Ukrainian Railways (UZ) wants to raise its prices for freight services. Shippers have not reacted favourably to those ideas, with public communications between stakeholders turning quite sour in recent months. The sensitivity around UZ’s freight tariffs highlights their importance for the country’s economy.
Ukrainian Railways insists that it needs to charge more for its freight services to stay financially healthy. “In particular, prices for electricity [have] increased by 166%, diesel by 110%, spare parts for diesel locomotives by 217%, spare parts for electric locomotives by 22%, bearings by 3%, solid-rolled wheels by 20%, et cetera”, the rail operator wrote last year.
The company also pointed out that its rail tariffs had not been changed since the summer of 2022, when they rose by 70%. Yet, businesses are not convinced of the need for another increase, and are publicly pushing back. For example, the Ukrainian Agricultural Confederation warned of bankruptcies in case of higher tariffs, and called for a breaking up of the rail monopolist. The European Business Association also warned of negative economic consequences in case the higher tariffs make it through.
Metallurgists also speak out
Now, the Ukrainian Metallurgical Industry Association has also released the brakes. “The attempt by the management of UZ to once again increase freight rates is a direct path to economic collapse. This is not a reform or a rescue of the railway – it is shifting responsibility to business, which is already holding the economy together in wartime conditions”, a representative of the organisation told Ukrainian publication Glavkom.
UZ reportedly expects a 365 million euro loss in 2025 and a nearly 600 million euros loss next year. Passenger transportation causes most of those losses. “UZ continues to cover these losses by increasing freight tariffs. As a result, Ukrainian exports are losing competitiveness”, the metallurgical association claims.
Industry calculations indicate that a tariff increase could lead to a 15% drop in the freight base, giving UZ only 250 million euros in additional revenues. The Ukrainian economy is said to lose the equivalent of 2 billion euros in that scenario. It is unclear which hypothetical tariff increase those calculations are based on. UZ proposed a 37% tariff hike in 2024.
UZ pushed back
Despite all the criticism, UZ has not backed down from its plans. UZ’s supervisory board chairman Gebhard Hafer singled out international parties as blocking tariff hikes: “Maersk, CMA CGM, MSC, American Chamber of Commerce in Ukraine! Stop blocking the current request of JSC Ukrainian Railways on indexation of cargo tariffs!”, Hafer wrote on LinkedIn in May.
“Ukrainian Railways hasn’t indexed the cargo tariffs for more than two years already”, Hafer continued. “The request is justified by the current industrial inflation rate in Ukraine, measured by the Producer Price Index (PPI), and by investment needs into infrastructure and rolling stocks. By blocking the indexation of cargo tariffs, the safety of railway transportation in Ukraine is affected!”