Ukrainian Railways (UZ) is not making itself very popular. In recent months, it has received pushback domestically and internationally, from Europe as well as from across the pond. Where is this friction coming from?
In late April, the American Chamber of Commerce (AmCham) in Ukraine spoke out against UZ’s recalculation of tariff distances in the Odesa region. It argued that UZ was favouring some ports over others by making transport to some, but not all, more expensive.
When the shortest rail route to the ports was unavailable due to war damage, trains had to take a detour. UZ then calculated a longer tariff distance in the ports’ direction. The short route has now been reinstated, but the longer tariff calculation remains in force for the Chornomorsk and Kseniyevo ports.
As a consequence, those have become relatively more expensive than other ports in the area. In a report, the AmCham said that UZ unfairly favoured the Odesa port and the Chornomorska port by creating unequal competitive conditions.
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European and domestic criticisms
The European Business Association (EBA) and domestic Ukrainian manufacturers similarly voiced their concerns on UZ’s tariff calculations. The rail operator evidently faces headwinds from inside and outside the country. While AmCham accused UZ of violating antitrust laws, Ukrainian manufacturer ArcelorMittal Krivyi Rih said that the rail operator was abusing its monopoly position. EBA warned that UZ could very well lose customers over manipulating tariff distances.
Some have argued that UZ can simply generate more income by maintaining longer tariff distances, and that that is the reason behind the move. However, UZ says that hostile attacks and damage to energy infrastructure have led to lower capacity. That is preventing the rail monopolist from adopting the shorter route, according to UZ itself.
A 37% tariff increase
The tariff distance calculation question is not the only one that has thrown up some dust. The company also wants to increase tariffs by 37% – significantly growing transportation costs for shippers. Ukrainian farmers and steel producers have protested the planned measure.
Whereas steel producers are saying that they may have to switch to the road, farmers are more pessimistic. They warn of potential bankruptcies if rail transportation becomes unaffordable. A 37% increase in tariff would be a three to six US dollar price increase per tonne.
In the rail tariff question, the EBA has also spoken out against UZ’s plans. The association says that UZ’s financial struggles come from passenger transportation, rather than freight. Making freight more expensive and harming that business could make matters worse.
The foreign wagon ban
Lastly, there is the foreign wagon ban. UZ banned the use of foreign-owned wagons in domestic Ukrainian transportation. That favours domestic rolling stock owners, who now no longer need to compete with outsiders.
The EBA called for UZ to revert course. It pointed out that foreign wagons managed by UZ are not subject to the restriction, which creates an uneven playing field on the rail freight market. The measure has “caused concern and confusion among freight shippers and wagon operators”, EBA said. “In their view, these measures lack sufficient justification and could lead to an artificial shortage of loading capacity, anti-competitive practices in the market, higher transportation costs, and a decline in the global competitiveness of Ukrainian goods.”
Earlier business protests against a similar measure in September 2024 succeeded in stopping its implementation. It is clear that there is a lot of dissatisfaction about UZ’s recent policies now too. However, it seems unlikely that unpopular measures can be averted entirely. For example, the Ukrainian government is assessing UZ’s proposal for a tariff increase, and it could reportedly end up anywhere between 20% and 40%.