Tuesday, October 1, 2013

Russian Rail Freight Still in Transition as Steel Makers Cargo Arm Sold and State Rail Has Rethink

Several Players Making (or Hinting at) Moves in the Market
Shipping News Feature

RUSSIA – FINLAND – UAE – Whilst Russian Railways (RzD) boss Vladimir Yakunin is talking of re-purchasing freight wagons in a bid to re-enter the cargo market, Freight One, the rail freight company snapped up by Universal Cargo Logistics Holding (UCLH) has just completed the acquisition of StalTrans, the Cherepovets based company owned by steel group Severstal, and which transports most of that company’s product.

UCLH, through its Transport Assets management company owns UCL Rail, which in turn owns Freight One and all are the property of billionaire Vladimir Lisin, quite possibly the richest man in a country nor short of billionaires, who also owns his own steel producer, Novolipetsk Steel. UCL Rail will gain around 800 gondola cars plus other assets in the $150+ million deal. UCLH was recently rated the largest private transport company in the country by Forbes magazine, appearing at number thirty in the list of two hundred top private companies in Russia. Denis Pavlyuchenkov, Purchasing and Logistics Director of the Severstal Russian Steel division, said:

“Transportation is non-core business for Severstal. This deal will ensure that the Company’s transportation is reliable and deliveries are guaranteed. It will also improve the efficiency of work with rolling stock on the approaching lines to Severstal’s operations and will give us tighter control over transportation costs.”

The deal was finalised yesterday and will also include the transfer of Severstal’s key mining subsidiaries Vorkutaugol and Karelskiy Okatysh over a five year period. Oleg Bukin, CEO of Freight One, commented:

“The transaction was carried out as a part of Freight One’s strategy to build long-term relations and enhance industrial and commercial integration with our key clients. The five-year agreement will also allow us to strengthen the Company’s logistical advantages in key Russian regions.”

Meanwhile comments made by the RzD boss and published recently by Bloomberg would indicate he is determined to reinvigorate his company’s own interest in the carriage of freight. He is quoted as saying, ‘It's becoming clearer to me that we made a mistake when we decided to privatise 100% of the rolling stock', and going on to criticise the private companies, such as Freight One presumably, for cherry picking lucrative contracts whilst ignoring lower grade work.

Yakunin further believes that the inattention to less profitable contracts causes the private enterprises to delay shipments, causing congestion and backlogs of deliveries. He is further hampered as the government has aspirations to use the RzD budget as an anti-inflationary tool by freezing rates on all state owned monopolies, which is effectively the passenger carrying side of the company.

There are claims that a glut of rail wagons are currently available in the country due to new purchases but at the time of the Freight One sale there were many comments that much of the country’s existing wagon stock was too old and dilapidated to be serviceable and if passenger fares are subject to government restrictions RzD will no doubt be looking into other income streams.

Meanwhile Finnish eyes will be on the result of meetings between President Sauli Niinistö and the Russian authorities over the cessation of the current practice of switching locomotives upon crossing the border. Currently the state owned VR Group’s rail freight company VR Transpoint has a monopoly on the cross border trade and pulls all Russian trains from the moment they enter Finland. This however is set to change if Finnish authorities approve a move to see competition allowed, with new players set to enter the market from 2015 if the proposals go ahead on schedule. Details of the talks have not yet been released but when met Russian officials VR's CEO, Mikael Aro, was in reportedly in close attendance.

In the UAE Etihad Rail reported that they had commenced ‘dynamic’ testing on tracks between Mirfa and Ruwais, part of the new rail network which the Abu Dhabi state backed group is constructing for a reported $10 billion, a scheme we reported on exactly three years ago and which was only begun in earnest 18 months ago.