Undergoing a painful transformation
Reorientation in the Russian transport sector. Prior to 24 February 2022 and the Russian invasion of Ukraine, the development of the country’s transport industry was primarily oriented towards the West, thanks also to strong economic ties between Russia and the EU. The Russian-Ukrainian war and the sanctions associated with it put an end to hopes of for the further development of the industry with the same dynamic.
The cut is radical. According to statements made at an international customs forum by Ruslan Davydov, the acting head of Russia’s customs service, the European Union’s share of cargo traffic from Russia prior to 2022 stood at 50% or more. This figure has now decreased to 16%.
The share of Asian countries, in the meantime, has grown to almost 70% – and continues to grow. Analysts have observed the biggest growth and re-orientation of flows to China, whilst traffic with India and even Latin America is also growing.
According to senior Russian transport officials the situation in the industry remains stable, as most Russian cargo flows in all modes of transport have been re-directed to the Asian region, despite sanctions.
The official statistics from Rosstat, the Russian state statistics service, shows that cargo transport by all modes of transport in Russia last year only decreased by 0.1%, compared to 2022, coming to 8.7 billion t.
1.2 billion t of cargo was transported by the railways, 6.2 billion t by road transport, 32.9 million t by sea and about 500,000 t by air. For the first five months of this year the Russian transport sector demonstrated almost the same dynamic.
Rail remains strong – for how long?
Mikhail Blinkin, the scientific director of the faculty of urban and regional development at Russia’s Higher School of Economics (HSE), said in an interview with HSE Daily that Western sanctions have mostly affected Russian air transport.
The sanctions’ impact on rail transport and the production of wagons and locomotives has been much lower. Blinkin believes that, in the current conditions and given the size and extent of the country, it’s important to develop inland transport in Russia.
The situation in the industry seems to be stable, but sanctions and the closure of Western markets for Russian exporters have led to a sharp rise in cargo transport rates in all modes of transport. According to shippers these tariffs are continuing to increase, putting serious pressure on them.
Pressure from the inside and outside
The biggest rate increases were observed in rail transport, where the sector is dominated by the large state operator RŽD and which thus experiences a lack of market competition. Rail transport tariffs have increased by 50% in Russia since 2022, according to state data, but in reality the growth has probably been significantly higher.
The same situation has been observed for automotive transport, where tariffs have grown by 2 to 2.5 times, due to reductions in the automotive fleet, a massive exodus of drivers (many of them also conscripted into the Russian army in Ukraine), coupled with high petrol and diesel prices.
The situation is also complicated by the fact that China – currently Russia’s main trading partner – often uses non-competitive ways of market competition, imposing artificial restrictions on the transport of Russian cargo, which leads to further tariff growth. In addition, the ever-growing volume of cargo flows from Russia creates some problems for China and its transport sector itself. Since May China has sharply increased tariffs for railfreight to Russia and Belarus, for example.
According to the Russian analyst Infotrans, prices have increased by USD 500 to 800, due to a fall in the number of free containers in China and large traffic jams at borders. Sea freight rates from China have also grown, from USD 800–1000 to USD 1300–1500, depending on the port of departure.
The Russian government is aware of these problems and is considering ways to support the industry. It recently approved a package of investments aimed at supporting the domestic transport sector and at developing Russia’s transport infrastructure.
According to Russian prime minister Mikhail Mihustin, annual investments of around RUB 1.5 trillion annually are planned, whilst their allocation will be part of an existing federal programme. Most of the funds will be spent on developing new transport routes between Russia and Asia and on increasing the capacity of both the Baikal–Amur Mainline and the Transsib, Russia’s longest railway lines.