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Russia Freight Transport Report Q3 2009
Market |
Logistics |
Report Type |
Market Research |
Country |
Russia |
Published |
23 July 2009 |
Number of Pages |
84 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
Russian Railways (RZD) carried 20% less freight in May 2009 than in the same period last year
Russian Railways (RZD) carried 20% less freight in May 2009 than in the same period last year, according to Reuters quoting the Interfax News Agency. Falling traffic volumes are linked to current tough conditions in the Russian economy. Industrial output contracted by a record 16.9% y-o-y in April, bringing the average for the first four months of the year to -14.9%. BMI holds to our forecast for industrial production growth to average -9.0% through 2009, with base effects helping to mitigate the rate of contraction in H209. As the industrial sector contracts, we expect unemployment to rise significantly further. The Russian jobless rate hit an over nine-year high of 10.2% in April, up dramatically from 9.5% in March and 6.6% during the same period a year earlier.
Meanwhile, In May 2009, it was reported by Reuters that RZD plans to create a new freight company worth RUB55bn (US$1.77bn). RZD will transfer 217,000 freight carss to the Second Freight Company with an initial public offering (IPO) for the new entity expected in 2011. The new organisation is to be modelled on the First Freight Company, which has about 250,000 freight cars and was spun-off from RZD in 2007. RZD aims for Second Freight Company to take 27-29% of the market in rail freight.
Meanwhile, RZD will have just 30,000 freight cars remaining. In recent years RZD, which has a monopoly on all rail transport, has been looking to divest segments of its operations. Already a number of private companies and banks have shown interest in Second Freight Company. This is partly because some have seized rolling stock as security from their borrowers. Streamlining operations remains a priority for RZD, especially after registering a net loss of RUB17.1bn (US$532mn), as per Russian Accounting Standards, in Q109 as compared with a net profit of RUB19.74bn (US$614mn) in Q108. The downfall is attributed primarily to a 12.3% drop in passenger traffic. The company is expecting a net loss of RUB14.2bn (US$418mn) in Q209, and a loss of RUB49.7bn (US$1.5bn) in 2009.
We have dramatically reduced our macroeconomic forecasts for Russia since our last report. The country is in the midst of a deep economic crisis and we expect the economy in 2009 to contract by 7.1% in real terms. H109 is likely to see a double-digit economic decline as the real sector impact of the Q308 financial crisis plays out further. The effect on our freight traffic forecasts comparing the two periods is therefore decidedly negative. We now expect freight carried across all modes, measured in [mntkm], to achieve an annual average growth rate of 2.4% over the 2009-2013 period.
However, the long term future of the rail sector is strong. Russia has 85,000km of railways, making it the second largest network in the world after the US. Rail dominates the freight transport network accounting for 42.7% of total turnover, according to the Federal State Statistics Service, and around 85% of total turnover, if pipeline traffic is not included. Rail has a competitive advantage due to the large distances between different production centres in Russia. The road network is currently insufficient in terms of coverage and quality of the roads, while the waterways freeze during Russia’s long winter. The major cargo types carried by rail are coal (23% of the total) followed by oil products, (18%) and construction materials, (15%).
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