Queue out of turn: which cargo received priority for transportation by rail

Queue out of turn: which cargo received priority for transportation by rail

• Ksenia Potaeva Author

Copy link Photo by Getty Images At the end of May, the government approved new rules for non-discriminatory access (NDA) to railway infrastructure, which determine the procedure for the export of different categories of cargo by rail. According to experts and market participants, the new rules will not solve the problem of infrastructure deficit. There are also no guarantees on transportation volumes, even for priority categories of cargo – coal, oil products and northern deliveries. But the transfer of operational regulation to the state could be a serious blow to the railway transport management system

The order in which cargo of different categories is sent by rail is determined by a regulatory document – access rules. In cases where the volume of requests from shippers in a particular area is higher than capacity, these rules determine which types of cargo should be shipped with priority. This order was changed in 2024. The new edition of the non-discriminatory access rules (NAP) was approved by government decree of May 27, the document will come into force on September 1, 2024. HDPE has existed since 2003 and has not changed significantly for almost 17 years.

The main problem when transporting by rail is infrastructure limitations, the situation is especially acute at the Eastern range (BAM and Trans-Siberian). For example, in 2023, the volume of cargo that could not be transported due to problems in this direction amounted to more than 180 million tons. To solve the problem, Russian Railways has been modernizing the Eastern range for more than 10 years, but so far the capacity does not allow transporting all the cargo, their volume and priority of transportation have to be controlled manually, guided by HDPE standards.

In March 2022, after the start of the “special operation”* in Ukraine, a significant part of the cargo flow was redirected eastward. The current IPAs were suspended and replaced with temporary rules that were focused on domestic transportation and export of goods from manufacturers who had lost Western markets. The temporary rules were adopted, controlled and adapted not by the government, as now, but by the board of Russian Railways. 

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According to Vladimir Savchuk, Deputy General Director of the Institute for Problems of Natural Monopolies (IPEM), the presence of such rules is objectively necessary when the demand for transportation exceeds the capabilities of the main infrastructure for long periods. “During the transition period from 2022 until now, the network was subject to temporary rules adopted by Russian Railways,” he says. — At the same time, these rules were periodically adjusted in accordance with the instructions of supervisory and regulatory authorities in order to refine the text of the rules that were to be adopted by the Russian government. This approach made it possible to test innovations and test in practice how the queue of access to the shippers’ infrastructure works.”

Who will go first

According to the old, but still valid rules, the first to go are cargoes to supply regions affected by natural disasters, the second are cargoes determined by separate presidential decrees. Next – subsidized cargo, domestic transportation, export of non-raw materials, as well as raw materials in specialized rolling stock, grain and food. The list is completed by the export of raw energy cargo in gondola cars and “other transportation.”

 

In the updated rules, priority will be given to cargoes whose priority is determined by federal laws (military, special, northern delivery). Transportation for the elimination of emergency situations, the consequences of “military actions and illegal interference” in the territories of subjects where special regimes are in effect, including counter-terrorism operations and high alert regimes, will become the second in priority.

The third priority is commercial cargo, but the priority among them is again determined by individual acts of the president and government. For example, this applies to exported thermal coal from Kuzbass, Buryatia, Khakassia, Tuva, Yakutia and the Irkutsk region. Their total export quota in the direction of the Far East (applies only to transportation through the Eastern range for export) in 2024 is almost 100 million tons versus 111 million tons in 2023. In total, about 60% of the carrying capacity of the Eastern range (BAM and Trans-Siberian), and in general the carrying capacity of the Eastern range according to the results 2023 reached 173 million tons, and by the end of this year it should be 180 million tons.

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Out of priorities

Forbes' interlocutors draw attention to the lowering of priority for a number of goods transported in containers. According to the new rules, only the seventh of twelve queues includes cargo traveling on container trains in domestic and international traffic; within the category, priority is given to timber and grain cargo transported in containers. At the end of the list are non-energy raw materials exports, followed by raw energy exports in gondola cars. Within this category, enterprises mining or processing coal, the list of which is determined by the Ministry of Energy, have some priority. They complete the list of transportation of “other” cargo for import and in other directions.

 

According to Savchuk from IPEM, special attention should be paid to the risks for container transportation, which are high-margin for Russian Railways. “Transportation in containers has several queues,” recalls Savchuk. — Cargo that travels in a container as part of a container train will be in the eighth queue, and if the cargo in the container receives government subsidies, then in the fifth. But if cargo in a container is sent by carload, it may end up in the last, twelfth, queue.” When dispatching by wagonload, cargo is transported by train with different types of wagons, which during the journey are completely dismantled several times at marshalling yards and then reassembled. An accelerated container train transports only containers on special platforms along a given route without delays along the way for sorting cargo at stations. 

A representative of a company operating in the container market says that there were no expectations to increase the priority of container transportation. “This is the situation with which we live and work,” explains Forbes’ source. — Improving container logistics in such conditions can be influenced by investing in railway and terminal infrastructure. This will generally reduce the load on limiting areas and allow you to carry more.”

The chief strategist of the investment company Vector X, Maxim Khudalov, notes that the procedure for approving the transportation of spot coal not according to quotas has also become more complicated. “Requests for transportation must now be submitted a month before the operation, this will complicate the supply of spot volumes, and therefore reduce the margins of coal trading,” he explains. Khudalov adds that⁠ the issue of low priority for imported cargo remains relevant, which, for example, includes alumina imported from abroad for aluminum production.

What will be the consequences

According to experts interviewed by Forbes, the new rules create risks for raw materials export cargoes, whose sales markets are located in the east. Such items include primarily coal and, to a lesser extent, petroleum products, fertilizers and metals. Forbes sent a request to the largest coal and oil companies, as well as fertilizer manufacturers.

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According to a Forbes source working for one of the container operators, the new order may also have a negative impact on the container market: “Some cargo may spoil while it is idle, for example, timber for export. In addition, operators try to announce acceptable delivery times and meet them, but in the current situation it will be almost impossible to do so.”

 

“The issue of the functioning of a natural monopoly, of course, requires control by the state,” says Pavel Ivankin, president of the Transportation and Infrastructure Research Center. — Let me emphasize – control, not operational management. Today, a trend has emerged specifically towards the transfer of operational management into the hands of the state in the absence of appropriate competencies. This is a serious blow to the railway transport management system, since it does not solve the main problems, but only creates additional ones.”

Vladimir Savchuk from IPEM believes that after the adoption of rules at the government level, clarity, clarity and predictability appeared for shippers, but this does not provide guarantees of export. “As the experience of applying temporary rules shows, guarantees on transportation volumes may not materialize even for high priority levels,” the expert complains. — For example, transportation of coal from the regions specified in the relevant government orders is not carried out fully. Difficulties may also arise in the transportation of northern deliveries, oil products and other cargo.” 

According to Pavel Ivankin, the introduction of new rules will tighten competition between priority cargo, including “on orders”, since the priority is not specified within the group. “Given the opportunity to use federal laws, presidential and government orders to increase the level of priority, any nomenklatura can “beat” another due to the presence of qualified lobbyists,” he emphasizes. “Therefore, the losers will be the items that have weak lobbying and cohesion in the market.” He cites cement, crushed stone, ferrous metals, cars and equipment as examples of such cargo.

However, according to Maxim Khudalov from Vector X, prescribing the order is an unpromising task, since the same coal may not be shipped due to the lack of profitable sales. “⁠The reserve by order of management is a maneuver in case of overstocking of the route during critical periods. It won’t allow us to remove the entire volume, but it will allow us to resolve critical situations when they arise,” he said.

 

Leading expert of Finam Management Management Company Dmitry Baranov is confident that the new rules will not solve the problem of infrastructure deficit, but they can revive the discussion that this problem needs to be solved sooner, and encourage the state to allocate funds for this, and in a larger volume. “It is possible that they will try to export priority cargo in full both to the east and to the south, but if necessary, shippers may be offered other directions for export,” he says. “Moreover, in order for their products to remain competitive, they may be offered preferential terms for transportation in these directions.”

IPEM also sees a radical solution to the problems of access to the deficient infrastructure in its significant development, up to a small surplus of 6-7% on double-track lines and up to 13% on single-track lines. “With such a surplus, rail transport will be able to transport peak volumes of traffic during the periods necessary for shippers,” concludes Savchuk. “However, such development is only possible with a significant share of federal funding in order to limit the growth of the investment component in railway tariffs.”

* According to the requirement of Roskomnadzor, when preparing materials about a special operation in eastern Ukraine, all Russian media are required to use information only from official sources of the Russian Federation. We cannot publish materials in which the ongoing operation is called an “attack,” “invasion,” or “declaration of war,” unless this is a direct quote (Article 57 of the Federal Law on the Media). In case of violation of the requirement, the media may be fined in the amount of 5 million rubles, and the publication may also be blocked.

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• Ksenia Potaeva

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