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Following a year which saw increasing volumes, according to BMIs estimates, 2012 will signal further growth, with some freight modes continuing a recovery of their pre-downturn levels.

Total trade is projected to pick up, with our Country Risk desk forecasting a year-on-year (y-o-y) increase of 6% in 2012 following estimated growth of 10.05% in 2011.

Road freight is to continue to dominate the sector and is projected to grow by 2% in 2012. The sector was not able to defy the downturn; however, it is estimated to have begun a recovery.

BMI projects that rail, the second busiest freight mode, is also on the way to achieving its pre-downturn volumes, which are expected to be reached by 2015.

Headline Industry Data

- 2012 air freight tonnage is expected to grow by 1.2%;
- 2012 rail freight is forecast to grow by 1.2%;
- 2012 Port of Novorossiysk throughput is forecast to grow by 0.6%;
- 2012 road freight is forecast to grow by 1.5%;
- 2012 inland waterway freight is forecast to grow by 2.8%;
- 2012 total real trade growth is forecast at 6.0%. Key Industry Trends

Asia-Europe Rail Freight Option Attracts Big Name Shippers

The expansion of rail services connecting Asia with Russia and Kazakhstan highlights the continued pressure from the countries involved to develop a rail alternative for freight. While we once again highlight our view that rail will never usurp container shipping, it offers an alternative and one that major shippers are showing an interest in.

Increased Competition And Consolidation Predicted

BMI expects increased competition in the countrys rail freight market. Fleet expansions via rail car purchases and further consolidation are likely, following the acquisition of the majority stake of Freight One (PGK) by Russias Universal Cargo Logistics Holding (UCL) with a bid of RUB125.5bn (US$4.2bn.) The auction marks the crowning of a new market leader in Russias rail freight sector and, with increased competition in this sector expected, BMI highlights upside risk to our rail freight forecasts.

Privatisation Drive On Hold For Now?

While the successful sale of PGK is good news for Russias privatisation drive we highlight that the auction might be the last for some time. Global financial headwinds are damaging investor confidence, leading the Russian government to postpone a number of planned asset auctions.

Globaltrans Bounces Back with an Increased Stake in BaltTransServis

BMIs Russia rail freight consolidation view has begun to play out with Globaltrans increasing its controlling stake in BaltTransServis. The company lost out on the opportunity to buy a controlling stake in the Russias largest rail freight operator Freight One (PGK), after it pulled out of the bidding prior to the auction. Nevertheless, Globaltrans is seeking to increase its market share and is doing so via a two prong strategy that will increase its wagon fleet size and also its expertise in the traction market.

Russias Far East Ports Diversify With Box Strategy

Russias Far Eastern ports, known traditionally for their role in the countrys coal supply chain, are expanding their credentials in the box shipping sector as it expands its trading links with Asia and also develops its strategic location as a conduit for goods from Asia into the European marketplace.

UGC Diversifies Export Routes And Looks To Asia

A plan by Russias United Grain Company (UGC) to develop a grain terminal on Russias Far East coast highlights the companys desire to expand into the Asian grain market. BMI notes that this represents a strategy change in Russias grain exports supply chain, which has traditionally centred on using Black Sea ports, near where grain is grown. By diversifying the export route, grain will have to travel further overland, in BMIs view increasing the likelihood of disruptions to the supply chain.

Risks To Outlook

The base for slower growth in the countrys freight transport sector stems from BMIs more moderate outlook for the Russian economy. We are especially concerned by the weakening in consumer demand, with consumers hurt by high inflation in H111. For example, container throughput at Russias ports has been mainly driven by the countrys high consumption of manufactured goods. BMI has lowered its real GDP growth forecasts for Russia to 3.3% and 3.2% in 2011 and 2012 respectively, placing it substantially below consensus, as the external environment grows increasingly more challenging. The real private consumption growth is expected to slow down from an estimated 4.6% in 2011 to 3% in 2012.

A medium term upside risk to our outlook is the Sochi 2014 Winter Olympics. BMI expects an uptick in volumes at the Port of Novorossiysk in the build up to the games.

A longer term upside risk is the development of the Asia-Europe landbridge. While BMI is sceptical of its ability to rival the ocean shipping sector, proposals to link Asia and Europe by rail have the backing of a number of heavyweights in the freight transport sector, such as DB Schenker. Russian rail freight operators stand to benefit when the project takes off.