to experts, such steps will seriously hit the industry, which, in addition to expensive logistics, is currently facing other significant problems caused by the war (the cost of electricity prices, power outages, etc.), and will affect the cargo of the mining and metals industry, the economy of steel mills and the competitiveness of the domestic industrial sector.

The increase in UZ’s freight tariffs will, in particular, lead to a sharp rise in logistics costs for ferroalloy companies and a suspension of production at companies that only resumed operations in May. The cessation of domestic production will increase imports of these products and the outflow of foreign currency from the country.

Yuriy Ryzhenkov, CEO of Metinvest Group, said that UZ needs a full-fledged reform, not another tariff increase. He noted that during the war, the operator’s freight rates more than doubled for steelmakers. Logistics now accounts for 40% of production costs, so another increase in the railroad tariff will reduce its competitiveness.

Oleksandr Kalenkov, President of Ukrmetalurgprom, commenting on UZ’s initiative to harmonize tariffs, said that the monopolist’s efficiency needs to be improved. And given UZ profitability, it is worth considering a 15-20% reduction in tariffs. With the stable operation of the maritime corridor, this will lead to a significant increase in the operator’s cargo transportation volumes, which will remain profitable.