Ukrainian Railways’ attempt to raise tariffs is a sabotage against the Ukrainian economy

Last year, Ukrainian Railways (UZ) planned to raise its tariffs, but then it received a flurry of negative reactions from businesses. The company managed to buy some time to simply survive in the war. Now the state carrier is trying to raise tariffs by indexing them by 37%. Although Ukrainian business has a lot of experience in survival, it may come to an end someday.

Since 2022, Ukraine has been competing for a solvent consumer, which is like an animal from the Red Book in the Ukrainian business environment. Such a consumer will not wait for Ukrainian Railways to deliver railcars for four days and pay for railcar repairs under pressure. This disrupts companies’ production processes and the predictability of logistics costs, so the consumer is forced to make a decision to switch to road transportation. Thus, it is primarily road carriers that will benefit from Ukrainian Railways’ tariff increase.

The indexation of tariffs will be a significant blow to the competitiveness of Ukrainian producers even in the domestic market, as our products will become less attractive to Ukrainian consumers in terms of price. This will happen because many producers in the central part of Ukraine and the frontline regions will see their railroad transportation costs to the western regions increase dramatically. We will not be able to compete there with products from Poland, Hungary, and Romania, which are transported 30-50 km, not 600-800 km, as in our case. Since the main criterion in business is price, Ukrainian products will be uncompetitive. Or our manufacturer will be forced to deteriorate the quality characteristics of its products, which could lead to major man-made problems.

The main thing is that any increase in tariffs for railroad transportation or electricity will be paid for directly by the end consumer. In general, raising tariffs is not an economic action, but a fiscal one to take excessive cash from the end user. You don’t need to be a great economist to understand this. For example, if a brick is sold for UAH 10, a 37% increase in transportation costs means that it will cost UAH 13.7, and with VAT, it will cost the full UAH 15. In other words, Ukrainian Railways actions are actually setting off a spiral of industrial inflation.

To use medical terminology, a 37% indexation of tariffs is a blood clot. If it breaks, it will be almost impossible to pump out the patient (the Ukrainian economy). Personally, I believe that such intentions of Ukrainian Railways are a deliberate diversion, a chaotic attempt to find additional funds somewhere without any other changes – the development of additional services, efficient operation, etc. Ukrainian Railways receives large loans and grants, but shippers do not feel the effect of these funds.

Raising Ukrainian Railways’ tariffs primarily affects honest taxpayers who work as transparently as possible. However, it does not matter to those who sell stolen goods, such as sand, or smuggle materials through customs.

But if this is the preparation of the Ukrainian market to replace our producers with foreign ones, then everything looks very logical. But this is a double betrayal – to squeeze the last money out of the business, kill its competitiveness and bring in foreign producers.

It can be stated that Ukrainian Railways is currently operating very inefficiently, and when peace comes to our country, a lot will need to be changed in the work of UZ. I hope that then Ukrainian Railways will get management that will understand what needs to be done to make it an efficient and profitable company.

Ukrainian shippers have the right to expect a civilized attitude. I believe that during the war, Ukrainian Railways cannot focus solely on profit, as the main goal now is to keep the economy from collapsing.