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Write-Off of Railcars Will Stimulate the Market



– Mr Babintsev, currently there is a great surplus of rolling stock in Russia. In addition to this, we see a serious decline in rates set by operators. Does this situation threaten the business of leasing companies?



– The market situation is really difficult. But it affects mostly gondola cars. In other freight cars sectors it is quite stable both with balance and with increased rental rates. There is even a lack of some specialised rolling stock at the market. 

A similar situation occurred in 2008-2009: falling prices for new cars, lower rental rates, a reduction in the amount of produced cars. But that time it was due to a decline in freight traffic on the railway network, and now there is a surplus of gondola cars with a steady turnover. At that time, all leasing companies overcame the difficult situation successfully. And I believe that the collapse will not happen this time.



– What, in your opinion, can contribute to the restoration of the former positions of operators? For example, what impact could the ban on railcars with expired service life have?



– In our opinion, the expansion of the railway infrastructure capacity, the consolidation of operators and increase in the capacity of sea ports will contribute to the restoration of operators’ positions. It’s no secret that much of the cargo carried in gondola cars is transported to ports.

In the short term, the write-off of some aged and surplus rolling stock could revive the market. Manufacturers of cars will feel better, smaller operators’ services would be required on individual routes.

But there is one serious issue. Most of the large operators have a lot of old freight railcars, and the ban on extension of their service life time, will lead to the situation when companies simply lose their market share. On the one hand, it will certainly encourage the market to consolidate. But still there is no answer as to how losses will be offset by operators.



Strategy Depends on Demand



– How confident does your company feel in such conditions?



– Our company feels confident. Senior managers of TransFin-M took a very proactive position. In less than a year we have seriously diversified our leasing portfolio and have enhanced competence in the field of operational leasing. Our fleet of freight cars is young and large.



– Do your business clients ask for installment payments? Do you have a special proposal for customers who are in a complicated economic situation now? 



– Such applications are specific to the entire leasing market since October 2012. Some of our clients ask for restructuring, but they are mostly small operators. We respect all our customers and therefore consider such applications carefully. If we are aware that the difficulty arose as a result of a review of agreements with the subtenant, and the client has all the resources to maintain the operator’s business, then we’re going to meet him. There are solutions for operators, which are in a difficult situation, but because such incidents are special cases, decisions are always made on an individual basis. 



– What strategy could a leasing company take in the case of a long-term surplus of cars?



– In any case, the strategy will be based on demand. Now we see three main market segments. Firstly, giving new specialised freight cars to operators. Secondly, financing deliveries of new gondola cars to companies who continue to expand the number of such wagons. And perhaps, the third segment - an important niche in which we expect the greatest advance - is the support of transactions on the market of M&A rolling stock operators. 

Interviewed by Christina Alexandrova
    [~DETAIL_TEXT] => 
Write-Off of Railcars Will Stimulate the Market



– Mr Babintsev, currently there is a great surplus of rolling stock in Russia. In addition to this, we see a serious decline in rates set by operators. Does this situation threaten the business of leasing companies?



– The market situation is really difficult. But it affects mostly gondola cars. In other freight cars sectors it is quite stable both with balance and with increased rental rates. There is even a lack of some specialised rolling stock at the market. 

A similar situation occurred in 2008-2009: falling prices for new cars, lower rental rates, a reduction in the amount of produced cars. But that time it was due to a decline in freight traffic on the railway network, and now there is a surplus of gondola cars with a steady turnover. At that time, all leasing companies overcame the difficult situation successfully. And I believe that the collapse will not happen this time.



– What, in your opinion, can contribute to the restoration of the former positions of operators? For example, what impact could the ban on railcars with expired service life have?



– In our opinion, the expansion of the railway infrastructure capacity, the consolidation of operators and increase in the capacity of sea ports will contribute to the restoration of operators’ positions. It’s no secret that much of the cargo carried in gondola cars is transported to ports.

In the short term, the write-off of some aged and surplus rolling stock could revive the market. Manufacturers of cars will feel better, smaller operators’ services would be required on individual routes.

But there is one serious issue. Most of the large operators have a lot of old freight railcars, and the ban on extension of their service life time, will lead to the situation when companies simply lose their market share. On the one hand, it will certainly encourage the market to consolidate. But still there is no answer as to how losses will be offset by operators.



Strategy Depends on Demand



– How confident does your company feel in such conditions?



– Our company feels confident. Senior managers of TransFin-M took a very proactive position. In less than a year we have seriously diversified our leasing portfolio and have enhanced competence in the field of operational leasing. Our fleet of freight cars is young and large.



– Do your business clients ask for installment payments? Do you have a special proposal for customers who are in a complicated economic situation now? 



– Such applications are specific to the entire leasing market since October 2012. Some of our clients ask for restructuring, but they are mostly small operators. We respect all our customers and therefore consider such applications carefully. If we are aware that the difficulty arose as a result of a review of agreements with the subtenant, and the client has all the resources to maintain the operator’s business, then we’re going to meet him. There are solutions for operators, which are in a difficult situation, but because such incidents are special cases, decisions are always made on an individual basis. 



– What strategy could a leasing company take in the case of a long-term surplus of cars?



– In any case, the strategy will be based on demand. Now we see three main market segments. Firstly, giving new specialised freight cars to operators. Secondly, financing deliveries of new gondola cars to companies who continue to expand the number of such wagons. And perhaps, the third segment - an important niche in which we expect the greatest advance - is the support of transactions on the market of M&A rolling stock operators. 

Interviewed by Christina Alexandrova
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Write-Off of Railcars Will Stimulate the Market



– Mr Babintsev, currently there is a great surplus of rolling stock in Russia. In addition to this, we see a serious decline in rates set by operators. Does this situation threaten the business of leasing companies?



– The market situation is really difficult. But it affects mostly gondola cars. In other freight cars sectors it is quite stable both with balance and with increased rental rates. There is even a lack of some specialised rolling stock at the market. 

A similar situation occurred in 2008-2009: falling prices for new cars, lower rental rates, a reduction in the amount of produced cars. But that time it was due to a decline in freight traffic on the railway network, and now there is a surplus of gondola cars with a steady turnover. At that time, all leasing companies overcame the difficult situation successfully. And I believe that the collapse will not happen this time.



– What, in your opinion, can contribute to the restoration of the former positions of operators? For example, what impact could the ban on railcars with expired service life have?



– In our opinion, the expansion of the railway infrastructure capacity, the consolidation of operators and increase in the capacity of sea ports will contribute to the restoration of operators’ positions. It’s no secret that much of the cargo carried in gondola cars is transported to ports.

In the short term, the write-off of some aged and surplus rolling stock could revive the market. Manufacturers of cars will feel better, smaller operators’ services would be required on individual routes.

But there is one serious issue. Most of the large operators have a lot of old freight railcars, and the ban on extension of their service life time, will lead to the situation when companies simply lose their market share. On the one hand, it will certainly encourage the market to consolidate. But still there is no answer as to how losses will be offset by operators.



Strategy Depends on Demand



– How confident does your company feel in such conditions?



– Our company feels confident. Senior managers of TransFin-M took a very proactive position. In less than a year we have seriously diversified our leasing portfolio and have enhanced competence in the field of operational leasing. Our fleet of freight cars is young and large.



– Do your business clients ask for installment payments? Do you have a special proposal for customers who are in a complicated economic situation now? 



– Such applications are specific to the entire leasing market since October 2012. Some of our clients ask for restructuring, but they are mostly small operators. We respect all our customers and therefore consider such applications carefully. If we are aware that the difficulty arose as a result of a review of agreements with the subtenant, and the client has all the resources to maintain the operator’s business, then we’re going to meet him. There are solutions for operators, which are in a difficult situation, but because such incidents are special cases, decisions are always made on an individual basis. 



– What strategy could a leasing company take in the case of a long-term surplus of cars?



– In any case, the strategy will be based on demand. Now we see three main market segments. Firstly, giving new specialised freight cars to operators. Secondly, financing deliveries of new gondola cars to companies who continue to expand the number of such wagons. And perhaps, the third segment - an important niche in which we expect the greatest advance - is the support of transactions on the market of M&A rolling stock operators. 

Interviewed by Christina Alexandrova
    [~DETAIL_TEXT] => 
Write-Off of Railcars Will Stimulate the Market



– Mr Babintsev, currently there is a great surplus of rolling stock in Russia. In addition to this, we see a serious decline in rates set by operators. Does this situation threaten the business of leasing companies?



– The market situation is really difficult. But it affects mostly gondola cars. In other freight cars sectors it is quite stable both with balance and with increased rental rates. There is even a lack of some specialised rolling stock at the market. 

A similar situation occurred in 2008-2009: falling prices for new cars, lower rental rates, a reduction in the amount of produced cars. But that time it was due to a decline in freight traffic on the railway network, and now there is a surplus of gondola cars with a steady turnover. At that time, all leasing companies overcame the difficult situation successfully. And I believe that the collapse will not happen this time.



– What, in your opinion, can contribute to the restoration of the former positions of operators? For example, what impact could the ban on railcars with expired service life have?



– In our opinion, the expansion of the railway infrastructure capacity, the consolidation of operators and increase in the capacity of sea ports will contribute to the restoration of operators’ positions. It’s no secret that much of the cargo carried in gondola cars is transported to ports.

In the short term, the write-off of some aged and surplus rolling stock could revive the market. Manufacturers of cars will feel better, smaller operators’ services would be required on individual routes.

But there is one serious issue. Most of the large operators have a lot of old freight railcars, and the ban on extension of their service life time, will lead to the situation when companies simply lose their market share. On the one hand, it will certainly encourage the market to consolidate. But still there is no answer as to how losses will be offset by operators.



Strategy Depends on Demand



– How confident does your company feel in such conditions?



– Our company feels confident. Senior managers of TransFin-M took a very proactive position. In less than a year we have seriously diversified our leasing portfolio and have enhanced competence in the field of operational leasing. Our fleet of freight cars is young and large.



– Do your business clients ask for installment payments? Do you have a special proposal for customers who are in a complicated economic situation now? 



– Such applications are specific to the entire leasing market since October 2012. Some of our clients ask for restructuring, but they are mostly small operators. We respect all our customers and therefore consider such applications carefully. If we are aware that the difficulty arose as a result of a review of agreements with the subtenant, and the client has all the resources to maintain the operator’s business, then we’re going to meet him. There are solutions for operators, which are in a difficult situation, but because such incidents are special cases, decisions are always made on an individual basis. 



– What strategy could a leasing company take in the case of a long-term surplus of cars?



– In any case, the strategy will be based on demand. Now we see three main market segments. Firstly, giving new specialised freight cars to operators. Secondly, financing deliveries of new gondola cars to companies who continue to expand the number of such wagons. And perhaps, the third segment - an important niche in which we expect the greatest advance - is the support of transactions on the market of M&A rolling stock operators. 

Interviewed by Christina Alexandrova
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    [DETAIL_TEXT] => 
Transitional Period



Last year there was a sales slowdown at the leasing market. According to Dmitry Zotov, General Director of leasing company TransFin-M LLC, in 2012 their share of leasing of rolling stock in the structure of the new business has declined both in relative terms from 49% to 41% and in absolute numbers. “If we take into account that a tender for track machinery for Russian railways was included in the structure of the new business last year, it can be concluded that sales really went down in the segment of freight car leasing,” he said.

Leasing companies can also be blamed in the surplus of rolling stock – they expanded their fleet by 20% last year. The critical situation on the market was caused not only by this fact, but also by a decline in daily rental rates for gondola cars, which today are the most popular type of rolling stock. According to TransFin-M LLC predictions, the same tendency will be observed during the first half of this year, i.e. there is no way to escape the volumes of gondola car leasing getting lower. But for the specialised rolling stock, the situation is still not so critical.

According to Vladimir Khoroshilov, Deputy Director General and Director of Business Development of Brunswick Rail, the railway market today is undergoing a radical change. Until last year manufacturers had actively tried to fulfill the needs of customers. And after the crisis of production in the 1990-s, they finally succeeded. “As a result, railcars were produced even in repair depots, the total capacity of existing plants exceeded 130,000 railcars a year,” says V. Khoroshilov. “Failure of the 1990-s production was offset by the surplus of the rolling stock park long ago, and, in our estimation, this surplus is about 80,000 units, mostly gondola cars, nowadays.”

The new concept of the market is that companies will not produce too many freight cars annually, they will build only about 50,000-55,000 gondola cars every year, instead of 120,000 as in recent years. According to V. Khoroshilov, this concept is economically based and  it will only be possible to stray from it if the government tries to intervene in the process, or in case of mass write-off of wagons.

Today the number of old rolling stock is between 170,000 and 180,000, in the next few years the life time of practically the same number of rolling stock will expire. 

D. Zotov said that the write-off of wagons would not have a major impact on sales growth, because it is important to take into consideration the reason for withdrawal and further action with these cars. “If the rolling stock is withdrawn because of a high accident rate for further examination and repair, it can return to the railroad after repair. And if it is referred for disposal, it would lead to a worse financial condition both of rolling stock operators and leasing companies, which own these railcars. Under such circumstances, probably nobody will buy new cars,” said D. Zotov.



Full of Optimism



All market players are in a very pessimistic mood now – the majority of leasing companies, according to a recent poll, believe that the proportion of new business in the segment of rolling stock will go down in 2013.

But according to experts, they should be not afraid that 2008-2009 crisis will be repeated. At that time, operators, particularly those who worked on long routes, were forced to return their cars to leasing companies – it was very difficult to find the freight. At that time, the crisis touched not only the railway industry – leasing companies were getting back not only freight railcars, but also other types of property.

Nowadays everybody is talking about the industry crisis, and, according to D. Zotov, such situations as unavailability of rolling stock and the growth of requests for restructuring deals, are likely to take place. And leasing companies, in their turn, can either go towards clients and restructure the current contracts, or simply manage rolling stock by themselves.

The leasing market is heavily dependent on the macro economy. Even if the 2008-2009 market crisis is repeated, this does not mean a catastrophe, because leasing companies have already learned through bitter experience and today they know how to act in such circumstances or, for example, how to eliminate the effects of non-profitable assets.

In current circumstances the high activity of leasing companies in sale and leaseback is also possible. As a reminder, this type of service is a financial transaction in which one party sells its assets to another party, provided that the buyer will afterwards deposit the assets to the seller. This form is very useful for transferring low-liquidity assets to the lessee.

“Starting from the second half of 2013 the demand for new gondola cars may start to recover slowly. In the sector for specialised types of carriages, on the contrary, growth is possible, “said D. Zotov.

Regardless of the rate reductions by operators, it is not possible to reduce leasing rates, because these rates are dependant on debt financing. Thus, leasing companies can select one of two strategies – turn to a different segment of the lease (or, for example, concentrate on special rolling stock), or try to find a way to get the maximum income in the present circumstances.

In addition to this, market players still place high expectations on new types of freight cars, which have a longer service life and a larger cargo capacity. Such rolling stock is more expensive, but according to lessors, it will help operators to make more profit.

So what strategies are taken by leasing companies today in Russia? D. Zotov says that TransFin-M is considering today the procedures of exemption/entering the capital for possible non-payers. “We are studying the technology of rolling-stock management to understand the costs and pricing, and the organisation of the carload process. So we are creating a competence in operational leasing inside our company. This will help to offset the cost of to the company in case of non-payment, and receive additional income,” he said.

Senior managers of Brunswick Rail believe that many companies understand the inevitability of a change of the outlook within the market. “The main question was when this change would start. Brunswick Rail, for example, at the beginning of 2012 changed their procurement profile toward specialised rolling stock. And in 2013, amid a slowing rate of growth in the railcar fleet, we would like to pay more attention to merger and acquisition transactions,” said V. Khoroshilov.

Specialists from Siberian Leasing Company point out that today many leasing companies, that have a large share of the leasing portfolio of rolling stock, are trying to reduce their risk by diversification of the type of property, while reducing the share of railway rolling stock. But the best protection from the crisis in these circumstances is the choice of reliable partners.

In addition, according to the experts, the decline in demand for railcars in the future will lead to a new wave of deficit, and the situation will be stabilised, but not earlier than in two years. Also falling demand for rolling stock can lead to the situation when leasing companies will focus on other industries, which will help to increase demand. 

By Christina Alexandrova
    [~DETAIL_TEXT] => 
Transitional Period



Last year there was a sales slowdown at the leasing market. According to Dmitry Zotov, General Director of leasing company TransFin-M LLC, in 2012 their share of leasing of rolling stock in the structure of the new business has declined both in relative terms from 49% to 41% and in absolute numbers. “If we take into account that a tender for track machinery for Russian railways was included in the structure of the new business last year, it can be concluded that sales really went down in the segment of freight car leasing,” he said.

Leasing companies can also be blamed in the surplus of rolling stock – they expanded their fleet by 20% last year. The critical situation on the market was caused not only by this fact, but also by a decline in daily rental rates for gondola cars, which today are the most popular type of rolling stock. According to TransFin-M LLC predictions, the same tendency will be observed during the first half of this year, i.e. there is no way to escape the volumes of gondola car leasing getting lower. But for the specialised rolling stock, the situation is still not so critical.

According to Vladimir Khoroshilov, Deputy Director General and Director of Business Development of Brunswick Rail, the railway market today is undergoing a radical change. Until last year manufacturers had actively tried to fulfill the needs of customers. And after the crisis of production in the 1990-s, they finally succeeded. “As a result, railcars were produced even in repair depots, the total capacity of existing plants exceeded 130,000 railcars a year,” says V. Khoroshilov. “Failure of the 1990-s production was offset by the surplus of the rolling stock park long ago, and, in our estimation, this surplus is about 80,000 units, mostly gondola cars, nowadays.”

The new concept of the market is that companies will not produce too many freight cars annually, they will build only about 50,000-55,000 gondola cars every year, instead of 120,000 as in recent years. According to V. Khoroshilov, this concept is economically based and  it will only be possible to stray from it if the government tries to intervene in the process, or in case of mass write-off of wagons.

Today the number of old rolling stock is between 170,000 and 180,000, in the next few years the life time of practically the same number of rolling stock will expire. 

D. Zotov said that the write-off of wagons would not have a major impact on sales growth, because it is important to take into consideration the reason for withdrawal and further action with these cars. “If the rolling stock is withdrawn because of a high accident rate for further examination and repair, it can return to the railroad after repair. And if it is referred for disposal, it would lead to a worse financial condition both of rolling stock operators and leasing companies, which own these railcars. Under such circumstances, probably nobody will buy new cars,” said D. Zotov.



Full of Optimism



All market players are in a very pessimistic mood now – the majority of leasing companies, according to a recent poll, believe that the proportion of new business in the segment of rolling stock will go down in 2013.

But according to experts, they should be not afraid that 2008-2009 crisis will be repeated. At that time, operators, particularly those who worked on long routes, were forced to return their cars to leasing companies – it was very difficult to find the freight. At that time, the crisis touched not only the railway industry – leasing companies were getting back not only freight railcars, but also other types of property.

Nowadays everybody is talking about the industry crisis, and, according to D. Zotov, such situations as unavailability of rolling stock and the growth of requests for restructuring deals, are likely to take place. And leasing companies, in their turn, can either go towards clients and restructure the current contracts, or simply manage rolling stock by themselves.

The leasing market is heavily dependent on the macro economy. Even if the 2008-2009 market crisis is repeated, this does not mean a catastrophe, because leasing companies have already learned through bitter experience and today they know how to act in such circumstances or, for example, how to eliminate the effects of non-profitable assets.

In current circumstances the high activity of leasing companies in sale and leaseback is also possible. As a reminder, this type of service is a financial transaction in which one party sells its assets to another party, provided that the buyer will afterwards deposit the assets to the seller. This form is very useful for transferring low-liquidity assets to the lessee.

“Starting from the second half of 2013 the demand for new gondola cars may start to recover slowly. In the sector for specialised types of carriages, on the contrary, growth is possible, “said D. Zotov.

Regardless of the rate reductions by operators, it is not possible to reduce leasing rates, because these rates are dependant on debt financing. Thus, leasing companies can select one of two strategies – turn to a different segment of the lease (or, for example, concentrate on special rolling stock), or try to find a way to get the maximum income in the present circumstances.

In addition to this, market players still place high expectations on new types of freight cars, which have a longer service life and a larger cargo capacity. Such rolling stock is more expensive, but according to lessors, it will help operators to make more profit.

So what strategies are taken by leasing companies today in Russia? D. Zotov says that TransFin-M is considering today the procedures of exemption/entering the capital for possible non-payers. “We are studying the technology of rolling-stock management to understand the costs and pricing, and the organisation of the carload process. So we are creating a competence in operational leasing inside our company. This will help to offset the cost of to the company in case of non-payment, and receive additional income,” he said.

Senior managers of Brunswick Rail believe that many companies understand the inevitability of a change of the outlook within the market. “The main question was when this change would start. Brunswick Rail, for example, at the beginning of 2012 changed their procurement profile toward specialised rolling stock. And in 2013, amid a slowing rate of growth in the railcar fleet, we would like to pay more attention to merger and acquisition transactions,” said V. Khoroshilov.

Specialists from Siberian Leasing Company point out that today many leasing companies, that have a large share of the leasing portfolio of rolling stock, are trying to reduce their risk by diversification of the type of property, while reducing the share of railway rolling stock. But the best protection from the crisis in these circumstances is the choice of reliable partners.

In addition, according to the experts, the decline in demand for railcars in the future will lead to a new wave of deficit, and the situation will be stabilised, but not earlier than in two years. Also falling demand for rolling stock can lead to the situation when leasing companies will focus on other industries, which will help to increase demand. 

By Christina Alexandrova
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Last year the market finally overcame the deficit of rolling stock.

 The resulting surplus of freight cars was welcomed by cargo owners, because operators had seriously lowered their rates. For leasing companies, however, such a situation is extremely unfavorable – the profitability of wagons became lower than their lease payments. How will they avoid a crisis?
    [~PREVIEW_TEXT] => 
Last year the market finally overcame the deficit of rolling stock.

 The resulting surplus of freight cars was welcomed by cargo owners, because operators had seriously lowered their rates. For leasing companies, however, such a situation is extremely unfavorable – the profitability of wagons became lower than their lease payments. How will they avoid a crisis?
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    [DETAIL_TEXT] => 
Transitional Period



Last year there was a sales slowdown at the leasing market. According to Dmitry Zotov, General Director of leasing company TransFin-M LLC, in 2012 their share of leasing of rolling stock in the structure of the new business has declined both in relative terms from 49% to 41% and in absolute numbers. “If we take into account that a tender for track machinery for Russian railways was included in the structure of the new business last year, it can be concluded that sales really went down in the segment of freight car leasing,” he said.

Leasing companies can also be blamed in the surplus of rolling stock – they expanded their fleet by 20% last year. The critical situation on the market was caused not only by this fact, but also by a decline in daily rental rates for gondola cars, which today are the most popular type of rolling stock. According to TransFin-M LLC predictions, the same tendency will be observed during the first half of this year, i.e. there is no way to escape the volumes of gondola car leasing getting lower. But for the specialised rolling stock, the situation is still not so critical.

According to Vladimir Khoroshilov, Deputy Director General and Director of Business Development of Brunswick Rail, the railway market today is undergoing a radical change. Until last year manufacturers had actively tried to fulfill the needs of customers. And after the crisis of production in the 1990-s, they finally succeeded. “As a result, railcars were produced even in repair depots, the total capacity of existing plants exceeded 130,000 railcars a year,” says V. Khoroshilov. “Failure of the 1990-s production was offset by the surplus of the rolling stock park long ago, and, in our estimation, this surplus is about 80,000 units, mostly gondola cars, nowadays.”

The new concept of the market is that companies will not produce too many freight cars annually, they will build only about 50,000-55,000 gondola cars every year, instead of 120,000 as in recent years. According to V. Khoroshilov, this concept is economically based and  it will only be possible to stray from it if the government tries to intervene in the process, or in case of mass write-off of wagons.

Today the number of old rolling stock is between 170,000 and 180,000, in the next few years the life time of practically the same number of rolling stock will expire. 

D. Zotov said that the write-off of wagons would not have a major impact on sales growth, because it is important to take into consideration the reason for withdrawal and further action with these cars. “If the rolling stock is withdrawn because of a high accident rate for further examination and repair, it can return to the railroad after repair. And if it is referred for disposal, it would lead to a worse financial condition both of rolling stock operators and leasing companies, which own these railcars. Under such circumstances, probably nobody will buy new cars,” said D. Zotov.



Full of Optimism



All market players are in a very pessimistic mood now – the majority of leasing companies, according to a recent poll, believe that the proportion of new business in the segment of rolling stock will go down in 2013.

But according to experts, they should be not afraid that 2008-2009 crisis will be repeated. At that time, operators, particularly those who worked on long routes, were forced to return their cars to leasing companies – it was very difficult to find the freight. At that time, the crisis touched not only the railway industry – leasing companies were getting back not only freight railcars, but also other types of property.

Nowadays everybody is talking about the industry crisis, and, according to D. Zotov, such situations as unavailability of rolling stock and the growth of requests for restructuring deals, are likely to take place. And leasing companies, in their turn, can either go towards clients and restructure the current contracts, or simply manage rolling stock by themselves.

The leasing market is heavily dependent on the macro economy. Even if the 2008-2009 market crisis is repeated, this does not mean a catastrophe, because leasing companies have already learned through bitter experience and today they know how to act in such circumstances or, for example, how to eliminate the effects of non-profitable assets.

In current circumstances the high activity of leasing companies in sale and leaseback is also possible. As a reminder, this type of service is a financial transaction in which one party sells its assets to another party, provided that the buyer will afterwards deposit the assets to the seller. This form is very useful for transferring low-liquidity assets to the lessee.

“Starting from the second half of 2013 the demand for new gondola cars may start to recover slowly. In the sector for specialised types of carriages, on the contrary, growth is possible, “said D. Zotov.

Regardless of the rate reductions by operators, it is not possible to reduce leasing rates, because these rates are dependant on debt financing. Thus, leasing companies can select one of two strategies – turn to a different segment of the lease (or, for example, concentrate on special rolling stock), or try to find a way to get the maximum income in the present circumstances.

In addition to this, market players still place high expectations on new types of freight cars, which have a longer service life and a larger cargo capacity. Such rolling stock is more expensive, but according to lessors, it will help operators to make more profit.

So what strategies are taken by leasing companies today in Russia? D. Zotov says that TransFin-M is considering today the procedures of exemption/entering the capital for possible non-payers. “We are studying the technology of rolling-stock management to understand the costs and pricing, and the organisation of the carload process. So we are creating a competence in operational leasing inside our company. This will help to offset the cost of to the company in case of non-payment, and receive additional income,” he said.

Senior managers of Brunswick Rail believe that many companies understand the inevitability of a change of the outlook within the market. “The main question was when this change would start. Brunswick Rail, for example, at the beginning of 2012 changed their procurement profile toward specialised rolling stock. And in 2013, amid a slowing rate of growth in the railcar fleet, we would like to pay more attention to merger and acquisition transactions,” said V. Khoroshilov.

Specialists from Siberian Leasing Company point out that today many leasing companies, that have a large share of the leasing portfolio of rolling stock, are trying to reduce their risk by diversification of the type of property, while reducing the share of railway rolling stock. But the best protection from the crisis in these circumstances is the choice of reliable partners.

In addition, according to the experts, the decline in demand for railcars in the future will lead to a new wave of deficit, and the situation will be stabilised, but not earlier than in two years. Also falling demand for rolling stock can lead to the situation when leasing companies will focus on other industries, which will help to increase demand. 

By Christina Alexandrova
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Transitional Period



Last year there was a sales slowdown at the leasing market. According to Dmitry Zotov, General Director of leasing company TransFin-M LLC, in 2012 their share of leasing of rolling stock in the structure of the new business has declined both in relative terms from 49% to 41% and in absolute numbers. “If we take into account that a tender for track machinery for Russian railways was included in the structure of the new business last year, it can be concluded that sales really went down in the segment of freight car leasing,” he said.

Leasing companies can also be blamed in the surplus of rolling stock – they expanded their fleet by 20% last year. The critical situation on the market was caused not only by this fact, but also by a decline in daily rental rates for gondola cars, which today are the most popular type of rolling stock. According to TransFin-M LLC predictions, the same tendency will be observed during the first half of this year, i.e. there is no way to escape the volumes of gondola car leasing getting lower. But for the specialised rolling stock, the situation is still not so critical.

According to Vladimir Khoroshilov, Deputy Director General and Director of Business Development of Brunswick Rail, the railway market today is undergoing a radical change. Until last year manufacturers had actively tried to fulfill the needs of customers. And after the crisis of production in the 1990-s, they finally succeeded. “As a result, railcars were produced even in repair depots, the total capacity of existing plants exceeded 130,000 railcars a year,” says V. Khoroshilov. “Failure of the 1990-s production was offset by the surplus of the rolling stock park long ago, and, in our estimation, this surplus is about 80,000 units, mostly gondola cars, nowadays.”

The new concept of the market is that companies will not produce too many freight cars annually, they will build only about 50,000-55,000 gondola cars every year, instead of 120,000 as in recent years. According to V. Khoroshilov, this concept is economically based and  it will only be possible to stray from it if the government tries to intervene in the process, or in case of mass write-off of wagons.

Today the number of old rolling stock is between 170,000 and 180,000, in the next few years the life time of practically the same number of rolling stock will expire. 

D. Zotov said that the write-off of wagons would not have a major impact on sales growth, because it is important to take into consideration the reason for withdrawal and further action with these cars. “If the rolling stock is withdrawn because of a high accident rate for further examination and repair, it can return to the railroad after repair. And if it is referred for disposal, it would lead to a worse financial condition both of rolling stock operators and leasing companies, which own these railcars. Under such circumstances, probably nobody will buy new cars,” said D. Zotov.



Full of Optimism



All market players are in a very pessimistic mood now – the majority of leasing companies, according to a recent poll, believe that the proportion of new business in the segment of rolling stock will go down in 2013.

But according to experts, they should be not afraid that 2008-2009 crisis will be repeated. At that time, operators, particularly those who worked on long routes, were forced to return their cars to leasing companies – it was very difficult to find the freight. At that time, the crisis touched not only the railway industry – leasing companies were getting back not only freight railcars, but also other types of property.

Nowadays everybody is talking about the industry crisis, and, according to D. Zotov, such situations as unavailability of rolling stock and the growth of requests for restructuring deals, are likely to take place. And leasing companies, in their turn, can either go towards clients and restructure the current contracts, or simply manage rolling stock by themselves.

The leasing market is heavily dependent on the macro economy. Even if the 2008-2009 market crisis is repeated, this does not mean a catastrophe, because leasing companies have already learned through bitter experience and today they know how to act in such circumstances or, for example, how to eliminate the effects of non-profitable assets.

In current circumstances the high activity of leasing companies in sale and leaseback is also possible. As a reminder, this type of service is a financial transaction in which one party sells its assets to another party, provided that the buyer will afterwards deposit the assets to the seller. This form is very useful for transferring low-liquidity assets to the lessee.

“Starting from the second half of 2013 the demand for new gondola cars may start to recover slowly. In the sector for specialised types of carriages, on the contrary, growth is possible, “said D. Zotov.

Regardless of the rate reductions by operators, it is not possible to reduce leasing rates, because these rates are dependant on debt financing. Thus, leasing companies can select one of two strategies – turn to a different segment of the lease (or, for example, concentrate on special rolling stock), or try to find a way to get the maximum income in the present circumstances.

In addition to this, market players still place high expectations on new types of freight cars, which have a longer service life and a larger cargo capacity. Such rolling stock is more expensive, but according to lessors, it will help operators to make more profit.

So what strategies are taken by leasing companies today in Russia? D. Zotov says that TransFin-M is considering today the procedures of exemption/entering the capital for possible non-payers. “We are studying the technology of rolling-stock management to understand the costs and pricing, and the organisation of the carload process. So we are creating a competence in operational leasing inside our company. This will help to offset the cost of to the company in case of non-payment, and receive additional income,” he said.

Senior managers of Brunswick Rail believe that many companies understand the inevitability of a change of the outlook within the market. “The main question was when this change would start. Brunswick Rail, for example, at the beginning of 2012 changed their procurement profile toward specialised rolling stock. And in 2013, amid a slowing rate of growth in the railcar fleet, we would like to pay more attention to merger and acquisition transactions,” said V. Khoroshilov.

Specialists from Siberian Leasing Company point out that today many leasing companies, that have a large share of the leasing portfolio of rolling stock, are trying to reduce their risk by diversification of the type of property, while reducing the share of railway rolling stock. But the best protection from the crisis in these circumstances is the choice of reliable partners.

In addition, according to the experts, the decline in demand for railcars in the future will lead to a new wave of deficit, and the situation will be stabilised, but not earlier than in two years. Also falling demand for rolling stock can lead to the situation when leasing companies will focus on other industries, which will help to increase demand. 

By Christina Alexandrova
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To Extend or Utilise?



– Mr Shpadi, we hear more and more often that the problem of counterfeit and low quality component supplies has become of a worrying scale. Do you share this viewpoint?



– This is an acute problem in all spheres. Meanwhile, the supply of such products to the market is dangerous, because transport facilities are high-risk ones, and rolling stock is the most fragile segment. Firstly, it is because there are more than one million cargo railcars in Russia, and if we take into account the rolling stock of the CIS in use for international transportation the figure is 50% greater. 

On this basis, usage of products not meeting standards and rules for cargo railcars repair increases the risk of situations with a threat to traffic safety. Secondly, the structure of the transport services market is rather complicated, and often the existing legal and technical instruments for its regulation are not good enough to avoid situations when low-quality products are used.

The problem does not have a worrying scale, but it becomes more and more serious every year, and if no necessary measures are taken today, it will become more difficult to prevent dangerous failures and to remedy their consequences.     



– How serious are the risks of using components with extended service life?



– As for the extension of the lifetime of cargo railcars and their components, nodes and spares, we should talk not about the calendar term of use, but about their resource. Extension of the lifetime of machinery and technical facilities is used all around the world. It is an economically justified procedure, especially for cargo railcars. An administrative ban on these works cannot remedy supplies of low-quality products and a decline in production volume. The lifetime of machinery must be extended in accordance with current standards and rules.

According to statistics, in the last five years mass failures happened with components produced in 2006-2011. And their service life is 32 years. Therefore, we should evaluate the technical condition of these components by means of relevant diagnostics carried out in accordance with specially adjusted methods, and the analysis of the usage of a component in a railcar during its whole life. The procedure of railcars’ and their components’ service life extension should not be a pure formality. Works for defining the available resource must be economically justified.



Products from China: There Are Questions 



– Since we are talking about finance, don’t you think that many problems in this sector occur because of the unfulfilled demand for these products? Particularly, the profit is so high, that the temptation to supply low-quality parts often becomes irresistible. 



– Prices for cast components of railcar bogies are beyond the Department of Technical Policy’s remit, however, the shortage of these products has contributed to a two- or even three-fold increase in prices in recent years. In 2012, prices for cast components were fivefold higher than the real cost. This factor also contributed to the growth of prices for cargo railcars on the whole. 



– Perhaps, the problem will be less acute if foreign producers are attracted to the domestic market.  



– Supplies of cargo railcars, their nodes and components from other countries have never been banned. After Russia joined the WTO, to ban them became even illegal. This sector, however, should be technically and legally regulated by federal executive bodies in charge of railway transport and transport machine building. Imported products must meet all Russian standards. Imported railcars and components must be supplied on the same terms as goods produced by Russian companies. Then transport will be protected from potentially dangerous goods, the risks of a Russian machine building market crash will be minimal and they will be regulated by means of product quality management, and enhancement of its consumer and commercial characteristics. 



– Some market players think that casting from China can be considered a universal remedy for all diseases. Are these hopes justified?



– Unfortunately, it is Chinese producers who try sometimes to supply counterfeit products, which were not made by certified plants. These products do not meet Russian requirements, and supplies of them are a direct violation of RF legislation. The most worrying thing is that such schemes are initiated by Russian middlemen with Chinese partners. There were situations, when such products were delivered to Russia via Ukraine and Kazakhstan. As a rule, it happened during the phase of components supply to producing facilities (products in these countries are not certified for meeting safety standards).

All measures are currently taken to prevent supplies of low-quality cast components to Russia. First of all, this is done within the framework of the Council for Railway Transport of the CIS Member States. RZD initiated the revision of the Universal Order of Adjusting Technical Documentation for Cargo Railcars, which will implement stricter limits for access of cargo railcars to the railway infrastructure for international transportation.



Responsibilities Should Be Defined 



– So, will the quality of rolling stock increase soon?



– Another important problem connected with modern wagon building is the lack of responsibilities of wagon builders for their products during their whole life cycle. When transferring to the multiple model of the transport services market, breaking of bonds between design documentation developers and the repair sector were not taken into account. When there was the USSR Ministry of Railways, the repair documentation for cargo wagons was developed by the planning and design office of the railcar department at the ministry. This office continues its work but in the framework of RZD. What’s the problem with this approach? Today, design documentation for cargo railcars is the property of its developers (producers), therefore, the documents developed by the planning and design office are not fully valid. 

A producer is responsible for his product only until the first scheduled repair, because the machine then is equipped with spares in accordance with documents developed by RZD. Consequently, after the first scheduled repair, everyone is responsible for the remaining life cycle of a railcar (the owner, RZD, repair enterprises), except the producer. Therefore, in 2010 we started to build a clear scheme of the development of design documentation in accordance with acting interstate standards – Unified System for Design Documentation. This will allow increasing the quality of design documents and making a producer and a developer responsible for a railcar till the end of its life cycle. 



– Taking into account that the rolling stock market is saturated now, isn’t it the high time for paying more attention to the quality of new railcars instead of expanding their number?



– Actually, the network is overloaded now. One of the reasons for that is the increase in the demand for cargo railcars during the post-recession period of 2010-2012, when the production volume exceeded the design capacities of wagon building plants, and wagon repair companies started to produce rolling stock as well. Therefore, the downswing of the rates of new rolling stock purchase is a normal development of the situation. One should stake on next-generation rolling stock with better consumer and commercial characteristics, including the carrying capacity. Russian railway infrastructure is prepared for cargo railcars with 25t axle load.

Together with producers, we have been testing such gondola cars for three years. However, a customer is especially interested in whether he can use such railcars for international transportation between the CIS states. Therefore, our urgent task is to look at such an opportunity. The company will take this matter under consideration at the next conference of the Council for Rail Transport’s Commission of plenipotentiaries of wagon facility administrations of the CIS, Georgia, Latvia, Lithuania, and Estonia. 

Therefore, market players will closely cooperate to upgrade the system of design documentation development, production, repair, and maintenance of cargo railcars. Their surplus will give an impulse for an active work, and it will take two or three years to do it thoroughly. ®

Interviewed by Dmitry Khantsevich
    [~DETAIL_TEXT] => 
To Extend or Utilise?



– Mr Shpadi, we hear more and more often that the problem of counterfeit and low quality component supplies has become of a worrying scale. Do you share this viewpoint?



– This is an acute problem in all spheres. Meanwhile, the supply of such products to the market is dangerous, because transport facilities are high-risk ones, and rolling stock is the most fragile segment. Firstly, it is because there are more than one million cargo railcars in Russia, and if we take into account the rolling stock of the CIS in use for international transportation the figure is 50% greater. 

On this basis, usage of products not meeting standards and rules for cargo railcars repair increases the risk of situations with a threat to traffic safety. Secondly, the structure of the transport services market is rather complicated, and often the existing legal and technical instruments for its regulation are not good enough to avoid situations when low-quality products are used.

The problem does not have a worrying scale, but it becomes more and more serious every year, and if no necessary measures are taken today, it will become more difficult to prevent dangerous failures and to remedy their consequences.     



– How serious are the risks of using components with extended service life?



– As for the extension of the lifetime of cargo railcars and their components, nodes and spares, we should talk not about the calendar term of use, but about their resource. Extension of the lifetime of machinery and technical facilities is used all around the world. It is an economically justified procedure, especially for cargo railcars. An administrative ban on these works cannot remedy supplies of low-quality products and a decline in production volume. The lifetime of machinery must be extended in accordance with current standards and rules.

According to statistics, in the last five years mass failures happened with components produced in 2006-2011. And their service life is 32 years. Therefore, we should evaluate the technical condition of these components by means of relevant diagnostics carried out in accordance with specially adjusted methods, and the analysis of the usage of a component in a railcar during its whole life. The procedure of railcars’ and their components’ service life extension should not be a pure formality. Works for defining the available resource must be economically justified.



Products from China: There Are Questions 



– Since we are talking about finance, don’t you think that many problems in this sector occur because of the unfulfilled demand for these products? Particularly, the profit is so high, that the temptation to supply low-quality parts often becomes irresistible. 



– Prices for cast components of railcar bogies are beyond the Department of Technical Policy’s remit, however, the shortage of these products has contributed to a two- or even three-fold increase in prices in recent years. In 2012, prices for cast components were fivefold higher than the real cost. This factor also contributed to the growth of prices for cargo railcars on the whole. 



– Perhaps, the problem will be less acute if foreign producers are attracted to the domestic market.  



– Supplies of cargo railcars, their nodes and components from other countries have never been banned. After Russia joined the WTO, to ban them became even illegal. This sector, however, should be technically and legally regulated by federal executive bodies in charge of railway transport and transport machine building. Imported products must meet all Russian standards. Imported railcars and components must be supplied on the same terms as goods produced by Russian companies. Then transport will be protected from potentially dangerous goods, the risks of a Russian machine building market crash will be minimal and they will be regulated by means of product quality management, and enhancement of its consumer and commercial characteristics. 



– Some market players think that casting from China can be considered a universal remedy for all diseases. Are these hopes justified?



– Unfortunately, it is Chinese producers who try sometimes to supply counterfeit products, which were not made by certified plants. These products do not meet Russian requirements, and supplies of them are a direct violation of RF legislation. The most worrying thing is that such schemes are initiated by Russian middlemen with Chinese partners. There were situations, when such products were delivered to Russia via Ukraine and Kazakhstan. As a rule, it happened during the phase of components supply to producing facilities (products in these countries are not certified for meeting safety standards).

All measures are currently taken to prevent supplies of low-quality cast components to Russia. First of all, this is done within the framework of the Council for Railway Transport of the CIS Member States. RZD initiated the revision of the Universal Order of Adjusting Technical Documentation for Cargo Railcars, which will implement stricter limits for access of cargo railcars to the railway infrastructure for international transportation.



Responsibilities Should Be Defined 



– So, will the quality of rolling stock increase soon?



– Another important problem connected with modern wagon building is the lack of responsibilities of wagon builders for their products during their whole life cycle. When transferring to the multiple model of the transport services market, breaking of bonds between design documentation developers and the repair sector were not taken into account. When there was the USSR Ministry of Railways, the repair documentation for cargo wagons was developed by the planning and design office of the railcar department at the ministry. This office continues its work but in the framework of RZD. What’s the problem with this approach? Today, design documentation for cargo railcars is the property of its developers (producers), therefore, the documents developed by the planning and design office are not fully valid. 

A producer is responsible for his product only until the first scheduled repair, because the machine then is equipped with spares in accordance with documents developed by RZD. Consequently, after the first scheduled repair, everyone is responsible for the remaining life cycle of a railcar (the owner, RZD, repair enterprises), except the producer. Therefore, in 2010 we started to build a clear scheme of the development of design documentation in accordance with acting interstate standards – Unified System for Design Documentation. This will allow increasing the quality of design documents and making a producer and a developer responsible for a railcar till the end of its life cycle. 



– Taking into account that the rolling stock market is saturated now, isn’t it the high time for paying more attention to the quality of new railcars instead of expanding their number?



– Actually, the network is overloaded now. One of the reasons for that is the increase in the demand for cargo railcars during the post-recession period of 2010-2012, when the production volume exceeded the design capacities of wagon building plants, and wagon repair companies started to produce rolling stock as well. Therefore, the downswing of the rates of new rolling stock purchase is a normal development of the situation. One should stake on next-generation rolling stock with better consumer and commercial characteristics, including the carrying capacity. Russian railway infrastructure is prepared for cargo railcars with 25t axle load.

Together with producers, we have been testing such gondola cars for three years. However, a customer is especially interested in whether he can use such railcars for international transportation between the CIS states. Therefore, our urgent task is to look at such an opportunity. The company will take this matter under consideration at the next conference of the Council for Rail Transport’s Commission of plenipotentiaries of wagon facility administrations of the CIS, Georgia, Latvia, Lithuania, and Estonia. 

Therefore, market players will closely cooperate to upgrade the system of design documentation development, production, repair, and maintenance of cargo railcars. Their surplus will give an impulse for an active work, and it will take two or three years to do it thoroughly. ®

Interviewed by Dmitry Khantsevich
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Head of the New Cargo Railcars Development Department at RZD’s 

Department for Technical Policy, Doctor of Engineering. According to him, there is comprehension of what should be done in the near future, and market players should move in this direction.
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There are several reasons for the availability of railcar components failing

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Head of the New Cargo Railcars Development Department at RZD’s 

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To Extend or Utilise?



– Mr Shpadi, we hear more and more often that the problem of counterfeit and low quality component supplies has become of a worrying scale. Do you share this viewpoint?



– This is an acute problem in all spheres. Meanwhile, the supply of such products to the market is dangerous, because transport facilities are high-risk ones, and rolling stock is the most fragile segment. Firstly, it is because there are more than one million cargo railcars in Russia, and if we take into account the rolling stock of the CIS in use for international transportation the figure is 50% greater. 

On this basis, usage of products not meeting standards and rules for cargo railcars repair increases the risk of situations with a threat to traffic safety. Secondly, the structure of the transport services market is rather complicated, and often the existing legal and technical instruments for its regulation are not good enough to avoid situations when low-quality products are used.

The problem does not have a worrying scale, but it becomes more and more serious every year, and if no necessary measures are taken today, it will become more difficult to prevent dangerous failures and to remedy their consequences.     



– How serious are the risks of using components with extended service life?



– As for the extension of the lifetime of cargo railcars and their components, nodes and spares, we should talk not about the calendar term of use, but about their resource. Extension of the lifetime of machinery and technical facilities is used all around the world. It is an economically justified procedure, especially for cargo railcars. An administrative ban on these works cannot remedy supplies of low-quality products and a decline in production volume. The lifetime of machinery must be extended in accordance with current standards and rules.

According to statistics, in the last five years mass failures happened with components produced in 2006-2011. And their service life is 32 years. Therefore, we should evaluate the technical condition of these components by means of relevant diagnostics carried out in accordance with specially adjusted methods, and the analysis of the usage of a component in a railcar during its whole life. The procedure of railcars’ and their components’ service life extension should not be a pure formality. Works for defining the available resource must be economically justified.



Products from China: There Are Questions 



– Since we are talking about finance, don’t you think that many problems in this sector occur because of the unfulfilled demand for these products? Particularly, the profit is so high, that the temptation to supply low-quality parts often becomes irresistible. 



– Prices for cast components of railcar bogies are beyond the Department of Technical Policy’s remit, however, the shortage of these products has contributed to a two- or even three-fold increase in prices in recent years. In 2012, prices for cast components were fivefold higher than the real cost. This factor also contributed to the growth of prices for cargo railcars on the whole. 



– Perhaps, the problem will be less acute if foreign producers are attracted to the domestic market.  



– Supplies of cargo railcars, their nodes and components from other countries have never been banned. After Russia joined the WTO, to ban them became even illegal. This sector, however, should be technically and legally regulated by federal executive bodies in charge of railway transport and transport machine building. Imported products must meet all Russian standards. Imported railcars and components must be supplied on the same terms as goods produced by Russian companies. Then transport will be protected from potentially dangerous goods, the risks of a Russian machine building market crash will be minimal and they will be regulated by means of product quality management, and enhancement of its consumer and commercial characteristics. 



– Some market players think that casting from China can be considered a universal remedy for all diseases. Are these hopes justified?



– Unfortunately, it is Chinese producers who try sometimes to supply counterfeit products, which were not made by certified plants. These products do not meet Russian requirements, and supplies of them are a direct violation of RF legislation. The most worrying thing is that such schemes are initiated by Russian middlemen with Chinese partners. There were situations, when such products were delivered to Russia via Ukraine and Kazakhstan. As a rule, it happened during the phase of components supply to producing facilities (products in these countries are not certified for meeting safety standards).

All measures are currently taken to prevent supplies of low-quality cast components to Russia. First of all, this is done within the framework of the Council for Railway Transport of the CIS Member States. RZD initiated the revision of the Universal Order of Adjusting Technical Documentation for Cargo Railcars, which will implement stricter limits for access of cargo railcars to the railway infrastructure for international transportation.



Responsibilities Should Be Defined 



– So, will the quality of rolling stock increase soon?



– Another important problem connected with modern wagon building is the lack of responsibilities of wagon builders for their products during their whole life cycle. When transferring to the multiple model of the transport services market, breaking of bonds between design documentation developers and the repair sector were not taken into account. When there was the USSR Ministry of Railways, the repair documentation for cargo wagons was developed by the planning and design office of the railcar department at the ministry. This office continues its work but in the framework of RZD. What’s the problem with this approach? Today, design documentation for cargo railcars is the property of its developers (producers), therefore, the documents developed by the planning and design office are not fully valid. 

A producer is responsible for his product only until the first scheduled repair, because the machine then is equipped with spares in accordance with documents developed by RZD. Consequently, after the first scheduled repair, everyone is responsible for the remaining life cycle of a railcar (the owner, RZD, repair enterprises), except the producer. Therefore, in 2010 we started to build a clear scheme of the development of design documentation in accordance with acting interstate standards – Unified System for Design Documentation. This will allow increasing the quality of design documents and making a producer and a developer responsible for a railcar till the end of its life cycle. 



– Taking into account that the rolling stock market is saturated now, isn’t it the high time for paying more attention to the quality of new railcars instead of expanding their number?



– Actually, the network is overloaded now. One of the reasons for that is the increase in the demand for cargo railcars during the post-recession period of 2010-2012, when the production volume exceeded the design capacities of wagon building plants, and wagon repair companies started to produce rolling stock as well. Therefore, the downswing of the rates of new rolling stock purchase is a normal development of the situation. One should stake on next-generation rolling stock with better consumer and commercial characteristics, including the carrying capacity. Russian railway infrastructure is prepared for cargo railcars with 25t axle load.

Together with producers, we have been testing such gondola cars for three years. However, a customer is especially interested in whether he can use such railcars for international transportation between the CIS states. Therefore, our urgent task is to look at such an opportunity. The company will take this matter under consideration at the next conference of the Council for Rail Transport’s Commission of plenipotentiaries of wagon facility administrations of the CIS, Georgia, Latvia, Lithuania, and Estonia. 

Therefore, market players will closely cooperate to upgrade the system of design documentation development, production, repair, and maintenance of cargo railcars. Their surplus will give an impulse for an active work, and it will take two or three years to do it thoroughly. ®

Interviewed by Dmitry Khantsevich
    [~DETAIL_TEXT] => 
To Extend or Utilise?



– Mr Shpadi, we hear more and more often that the problem of counterfeit and low quality component supplies has become of a worrying scale. Do you share this viewpoint?



– This is an acute problem in all spheres. Meanwhile, the supply of such products to the market is dangerous, because transport facilities are high-risk ones, and rolling stock is the most fragile segment. Firstly, it is because there are more than one million cargo railcars in Russia, and if we take into account the rolling stock of the CIS in use for international transportation the figure is 50% greater. 

On this basis, usage of products not meeting standards and rules for cargo railcars repair increases the risk of situations with a threat to traffic safety. Secondly, the structure of the transport services market is rather complicated, and often the existing legal and technical instruments for its regulation are not good enough to avoid situations when low-quality products are used.

The problem does not have a worrying scale, but it becomes more and more serious every year, and if no necessary measures are taken today, it will become more difficult to prevent dangerous failures and to remedy their consequences.     



– How serious are the risks of using components with extended service life?



– As for the extension of the lifetime of cargo railcars and their components, nodes and spares, we should talk not about the calendar term of use, but about their resource. Extension of the lifetime of machinery and technical facilities is used all around the world. It is an economically justified procedure, especially for cargo railcars. An administrative ban on these works cannot remedy supplies of low-quality products and a decline in production volume. The lifetime of machinery must be extended in accordance with current standards and rules.

According to statistics, in the last five years mass failures happened with components produced in 2006-2011. And their service life is 32 years. Therefore, we should evaluate the technical condition of these components by means of relevant diagnostics carried out in accordance with specially adjusted methods, and the analysis of the usage of a component in a railcar during its whole life. The procedure of railcars’ and their components’ service life extension should not be a pure formality. Works for defining the available resource must be economically justified.



Products from China: There Are Questions 



– Since we are talking about finance, don’t you think that many problems in this sector occur because of the unfulfilled demand for these products? Particularly, the profit is so high, that the temptation to supply low-quality parts often becomes irresistible. 



– Prices for cast components of railcar bogies are beyond the Department of Technical Policy’s remit, however, the shortage of these products has contributed to a two- or even three-fold increase in prices in recent years. In 2012, prices for cast components were fivefold higher than the real cost. This factor also contributed to the growth of prices for cargo railcars on the whole. 



– Perhaps, the problem will be less acute if foreign producers are attracted to the domestic market.  



– Supplies of cargo railcars, their nodes and components from other countries have never been banned. After Russia joined the WTO, to ban them became even illegal. This sector, however, should be technically and legally regulated by federal executive bodies in charge of railway transport and transport machine building. Imported products must meet all Russian standards. Imported railcars and components must be supplied on the same terms as goods produced by Russian companies. Then transport will be protected from potentially dangerous goods, the risks of a Russian machine building market crash will be minimal and they will be regulated by means of product quality management, and enhancement of its consumer and commercial characteristics. 



– Some market players think that casting from China can be considered a universal remedy for all diseases. Are these hopes justified?



– Unfortunately, it is Chinese producers who try sometimes to supply counterfeit products, which were not made by certified plants. These products do not meet Russian requirements, and supplies of them are a direct violation of RF legislation. The most worrying thing is that such schemes are initiated by Russian middlemen with Chinese partners. There were situations, when such products were delivered to Russia via Ukraine and Kazakhstan. As a rule, it happened during the phase of components supply to producing facilities (products in these countries are not certified for meeting safety standards).

All measures are currently taken to prevent supplies of low-quality cast components to Russia. First of all, this is done within the framework of the Council for Railway Transport of the CIS Member States. RZD initiated the revision of the Universal Order of Adjusting Technical Documentation for Cargo Railcars, which will implement stricter limits for access of cargo railcars to the railway infrastructure for international transportation.



Responsibilities Should Be Defined 



– So, will the quality of rolling stock increase soon?



– Another important problem connected with modern wagon building is the lack of responsibilities of wagon builders for their products during their whole life cycle. When transferring to the multiple model of the transport services market, breaking of bonds between design documentation developers and the repair sector were not taken into account. When there was the USSR Ministry of Railways, the repair documentation for cargo wagons was developed by the planning and design office of the railcar department at the ministry. This office continues its work but in the framework of RZD. What’s the problem with this approach? Today, design documentation for cargo railcars is the property of its developers (producers), therefore, the documents developed by the planning and design office are not fully valid. 

A producer is responsible for his product only until the first scheduled repair, because the machine then is equipped with spares in accordance with documents developed by RZD. Consequently, after the first scheduled repair, everyone is responsible for the remaining life cycle of a railcar (the owner, RZD, repair enterprises), except the producer. Therefore, in 2010 we started to build a clear scheme of the development of design documentation in accordance with acting interstate standards – Unified System for Design Documentation. This will allow increasing the quality of design documents and making a producer and a developer responsible for a railcar till the end of its life cycle. 



– Taking into account that the rolling stock market is saturated now, isn’t it the high time for paying more attention to the quality of new railcars instead of expanding their number?



– Actually, the network is overloaded now. One of the reasons for that is the increase in the demand for cargo railcars during the post-recession period of 2010-2012, when the production volume exceeded the design capacities of wagon building plants, and wagon repair companies started to produce rolling stock as well. Therefore, the downswing of the rates of new rolling stock purchase is a normal development of the situation. One should stake on next-generation rolling stock with better consumer and commercial characteristics, including the carrying capacity. Russian railway infrastructure is prepared for cargo railcars with 25t axle load.

Together with producers, we have been testing such gondola cars for three years. However, a customer is especially interested in whether he can use such railcars for international transportation between the CIS states. Therefore, our urgent task is to look at such an opportunity. The company will take this matter under consideration at the next conference of the Council for Rail Transport’s Commission of plenipotentiaries of wagon facility administrations of the CIS, Georgia, Latvia, Lithuania, and Estonia. 

Therefore, market players will closely cooperate to upgrade the system of design documentation development, production, repair, and maintenance of cargo railcars. Their surplus will give an impulse for an active work, and it will take two or three years to do it thoroughly. ®

Interviewed by Dmitry Khantsevich
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Head of the New Cargo Railcars Development Department at RZD’s 

Department for Technical Policy, Doctor of Engineering. According to him, there is comprehension of what should be done in the near future, and market players should move in this direction.
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to meet technical requirements in the market, and there is no universal solution for all the existing problems, thinks Dmitry Shpadi, 

Head of the New Cargo Railcars Development Department at RZD’s 

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New, But Not Advanced



A new wave of cargo railcar derailments because of poor-quality casting at the beginning of 2013 has drawn a strong public response and initiated another discussion about the quality of rolling stock used on RZD’s network. As a reminder, the issue of the technical condition of cargo wagons was controlled by RZD mainly, simultaneously, the holding company was responsible for traffic safety. “Currently, the questions of mass renewal of the rolling stock fleet are practically beyond RZD’s competence,” notes Valentin Gapanovich, Senior Vice President of RZD.

After the structural reform of the sector and RZD’s wagon fleet privatisation, there appeared almost 1,500 rolling stock owners in Russia. Therefore, not only RZD, but (and first of all!) the owner is responsible for the technical and commercial condition of wagons. Consequently, now the transporter, who is in charge of safe traffic on the railway network, has to be responsible for the interests of private wagon owners. 

Little time has passed since the start of the railway reform and the emergence of wagon owners, so the rolling stock purchase by them has a significant life time ahead. Meanwhile, during the recent boom for rolling stock (especially gondola cars), when the seller dictated terms to the market, quality was not a priority for many Russian wagon producers. We observe the results of that now, when the lion’s share of accidents happen to rolling stock produced in 2006-2012. For example, RZD think that one of the most important issues is the provision of safe use of new 18-100 cargo wagons bogies, especially their molded solebars.   

On the one hand, amid a shortage of rolling stock, plants produced a large number of popular railcars and didn’t think that the market needed not only a lot of new wagons, but qualitative changes in their basic design. “Under new circumstances, the reliability of 18-100 cargo wagons bogies should be revised in accordance with the changes in the conditions of their use, particularly, an increase in the axle load and the roughness of rail tracks,” says V. Gapanovich. 

On the other hand, Russian producers manufacture rolling stock of a new design, which meet new requirements. The process, however, is much slower in the cargo wagon production segment than in the locomotive production sector. 

The minutes №16 of the session of a committee of Non-Profit Partnership Union of Industries of Railway Equipment (NP UIRE) regarding the coordination of producers of cargo wagons and components, which was held on October 18-19, 2012, adjusts parameters providing innovation in the design of cargo railcars, including an extended distance run between repairs, a larger axle load of a loaded wagon bogie with a smaller impact on rail tracks, an increase in the traffic speed of empty and loaded railcars on curves of large and medium radius (650 metres and more), etc. NP UIRE say that innovative cargo railcars based on bogies developed in cooperation with foreign producers are ready for mass production. An example is the rolling stock made by Tikhvin Railcar Building Plant (the prototype is the Barber bogie) and by Promtractor-Vagon (the prototype is the Motion bogie). According to Vladimir Matyushin, Vice President of NP UIRE, six-axle tank wagons for bulk oil transportation also have a promising future.



Interesting, But Too Expensive



Innovative wagons are not very popular because they have a longer payback period (they cost 30% more than ordinary railcars). Olga Lukyanova, Chairwoman of Non-Commercial Partnership of Railway Rolling Stock Operators (NP OZhdPS), notes that sometimes the increased cargo carrying capacity of a wagon does not mean that much – the cubic volume of the car body is more important for some cargoes such as metal scrap, logs, pipes, and even coal.  

Another problem is the repair of modern rolling stock – repair depots are not often ready to service next-generation railcars. Therefore, an operator, having extended the distance run between repairs, will have to spend more time and efforts to find an appropriate depot.

According to the Transport Ministry, plants produce mainly out-of-date models of rolling stock. Meanwhile, regulators and the transporter are interested in modern rolling stock, which could help provide greater safety and a more rational usage of infrastructure, the condition of which leaves much to be desired. 

This depends on the rolling stock owner, whose policy is determined, first of all, by economic stimuli. Therefore, RZD initiates and the regulators support the implementation of the mechanism of privileged tariff regulation for using higher quality wagons. In early April, the Federal Tariff Service of Russia adopted a relevant order, according to which discounts will be given to owners of innovative railcars (universal gondola cars of 12-9761-02 and 12-9833-01 models; solid-bottom gondola cars of 12-9853 and 12-9869 models; railcars for mineral fertilizers and raw materials for the production of mineral fertilizers – hoppers of 19-9835-01 model (all of the mentioned rolling stock is made by the Tikhvin Wagon Building Plant)).

The Federal Tariff Service note that all savings from a round trip of an innovative railcar (loaded plus empty) will be considered as a discount on the tariff on empty mileage. There will be a 15% discount for gondola cars and a 6% discount for hoppers. The document is now being registered by the Ministry of Justice. 

One more thing should be taken into account. “Upon mass exploitation, next-generation railcars with innovative functional characteristics, must provide an economic effect due to the reduction of resources needed for their maintenance en route and a smaller impact on tracks,” emphasises V. Gapanovich. I.e. RZD emphasise that the transporter is interested in setting tariff preferences first of all for block trains consisting of such railcars.

Operators have not had enough time to forecast their profit from innovative machinery. Nevertheless, a number of companies, especially big ones, say that they are interested in adding such railcars to their fleet and welcome implementation of such tariff mechanisms. Meanwhile, some of their colleagues have doubts that in pursuit of customers, producers can fulfill new requirements pro forma. ®

By Nadezhda Vtorushina     
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New, But Not Advanced



A new wave of cargo railcar derailments because of poor-quality casting at the beginning of 2013 has drawn a strong public response and initiated another discussion about the quality of rolling stock used on RZD’s network. As a reminder, the issue of the technical condition of cargo wagons was controlled by RZD mainly, simultaneously, the holding company was responsible for traffic safety. “Currently, the questions of mass renewal of the rolling stock fleet are practically beyond RZD’s competence,” notes Valentin Gapanovich, Senior Vice President of RZD.

After the structural reform of the sector and RZD’s wagon fleet privatisation, there appeared almost 1,500 rolling stock owners in Russia. Therefore, not only RZD, but (and first of all!) the owner is responsible for the technical and commercial condition of wagons. Consequently, now the transporter, who is in charge of safe traffic on the railway network, has to be responsible for the interests of private wagon owners. 

Little time has passed since the start of the railway reform and the emergence of wagon owners, so the rolling stock purchase by them has a significant life time ahead. Meanwhile, during the recent boom for rolling stock (especially gondola cars), when the seller dictated terms to the market, quality was not a priority for many Russian wagon producers. We observe the results of that now, when the lion’s share of accidents happen to rolling stock produced in 2006-2012. For example, RZD think that one of the most important issues is the provision of safe use of new 18-100 cargo wagons bogies, especially their molded solebars.   

On the one hand, amid a shortage of rolling stock, plants produced a large number of popular railcars and didn’t think that the market needed not only a lot of new wagons, but qualitative changes in their basic design. “Under new circumstances, the reliability of 18-100 cargo wagons bogies should be revised in accordance with the changes in the conditions of their use, particularly, an increase in the axle load and the roughness of rail tracks,” says V. Gapanovich. 

On the other hand, Russian producers manufacture rolling stock of a new design, which meet new requirements. The process, however, is much slower in the cargo wagon production segment than in the locomotive production sector. 

The minutes №16 of the session of a committee of Non-Profit Partnership Union of Industries of Railway Equipment (NP UIRE) regarding the coordination of producers of cargo wagons and components, which was held on October 18-19, 2012, adjusts parameters providing innovation in the design of cargo railcars, including an extended distance run between repairs, a larger axle load of a loaded wagon bogie with a smaller impact on rail tracks, an increase in the traffic speed of empty and loaded railcars on curves of large and medium radius (650 metres and more), etc. NP UIRE say that innovative cargo railcars based on bogies developed in cooperation with foreign producers are ready for mass production. An example is the rolling stock made by Tikhvin Railcar Building Plant (the prototype is the Barber bogie) and by Promtractor-Vagon (the prototype is the Motion bogie). According to Vladimir Matyushin, Vice President of NP UIRE, six-axle tank wagons for bulk oil transportation also have a promising future.



Interesting, But Too Expensive



Innovative wagons are not very popular because they have a longer payback period (they cost 30% more than ordinary railcars). Olga Lukyanova, Chairwoman of Non-Commercial Partnership of Railway Rolling Stock Operators (NP OZhdPS), notes that sometimes the increased cargo carrying capacity of a wagon does not mean that much – the cubic volume of the car body is more important for some cargoes such as metal scrap, logs, pipes, and even coal.  

Another problem is the repair of modern rolling stock – repair depots are not often ready to service next-generation railcars. Therefore, an operator, having extended the distance run between repairs, will have to spend more time and efforts to find an appropriate depot.

According to the Transport Ministry, plants produce mainly out-of-date models of rolling stock. Meanwhile, regulators and the transporter are interested in modern rolling stock, which could help provide greater safety and a more rational usage of infrastructure, the condition of which leaves much to be desired. 

This depends on the rolling stock owner, whose policy is determined, first of all, by economic stimuli. Therefore, RZD initiates and the regulators support the implementation of the mechanism of privileged tariff regulation for using higher quality wagons. In early April, the Federal Tariff Service of Russia adopted a relevant order, according to which discounts will be given to owners of innovative railcars (universal gondola cars of 12-9761-02 and 12-9833-01 models; solid-bottom gondola cars of 12-9853 and 12-9869 models; railcars for mineral fertilizers and raw materials for the production of mineral fertilizers – hoppers of 19-9835-01 model (all of the mentioned rolling stock is made by the Tikhvin Wagon Building Plant)).

The Federal Tariff Service note that all savings from a round trip of an innovative railcar (loaded plus empty) will be considered as a discount on the tariff on empty mileage. There will be a 15% discount for gondola cars and a 6% discount for hoppers. The document is now being registered by the Ministry of Justice. 

One more thing should be taken into account. “Upon mass exploitation, next-generation railcars with innovative functional characteristics, must provide an economic effect due to the reduction of resources needed for their maintenance en route and a smaller impact on tracks,” emphasises V. Gapanovich. I.e. RZD emphasise that the transporter is interested in setting tariff preferences first of all for block trains consisting of such railcars.

Operators have not had enough time to forecast their profit from innovative machinery. Nevertheless, a number of companies, especially big ones, say that they are interested in adding such railcars to their fleet and welcome implementation of such tariff mechanisms. Meanwhile, some of their colleagues have doubts that in pursuit of customers, producers can fulfill new requirements pro forma. ®

By Nadezhda Vtorushina     
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New, But Not Advanced



A new wave of cargo railcar derailments because of poor-quality casting at the beginning of 2013 has drawn a strong public response and initiated another discussion about the quality of rolling stock used on RZD’s network. As a reminder, the issue of the technical condition of cargo wagons was controlled by RZD mainly, simultaneously, the holding company was responsible for traffic safety. “Currently, the questions of mass renewal of the rolling stock fleet are practically beyond RZD’s competence,” notes Valentin Gapanovich, Senior Vice President of RZD.

After the structural reform of the sector and RZD’s wagon fleet privatisation, there appeared almost 1,500 rolling stock owners in Russia. Therefore, not only RZD, but (and first of all!) the owner is responsible for the technical and commercial condition of wagons. Consequently, now the transporter, who is in charge of safe traffic on the railway network, has to be responsible for the interests of private wagon owners. 

Little time has passed since the start of the railway reform and the emergence of wagon owners, so the rolling stock purchase by them has a significant life time ahead. Meanwhile, during the recent boom for rolling stock (especially gondola cars), when the seller dictated terms to the market, quality was not a priority for many Russian wagon producers. We observe the results of that now, when the lion’s share of accidents happen to rolling stock produced in 2006-2012. For example, RZD think that one of the most important issues is the provision of safe use of new 18-100 cargo wagons bogies, especially their molded solebars.   

On the one hand, amid a shortage of rolling stock, plants produced a large number of popular railcars and didn’t think that the market needed not only a lot of new wagons, but qualitative changes in their basic design. “Under new circumstances, the reliability of 18-100 cargo wagons bogies should be revised in accordance with the changes in the conditions of their use, particularly, an increase in the axle load and the roughness of rail tracks,” says V. Gapanovich. 

On the other hand, Russian producers manufacture rolling stock of a new design, which meet new requirements. The process, however, is much slower in the cargo wagon production segment than in the locomotive production sector. 

The minutes №16 of the session of a committee of Non-Profit Partnership Union of Industries of Railway Equipment (NP UIRE) regarding the coordination of producers of cargo wagons and components, which was held on October 18-19, 2012, adjusts parameters providing innovation in the design of cargo railcars, including an extended distance run between repairs, a larger axle load of a loaded wagon bogie with a smaller impact on rail tracks, an increase in the traffic speed of empty and loaded railcars on curves of large and medium radius (650 metres and more), etc. NP UIRE say that innovative cargo railcars based on bogies developed in cooperation with foreign producers are ready for mass production. An example is the rolling stock made by Tikhvin Railcar Building Plant (the prototype is the Barber bogie) and by Promtractor-Vagon (the prototype is the Motion bogie). According to Vladimir Matyushin, Vice President of NP UIRE, six-axle tank wagons for bulk oil transportation also have a promising future.



Interesting, But Too Expensive



Innovative wagons are not very popular because they have a longer payback period (they cost 30% more than ordinary railcars). Olga Lukyanova, Chairwoman of Non-Commercial Partnership of Railway Rolling Stock Operators (NP OZhdPS), notes that sometimes the increased cargo carrying capacity of a wagon does not mean that much – the cubic volume of the car body is more important for some cargoes such as metal scrap, logs, pipes, and even coal.  

Another problem is the repair of modern rolling stock – repair depots are not often ready to service next-generation railcars. Therefore, an operator, having extended the distance run between repairs, will have to spend more time and efforts to find an appropriate depot.

According to the Transport Ministry, plants produce mainly out-of-date models of rolling stock. Meanwhile, regulators and the transporter are interested in modern rolling stock, which could help provide greater safety and a more rational usage of infrastructure, the condition of which leaves much to be desired. 

This depends on the rolling stock owner, whose policy is determined, first of all, by economic stimuli. Therefore, RZD initiates and the regulators support the implementation of the mechanism of privileged tariff regulation for using higher quality wagons. In early April, the Federal Tariff Service of Russia adopted a relevant order, according to which discounts will be given to owners of innovative railcars (universal gondola cars of 12-9761-02 and 12-9833-01 models; solid-bottom gondola cars of 12-9853 and 12-9869 models; railcars for mineral fertilizers and raw materials for the production of mineral fertilizers – hoppers of 19-9835-01 model (all of the mentioned rolling stock is made by the Tikhvin Wagon Building Plant)).

The Federal Tariff Service note that all savings from a round trip of an innovative railcar (loaded plus empty) will be considered as a discount on the tariff on empty mileage. There will be a 15% discount for gondola cars and a 6% discount for hoppers. The document is now being registered by the Ministry of Justice. 

One more thing should be taken into account. “Upon mass exploitation, next-generation railcars with innovative functional characteristics, must provide an economic effect due to the reduction of resources needed for their maintenance en route and a smaller impact on tracks,” emphasises V. Gapanovich. I.e. RZD emphasise that the transporter is interested in setting tariff preferences first of all for block trains consisting of such railcars.

Operators have not had enough time to forecast their profit from innovative machinery. Nevertheless, a number of companies, especially big ones, say that they are interested in adding such railcars to their fleet and welcome implementation of such tariff mechanisms. Meanwhile, some of their colleagues have doubts that in pursuit of customers, producers can fulfill new requirements pro forma. ®

By Nadezhda Vtorushina     
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New, But Not Advanced



A new wave of cargo railcar derailments because of poor-quality casting at the beginning of 2013 has drawn a strong public response and initiated another discussion about the quality of rolling stock used on RZD’s network. As a reminder, the issue of the technical condition of cargo wagons was controlled by RZD mainly, simultaneously, the holding company was responsible for traffic safety. “Currently, the questions of mass renewal of the rolling stock fleet are practically beyond RZD’s competence,” notes Valentin Gapanovich, Senior Vice President of RZD.

After the structural reform of the sector and RZD’s wagon fleet privatisation, there appeared almost 1,500 rolling stock owners in Russia. Therefore, not only RZD, but (and first of all!) the owner is responsible for the technical and commercial condition of wagons. Consequently, now the transporter, who is in charge of safe traffic on the railway network, has to be responsible for the interests of private wagon owners. 

Little time has passed since the start of the railway reform and the emergence of wagon owners, so the rolling stock purchase by them has a significant life time ahead. Meanwhile, during the recent boom for rolling stock (especially gondola cars), when the seller dictated terms to the market, quality was not a priority for many Russian wagon producers. We observe the results of that now, when the lion’s share of accidents happen to rolling stock produced in 2006-2012. For example, RZD think that one of the most important issues is the provision of safe use of new 18-100 cargo wagons bogies, especially their molded solebars.   

On the one hand, amid a shortage of rolling stock, plants produced a large number of popular railcars and didn’t think that the market needed not only a lot of new wagons, but qualitative changes in their basic design. “Under new circumstances, the reliability of 18-100 cargo wagons bogies should be revised in accordance with the changes in the conditions of their use, particularly, an increase in the axle load and the roughness of rail tracks,” says V. Gapanovich. 

On the other hand, Russian producers manufacture rolling stock of a new design, which meet new requirements. The process, however, is much slower in the cargo wagon production segment than in the locomotive production sector. 

The minutes №16 of the session of a committee of Non-Profit Partnership Union of Industries of Railway Equipment (NP UIRE) regarding the coordination of producers of cargo wagons and components, which was held on October 18-19, 2012, adjusts parameters providing innovation in the design of cargo railcars, including an extended distance run between repairs, a larger axle load of a loaded wagon bogie with a smaller impact on rail tracks, an increase in the traffic speed of empty and loaded railcars on curves of large and medium radius (650 metres and more), etc. NP UIRE say that innovative cargo railcars based on bogies developed in cooperation with foreign producers are ready for mass production. An example is the rolling stock made by Tikhvin Railcar Building Plant (the prototype is the Barber bogie) and by Promtractor-Vagon (the prototype is the Motion bogie). According to Vladimir Matyushin, Vice President of NP UIRE, six-axle tank wagons for bulk oil transportation also have a promising future.



Interesting, But Too Expensive



Innovative wagons are not very popular because they have a longer payback period (they cost 30% more than ordinary railcars). Olga Lukyanova, Chairwoman of Non-Commercial Partnership of Railway Rolling Stock Operators (NP OZhdPS), notes that sometimes the increased cargo carrying capacity of a wagon does not mean that much – the cubic volume of the car body is more important for some cargoes such as metal scrap, logs, pipes, and even coal.  

Another problem is the repair of modern rolling stock – repair depots are not often ready to service next-generation railcars. Therefore, an operator, having extended the distance run between repairs, will have to spend more time and efforts to find an appropriate depot.

According to the Transport Ministry, plants produce mainly out-of-date models of rolling stock. Meanwhile, regulators and the transporter are interested in modern rolling stock, which could help provide greater safety and a more rational usage of infrastructure, the condition of which leaves much to be desired. 

This depends on the rolling stock owner, whose policy is determined, first of all, by economic stimuli. Therefore, RZD initiates and the regulators support the implementation of the mechanism of privileged tariff regulation for using higher quality wagons. In early April, the Federal Tariff Service of Russia adopted a relevant order, according to which discounts will be given to owners of innovative railcars (universal gondola cars of 12-9761-02 and 12-9833-01 models; solid-bottom gondola cars of 12-9853 and 12-9869 models; railcars for mineral fertilizers and raw materials for the production of mineral fertilizers – hoppers of 19-9835-01 model (all of the mentioned rolling stock is made by the Tikhvin Wagon Building Plant)).

The Federal Tariff Service note that all savings from a round trip of an innovative railcar (loaded plus empty) will be considered as a discount on the tariff on empty mileage. There will be a 15% discount for gondola cars and a 6% discount for hoppers. The document is now being registered by the Ministry of Justice. 

One more thing should be taken into account. “Upon mass exploitation, next-generation railcars with innovative functional characteristics, must provide an economic effect due to the reduction of resources needed for their maintenance en route and a smaller impact on tracks,” emphasises V. Gapanovich. I.e. RZD emphasise that the transporter is interested in setting tariff preferences first of all for block trains consisting of such railcars.

Operators have not had enough time to forecast their profit from innovative machinery. Nevertheless, a number of companies, especially big ones, say that they are interested in adding such railcars to their fleet and welcome implementation of such tariff mechanisms. Meanwhile, some of their colleagues have doubts that in pursuit of customers, producers can fulfill new requirements pro forma. ®

By Nadezhda Vtorushina     
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Focus on Economy



In 2012, Russian companies bought more than 90,000 cargo railcars. At the end of the year there was a decline in demand, especially in the gondola wagon sector. The reasons for this were the surplus of universal railcars, and prices for the service of providing wagons for transportation, which halved. “With the rent rate of RUB 800, railcars purchased for more than RUB 1.9 million (the VAT excluded) stop bringing the necessary level of profit,” explains Dmitry Zotov, CEO of TransFin-M leasing company.

Demand continues to decrease nowadays. It is forecast that approximately 50,000 railcars will be bought in 2013 with the focus on special rolling stock. For example, the CEO of Federal Cargo Company Vitaly Evdokimenko said that they were going to halve the number of wagons to be purchased, and to buy no gondola cars. Earlier, Federal Cargo Company (FCC) was going to buy 16,000 wagons (of that, more than 9,000 gondola cars). The surplus of rolling stock in the market, however, made the company change its decision. As a result, FCC plans to buy just 5,000 tank wagons, and 2,700 boxcars. For comparison: the operator purchased 9,400 wagons of different types in 2012.  

Freight One began to reduce purchase volumes even earlier. Freight One bought more than 20,000 railcars in 2010, 7,500 wagons in 2011, and 2,900 gondola cars produced by Uralvagonzavod (UVZ) and 200 tank wagons from Azovmash in 2012. According to unofficial figures, the company has frozen the rolling stock purchase programme.

New Forwarding Company (a part of Globaltrans holding company) bought only gondola cars last year, which was a part of the operator’s production and investment strategy. Valery Shpakov, CEO of New Forwarding Company, noted that approximately 6,000 gondola cars were added to the company’s fleet. Most of them were made by UVZ. Also, in the framework of the investment programme of all companies incorporated in the holding company, Globaltrans expanded its fleet by more than 20,000 railcars, including the purchase of new rolling stock and the fleet of Ferrotrans (the former Metalloinvesttrans) and MMK-Trans. However, Globaltrans is now not ready to disclose its purchase plans for the current year.

On the contrary, Eurosib signed a contract with Altaivagon for the supply of 1,800 wagons in January-May 2013. Of that, there will be 1,000 gondola cars and 800 boxcars. Despite this large order, Altaivagon is going to reduce its production volume by 28% in 2013 to 6,160 units (taking into account Kuzbass Wagon Building Company). 

The dynamics of the work of many companies was negative in January: Ruzkhimmash reduced wagon production volume by 19%, UVZ – by 23%, Novokuznetsk Wagon Building Plant – by 36%. Altaivagon and Armavir Heavy Machine Building Plant had a slight increase in their production volume (+8% and +12% respectively). Tikhvin Railcar Building Plant was put into operation in January 2012, products shipment started in June. The plant produced 1,300 railcars in 2012. “Next-generation railcars made by Tikhvin Railcar Building Plant were used by the largest chemical, metallurgical, coal, and timber enterprises, and transport companies as well. The client base is expanding due to owners being interested in replacing their old wagon fleet with new efficient rolling stock. Therefore, they get a competitive advantage in the transportation market,” comments Dmitry Bovykin, Executive Director at United Wagon Company LLC (managing company of Tikhvin Railcar Building Plant). In 2013, they plan to sell from 4,000 to 5,000 wagons made by Tikhvin Railcar Building Plant. The capacity of the plant is 13,000 units of rolling stock per annum.

To be less dependent on import railcars, the Republic of Kazakhstan adopted plans to expand its own railcar producing capacities. The production volume is not very large: 1,978 units in 2012. Of that, 85% was made by Kazakhstan Company LLP. The company produced 1,700 gondola cars last year, and all of them were bought by Kaztemirtrans JSC. In 2012, the company purchased more than 14,000 railcars (including 1,261 grain wagons). Of that, 200 wagons were made by a national company ZIKSTO JSC. Some reduction in the purchase volume is forecast in 2013. Erzhan Zhakishev, Vice President for Rolling Stock Operation and Logistics at Kaztemirtrans explains that this year the focus will be on the company’s own rolling stock operation, and plans for fleet expansion will not be a priority.



No Second Life for Railcars Any Longer?



Whilst the demand for gondola cars was reducing, their cost was gradually decreasing during 2012. According to estimations by Mr Zotov, prices fell by 20-25% on average. The CEO of a large Russian rolling stock operator said that the cost of a gondola car last year fluctuated between RUB 2.05 million and RUB 2.25 million (except the VAT). Specialists at Freight One said that it is possible to purchase gondola cars for RUB 1.6 million in the market today, whilst a year ago prices for similar rolling stock fluctuated between RUB 2.2 million and RUB 2.3 million. “Perhaps, in the first half of the year, market players will choose a wait-and-see approach. As soon as prices become stable again (in other words, reach the bottom), the demand for gondola cars will recover,” thinks Mr Zotov.  

Meanwhile, experts note a positive trend in the special rolling stock sector, particularly tank wagons for chemicals, hoppers, flat wagons, and boxcars. According to Igor Skok, Leading Expert-Analyst at the Railway Engineering Research Department at the Natural Monopolies’ Institute, the demand for LPG tank wagons in 2013-2020 is forecast to increase from 5,300 to 7,000 units. Buying activity is forecast to increase in the sector of hoppers for transportation of cement and grain.

However, it is not enough to keep the total production volume at the same level. One more factor impacts the plans of rolling stock owners. It was proposed to abolish the capital repair with lifetime extension (KRP) to stimulate the demand for new rolling stock.

UVZ think that this measure will have a positive impact on the sector. Freight One pay attention to the fact that the abolition of the extension of lifetime of wagons and cast components will cause prices growth. Consequently, it will influence the cost of cargo transportation services. Consignors will include this expenditure in the cost of their goods, which will reduce the competitiveness of national products and have a negative impact on the whole Russian economy.  

“Hasty implementation of this measure will contribute to taking out of operation more than 350,000 railcars registered in the RF, i.e. 30% of the whole Russian wagon fleet. As a result, the repair volume will reduce, which will cause a reduction of jobs at wagon repair companies. In those regions, where such companies are the main employers, it will have grave social consequences,” think specialists at Freight One.

Taking out of use a large number of railcars because of the abolition of the KRP will increase the demand for rolling stock as well as prices for it. However, specialists at Freight One think, plants will have no stimulus to improve the quality of their products any longer; thus, the modernization of producing capacities will be postponed for a long period of time. Instead of the abolition of the KRP, it is worth developing a range of measures to toughen the control over the quality of rolling stock repair, production of new cast components, diagnostics and control of the technical condition of railcars during the exploitation, they think in Freight One. The demand for Russian railcars should be stimulated by means of market tools – an increase in the quality of products and implementation of new technologies.  

Mr Skok shares this viewpoint. He notes that one of the ways to support the purchase of new railcars can be allocation of target subsidies to rolling stock owners by the state. As for a possible ban on the KRP, there is a risk that rolling stock owners will register second-hand wagons in the CIS countries, where their lifetime will be extended in accordance with the Decree on the Extension of Service Lifetime of Cargo Wagons Used in International Traffic. 



An Obvious Trend



A significant decline in the demand for universal rolling stock is currently being observed. Amid a decrease in the transportation volume, rolling stock owners are cautious about investment in new wagons. The trend for leasing companies is the same. Wagon building companies count upon the state support.

The situation is even more critical in Ukraine. In 2012, the production volume there fell by 10.3% to 47,000 cargo wagons. In December, the decline was 43.6%. And the outlook is negative. Taking into account the escalating competition, Russian wagon building companies will lobby their interests for the Russian market to prefer products made in the RF.

By Elena Ushkova
    [~DETAIL_TEXT] => 
Focus on Economy



In 2012, Russian companies bought more than 90,000 cargo railcars. At the end of the year there was a decline in demand, especially in the gondola wagon sector. The reasons for this were the surplus of universal railcars, and prices for the service of providing wagons for transportation, which halved. “With the rent rate of RUB 800, railcars purchased for more than RUB 1.9 million (the VAT excluded) stop bringing the necessary level of profit,” explains Dmitry Zotov, CEO of TransFin-M leasing company.

Demand continues to decrease nowadays. It is forecast that approximately 50,000 railcars will be bought in 2013 with the focus on special rolling stock. For example, the CEO of Federal Cargo Company Vitaly Evdokimenko said that they were going to halve the number of wagons to be purchased, and to buy no gondola cars. Earlier, Federal Cargo Company (FCC) was going to buy 16,000 wagons (of that, more than 9,000 gondola cars). The surplus of rolling stock in the market, however, made the company change its decision. As a result, FCC plans to buy just 5,000 tank wagons, and 2,700 boxcars. For comparison: the operator purchased 9,400 wagons of different types in 2012.  

Freight One began to reduce purchase volumes even earlier. Freight One bought more than 20,000 railcars in 2010, 7,500 wagons in 2011, and 2,900 gondola cars produced by Uralvagonzavod (UVZ) and 200 tank wagons from Azovmash in 2012. According to unofficial figures, the company has frozen the rolling stock purchase programme.

New Forwarding Company (a part of Globaltrans holding company) bought only gondola cars last year, which was a part of the operator’s production and investment strategy. Valery Shpakov, CEO of New Forwarding Company, noted that approximately 6,000 gondola cars were added to the company’s fleet. Most of them were made by UVZ. Also, in the framework of the investment programme of all companies incorporated in the holding company, Globaltrans expanded its fleet by more than 20,000 railcars, including the purchase of new rolling stock and the fleet of Ferrotrans (the former Metalloinvesttrans) and MMK-Trans. However, Globaltrans is now not ready to disclose its purchase plans for the current year.

On the contrary, Eurosib signed a contract with Altaivagon for the supply of 1,800 wagons in January-May 2013. Of that, there will be 1,000 gondola cars and 800 boxcars. Despite this large order, Altaivagon is going to reduce its production volume by 28% in 2013 to 6,160 units (taking into account Kuzbass Wagon Building Company). 

The dynamics of the work of many companies was negative in January: Ruzkhimmash reduced wagon production volume by 19%, UVZ – by 23%, Novokuznetsk Wagon Building Plant – by 36%. Altaivagon and Armavir Heavy Machine Building Plant had a slight increase in their production volume (+8% and +12% respectively). Tikhvin Railcar Building Plant was put into operation in January 2012, products shipment started in June. The plant produced 1,300 railcars in 2012. “Next-generation railcars made by Tikhvin Railcar Building Plant were used by the largest chemical, metallurgical, coal, and timber enterprises, and transport companies as well. The client base is expanding due to owners being interested in replacing their old wagon fleet with new efficient rolling stock. Therefore, they get a competitive advantage in the transportation market,” comments Dmitry Bovykin, Executive Director at United Wagon Company LLC (managing company of Tikhvin Railcar Building Plant). In 2013, they plan to sell from 4,000 to 5,000 wagons made by Tikhvin Railcar Building Plant. The capacity of the plant is 13,000 units of rolling stock per annum.

To be less dependent on import railcars, the Republic of Kazakhstan adopted plans to expand its own railcar producing capacities. The production volume is not very large: 1,978 units in 2012. Of that, 85% was made by Kazakhstan Company LLP. The company produced 1,700 gondola cars last year, and all of them were bought by Kaztemirtrans JSC. In 2012, the company purchased more than 14,000 railcars (including 1,261 grain wagons). Of that, 200 wagons were made by a national company ZIKSTO JSC. Some reduction in the purchase volume is forecast in 2013. Erzhan Zhakishev, Vice President for Rolling Stock Operation and Logistics at Kaztemirtrans explains that this year the focus will be on the company’s own rolling stock operation, and plans for fleet expansion will not be a priority.



No Second Life for Railcars Any Longer?



Whilst the demand for gondola cars was reducing, their cost was gradually decreasing during 2012. According to estimations by Mr Zotov, prices fell by 20-25% on average. The CEO of a large Russian rolling stock operator said that the cost of a gondola car last year fluctuated between RUB 2.05 million and RUB 2.25 million (except the VAT). Specialists at Freight One said that it is possible to purchase gondola cars for RUB 1.6 million in the market today, whilst a year ago prices for similar rolling stock fluctuated between RUB 2.2 million and RUB 2.3 million. “Perhaps, in the first half of the year, market players will choose a wait-and-see approach. As soon as prices become stable again (in other words, reach the bottom), the demand for gondola cars will recover,” thinks Mr Zotov.  

Meanwhile, experts note a positive trend in the special rolling stock sector, particularly tank wagons for chemicals, hoppers, flat wagons, and boxcars. According to Igor Skok, Leading Expert-Analyst at the Railway Engineering Research Department at the Natural Monopolies’ Institute, the demand for LPG tank wagons in 2013-2020 is forecast to increase from 5,300 to 7,000 units. Buying activity is forecast to increase in the sector of hoppers for transportation of cement and grain.

However, it is not enough to keep the total production volume at the same level. One more factor impacts the plans of rolling stock owners. It was proposed to abolish the capital repair with lifetime extension (KRP) to stimulate the demand for new rolling stock.

UVZ think that this measure will have a positive impact on the sector. Freight One pay attention to the fact that the abolition of the extension of lifetime of wagons and cast components will cause prices growth. Consequently, it will influence the cost of cargo transportation services. Consignors will include this expenditure in the cost of their goods, which will reduce the competitiveness of national products and have a negative impact on the whole Russian economy.  

“Hasty implementation of this measure will contribute to taking out of operation more than 350,000 railcars registered in the RF, i.e. 30% of the whole Russian wagon fleet. As a result, the repair volume will reduce, which will cause a reduction of jobs at wagon repair companies. In those regions, where such companies are the main employers, it will have grave social consequences,” think specialists at Freight One.

Taking out of use a large number of railcars because of the abolition of the KRP will increase the demand for rolling stock as well as prices for it. However, specialists at Freight One think, plants will have no stimulus to improve the quality of their products any longer; thus, the modernization of producing capacities will be postponed for a long period of time. Instead of the abolition of the KRP, it is worth developing a range of measures to toughen the control over the quality of rolling stock repair, production of new cast components, diagnostics and control of the technical condition of railcars during the exploitation, they think in Freight One. The demand for Russian railcars should be stimulated by means of market tools – an increase in the quality of products and implementation of new technologies.  

Mr Skok shares this viewpoint. He notes that one of the ways to support the purchase of new railcars can be allocation of target subsidies to rolling stock owners by the state. As for a possible ban on the KRP, there is a risk that rolling stock owners will register second-hand wagons in the CIS countries, where their lifetime will be extended in accordance with the Decree on the Extension of Service Lifetime of Cargo Wagons Used in International Traffic. 



An Obvious Trend



A significant decline in the demand for universal rolling stock is currently being observed. Amid a decrease in the transportation volume, rolling stock owners are cautious about investment in new wagons. The trend for leasing companies is the same. Wagon building companies count upon the state support.

The situation is even more critical in Ukraine. In 2012, the production volume there fell by 10.3% to 47,000 cargo wagons. In December, the decline was 43.6%. And the outlook is negative. Taking into account the escalating competition, Russian wagon building companies will lobby their interests for the Russian market to prefer products made in the RF.

By Elena Ushkova
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Focus on Economy



In 2012, Russian companies bought more than 90,000 cargo railcars. At the end of the year there was a decline in demand, especially in the gondola wagon sector. The reasons for this were the surplus of universal railcars, and prices for the service of providing wagons for transportation, which halved. “With the rent rate of RUB 800, railcars purchased for more than RUB 1.9 million (the VAT excluded) stop bringing the necessary level of profit,” explains Dmitry Zotov, CEO of TransFin-M leasing company.

Demand continues to decrease nowadays. It is forecast that approximately 50,000 railcars will be bought in 2013 with the focus on special rolling stock. For example, the CEO of Federal Cargo Company Vitaly Evdokimenko said that they were going to halve the number of wagons to be purchased, and to buy no gondola cars. Earlier, Federal Cargo Company (FCC) was going to buy 16,000 wagons (of that, more than 9,000 gondola cars). The surplus of rolling stock in the market, however, made the company change its decision. As a result, FCC plans to buy just 5,000 tank wagons, and 2,700 boxcars. For comparison: the operator purchased 9,400 wagons of different types in 2012.  

Freight One began to reduce purchase volumes even earlier. Freight One bought more than 20,000 railcars in 2010, 7,500 wagons in 2011, and 2,900 gondola cars produced by Uralvagonzavod (UVZ) and 200 tank wagons from Azovmash in 2012. According to unofficial figures, the company has frozen the rolling stock purchase programme.

New Forwarding Company (a part of Globaltrans holding company) bought only gondola cars last year, which was a part of the operator’s production and investment strategy. Valery Shpakov, CEO of New Forwarding Company, noted that approximately 6,000 gondola cars were added to the company’s fleet. Most of them were made by UVZ. Also, in the framework of the investment programme of all companies incorporated in the holding company, Globaltrans expanded its fleet by more than 20,000 railcars, including the purchase of new rolling stock and the fleet of Ferrotrans (the former Metalloinvesttrans) and MMK-Trans. However, Globaltrans is now not ready to disclose its purchase plans for the current year.

On the contrary, Eurosib signed a contract with Altaivagon for the supply of 1,800 wagons in January-May 2013. Of that, there will be 1,000 gondola cars and 800 boxcars. Despite this large order, Altaivagon is going to reduce its production volume by 28% in 2013 to 6,160 units (taking into account Kuzbass Wagon Building Company). 

The dynamics of the work of many companies was negative in January: Ruzkhimmash reduced wagon production volume by 19%, UVZ – by 23%, Novokuznetsk Wagon Building Plant – by 36%. Altaivagon and Armavir Heavy Machine Building Plant had a slight increase in their production volume (+8% and +12% respectively). Tikhvin Railcar Building Plant was put into operation in January 2012, products shipment started in June. The plant produced 1,300 railcars in 2012. “Next-generation railcars made by Tikhvin Railcar Building Plant were used by the largest chemical, metallurgical, coal, and timber enterprises, and transport companies as well. The client base is expanding due to owners being interested in replacing their old wagon fleet with new efficient rolling stock. Therefore, they get a competitive advantage in the transportation market,” comments Dmitry Bovykin, Executive Director at United Wagon Company LLC (managing company of Tikhvin Railcar Building Plant). In 2013, they plan to sell from 4,000 to 5,000 wagons made by Tikhvin Railcar Building Plant. The capacity of the plant is 13,000 units of rolling stock per annum.

To be less dependent on import railcars, the Republic of Kazakhstan adopted plans to expand its own railcar producing capacities. The production volume is not very large: 1,978 units in 2012. Of that, 85% was made by Kazakhstan Company LLP. The company produced 1,700 gondola cars last year, and all of them were bought by Kaztemirtrans JSC. In 2012, the company purchased more than 14,000 railcars (including 1,261 grain wagons). Of that, 200 wagons were made by a national company ZIKSTO JSC. Some reduction in the purchase volume is forecast in 2013. Erzhan Zhakishev, Vice President for Rolling Stock Operation and Logistics at Kaztemirtrans explains that this year the focus will be on the company’s own rolling stock operation, and plans for fleet expansion will not be a priority.



No Second Life for Railcars Any Longer?



Whilst the demand for gondola cars was reducing, their cost was gradually decreasing during 2012. According to estimations by Mr Zotov, prices fell by 20-25% on average. The CEO of a large Russian rolling stock operator said that the cost of a gondola car last year fluctuated between RUB 2.05 million and RUB 2.25 million (except the VAT). Specialists at Freight One said that it is possible to purchase gondola cars for RUB 1.6 million in the market today, whilst a year ago prices for similar rolling stock fluctuated between RUB 2.2 million and RUB 2.3 million. “Perhaps, in the first half of the year, market players will choose a wait-and-see approach. As soon as prices become stable again (in other words, reach the bottom), the demand for gondola cars will recover,” thinks Mr Zotov.  

Meanwhile, experts note a positive trend in the special rolling stock sector, particularly tank wagons for chemicals, hoppers, flat wagons, and boxcars. According to Igor Skok, Leading Expert-Analyst at the Railway Engineering Research Department at the Natural Monopolies’ Institute, the demand for LPG tank wagons in 2013-2020 is forecast to increase from 5,300 to 7,000 units. Buying activity is forecast to increase in the sector of hoppers for transportation of cement and grain.

However, it is not enough to keep the total production volume at the same level. One more factor impacts the plans of rolling stock owners. It was proposed to abolish the capital repair with lifetime extension (KRP) to stimulate the demand for new rolling stock.

UVZ think that this measure will have a positive impact on the sector. Freight One pay attention to the fact that the abolition of the extension of lifetime of wagons and cast components will cause prices growth. Consequently, it will influence the cost of cargo transportation services. Consignors will include this expenditure in the cost of their goods, which will reduce the competitiveness of national products and have a negative impact on the whole Russian economy.  

“Hasty implementation of this measure will contribute to taking out of operation more than 350,000 railcars registered in the RF, i.e. 30% of the whole Russian wagon fleet. As a result, the repair volume will reduce, which will cause a reduction of jobs at wagon repair companies. In those regions, where such companies are the main employers, it will have grave social consequences,” think specialists at Freight One.

Taking out of use a large number of railcars because of the abolition of the KRP will increase the demand for rolling stock as well as prices for it. However, specialists at Freight One think, plants will have no stimulus to improve the quality of their products any longer; thus, the modernization of producing capacities will be postponed for a long period of time. Instead of the abolition of the KRP, it is worth developing a range of measures to toughen the control over the quality of rolling stock repair, production of new cast components, diagnostics and control of the technical condition of railcars during the exploitation, they think in Freight One. The demand for Russian railcars should be stimulated by means of market tools – an increase in the quality of products and implementation of new technologies.  

Mr Skok shares this viewpoint. He notes that one of the ways to support the purchase of new railcars can be allocation of target subsidies to rolling stock owners by the state. As for a possible ban on the KRP, there is a risk that rolling stock owners will register second-hand wagons in the CIS countries, where their lifetime will be extended in accordance with the Decree on the Extension of Service Lifetime of Cargo Wagons Used in International Traffic. 



An Obvious Trend



A significant decline in the demand for universal rolling stock is currently being observed. Amid a decrease in the transportation volume, rolling stock owners are cautious about investment in new wagons. The trend for leasing companies is the same. Wagon building companies count upon the state support.

The situation is even more critical in Ukraine. In 2012, the production volume there fell by 10.3% to 47,000 cargo wagons. In December, the decline was 43.6%. And the outlook is negative. Taking into account the escalating competition, Russian wagon building companies will lobby their interests for the Russian market to prefer products made in the RF.

By Elena Ushkova
    [~DETAIL_TEXT] => 
Focus on Economy



In 2012, Russian companies bought more than 90,000 cargo railcars. At the end of the year there was a decline in demand, especially in the gondola wagon sector. The reasons for this were the surplus of universal railcars, and prices for the service of providing wagons for transportation, which halved. “With the rent rate of RUB 800, railcars purchased for more than RUB 1.9 million (the VAT excluded) stop bringing the necessary level of profit,” explains Dmitry Zotov, CEO of TransFin-M leasing company.

Demand continues to decrease nowadays. It is forecast that approximately 50,000 railcars will be bought in 2013 with the focus on special rolling stock. For example, the CEO of Federal Cargo Company Vitaly Evdokimenko said that they were going to halve the number of wagons to be purchased, and to buy no gondola cars. Earlier, Federal Cargo Company (FCC) was going to buy 16,000 wagons (of that, more than 9,000 gondola cars). The surplus of rolling stock in the market, however, made the company change its decision. As a result, FCC plans to buy just 5,000 tank wagons, and 2,700 boxcars. For comparison: the operator purchased 9,400 wagons of different types in 2012.  

Freight One began to reduce purchase volumes even earlier. Freight One bought more than 20,000 railcars in 2010, 7,500 wagons in 2011, and 2,900 gondola cars produced by Uralvagonzavod (UVZ) and 200 tank wagons from Azovmash in 2012. According to unofficial figures, the company has frozen the rolling stock purchase programme.

New Forwarding Company (a part of Globaltrans holding company) bought only gondola cars last year, which was a part of the operator’s production and investment strategy. Valery Shpakov, CEO of New Forwarding Company, noted that approximately 6,000 gondola cars were added to the company’s fleet. Most of them were made by UVZ. Also, in the framework of the investment programme of all companies incorporated in the holding company, Globaltrans expanded its fleet by more than 20,000 railcars, including the purchase of new rolling stock and the fleet of Ferrotrans (the former Metalloinvesttrans) and MMK-Trans. However, Globaltrans is now not ready to disclose its purchase plans for the current year.

On the contrary, Eurosib signed a contract with Altaivagon for the supply of 1,800 wagons in January-May 2013. Of that, there will be 1,000 gondola cars and 800 boxcars. Despite this large order, Altaivagon is going to reduce its production volume by 28% in 2013 to 6,160 units (taking into account Kuzbass Wagon Building Company). 

The dynamics of the work of many companies was negative in January: Ruzkhimmash reduced wagon production volume by 19%, UVZ – by 23%, Novokuznetsk Wagon Building Plant – by 36%. Altaivagon and Armavir Heavy Machine Building Plant had a slight increase in their production volume (+8% and +12% respectively). Tikhvin Railcar Building Plant was put into operation in January 2012, products shipment started in June. The plant produced 1,300 railcars in 2012. “Next-generation railcars made by Tikhvin Railcar Building Plant were used by the largest chemical, metallurgical, coal, and timber enterprises, and transport companies as well. The client base is expanding due to owners being interested in replacing their old wagon fleet with new efficient rolling stock. Therefore, they get a competitive advantage in the transportation market,” comments Dmitry Bovykin, Executive Director at United Wagon Company LLC (managing company of Tikhvin Railcar Building Plant). In 2013, they plan to sell from 4,000 to 5,000 wagons made by Tikhvin Railcar Building Plant. The capacity of the plant is 13,000 units of rolling stock per annum.

To be less dependent on import railcars, the Republic of Kazakhstan adopted plans to expand its own railcar producing capacities. The production volume is not very large: 1,978 units in 2012. Of that, 85% was made by Kazakhstan Company LLP. The company produced 1,700 gondola cars last year, and all of them were bought by Kaztemirtrans JSC. In 2012, the company purchased more than 14,000 railcars (including 1,261 grain wagons). Of that, 200 wagons were made by a national company ZIKSTO JSC. Some reduction in the purchase volume is forecast in 2013. Erzhan Zhakishev, Vice President for Rolling Stock Operation and Logistics at Kaztemirtrans explains that this year the focus will be on the company’s own rolling stock operation, and plans for fleet expansion will not be a priority.



No Second Life for Railcars Any Longer?



Whilst the demand for gondola cars was reducing, their cost was gradually decreasing during 2012. According to estimations by Mr Zotov, prices fell by 20-25% on average. The CEO of a large Russian rolling stock operator said that the cost of a gondola car last year fluctuated between RUB 2.05 million and RUB 2.25 million (except the VAT). Specialists at Freight One said that it is possible to purchase gondola cars for RUB 1.6 million in the market today, whilst a year ago prices for similar rolling stock fluctuated between RUB 2.2 million and RUB 2.3 million. “Perhaps, in the first half of the year, market players will choose a wait-and-see approach. As soon as prices become stable again (in other words, reach the bottom), the demand for gondola cars will recover,” thinks Mr Zotov.  

Meanwhile, experts note a positive trend in the special rolling stock sector, particularly tank wagons for chemicals, hoppers, flat wagons, and boxcars. According to Igor Skok, Leading Expert-Analyst at the Railway Engineering Research Department at the Natural Monopolies’ Institute, the demand for LPG tank wagons in 2013-2020 is forecast to increase from 5,300 to 7,000 units. Buying activity is forecast to increase in the sector of hoppers for transportation of cement and grain.

However, it is not enough to keep the total production volume at the same level. One more factor impacts the plans of rolling stock owners. It was proposed to abolish the capital repair with lifetime extension (KRP) to stimulate the demand for new rolling stock.

UVZ think that this measure will have a positive impact on the sector. Freight One pay attention to the fact that the abolition of the extension of lifetime of wagons and cast components will cause prices growth. Consequently, it will influence the cost of cargo transportation services. Consignors will include this expenditure in the cost of their goods, which will reduce the competitiveness of national products and have a negative impact on the whole Russian economy.  

“Hasty implementation of this measure will contribute to taking out of operation more than 350,000 railcars registered in the RF, i.e. 30% of the whole Russian wagon fleet. As a result, the repair volume will reduce, which will cause a reduction of jobs at wagon repair companies. In those regions, where such companies are the main employers, it will have grave social consequences,” think specialists at Freight One.

Taking out of use a large number of railcars because of the abolition of the KRP will increase the demand for rolling stock as well as prices for it. However, specialists at Freight One think, plants will have no stimulus to improve the quality of their products any longer; thus, the modernization of producing capacities will be postponed for a long period of time. Instead of the abolition of the KRP, it is worth developing a range of measures to toughen the control over the quality of rolling stock repair, production of new cast components, diagnostics and control of the technical condition of railcars during the exploitation, they think in Freight One. The demand for Russian railcars should be stimulated by means of market tools – an increase in the quality of products and implementation of new technologies.  

Mr Skok shares this viewpoint. He notes that one of the ways to support the purchase of new railcars can be allocation of target subsidies to rolling stock owners by the state. As for a possible ban on the KRP, there is a risk that rolling stock owners will register second-hand wagons in the CIS countries, where their lifetime will be extended in accordance with the Decree on the Extension of Service Lifetime of Cargo Wagons Used in International Traffic. 



An Obvious Trend



A significant decline in the demand for universal rolling stock is currently being observed. Amid a decrease in the transportation volume, rolling stock owners are cautious about investment in new wagons. The trend for leasing companies is the same. Wagon building companies count upon the state support.

The situation is even more critical in Ukraine. In 2012, the production volume there fell by 10.3% to 47,000 cargo wagons. In December, the decline was 43.6%. And the outlook is negative. Taking into account the escalating competition, Russian wagon building companies will lobby their interests for the Russian market to prefer products made in the RF.

By Elena Ushkova
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Neutral Player



– Mr Nadal, last year Russian Railways bought a 75% stake in GEFCO. RZD charges big prospects on GEFCO, as it gives possibilities for positioning itself not only as an infrastructure company, but also as a logistics company in its own right. And what is the attitude to the new owners in GEFCO?



– The change in the shareholder structure is a very good opportunity for GEFCO for several reasons. RZD is a shareholder with a very solid financial base that has invested for the long-term. It will allow GEFCO to continue with its international development plans.

Due to its essential role in goods transportation in countries that are in the “1520” community, and its connections with the industrial sector, RZD is able to open many doors for GEFCO and to facilitate its development in the “1520” zone.

As RZD does not overlap our various fields of expertise, this means that GEFCO’s entry into the RZD group does not have a negative social impact as is sometimes the case following acquisitions. The synergies are at the development level, not at the cost level. This operation increases GEFCO’s attractiveness for international companies wishing to improve their logistics in Russia. Finally, as GEFCO is no longer controlled by PSA Peugeot Citroën, other automobile manufacturers now consider GEFCO to be a neutral player in the market. Conscious of all of this, GEFCO teams feel very positively towards their new shareholder RZD. 



– Can you give us more details regarding GEFCO activity? What is the year of GEFCO establishment, what is the main activity, markets of which countries does it occupy and in what volume?



– GEFCO was created in 1949 by the automobile manufacturer PSA Peugeot Citroën in order to meet PSA’s logistics requirements, initially in France, then gradually throughout the world as PSA developed internationally. PSA developed its industrial presence in Great Britain, Spain, Portugal, Czech Republic, Slovakia, Brazil, Argentina and China. 

As is the case with all global industrial firms, PSA has diverse needs which led to the creation of GEFCO’s 5 main areas of expertise. The first one was the need to transport components to assembly plants and to transport spare parts to dealerships, which gave birth to our train and truck transportation service. The name given to this activity is “Overland”. As soon as PSA operated a service outside of France, GEFCO developed expertise in customs clearance. This activity is called “Customs and Tax Representation”. 

When PSA started to export its cars across the world as well as the accompanying spare parts, and then began to buy components from other countries, GEFCO developed its maritime and air transportation services. This freight forwarding service is called “Overseas”.

GEFCO also developed a warehousing and cross docking service. This involves storing parts which have been collected from suppliers near the factories, and delivering them, sometimes after having carried out several preassembly tasks. Then, as PSA decided to stop using disposable packaging, GEFCO developed expertise in reusable containers. This service is called “Warehousing & Reusable packaging”.

Of course, the most visible activity is that which involves handling vehicles once they leave the factory. This involves their transportation, temporary storage, their preparation (which can include customization) and their delivery to dealerships by sea or land. This service is called “Finished vehicles”. 

Armed with this wealth of expertise, GEFCO decided to offer these services to other industrial clients, naturally to those in the automotive sector, but also gradually to all manufacturing companies. In 2012, PSA represented 57.7% of our sales, but this proportion decreases each year. 

GEFCO is now the benchmark in industrial logistics, with its five major areas of expertise - Overland, Overseas, Warehousing and Reusable packaging, Finished Vehicles Logistics and Customs and tax representation - GEFCO provides innovative global solutions to all industrial logistics needs, whether domestic or international, inbound or outbound. Present in 36 countries and represented in 150 countries, GEFCO is one of the top 10 European groups. It achieved sales & revenue of 3.6 billion euros in 2012 and employs a staff of 11,200. The Group, which has over 300 facilities worldwide, is developing in Central Asia, Central and Eastern Europe, Middle East, Eastern Asia and South America.

Owned since its creation by PSA Peugeot Citroën, 75% of GEFCO is now held by Russian Railways and 25% by PSA Peugeot Citroën. 



– How is GEFCO Russia represented? What are the plans regarding its expansion? 



– GEFCO has now been present in Russia for 10 years, with 7 sites and more than 300 employees. Turnover in 2012 was over €155 million, a growth of 10.9% in comparison with 2011. Its development is based primarily on the automotive and industrial sectors but also on trading with Eastern Europe and Central and Eastern Asia. 

GEFCO’s affiliation with RZD will greatly accelerate GEFCO Russia’s development. 



– What are the competitive advantages of GEFCO on the Russian market?



– GEFCO is what we call an integrator. Our aim is to understand our clients’ logistics needs and to provide them with a global and efficient solution, thus allowing our clients to devote themselves entirely to their core business: the core business of an automotive manufacturer or washing machine manufacturer is to invent new products, produce them, market them and sell them. It is not to organize the transportation and storage of raw materials, components or finished products. 

In Europe, industrial companies use integrator services. This will also be the case in Russia where the manufacturing sector is booming. 

The fact that we are already well-established in Russia and have a client base of international clients that have important projects in countries in the 1520 community are important competitive advantages for GEFCO. GEFCO’s new competitive advantage is that it belongs to RZD, a crucial company for the Russian economy that interacts with most of Russia’s manufacturers and has many assets which are useful for developing our activity: plots of land for car fleets for our clients, warehouses so we can organise temporary storage, terminals and of course resources necessary for rail transportation. 

In order to seize these opportunities, GEFCO Russia must develop at an unrivalled rate. It is here that we are faced with a real challenge in terms of human resources and training. 



– The railway companies of Russia, Belarus and Kazakhstan are going to create the United Transport and Logistics Company (OTLC). In your opinion, could this company be the direct competitor of GEFCO in the Russian market?



– UTLC seems to be a flourishing project as it will eliminate the boundaries between the three countries, it will allow for more efficient use of resources (freight cars, terminals) and the coordination of transportation plans.

GEFCO doesn’t plan on managing resources (freight cars, terminals) in areas where RZD’s other divisions already carry out this function. From this point of view, GEFCO will not be in competition with OTLC. On the contrary, it will call on OTLC each time OTLC’s services are deemed useful in order to offer its clients a global, end-to-end transport solution. 

The only instance where the two companies (GEFCO and OTLC) would potentially be in competition would be if they were both talking to the same customer to offer the same end-to-end solutions. It’s too early to say if OTLC’s dynamic growth will lead us into this unprofitable situation for RZD. 



More Than Just Partnership



– What will be the context of cooperation between GEFCO and RZD, in your opinion? 



– We foresee four areas of cooperation. For Sales: RZD will allow GEFCO to enter into contact with new and unknown clients. Work has already been started to identify the most promising targets (businesses to which we can provide the most added value). Equally, in each of our subsidiaries, we are developing Russian speaking technical and commercial expertise and developing a sales action plan concerning businesses that trade with Russia. For Human resources: we are building recruitment plans and what we call the GEFCO Academy to share our expertise. As I have already mentioned, GEFCO now has to expand its capabilities – especially its workforce. We can recruit and train in the Russian market. We can also invite RZD’s young talent to join us to learn our trade and participate in our development over several years before returning to the parent company. This is the idea behind the GEFCO Academy. 

For Communication: we believe that RZD’s sheer magnitude will enable us to make GEFCO better-known in Russia. In return, we strive to make the RZD brand known everywhere we are present. Modestly, we believe we can provide support to RZD when it envisages railway projects beyond the “1520” zone. 

And of course production of transport services: as an integrator, our job is to organise transportation and not to actually transport. From this point of view, GEFCO will rely on all of RZD and its subsidiaries’ expertise in order to provide the most relevant solutions to its clients. Being an integrator, our job is also to manage information that it useful for the client. In the industrial world, customers have a pressing need to know if operations are going to plan or if a delay is expected. This enables them to make decisions on whether they need to change their production plan or ask us to organize urgent transport. We have on occasion had to deliver factories by helicopter in order to avoid a break in the supply chain. Managing information in the logistics field is probably one area of expertise that we are providing for RZD. We are now part of a powerful corporation having an intense development strategy and present on territories where GEFCO is not. 



– Is it possible to name cooperation between GEFCO and RZD as “partnership on an equal footing”? How do you estimate the potential effect of cooperation between GEFCO and RZD?



– I don’t believe we can talk of a partnership as such. It is more than that. GEFCO belongs to RZD. Our personality, our business culture and our expertise have been central to our success. We also have our clients. We have to maintain all of that. This is what we are bringing to RZD. We hope that GEFCO will be the cornerstone of RZD’s success in the industrial logistics field and the vehicle for its internationalization. 

We have no doubt that this will involve a major growth in GEFCO’s, RZD’s and other subsidiaries’ volume of activity. If we succeed in working together, in a coordinated way, this growth will exceed one billion euros. For us, it is now vital to move quickly. The question of human resources in the technical and commercial field and logistics studies is central. 



– Will automobile and rail transportation be combined?



– In the field of automotive transportation, it is necessary to separate the important approach flows (from an import port or to an export port or from a factory to a distribution area), and the distribution flows to dealerships. 

Railways are very suitable for approach flows (even more so as there are return automotive flows). On the other hand, road transportation is highly suitable for handling distribution from automotive logistics centres to dealerships. 

We can say that rail and road transportation are complementary. GEFCO teams believe that the market share of railway in the transportation of automobiles could increase significantly. 

GEFCO’s job is to offer its clients the most efficient solution according to three criteria: the speed of operations, their cost, and the rate of vehicle damage. This last criterion is very important as the vehicles are fragile and cannot be sold if they are scratched. 



– Whether GEFCO will reorient its activity or redirect territorially because of new owners?



– I don’t think it is necessary to redirect our activities. We should remain focused on our strong points: logistics for manufacturers. On the other hand, we must seize opportunities in areas where RZD is influential. GEFCO must expand its service and in particular its intangible investments (recruitment, training, information systems) in these zones. 

This means we have to significantly expand our activities in Russia and open new subsidiaries in neighbouring countries where we are not already present. 

All of this must be carried out without forgetting our international development outside of RZD’s area of direct influence, and whilst facing the upheavals of the profound economic crisis that is striking the European continent. 

Interviewed by Christina Alexandrova 
    [~DETAIL_TEXT] => 
Neutral Player



– Mr Nadal, last year Russian Railways bought a 75% stake in GEFCO. RZD charges big prospects on GEFCO, as it gives possibilities for positioning itself not only as an infrastructure company, but also as a logistics company in its own right. And what is the attitude to the new owners in GEFCO?



– The change in the shareholder structure is a very good opportunity for GEFCO for several reasons. RZD is a shareholder with a very solid financial base that has invested for the long-term. It will allow GEFCO to continue with its international development plans.

Due to its essential role in goods transportation in countries that are in the “1520” community, and its connections with the industrial sector, RZD is able to open many doors for GEFCO and to facilitate its development in the “1520” zone.

As RZD does not overlap our various fields of expertise, this means that GEFCO’s entry into the RZD group does not have a negative social impact as is sometimes the case following acquisitions. The synergies are at the development level, not at the cost level. This operation increases GEFCO’s attractiveness for international companies wishing to improve their logistics in Russia. Finally, as GEFCO is no longer controlled by PSA Peugeot Citroën, other automobile manufacturers now consider GEFCO to be a neutral player in the market. Conscious of all of this, GEFCO teams feel very positively towards their new shareholder RZD. 



– Can you give us more details regarding GEFCO activity? What is the year of GEFCO establishment, what is the main activity, markets of which countries does it occupy and in what volume?



– GEFCO was created in 1949 by the automobile manufacturer PSA Peugeot Citroën in order to meet PSA’s logistics requirements, initially in France, then gradually throughout the world as PSA developed internationally. PSA developed its industrial presence in Great Britain, Spain, Portugal, Czech Republic, Slovakia, Brazil, Argentina and China. 

As is the case with all global industrial firms, PSA has diverse needs which led to the creation of GEFCO’s 5 main areas of expertise. The first one was the need to transport components to assembly plants and to transport spare parts to dealerships, which gave birth to our train and truck transportation service. The name given to this activity is “Overland”. As soon as PSA operated a service outside of France, GEFCO developed expertise in customs clearance. This activity is called “Customs and Tax Representation”. 

When PSA started to export its cars across the world as well as the accompanying spare parts, and then began to buy components from other countries, GEFCO developed its maritime and air transportation services. This freight forwarding service is called “Overseas”.

GEFCO also developed a warehousing and cross docking service. This involves storing parts which have been collected from suppliers near the factories, and delivering them, sometimes after having carried out several preassembly tasks. Then, as PSA decided to stop using disposable packaging, GEFCO developed expertise in reusable containers. This service is called “Warehousing & Reusable packaging”.

Of course, the most visible activity is that which involves handling vehicles once they leave the factory. This involves their transportation, temporary storage, their preparation (which can include customization) and their delivery to dealerships by sea or land. This service is called “Finished vehicles”. 

Armed with this wealth of expertise, GEFCO decided to offer these services to other industrial clients, naturally to those in the automotive sector, but also gradually to all manufacturing companies. In 2012, PSA represented 57.7% of our sales, but this proportion decreases each year. 

GEFCO is now the benchmark in industrial logistics, with its five major areas of expertise - Overland, Overseas, Warehousing and Reusable packaging, Finished Vehicles Logistics and Customs and tax representation - GEFCO provides innovative global solutions to all industrial logistics needs, whether domestic or international, inbound or outbound. Present in 36 countries and represented in 150 countries, GEFCO is one of the top 10 European groups. It achieved sales & revenue of 3.6 billion euros in 2012 and employs a staff of 11,200. The Group, which has over 300 facilities worldwide, is developing in Central Asia, Central and Eastern Europe, Middle East, Eastern Asia and South America.

Owned since its creation by PSA Peugeot Citroën, 75% of GEFCO is now held by Russian Railways and 25% by PSA Peugeot Citroën. 



– How is GEFCO Russia represented? What are the plans regarding its expansion? 



– GEFCO has now been present in Russia for 10 years, with 7 sites and more than 300 employees. Turnover in 2012 was over €155 million, a growth of 10.9% in comparison with 2011. Its development is based primarily on the automotive and industrial sectors but also on trading with Eastern Europe and Central and Eastern Asia. 

GEFCO’s affiliation with RZD will greatly accelerate GEFCO Russia’s development. 



– What are the competitive advantages of GEFCO on the Russian market?



– GEFCO is what we call an integrator. Our aim is to understand our clients’ logistics needs and to provide them with a global and efficient solution, thus allowing our clients to devote themselves entirely to their core business: the core business of an automotive manufacturer or washing machine manufacturer is to invent new products, produce them, market them and sell them. It is not to organize the transportation and storage of raw materials, components or finished products. 

In Europe, industrial companies use integrator services. This will also be the case in Russia where the manufacturing sector is booming. 

The fact that we are already well-established in Russia and have a client base of international clients that have important projects in countries in the 1520 community are important competitive advantages for GEFCO. GEFCO’s new competitive advantage is that it belongs to RZD, a crucial company for the Russian economy that interacts with most of Russia’s manufacturers and has many assets which are useful for developing our activity: plots of land for car fleets for our clients, warehouses so we can organise temporary storage, terminals and of course resources necessary for rail transportation. 

In order to seize these opportunities, GEFCO Russia must develop at an unrivalled rate. It is here that we are faced with a real challenge in terms of human resources and training. 



– The railway companies of Russia, Belarus and Kazakhstan are going to create the United Transport and Logistics Company (OTLC). In your opinion, could this company be the direct competitor of GEFCO in the Russian market?



– UTLC seems to be a flourishing project as it will eliminate the boundaries between the three countries, it will allow for more efficient use of resources (freight cars, terminals) and the coordination of transportation plans.

GEFCO doesn’t plan on managing resources (freight cars, terminals) in areas where RZD’s other divisions already carry out this function. From this point of view, GEFCO will not be in competition with OTLC. On the contrary, it will call on OTLC each time OTLC’s services are deemed useful in order to offer its clients a global, end-to-end transport solution. 

The only instance where the two companies (GEFCO and OTLC) would potentially be in competition would be if they were both talking to the same customer to offer the same end-to-end solutions. It’s too early to say if OTLC’s dynamic growth will lead us into this unprofitable situation for RZD. 



More Than Just Partnership



– What will be the context of cooperation between GEFCO and RZD, in your opinion? 



– We foresee four areas of cooperation. For Sales: RZD will allow GEFCO to enter into contact with new and unknown clients. Work has already been started to identify the most promising targets (businesses to which we can provide the most added value). Equally, in each of our subsidiaries, we are developing Russian speaking technical and commercial expertise and developing a sales action plan concerning businesses that trade with Russia. For Human resources: we are building recruitment plans and what we call the GEFCO Academy to share our expertise. As I have already mentioned, GEFCO now has to expand its capabilities – especially its workforce. We can recruit and train in the Russian market. We can also invite RZD’s young talent to join us to learn our trade and participate in our development over several years before returning to the parent company. This is the idea behind the GEFCO Academy. 

For Communication: we believe that RZD’s sheer magnitude will enable us to make GEFCO better-known in Russia. In return, we strive to make the RZD brand known everywhere we are present. Modestly, we believe we can provide support to RZD when it envisages railway projects beyond the “1520” zone. 

And of course production of transport services: as an integrator, our job is to organise transportation and not to actually transport. From this point of view, GEFCO will rely on all of RZD and its subsidiaries’ expertise in order to provide the most relevant solutions to its clients. Being an integrator, our job is also to manage information that it useful for the client. In the industrial world, customers have a pressing need to know if operations are going to plan or if a delay is expected. This enables them to make decisions on whether they need to change their production plan or ask us to organize urgent transport. We have on occasion had to deliver factories by helicopter in order to avoid a break in the supply chain. Managing information in the logistics field is probably one area of expertise that we are providing for RZD. We are now part of a powerful corporation having an intense development strategy and present on territories where GEFCO is not. 



– Is it possible to name cooperation between GEFCO and RZD as “partnership on an equal footing”? How do you estimate the potential effect of cooperation between GEFCO and RZD?



– I don’t believe we can talk of a partnership as such. It is more than that. GEFCO belongs to RZD. Our personality, our business culture and our expertise have been central to our success. We also have our clients. We have to maintain all of that. This is what we are bringing to RZD. We hope that GEFCO will be the cornerstone of RZD’s success in the industrial logistics field and the vehicle for its internationalization. 

We have no doubt that this will involve a major growth in GEFCO’s, RZD’s and other subsidiaries’ volume of activity. If we succeed in working together, in a coordinated way, this growth will exceed one billion euros. For us, it is now vital to move quickly. The question of human resources in the technical and commercial field and logistics studies is central. 



– Will automobile and rail transportation be combined?



– In the field of automotive transportation, it is necessary to separate the important approach flows (from an import port or to an export port or from a factory to a distribution area), and the distribution flows to dealerships. 

Railways are very suitable for approach flows (even more so as there are return automotive flows). On the other hand, road transportation is highly suitable for handling distribution from automotive logistics centres to dealerships. 

We can say that rail and road transportation are complementary. GEFCO teams believe that the market share of railway in the transportation of automobiles could increase significantly. 

GEFCO’s job is to offer its clients the most efficient solution according to three criteria: the speed of operations, their cost, and the rate of vehicle damage. This last criterion is very important as the vehicles are fragile and cannot be sold if they are scratched. 



– Whether GEFCO will reorient its activity or redirect territorially because of new owners?



– I don’t think it is necessary to redirect our activities. We should remain focused on our strong points: logistics for manufacturers. On the other hand, we must seize opportunities in areas where RZD is influential. GEFCO must expand its service and in particular its intangible investments (recruitment, training, information systems) in these zones. 

This means we have to significantly expand our activities in Russia and open new subsidiaries in neighbouring countries where we are not already present. 

All of this must be carried out without forgetting our international development outside of RZD’s area of direct influence, and whilst facing the upheavals of the profound economic crisis that is striking the European continent. 

Interviewed by Christina Alexandrova 
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Neutral Player



– Mr Nadal, last year Russian Railways bought a 75% stake in GEFCO. RZD charges big prospects on GEFCO, as it gives possibilities for positioning itself not only as an infrastructure company, but also as a logistics company in its own right. And what is the attitude to the new owners in GEFCO?



– The change in the shareholder structure is a very good opportunity for GEFCO for several reasons. RZD is a shareholder with a very solid financial base that has invested for the long-term. It will allow GEFCO to continue with its international development plans.

Due to its essential role in goods transportation in countries that are in the “1520” community, and its connections with the industrial sector, RZD is able to open many doors for GEFCO and to facilitate its development in the “1520” zone.

As RZD does not overlap our various fields of expertise, this means that GEFCO’s entry into the RZD group does not have a negative social impact as is sometimes the case following acquisitions. The synergies are at the development level, not at the cost level. This operation increases GEFCO’s attractiveness for international companies wishing to improve their logistics in Russia. Finally, as GEFCO is no longer controlled by PSA Peugeot Citroën, other automobile manufacturers now consider GEFCO to be a neutral player in the market. Conscious of all of this, GEFCO teams feel very positively towards their new shareholder RZD. 



– Can you give us more details regarding GEFCO activity? What is the year of GEFCO establishment, what is the main activity, markets of which countries does it occupy and in what volume?



– GEFCO was created in 1949 by the automobile manufacturer PSA Peugeot Citroën in order to meet PSA’s logistics requirements, initially in France, then gradually throughout the world as PSA developed internationally. PSA developed its industrial presence in Great Britain, Spain, Portugal, Czech Republic, Slovakia, Brazil, Argentina and China. 

As is the case with all global industrial firms, PSA has diverse needs which led to the creation of GEFCO’s 5 main areas of expertise. The first one was the need to transport components to assembly plants and to transport spare parts to dealerships, which gave birth to our train and truck transportation service. The name given to this activity is “Overland”. As soon as PSA operated a service outside of France, GEFCO developed expertise in customs clearance. This activity is called “Customs and Tax Representation”. 

When PSA started to export its cars across the world as well as the accompanying spare parts, and then began to buy components from other countries, GEFCO developed its maritime and air transportation services. This freight forwarding service is called “Overseas”.

GEFCO also developed a warehousing and cross docking service. This involves storing parts which have been collected from suppliers near the factories, and delivering them, sometimes after having carried out several preassembly tasks. Then, as PSA decided to stop using disposable packaging, GEFCO developed expertise in reusable containers. This service is called “Warehousing & Reusable packaging”.

Of course, the most visible activity is that which involves handling vehicles once they leave the factory. This involves their transportation, temporary storage, their preparation (which can include customization) and their delivery to dealerships by sea or land. This service is called “Finished vehicles”. 

Armed with this wealth of expertise, GEFCO decided to offer these services to other industrial clients, naturally to those in the automotive sector, but also gradually to all manufacturing companies. In 2012, PSA represented 57.7% of our sales, but this proportion decreases each year. 

GEFCO is now the benchmark in industrial logistics, with its five major areas of expertise - Overland, Overseas, Warehousing and Reusable packaging, Finished Vehicles Logistics and Customs and tax representation - GEFCO provides innovative global solutions to all industrial logistics needs, whether domestic or international, inbound or outbound. Present in 36 countries and represented in 150 countries, GEFCO is one of the top 10 European groups. It achieved sales & revenue of 3.6 billion euros in 2012 and employs a staff of 11,200. The Group, which has over 300 facilities worldwide, is developing in Central Asia, Central and Eastern Europe, Middle East, Eastern Asia and South America.

Owned since its creation by PSA Peugeot Citroën, 75% of GEFCO is now held by Russian Railways and 25% by PSA Peugeot Citroën. 



– How is GEFCO Russia represented? What are the plans regarding its expansion? 



– GEFCO has now been present in Russia for 10 years, with 7 sites and more than 300 employees. Turnover in 2012 was over €155 million, a growth of 10.9% in comparison with 2011. Its development is based primarily on the automotive and industrial sectors but also on trading with Eastern Europe and Central and Eastern Asia. 

GEFCO’s affiliation with RZD will greatly accelerate GEFCO Russia’s development. 



– What are the competitive advantages of GEFCO on the Russian market?



– GEFCO is what we call an integrator. Our aim is to understand our clients’ logistics needs and to provide them with a global and efficient solution, thus allowing our clients to devote themselves entirely to their core business: the core business of an automotive manufacturer or washing machine manufacturer is to invent new products, produce them, market them and sell them. It is not to organize the transportation and storage of raw materials, components or finished products. 

In Europe, industrial companies use integrator services. This will also be the case in Russia where the manufacturing sector is booming. 

The fact that we are already well-established in Russia and have a client base of international clients that have important projects in countries in the 1520 community are important competitive advantages for GEFCO. GEFCO’s new competitive advantage is that it belongs to RZD, a crucial company for the Russian economy that interacts with most of Russia’s manufacturers and has many assets which are useful for developing our activity: plots of land for car fleets for our clients, warehouses so we can organise temporary storage, terminals and of course resources necessary for rail transportation. 

In order to seize these opportunities, GEFCO Russia must develop at an unrivalled rate. It is here that we are faced with a real challenge in terms of human resources and training. 



– The railway companies of Russia, Belarus and Kazakhstan are going to create the United Transport and Logistics Company (OTLC). In your opinion, could this company be the direct competitor of GEFCO in the Russian market?



– UTLC seems to be a flourishing project as it will eliminate the boundaries between the three countries, it will allow for more efficient use of resources (freight cars, terminals) and the coordination of transportation plans.

GEFCO doesn’t plan on managing resources (freight cars, terminals) in areas where RZD’s other divisions already carry out this function. From this point of view, GEFCO will not be in competition with OTLC. On the contrary, it will call on OTLC each time OTLC’s services are deemed useful in order to offer its clients a global, end-to-end transport solution. 

The only instance where the two companies (GEFCO and OTLC) would potentially be in competition would be if they were both talking to the same customer to offer the same end-to-end solutions. It’s too early to say if OTLC’s dynamic growth will lead us into this unprofitable situation for RZD. 



More Than Just Partnership



– What will be the context of cooperation between GEFCO and RZD, in your opinion? 



– We foresee four areas of cooperation. For Sales: RZD will allow GEFCO to enter into contact with new and unknown clients. Work has already been started to identify the most promising targets (businesses to which we can provide the most added value). Equally, in each of our subsidiaries, we are developing Russian speaking technical and commercial expertise and developing a sales action plan concerning businesses that trade with Russia. For Human resources: we are building recruitment plans and what we call the GEFCO Academy to share our expertise. As I have already mentioned, GEFCO now has to expand its capabilities – especially its workforce. We can recruit and train in the Russian market. We can also invite RZD’s young talent to join us to learn our trade and participate in our development over several years before returning to the parent company. This is the idea behind the GEFCO Academy. 

For Communication: we believe that RZD’s sheer magnitude will enable us to make GEFCO better-known in Russia. In return, we strive to make the RZD brand known everywhere we are present. Modestly, we believe we can provide support to RZD when it envisages railway projects beyond the “1520” zone. 

And of course production of transport services: as an integrator, our job is to organise transportation and not to actually transport. From this point of view, GEFCO will rely on all of RZD and its subsidiaries’ expertise in order to provide the most relevant solutions to its clients. Being an integrator, our job is also to manage information that it useful for the client. In the industrial world, customers have a pressing need to know if operations are going to plan or if a delay is expected. This enables them to make decisions on whether they need to change their production plan or ask us to organize urgent transport. We have on occasion had to deliver factories by helicopter in order to avoid a break in the supply chain. Managing information in the logistics field is probably one area of expertise that we are providing for RZD. We are now part of a powerful corporation having an intense development strategy and present on territories where GEFCO is not. 



– Is it possible to name cooperation between GEFCO and RZD as “partnership on an equal footing”? How do you estimate the potential effect of cooperation between GEFCO and RZD?



– I don’t believe we can talk of a partnership as such. It is more than that. GEFCO belongs to RZD. Our personality, our business culture and our expertise have been central to our success. We also have our clients. We have to maintain all of that. This is what we are bringing to RZD. We hope that GEFCO will be the cornerstone of RZD’s success in the industrial logistics field and the vehicle for its internationalization. 

We have no doubt that this will involve a major growth in GEFCO’s, RZD’s and other subsidiaries’ volume of activity. If we succeed in working together, in a coordinated way, this growth will exceed one billion euros. For us, it is now vital to move quickly. The question of human resources in the technical and commercial field and logistics studies is central. 



– Will automobile and rail transportation be combined?



– In the field of automotive transportation, it is necessary to separate the important approach flows (from an import port or to an export port or from a factory to a distribution area), and the distribution flows to dealerships. 

Railways are very suitable for approach flows (even more so as there are return automotive flows). On the other hand, road transportation is highly suitable for handling distribution from automotive logistics centres to dealerships. 

We can say that rail and road transportation are complementary. GEFCO teams believe that the market share of railway in the transportation of automobiles could increase significantly. 

GEFCO’s job is to offer its clients the most efficient solution according to three criteria: the speed of operations, their cost, and the rate of vehicle damage. This last criterion is very important as the vehicles are fragile and cannot be sold if they are scratched. 



– Whether GEFCO will reorient its activity or redirect territorially because of new owners?



– I don’t think it is necessary to redirect our activities. We should remain focused on our strong points: logistics for manufacturers. On the other hand, we must seize opportunities in areas where RZD is influential. GEFCO must expand its service and in particular its intangible investments (recruitment, training, information systems) in these zones. 

This means we have to significantly expand our activities in Russia and open new subsidiaries in neighbouring countries where we are not already present. 

All of this must be carried out without forgetting our international development outside of RZD’s area of direct influence, and whilst facing the upheavals of the profound economic crisis that is striking the European continent. 

Interviewed by Christina Alexandrova 
    [~DETAIL_TEXT] => 
Neutral Player



– Mr Nadal, last year Russian Railways bought a 75% stake in GEFCO. RZD charges big prospects on GEFCO, as it gives possibilities for positioning itself not only as an infrastructure company, but also as a logistics company in its own right. And what is the attitude to the new owners in GEFCO?



– The change in the shareholder structure is a very good opportunity for GEFCO for several reasons. RZD is a shareholder with a very solid financial base that has invested for the long-term. It will allow GEFCO to continue with its international development plans.

Due to its essential role in goods transportation in countries that are in the “1520” community, and its connections with the industrial sector, RZD is able to open many doors for GEFCO and to facilitate its development in the “1520” zone.

As RZD does not overlap our various fields of expertise, this means that GEFCO’s entry into the RZD group does not have a negative social impact as is sometimes the case following acquisitions. The synergies are at the development level, not at the cost level. This operation increases GEFCO’s attractiveness for international companies wishing to improve their logistics in Russia. Finally, as GEFCO is no longer controlled by PSA Peugeot Citroën, other automobile manufacturers now consider GEFCO to be a neutral player in the market. Conscious of all of this, GEFCO teams feel very positively towards their new shareholder RZD. 



– Can you give us more details regarding GEFCO activity? What is the year of GEFCO establishment, what is the main activity, markets of which countries does it occupy and in what volume?



– GEFCO was created in 1949 by the automobile manufacturer PSA Peugeot Citroën in order to meet PSA’s logistics requirements, initially in France, then gradually throughout the world as PSA developed internationally. PSA developed its industrial presence in Great Britain, Spain, Portugal, Czech Republic, Slovakia, Brazil, Argentina and China. 

As is the case with all global industrial firms, PSA has diverse needs which led to the creation of GEFCO’s 5 main areas of expertise. The first one was the need to transport components to assembly plants and to transport spare parts to dealerships, which gave birth to our train and truck transportation service. The name given to this activity is “Overland”. As soon as PSA operated a service outside of France, GEFCO developed expertise in customs clearance. This activity is called “Customs and Tax Representation”. 

When PSA started to export its cars across the world as well as the accompanying spare parts, and then began to buy components from other countries, GEFCO developed its maritime and air transportation services. This freight forwarding service is called “Overseas”.

GEFCO also developed a warehousing and cross docking service. This involves storing parts which have been collected from suppliers near the factories, and delivering them, sometimes after having carried out several preassembly tasks. Then, as PSA decided to stop using disposable packaging, GEFCO developed expertise in reusable containers. This service is called “Warehousing & Reusable packaging”.

Of course, the most visible activity is that which involves handling vehicles once they leave the factory. This involves their transportation, temporary storage, their preparation (which can include customization) and their delivery to dealerships by sea or land. This service is called “Finished vehicles”. 

Armed with this wealth of expertise, GEFCO decided to offer these services to other industrial clients, naturally to those in the automotive sector, but also gradually to all manufacturing companies. In 2012, PSA represented 57.7% of our sales, but this proportion decreases each year. 

GEFCO is now the benchmark in industrial logistics, with its five major areas of expertise - Overland, Overseas, Warehousing and Reusable packaging, Finished Vehicles Logistics and Customs and tax representation - GEFCO provides innovative global solutions to all industrial logistics needs, whether domestic or international, inbound or outbound. Present in 36 countries and represented in 150 countries, GEFCO is one of the top 10 European groups. It achieved sales & revenue of 3.6 billion euros in 2012 and employs a staff of 11,200. The Group, which has over 300 facilities worldwide, is developing in Central Asia, Central and Eastern Europe, Middle East, Eastern Asia and South America.

Owned since its creation by PSA Peugeot Citroën, 75% of GEFCO is now held by Russian Railways and 25% by PSA Peugeot Citroën. 



– How is GEFCO Russia represented? What are the plans regarding its expansion? 



– GEFCO has now been present in Russia for 10 years, with 7 sites and more than 300 employees. Turnover in 2012 was over €155 million, a growth of 10.9% in comparison with 2011. Its development is based primarily on the automotive and industrial sectors but also on trading with Eastern Europe and Central and Eastern Asia. 

GEFCO’s affiliation with RZD will greatly accelerate GEFCO Russia’s development. 



– What are the competitive advantages of GEFCO on the Russian market?



– GEFCO is what we call an integrator. Our aim is to understand our clients’ logistics needs and to provide them with a global and efficient solution, thus allowing our clients to devote themselves entirely to their core business: the core business of an automotive manufacturer or washing machine manufacturer is to invent new products, produce them, market them and sell them. It is not to organize the transportation and storage of raw materials, components or finished products. 

In Europe, industrial companies use integrator services. This will also be the case in Russia where the manufacturing sector is booming. 

The fact that we are already well-established in Russia and have a client base of international clients that have important projects in countries in the 1520 community are important competitive advantages for GEFCO. GEFCO’s new competitive advantage is that it belongs to RZD, a crucial company for the Russian economy that interacts with most of Russia’s manufacturers and has many assets which are useful for developing our activity: plots of land for car fleets for our clients, warehouses so we can organise temporary storage, terminals and of course resources necessary for rail transportation. 

In order to seize these opportunities, GEFCO Russia must develop at an unrivalled rate. It is here that we are faced with a real challenge in terms of human resources and training. 



– The railway companies of Russia, Belarus and Kazakhstan are going to create the United Transport and Logistics Company (OTLC). In your opinion, could this company be the direct competitor of GEFCO in the Russian market?



– UTLC seems to be a flourishing project as it will eliminate the boundaries between the three countries, it will allow for more efficient use of resources (freight cars, terminals) and the coordination of transportation plans.

GEFCO doesn’t plan on managing resources (freight cars, terminals) in areas where RZD’s other divisions already carry out this function. From this point of view, GEFCO will not be in competition with OTLC. On the contrary, it will call on OTLC each time OTLC’s services are deemed useful in order to offer its clients a global, end-to-end transport solution. 

The only instance where the two companies (GEFCO and OTLC) would potentially be in competition would be if they were both talking to the same customer to offer the same end-to-end solutions. It’s too early to say if OTLC’s dynamic growth will lead us into this unprofitable situation for RZD. 



More Than Just Partnership



– What will be the context of cooperation between GEFCO and RZD, in your opinion? 



– We foresee four areas of cooperation. For Sales: RZD will allow GEFCO to enter into contact with new and unknown clients. Work has already been started to identify the most promising targets (businesses to which we can provide the most added value). Equally, in each of our subsidiaries, we are developing Russian speaking technical and commercial expertise and developing a sales action plan concerning businesses that trade with Russia. For Human resources: we are building recruitment plans and what we call the GEFCO Academy to share our expertise. As I have already mentioned, GEFCO now has to expand its capabilities – especially its workforce. We can recruit and train in the Russian market. We can also invite RZD’s young talent to join us to learn our trade and participate in our development over several years before returning to the parent company. This is the idea behind the GEFCO Academy. 

For Communication: we believe that RZD’s sheer magnitude will enable us to make GEFCO better-known in Russia. In return, we strive to make the RZD brand known everywhere we are present. Modestly, we believe we can provide support to RZD when it envisages railway projects beyond the “1520” zone. 

And of course production of transport services: as an integrator, our job is to organise transportation and not to actually transport. From this point of view, GEFCO will rely on all of RZD and its subsidiaries’ expertise in order to provide the most relevant solutions to its clients. Being an integrator, our job is also to manage information that it useful for the client. In the industrial world, customers have a pressing need to know if operations are going to plan or if a delay is expected. This enables them to make decisions on whether they need to change their production plan or ask us to organize urgent transport. We have on occasion had to deliver factories by helicopter in order to avoid a break in the supply chain. Managing information in the logistics field is probably one area of expertise that we are providing for RZD. We are now part of a powerful corporation having an intense development strategy and present on territories where GEFCO is not. 



– Is it possible to name cooperation between GEFCO and RZD as “partnership on an equal footing”? How do you estimate the potential effect of cooperation between GEFCO and RZD?



– I don’t believe we can talk of a partnership as such. It is more than that. GEFCO belongs to RZD. Our personality, our business culture and our expertise have been central to our success. We also have our clients. We have to maintain all of that. This is what we are bringing to RZD. We hope that GEFCO will be the cornerstone of RZD’s success in the industrial logistics field and the vehicle for its internationalization. 

We have no doubt that this will involve a major growth in GEFCO’s, RZD’s and other subsidiaries’ volume of activity. If we succeed in working together, in a coordinated way, this growth will exceed one billion euros. For us, it is now vital to move quickly. The question of human resources in the technical and commercial field and logistics studies is central. 



– Will automobile and rail transportation be combined?



– In the field of automotive transportation, it is necessary to separate the important approach flows (from an import port or to an export port or from a factory to a distribution area), and the distribution flows to dealerships. 

Railways are very suitable for approach flows (even more so as there are return automotive flows). On the other hand, road transportation is highly suitable for handling distribution from automotive logistics centres to dealerships. 

We can say that rail and road transportation are complementary. GEFCO teams believe that the market share of railway in the transportation of automobiles could increase significantly. 

GEFCO’s job is to offer its clients the most efficient solution according to three criteria: the speed of operations, their cost, and the rate of vehicle damage. This last criterion is very important as the vehicles are fragile and cannot be sold if they are scratched. 



– Whether GEFCO will reorient its activity or redirect territorially because of new owners?



– I don’t think it is necessary to redirect our activities. We should remain focused on our strong points: logistics for manufacturers. On the other hand, we must seize opportunities in areas where RZD is influential. GEFCO must expand its service and in particular its intangible investments (recruitment, training, information systems) in these zones. 

This means we have to significantly expand our activities in Russia and open new subsidiaries in neighbouring countries where we are not already present. 

All of this must be carried out without forgetting our international development outside of RZD’s area of direct influence, and whilst facing the upheavals of the profound economic crisis that is striking the European continent. 

Interviewed by Christina Alexandrova 
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Last year, RailTransAuto succeeded in carrying out several projects of importance in this sector of the market. Regular block-train transportation of AvtoVAZ-made cars to the Central Siberia and the Krasnodar region started; the flow of imported cars from Europe to RTA’s own terminal in Mikhnevo grew; transport and logistics servicing of car assembly plants in the Far East recommenced; a new type of a wagon for vehicles logistics was developed in cooperation with railcar builders, and it will become the flagship in the vehicles logistics this year.

The number of vehicles handled at the company’s terminals in 2012 exceeded the level of 2009 nine-fold, and the number of vehicles transported by RTA grew almost three-fold. Last year, RailTransAuto transported 503,000 cars in autoracks. Particularly, 120 special-purpose cars for the APEC summit, which was held in the Far East in August 2012, were carried from Moscow and back. They were transported in new closed wagons by RTA on a special schedule. In addition to those, 210 Mercedes cars were carried for servicing delegations participating in the APEC summit. The Moscow suburban terminal of RailTransAuto was used for that.

Late in 2012, with the support of the RF Government, new production of Mazda cars was launched in the Far Eastern region. This contributed to an expansion of cooperation between RailTransAuto and its customer, and the start of transportation of products from the new plant.    

Also, last year, Subaru and Hyundai joined the company’s customers, and cooperation with Toyota and Volkswagen was expanded. 

RTA were the first to implement the scheme of cargo transportation by block trains to the central regional terminal, and then – by trucks to the dealers’ “doors”. The first client, for whom this scheme was built, was the leader of Russian car industry – AvtoVAZ.

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In March 2013, RailTransAuto received the first specimen of a new universal autorack. Today, it is the most state-of-the-art wagon for transportation of cars in the Russian market. It provides safe transportation of sport-cars with low ground clearance as well as those with high ground clearance and heavy off-road vehicles. The company plans to purchase 60 such autoracks in 2013. 

“Car producers constantly raise the requirements for transportation of their products by railway,” notes Dmitry Nikolaev, CEO of RailTransAuto. “That’s why RTA has spent a lot of time on the development of a universal autorack.” The three-year programme for the company’s own rolling stock fleet development envisages the purchase of additional 1,000 units of specialised rolling stock. Currently, RailTransAuto operates a fleet of more than 3,000 specialised autoracks. The brand RailTransAuto is currently recognised on all international routes, via which vehicles are transported in Europe and Asia. The company was one of the first subsidiaries of RZD that started to provide 3PL services. In 2013, RailTransAuto plans to carry out a lot of projects, which will strengthen its leading position in the market.

By Elena Nikolaeva  
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Last year, RailTransAuto succeeded in carrying out several projects of importance in this sector of the market. Regular block-train transportation of AvtoVAZ-made cars to the Central Siberia and the Krasnodar region started; the flow of imported cars from Europe to RTA’s own terminal in Mikhnevo grew; transport and logistics servicing of car assembly plants in the Far East recommenced; a new type of a wagon for vehicles logistics was developed in cooperation with railcar builders, and it will become the flagship in the vehicles logistics this year.

The number of vehicles handled at the company’s terminals in 2012 exceeded the level of 2009 nine-fold, and the number of vehicles transported by RTA grew almost three-fold. Last year, RailTransAuto transported 503,000 cars in autoracks. Particularly, 120 special-purpose cars for the APEC summit, which was held in the Far East in August 2012, were carried from Moscow and back. They were transported in new closed wagons by RTA on a special schedule. In addition to those, 210 Mercedes cars were carried for servicing delegations participating in the APEC summit. The Moscow suburban terminal of RailTransAuto was used for that.

Late in 2012, with the support of the RF Government, new production of Mazda cars was launched in the Far Eastern region. This contributed to an expansion of cooperation between RailTransAuto and its customer, and the start of transportation of products from the new plant.    

Also, last year, Subaru and Hyundai joined the company’s customers, and cooperation with Toyota and Volkswagen was expanded. 

RTA were the first to implement the scheme of cargo transportation by block trains to the central regional terminal, and then – by trucks to the dealers’ “doors”. The first client, for whom this scheme was built, was the leader of Russian car industry – AvtoVAZ.

At the end of 2012, RailTransAuto significantly expanded its Moscow suburban terminal. Now its area is 19.6 hectares, thus 8,000 vehicles can be placed there simultaneously. Last year, RTA serviced more than 200,000 cars made by Mazda, Volkswagen, KIA, Skoda, Subaru,   Hyundai, and Mercedes at the terminal in Mikhnevo. Also, RTA offers a wide range of PDI services. Currently, the company carries out a programme of additional development of tracks at its terminal. Two kilometers of rail tracks are to be built there. Therefore, RailTransAuto will be able to service approximately 60 additional autoracks simultaneously, regardless of the capacity of the existing rail line (39 wagons). 

In March 2013, RailTransAuto received the first specimen of a new universal autorack. Today, it is the most state-of-the-art wagon for transportation of cars in the Russian market. It provides safe transportation of sport-cars with low ground clearance as well as those with high ground clearance and heavy off-road vehicles. The company plans to purchase 60 such autoracks in 2013. 

“Car producers constantly raise the requirements for transportation of their products by railway,” notes Dmitry Nikolaev, CEO of RailTransAuto. “That’s why RTA has spent a lot of time on the development of a universal autorack.” The three-year programme for the company’s own rolling stock fleet development envisages the purchase of additional 1,000 units of specialised rolling stock. Currently, RailTransAuto operates a fleet of more than 3,000 specialised autoracks. The brand RailTransAuto is currently recognised on all international routes, via which vehicles are transported in Europe and Asia. The company was one of the first subsidiaries of RZD that started to provide 3PL services. In 2013, RailTransAuto plans to carry out a lot of projects, which will strengthen its leading position in the market.

By Elena Nikolaeva  
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The number of vehicles handled at the company’s terminals in 2012 exceeded the level of 2009 nine-fold, and the number of vehicles transported by RTA grew almost three-fold. Last year, RailTransAuto transported 503,000 cars in autoracks. Particularly, 120 special-purpose cars for the APEC summit, which was held in the Far East in August 2012, were carried from Moscow and back. They were transported in new closed wagons by RTA on a special schedule. In addition to those, 210 Mercedes cars were carried for servicing delegations participating in the APEC summit. The Moscow suburban terminal of RailTransAuto was used for that.

Late in 2012, with the support of the RF Government, new production of Mazda cars was launched in the Far Eastern region. This contributed to an expansion of cooperation between RailTransAuto and its customer, and the start of transportation of products from the new plant.    

Also, last year, Subaru and Hyundai joined the company’s customers, and cooperation with Toyota and Volkswagen was expanded. 

RTA were the first to implement the scheme of cargo transportation by block trains to the central regional terminal, and then – by trucks to the dealers’ “doors”. The first client, for whom this scheme was built, was the leader of Russian car industry – AvtoVAZ.

At the end of 2012, RailTransAuto significantly expanded its Moscow suburban terminal. Now its area is 19.6 hectares, thus 8,000 vehicles can be placed there simultaneously. Last year, RTA serviced more than 200,000 cars made by Mazda, Volkswagen, KIA, Skoda, Subaru,   Hyundai, and Mercedes at the terminal in Mikhnevo. Also, RTA offers a wide range of PDI services. Currently, the company carries out a programme of additional development of tracks at its terminal. Two kilometers of rail tracks are to be built there. Therefore, RailTransAuto will be able to service approximately 60 additional autoracks simultaneously, regardless of the capacity of the existing rail line (39 wagons). 

In March 2013, RailTransAuto received the first specimen of a new universal autorack. Today, it is the most state-of-the-art wagon for transportation of cars in the Russian market. It provides safe transportation of sport-cars with low ground clearance as well as those with high ground clearance and heavy off-road vehicles. The company plans to purchase 60 such autoracks in 2013. 

“Car producers constantly raise the requirements for transportation of their products by railway,” notes Dmitry Nikolaev, CEO of RailTransAuto. “That’s why RTA has spent a lot of time on the development of a universal autorack.” The three-year programme for the company’s own rolling stock fleet development envisages the purchase of additional 1,000 units of specialised rolling stock. Currently, RailTransAuto operates a fleet of more than 3,000 specialised autoracks. The brand RailTransAuto is currently recognised on all international routes, via which vehicles are transported in Europe and Asia. The company was one of the first subsidiaries of RZD that started to provide 3PL services. In 2013, RailTransAuto plans to carry out a lot of projects, which will strengthen its leading position in the market.

By Elena Nikolaeva  
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The number of vehicles handled at the company’s terminals in 2012 exceeded the level of 2009 nine-fold, and the number of vehicles transported by RTA grew almost three-fold. Last year, RailTransAuto transported 503,000 cars in autoracks. Particularly, 120 special-purpose cars for the APEC summit, which was held in the Far East in August 2012, were carried from Moscow and back. They were transported in new closed wagons by RTA on a special schedule. In addition to those, 210 Mercedes cars were carried for servicing delegations participating in the APEC summit. The Moscow suburban terminal of RailTransAuto was used for that.

Late in 2012, with the support of the RF Government, new production of Mazda cars was launched in the Far Eastern region. This contributed to an expansion of cooperation between RailTransAuto and its customer, and the start of transportation of products from the new plant.    

Also, last year, Subaru and Hyundai joined the company’s customers, and cooperation with Toyota and Volkswagen was expanded. 

RTA were the first to implement the scheme of cargo transportation by block trains to the central regional terminal, and then – by trucks to the dealers’ “doors”. The first client, for whom this scheme was built, was the leader of Russian car industry – AvtoVAZ.

At the end of 2012, RailTransAuto significantly expanded its Moscow suburban terminal. Now its area is 19.6 hectares, thus 8,000 vehicles can be placed there simultaneously. Last year, RTA serviced more than 200,000 cars made by Mazda, Volkswagen, KIA, Skoda, Subaru,   Hyundai, and Mercedes at the terminal in Mikhnevo. Also, RTA offers a wide range of PDI services. Currently, the company carries out a programme of additional development of tracks at its terminal. Two kilometers of rail tracks are to be built there. Therefore, RailTransAuto will be able to service approximately 60 additional autoracks simultaneously, regardless of the capacity of the existing rail line (39 wagons). 

In March 2013, RailTransAuto received the first specimen of a new universal autorack. Today, it is the most state-of-the-art wagon for transportation of cars in the Russian market. It provides safe transportation of sport-cars with low ground clearance as well as those with high ground clearance and heavy off-road vehicles. The company plans to purchase 60 such autoracks in 2013. 

“Car producers constantly raise the requirements for transportation of their products by railway,” notes Dmitry Nikolaev, CEO of RailTransAuto. “That’s why RTA has spent a lot of time on the development of a universal autorack.” The three-year programme for the company’s own rolling stock fleet development envisages the purchase of additional 1,000 units of specialised rolling stock. Currently, RailTransAuto operates a fleet of more than 3,000 specialised autoracks. The brand RailTransAuto is currently recognised on all international routes, via which vehicles are transported in Europe and Asia. The company was one of the first subsidiaries of RZD that started to provide 3PL services. In 2013, RailTransAuto plans to carry out a lot of projects, which will strengthen its leading position in the market.

By Elena Nikolaeva  
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Bamstroymekhanizatsia has a broad geography of orders. The company has been engaged in the construction of motorways and railways in seven regions for several years already – the Primorsk region, the Khabarovsk region, the Zabaikalsk region, the Krasnodar region, the Perm region, the Republic of Sakha (Yakutia), and the Amur region. Already running for three years, the main building sites are in the Far East, where the transport infrastructure is being developed actively. The subdivisions’ share in the company’s total amount of work exceeds 50%.

Last year, all events of importance to the company were connected with the Far Eastern region. The basic stages of the project “Organisation of Intermodal Traffic on the Vladivostok – Knevichi Airport Route” were completed. Before the APEC summit in Vladivostok, Aeroexpress trains started to operate in the city. They linked Vladivostok with the main airport of the Primorsk region. Earlier, constructors did a big job to create the infrastructure for these trains. 

Railway station buildings at the Vladivostok, Vtoraya Rechka, Ugolnaya, Airport stations, a new rail track, and an overhead crossing were constructed, and the available infrastructure was updated. It can be said without exaggeration that this was the largest transport project in the Far East, and Bamstroymekhanizatsia played an important role in it.

In 2012, for the first time in its history, the company covered a section of the “Lena” federal motorway with asphalt-concrete surfacing (151-155 kilometres). The quality of the completed work was high, and the state commission confirmed the section’s readiness for operation. Also, Bamstroymekhanizatsia won two big tenders for the reconstruction of sections of the “Ussuri” and ”Lena” federal motorways (RUB 2.5 billion and RUB 4.5 billion respectively). This means, the company will have a lot of work to do this year.

In particular, the company will continue to carry out some large projects relating to railway development. Bamstroymekhanizatsia has been cooperating with railwaymen for many years. RZD represented by RZDstroy is the company’s major customer. For example, a large-scale project for the development of the Zabaikalsk border station was underway last year. There the company dealt with the reconstruction of the 1435 mm sorting system. RZD allocated serious funding to carry out this project targeted at an expansion of cargo transportation to China. The amount of work on this site is rather big, and Bamstroymekhanizatsia is ready to take part in it. The construction of the Humma passing loop on the Komsomolsk – Sovetskaya Gavan rail line will continue.    

There are other projects, in which the company is going to participate. For example, the question of the construction of roads for Eurochem in the Perm region is being settled now. On the whole, Bamstroymekhanizatsia will focus on the Far East, but it is interested in facilities in other regions of Russia, including the European part of the country. 

The company has all the resources (both personnel and technical ones) needed to fulfill such large-scale objectives. Affiliates and service crews of Bamstroymekhanizatsia are in Moscow, Aldan, Perm, Sochi, Chita, Khabarovsk, and Yuzhno-Sakhalinsk. The company has seven mobile mechanical divisions, it employs approximately 2,500 people. Its building machinery fleet consists of more than 600 units, and a lot of attention is paid to its renewal. The mobile mechanical divisions use state-of-the-art machinery made by such world leaders as New Holland, Astra, and Komatsu. Due to this strong technical base, Bamstroymekhanizatsia can fulfill its obligations qualitatively, reliably, and on time.



quotation

Vasily Tarasenko,

CEO of Bamstroymekhanizatsia:

– Bamstroymekhanizatsia is a dynamically developing company, one of the leaders of the Russian building market. Thank to the available material and technical base and skilled specialists, and a large experience in constructing transport and production facilities, the company can fulfill the whole range of building works of high quality and in the shortest time.
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Bamstroymekhanizatsia has a broad geography of orders. The company has been engaged in the construction of motorways and railways in seven regions for several years already – the Primorsk region, the Khabarovsk region, the Zabaikalsk region, the Krasnodar region, the Perm region, the Republic of Sakha (Yakutia), and the Amur region. Already running for three years, the main building sites are in the Far East, where the transport infrastructure is being developed actively. The subdivisions’ share in the company’s total amount of work exceeds 50%.

Last year, all events of importance to the company were connected with the Far Eastern region. The basic stages of the project “Organisation of Intermodal Traffic on the Vladivostok – Knevichi Airport Route” were completed. Before the APEC summit in Vladivostok, Aeroexpress trains started to operate in the city. They linked Vladivostok with the main airport of the Primorsk region. Earlier, constructors did a big job to create the infrastructure for these trains. 

Railway station buildings at the Vladivostok, Vtoraya Rechka, Ugolnaya, Airport stations, a new rail track, and an overhead crossing were constructed, and the available infrastructure was updated. It can be said without exaggeration that this was the largest transport project in the Far East, and Bamstroymekhanizatsia played an important role in it.

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In particular, the company will continue to carry out some large projects relating to railway development. Bamstroymekhanizatsia has been cooperating with railwaymen for many years. RZD represented by RZDstroy is the company’s major customer. For example, a large-scale project for the development of the Zabaikalsk border station was underway last year. There the company dealt with the reconstruction of the 1435 mm sorting system. RZD allocated serious funding to carry out this project targeted at an expansion of cargo transportation to China. The amount of work on this site is rather big, and Bamstroymekhanizatsia is ready to take part in it. The construction of the Humma passing loop on the Komsomolsk – Sovetskaya Gavan rail line will continue.    

There are other projects, in which the company is going to participate. For example, the question of the construction of roads for Eurochem in the Perm region is being settled now. On the whole, Bamstroymekhanizatsia will focus on the Far East, but it is interested in facilities in other regions of Russia, including the European part of the country. 

The company has all the resources (both personnel and technical ones) needed to fulfill such large-scale objectives. Affiliates and service crews of Bamstroymekhanizatsia are in Moscow, Aldan, Perm, Sochi, Chita, Khabarovsk, and Yuzhno-Sakhalinsk. The company has seven mobile mechanical divisions, it employs approximately 2,500 people. Its building machinery fleet consists of more than 600 units, and a lot of attention is paid to its renewal. The mobile mechanical divisions use state-of-the-art machinery made by such world leaders as New Holland, Astra, and Komatsu. Due to this strong technical base, Bamstroymekhanizatsia can fulfill its obligations qualitatively, reliably, and on time.



quotation

Vasily Tarasenko,

CEO of Bamstroymekhanizatsia:

– Bamstroymekhanizatsia is a dynamically developing company, one of the leaders of the Russian building market. Thank to the available material and technical base and skilled specialists, and a large experience in constructing transport and production facilities, the company can fulfill the whole range of building works of high quality and in the shortest time.
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a number of facilities important for the development of Russian transport infrastructure. The company has a wide scope of work in 2013 too.
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Bamstroymekhanizatsia has a broad geography of orders. The company has been engaged in the construction of motorways and railways in seven regions for several years already – the Primorsk region, the Khabarovsk region, the Zabaikalsk region, the Krasnodar region, the Perm region, the Republic of Sakha (Yakutia), and the Amur region. Already running for three years, the main building sites are in the Far East, where the transport infrastructure is being developed actively. The subdivisions’ share in the company’s total amount of work exceeds 50%.

Last year, all events of importance to the company were connected with the Far Eastern region. The basic stages of the project “Organisation of Intermodal Traffic on the Vladivostok – Knevichi Airport Route” were completed. Before the APEC summit in Vladivostok, Aeroexpress trains started to operate in the city. They linked Vladivostok with the main airport of the Primorsk region. Earlier, constructors did a big job to create the infrastructure for these trains. 

Railway station buildings at the Vladivostok, Vtoraya Rechka, Ugolnaya, Airport stations, a new rail track, and an overhead crossing were constructed, and the available infrastructure was updated. It can be said without exaggeration that this was the largest transport project in the Far East, and Bamstroymekhanizatsia played an important role in it.

In 2012, for the first time in its history, the company covered a section of the “Lena” federal motorway with asphalt-concrete surfacing (151-155 kilometres). The quality of the completed work was high, and the state commission confirmed the section’s readiness for operation. Also, Bamstroymekhanizatsia won two big tenders for the reconstruction of sections of the “Ussuri” and ”Lena” federal motorways (RUB 2.5 billion and RUB 4.5 billion respectively). This means, the company will have a lot of work to do this year.

In particular, the company will continue to carry out some large projects relating to railway development. Bamstroymekhanizatsia has been cooperating with railwaymen for many years. RZD represented by RZDstroy is the company’s major customer. For example, a large-scale project for the development of the Zabaikalsk border station was underway last year. There the company dealt with the reconstruction of the 1435 mm sorting system. RZD allocated serious funding to carry out this project targeted at an expansion of cargo transportation to China. The amount of work on this site is rather big, and Bamstroymekhanizatsia is ready to take part in it. The construction of the Humma passing loop on the Komsomolsk – Sovetskaya Gavan rail line will continue.    

There are other projects, in which the company is going to participate. For example, the question of the construction of roads for Eurochem in the Perm region is being settled now. On the whole, Bamstroymekhanizatsia will focus on the Far East, but it is interested in facilities in other regions of Russia, including the European part of the country. 

The company has all the resources (both personnel and technical ones) needed to fulfill such large-scale objectives. Affiliates and service crews of Bamstroymekhanizatsia are in Moscow, Aldan, Perm, Sochi, Chita, Khabarovsk, and Yuzhno-Sakhalinsk. The company has seven mobile mechanical divisions, it employs approximately 2,500 people. Its building machinery fleet consists of more than 600 units, and a lot of attention is paid to its renewal. The mobile mechanical divisions use state-of-the-art machinery made by such world leaders as New Holland, Astra, and Komatsu. Due to this strong technical base, Bamstroymekhanizatsia can fulfill its obligations qualitatively, reliably, and on time.



quotation

Vasily Tarasenko,

CEO of Bamstroymekhanizatsia:

– Bamstroymekhanizatsia is a dynamically developing company, one of the leaders of the Russian building market. Thank to the available material and technical base and skilled specialists, and a large experience in constructing transport and production facilities, the company can fulfill the whole range of building works of high quality and in the shortest time.
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Bamstroymekhanizatsia has a broad geography of orders. The company has been engaged in the construction of motorways and railways in seven regions for several years already – the Primorsk region, the Khabarovsk region, the Zabaikalsk region, the Krasnodar region, the Perm region, the Republic of Sakha (Yakutia), and the Amur region. Already running for three years, the main building sites are in the Far East, where the transport infrastructure is being developed actively. The subdivisions’ share in the company’s total amount of work exceeds 50%.

Last year, all events of importance to the company were connected with the Far Eastern region. The basic stages of the project “Organisation of Intermodal Traffic on the Vladivostok – Knevichi Airport Route” were completed. Before the APEC summit in Vladivostok, Aeroexpress trains started to operate in the city. They linked Vladivostok with the main airport of the Primorsk region. Earlier, constructors did a big job to create the infrastructure for these trains. 

Railway station buildings at the Vladivostok, Vtoraya Rechka, Ugolnaya, Airport stations, a new rail track, and an overhead crossing were constructed, and the available infrastructure was updated. It can be said without exaggeration that this was the largest transport project in the Far East, and Bamstroymekhanizatsia played an important role in it.

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There are other projects, in which the company is going to participate. For example, the question of the construction of roads for Eurochem in the Perm region is being settled now. On the whole, Bamstroymekhanizatsia will focus on the Far East, but it is interested in facilities in other regions of Russia, including the European part of the country. 

The company has all the resources (both personnel and technical ones) needed to fulfill such large-scale objectives. Affiliates and service crews of Bamstroymekhanizatsia are in Moscow, Aldan, Perm, Sochi, Chita, Khabarovsk, and Yuzhno-Sakhalinsk. The company has seven mobile mechanical divisions, it employs approximately 2,500 people. Its building machinery fleet consists of more than 600 units, and a lot of attention is paid to its renewal. The mobile mechanical divisions use state-of-the-art machinery made by such world leaders as New Holland, Astra, and Komatsu. Due to this strong technical base, Bamstroymekhanizatsia can fulfill its obligations qualitatively, reliably, and on time.



quotation

Vasily Tarasenko,

CEO of Bamstroymekhanizatsia:

– Bamstroymekhanizatsia is a dynamically developing company, one of the leaders of the Russian building market. Thank to the available material and technical base and skilled specialists, and a large experience in constructing transport and production facilities, the company can fulfill the whole range of building works of high quality and in the shortest time.
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Adapting to the Market



– Mr Lapidus, I’d like to start our talk with a question about the institute’s life in a new economic situation, as a joint-stock company…



– First of all, I’d like to be optimistic and say that the science in the railway sector is alive, and this is, perhaps, our main achievement in this sphere in the last two decades, because in some industries the situation is dramatically different. As for VNIIZHT, one of the most illustrative figures is last year’s financial and economic results. It was the first year, when the institute made a profit since it became a joint-stock company. On the whole, in 2010-2012 total revenue increased by more than 50%, and investment in the institute’s innovative development grew by 450%. Labour efficiency increased by 50%, and salaries grew proportionally. We plan to wipe out debts and expand revenues, developing in-demand sectors of railway technology, enlarging the circle of our customers and partners, actively offering them new innovative products.



– Are there any structural changes underway in the Institute to adapt it to the market environment?



– Certainly. As I have mentioned, the Programme of the Development of the Scientific Potential of the Institute till 2015 was adopted in 2011. Its first stage is stabilisation of the financial position of VNIIZHT in 2012. The institute has become profitable, and, of course, it inspires the team, because now we have an opportunity for motivation and modernisation. Now we can invest in human resources, and we put a lot of effort into that. People are the main capital of the scientific organisation. At the same time, practice has shown that the organisational and functional model, which was used in the Institute previously, has become outdated. It was focused not on the market, but on donor relationships with the main customer, which is impossible today. Therefore, our strategy envisages a transition to a process model in which research works are to result in a project product, which will be in demand in the market. For this we need to learn to work in accordance with the specifications for quality, meeting deadlines more thoroughly than in previous years. Today, re-engineering, i.e. the transformation of internal control processes, is underway in the institute. We try to make all the important decisions by ourselves; nine working groups develop processes, information technologies and marketing management tools, a program of modernisation of laboratory facilities and equipment, personnel motivation, etc. We will be focusing on this during 2013. We need to organise things, to launch a new organisational structure, removing one control link, simultaneously raising the status of research laboratories as the main link of the research activity. Thus, it is similar to the reform of the holding company, which is carried out in Russian Railways. In fact, we are switching to vertical management for competences in different spheres. I mean, such spheres as infrastructure, rolling stock, tests, and others are divided into specific departments under the responsibility of one particular person. Also, a commercial administration is created; it will have marketing and sales functions.



– What is the share of orders from RZD and other organisations in the portfolio of VNIIZHT? Is it possible to say that the customer market is developing? 



– Yes, it is. The share of RZD together with its subsidiaries is about 60%. Although, according to the business plan of VNIIZHT, the target figure is 75%. Therefore, we have improved it. One should take into account that many of our customers are not incorporated within RZD holding company, but are its partners. For example, we work closely with Transmashholding, Sinara, and Siemens. It is very important that there are other customers. For example, recently we entered into a long-term agreement with the Moscow Metro. We participated in preparing the infrastructure of Uzbek Railways for fast and high-speed traffic – we examined the infrastructure and made recommendations. We concluded agreements with Ukrainian machine-building enterprises and with those from Kazakhstan. In addition, we have taken part in the tenders for fulfilling work for the European Commission. We have developments in the spheres of Eurasian transport corridors, points for high-speed trains operating in winter conditions, we are members of the group of developers of a universal coupler for the EU. And for the “Elbrus” project, VNIIZHT scientists became laureates of the Global Award in the field of railway research and innovation of the International Council for Rail Research. We are very proud of this.



– Should we conclude that railway companies operating in the market and interested in innovations to increase their share in the market will place orders and implement them?



– Yes, of course. It is already happening. Even operators began to make orders. There are few such orders, but they exist. Wagon building plants contact us, realising that they need to make railcars infrastructure-friendly for them not to destroy tracks, and to use railcar body space, its dead weight, etc. more efficiently 



– Being a joint-stock company, is VNIIZHT going to use any new investment instruments? Loans, for example, or anything else to attract capital… 



– A strategic direction developed by the Railway Transport Council of the CIS countries, is opening the charter capital of VNIIZHT for administrations of the Commonwealth. Two of the administrations have already expressed their desire to participate in this project. They are Kazakhstan and Belarus. The shareholder will announce additional issue and these shares will amount to little more than 30% of the charter capital. The funds will be used to modernise the technical base of the institute.



We Are Ready to Help the Sector Solve Crucial Problems



– Plants complain that they start to produce innovative railcars, for example with a larger volume of car body, but nobody buys them. Operators say they wait for discounts on transportation in such railcars. It should seem, however, that an advanced railcar must be more efficient, and consequently, more profitable for its owners even without any discounts.



– Yes, you are absolutely right. The design of a railcar is to give advantages to its owner due to better functional characteristics. Discounts are not the best choice. There appears a following question: at whose expense? One should not think that there must be tariff discounts for every new railcar. To produce a new wagon does not mean that it will be innovative. 

An innovative railcar is to have a smaller impact on tracks and simplify the use of loads, the space, and a lower train resistance. So, these investment discounts will not cover all wagons, moreover, I think, the decision should be based on the mirror principle in this situation: if innovative discounts are implemented for infrastructure-friendly railcars, there should be fines for railcars with a poor dynamics, which destroy tracks.



– The shortage caused an ambition to satisfy the demand with minimum expenditure, to simplify technologies and standards, to use counterfeit, defective components, etc., didn’t it?



– Yes, of course. Now we continue to examine all of the damaged bolsters, we have a unique database. Two years ago, when we received damaged elements of bolsters for inspection, we noted that the quality of castings made by many plants was very low. RZD has a United Scientific Council, and last year we raised the problem of casting and the performance of these nodes, created a special working group, which consists of academic institutes, universities, planning and design offices, and plants. It developed a whole program of recommendations to be implemented at plants, and in the railway transport sector. The focus is on monitoring, diagnostics, tougher requirements for products at plants, and of course improved design. The bogie is very old, it has been working for more than five decades, and many changes have taken place in the field of materials technology. Also, to prevent the use of defective components, we need stricter sanctions for that. As for the diagnostics, we propose to create monitoring centers on the Russian railway network, with standard sections equipped with the system for measuring the real impact of railcars, practically every wheelset on the track. This information will help identify railcars at risk, and not just at structural risk, but specific wagons with a stronger impact on tracks, which knock loudly, vibrate more than others, etc. Then we will define two categories: the first is dangerous railcars. By means of the informational system, they should be set aside at the nearest maintenance point. The second group is the rolling stock, which is diagnosed as risky, but there is no real danger yet, still it requires more attention at the maintenance point. So, the owner of these railcars is to pay additional money for the use of wagons, because the infrastructure owner will spend more efforts to check them.



– Does this system have any equivalents?



– There are similar systems elsewhere in the world. After we established a working group, we learned what systems exist, but they differ from what we want to make. Every wheelset of more than a million railcars operating on the network should be in the information system, and after a certain period of time, for example once a day, its impact on tracks should be monitored. The main objective for us now is to equip one testing site to test all the dynamic parameters - standard and limiting. As soon as this monitoring system appears, an objective base will be created for the economic stimuli and sanctions for wagons.



– You are the head of the United Scientific Council of RZD. What was discussed, for example, at the last meeting?



– Our Council is a unique scientific public organisation. Launched three years ago, it has become a real site for combining fundamental and applied railway technology and practice. During this time we had 36 meetings of the Council, where 50 scientific reports were examined. Nine members of the Academy of Science and associate members of the Russian Academy of Sciences, directors of institutes, principals of universities, representatives of fundamental science, and many leading scientists of the industry participate in the Council’s work. The last meeting was devoted to the problem of speed. We believe that speed is one of the most important economic categories, which is the basis of business and social development. We examined this category from the standpoint of socio-economic and technological effects, structural elements and opportunities to achieve some limits in transportation by railway in the future. There was a very interesting report made by a representative of the Federal Nuclear Center, about the long-term tests of objects moving on rail tracks at the speed of up to 8,000 kph. We concluded that today we need to focus on the study of potential opportunities of railways. I think that the work of the Council is a topic for another interview. I’d like to note that senior managers at RZD are interested in the discussion of urgent issues and the development of strategic solutions at a high scientific level at the meetings of the Council.

Interviewed by Andrey Guryev       
    [~DETAIL_TEXT] => 
Adapting to the Market



– Mr Lapidus, I’d like to start our talk with a question about the institute’s life in a new economic situation, as a joint-stock company…



– First of all, I’d like to be optimistic and say that the science in the railway sector is alive, and this is, perhaps, our main achievement in this sphere in the last two decades, because in some industries the situation is dramatically different. As for VNIIZHT, one of the most illustrative figures is last year’s financial and economic results. It was the first year, when the institute made a profit since it became a joint-stock company. On the whole, in 2010-2012 total revenue increased by more than 50%, and investment in the institute’s innovative development grew by 450%. Labour efficiency increased by 50%, and salaries grew proportionally. We plan to wipe out debts and expand revenues, developing in-demand sectors of railway technology, enlarging the circle of our customers and partners, actively offering them new innovative products.



– Are there any structural changes underway in the Institute to adapt it to the market environment?



– Certainly. As I have mentioned, the Programme of the Development of the Scientific Potential of the Institute till 2015 was adopted in 2011. Its first stage is stabilisation of the financial position of VNIIZHT in 2012. The institute has become profitable, and, of course, it inspires the team, because now we have an opportunity for motivation and modernisation. Now we can invest in human resources, and we put a lot of effort into that. People are the main capital of the scientific organisation. At the same time, practice has shown that the organisational and functional model, which was used in the Institute previously, has become outdated. It was focused not on the market, but on donor relationships with the main customer, which is impossible today. Therefore, our strategy envisages a transition to a process model in which research works are to result in a project product, which will be in demand in the market. For this we need to learn to work in accordance with the specifications for quality, meeting deadlines more thoroughly than in previous years. Today, re-engineering, i.e. the transformation of internal control processes, is underway in the institute. We try to make all the important decisions by ourselves; nine working groups develop processes, information technologies and marketing management tools, a program of modernisation of laboratory facilities and equipment, personnel motivation, etc. We will be focusing on this during 2013. We need to organise things, to launch a new organisational structure, removing one control link, simultaneously raising the status of research laboratories as the main link of the research activity. Thus, it is similar to the reform of the holding company, which is carried out in Russian Railways. In fact, we are switching to vertical management for competences in different spheres. I mean, such spheres as infrastructure, rolling stock, tests, and others are divided into specific departments under the responsibility of one particular person. Also, a commercial administration is created; it will have marketing and sales functions.



– What is the share of orders from RZD and other organisations in the portfolio of VNIIZHT? Is it possible to say that the customer market is developing? 



– Yes, it is. The share of RZD together with its subsidiaries is about 60%. Although, according to the business plan of VNIIZHT, the target figure is 75%. Therefore, we have improved it. One should take into account that many of our customers are not incorporated within RZD holding company, but are its partners. For example, we work closely with Transmashholding, Sinara, and Siemens. It is very important that there are other customers. For example, recently we entered into a long-term agreement with the Moscow Metro. We participated in preparing the infrastructure of Uzbek Railways for fast and high-speed traffic – we examined the infrastructure and made recommendations. We concluded agreements with Ukrainian machine-building enterprises and with those from Kazakhstan. In addition, we have taken part in the tenders for fulfilling work for the European Commission. We have developments in the spheres of Eurasian transport corridors, points for high-speed trains operating in winter conditions, we are members of the group of developers of a universal coupler for the EU. And for the “Elbrus” project, VNIIZHT scientists became laureates of the Global Award in the field of railway research and innovation of the International Council for Rail Research. We are very proud of this.



– Should we conclude that railway companies operating in the market and interested in innovations to increase their share in the market will place orders and implement them?



– Yes, of course. It is already happening. Even operators began to make orders. There are few such orders, but they exist. Wagon building plants contact us, realising that they need to make railcars infrastructure-friendly for them not to destroy tracks, and to use railcar body space, its dead weight, etc. more efficiently 



– Being a joint-stock company, is VNIIZHT going to use any new investment instruments? Loans, for example, or anything else to attract capital… 



– A strategic direction developed by the Railway Transport Council of the CIS countries, is opening the charter capital of VNIIZHT for administrations of the Commonwealth. Two of the administrations have already expressed their desire to participate in this project. They are Kazakhstan and Belarus. The shareholder will announce additional issue and these shares will amount to little more than 30% of the charter capital. The funds will be used to modernise the technical base of the institute.



We Are Ready to Help the Sector Solve Crucial Problems



– Plants complain that they start to produce innovative railcars, for example with a larger volume of car body, but nobody buys them. Operators say they wait for discounts on transportation in such railcars. It should seem, however, that an advanced railcar must be more efficient, and consequently, more profitable for its owners even without any discounts.



– Yes, you are absolutely right. The design of a railcar is to give advantages to its owner due to better functional characteristics. Discounts are not the best choice. There appears a following question: at whose expense? One should not think that there must be tariff discounts for every new railcar. To produce a new wagon does not mean that it will be innovative. 

An innovative railcar is to have a smaller impact on tracks and simplify the use of loads, the space, and a lower train resistance. So, these investment discounts will not cover all wagons, moreover, I think, the decision should be based on the mirror principle in this situation: if innovative discounts are implemented for infrastructure-friendly railcars, there should be fines for railcars with a poor dynamics, which destroy tracks.



– The shortage caused an ambition to satisfy the demand with minimum expenditure, to simplify technologies and standards, to use counterfeit, defective components, etc., didn’t it?



– Yes, of course. Now we continue to examine all of the damaged bolsters, we have a unique database. Two years ago, when we received damaged elements of bolsters for inspection, we noted that the quality of castings made by many plants was very low. RZD has a United Scientific Council, and last year we raised the problem of casting and the performance of these nodes, created a special working group, which consists of academic institutes, universities, planning and design offices, and plants. It developed a whole program of recommendations to be implemented at plants, and in the railway transport sector. The focus is on monitoring, diagnostics, tougher requirements for products at plants, and of course improved design. The bogie is very old, it has been working for more than five decades, and many changes have taken place in the field of materials technology. Also, to prevent the use of defective components, we need stricter sanctions for that. As for the diagnostics, we propose to create monitoring centers on the Russian railway network, with standard sections equipped with the system for measuring the real impact of railcars, practically every wheelset on the track. This information will help identify railcars at risk, and not just at structural risk, but specific wagons with a stronger impact on tracks, which knock loudly, vibrate more than others, etc. Then we will define two categories: the first is dangerous railcars. By means of the informational system, they should be set aside at the nearest maintenance point. The second group is the rolling stock, which is diagnosed as risky, but there is no real danger yet, still it requires more attention at the maintenance point. So, the owner of these railcars is to pay additional money for the use of wagons, because the infrastructure owner will spend more efforts to check them.



– Does this system have any equivalents?



– There are similar systems elsewhere in the world. After we established a working group, we learned what systems exist, but they differ from what we want to make. Every wheelset of more than a million railcars operating on the network should be in the information system, and after a certain period of time, for example once a day, its impact on tracks should be monitored. The main objective for us now is to equip one testing site to test all the dynamic parameters - standard and limiting. As soon as this monitoring system appears, an objective base will be created for the economic stimuli and sanctions for wagons.



– You are the head of the United Scientific Council of RZD. What was discussed, for example, at the last meeting?



– Our Council is a unique scientific public organisation. Launched three years ago, it has become a real site for combining fundamental and applied railway technology and practice. During this time we had 36 meetings of the Council, where 50 scientific reports were examined. Nine members of the Academy of Science and associate members of the Russian Academy of Sciences, directors of institutes, principals of universities, representatives of fundamental science, and many leading scientists of the industry participate in the Council’s work. The last meeting was devoted to the problem of speed. We believe that speed is one of the most important economic categories, which is the basis of business and social development. We examined this category from the standpoint of socio-economic and technological effects, structural elements and opportunities to achieve some limits in transportation by railway in the future. There was a very interesting report made by a representative of the Federal Nuclear Center, about the long-term tests of objects moving on rail tracks at the speed of up to 8,000 kph. We concluded that today we need to focus on the study of potential opportunities of railways. I think that the work of the Council is a topic for another interview. I’d like to note that senior managers at RZD are interested in the discussion of urgent issues and the development of strategic solutions at a high scientific level at the meetings of the Council.

Interviewed by Andrey Guryev       
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On April 18, 2013, The All Russian Railway Research Institute (VNIIZHT) celebrates its 95th anniversary. Just before this remarkable day we had a talk with Prof. Boris Lapidus, CEO of VNIIZHT, a member of the Board of RZD, Doctor of Economics. 
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Adapting to the Market



– Mr Lapidus, I’d like to start our talk with a question about the institute’s life in a new economic situation, as a joint-stock company…



– First of all, I’d like to be optimistic and say that the science in the railway sector is alive, and this is, perhaps, our main achievement in this sphere in the last two decades, because in some industries the situation is dramatically different. As for VNIIZHT, one of the most illustrative figures is last year’s financial and economic results. It was the first year, when the institute made a profit since it became a joint-stock company. On the whole, in 2010-2012 total revenue increased by more than 50%, and investment in the institute’s innovative development grew by 450%. Labour efficiency increased by 50%, and salaries grew proportionally. We plan to wipe out debts and expand revenues, developing in-demand sectors of railway technology, enlarging the circle of our customers and partners, actively offering them new innovative products.



– Are there any structural changes underway in the Institute to adapt it to the market environment?



– Certainly. As I have mentioned, the Programme of the Development of the Scientific Potential of the Institute till 2015 was adopted in 2011. Its first stage is stabilisation of the financial position of VNIIZHT in 2012. The institute has become profitable, and, of course, it inspires the team, because now we have an opportunity for motivation and modernisation. Now we can invest in human resources, and we put a lot of effort into that. People are the main capital of the scientific organisation. At the same time, practice has shown that the organisational and functional model, which was used in the Institute previously, has become outdated. It was focused not on the market, but on donor relationships with the main customer, which is impossible today. Therefore, our strategy envisages a transition to a process model in which research works are to result in a project product, which will be in demand in the market. For this we need to learn to work in accordance with the specifications for quality, meeting deadlines more thoroughly than in previous years. Today, re-engineering, i.e. the transformation of internal control processes, is underway in the institute. We try to make all the important decisions by ourselves; nine working groups develop processes, information technologies and marketing management tools, a program of modernisation of laboratory facilities and equipment, personnel motivation, etc. We will be focusing on this during 2013. We need to organise things, to launch a new organisational structure, removing one control link, simultaneously raising the status of research laboratories as the main link of the research activity. Thus, it is similar to the reform of the holding company, which is carried out in Russian Railways. In fact, we are switching to vertical management for competences in different spheres. I mean, such spheres as infrastructure, rolling stock, tests, and others are divided into specific departments under the responsibility of one particular person. Also, a commercial administration is created; it will have marketing and sales functions.



– What is the share of orders from RZD and other organisations in the portfolio of VNIIZHT? Is it possible to say that the customer market is developing? 



– Yes, it is. The share of RZD together with its subsidiaries is about 60%. Although, according to the business plan of VNIIZHT, the target figure is 75%. Therefore, we have improved it. One should take into account that many of our customers are not incorporated within RZD holding company, but are its partners. For example, we work closely with Transmashholding, Sinara, and Siemens. It is very important that there are other customers. For example, recently we entered into a long-term agreement with the Moscow Metro. We participated in preparing the infrastructure of Uzbek Railways for fast and high-speed traffic – we examined the infrastructure and made recommendations. We concluded agreements with Ukrainian machine-building enterprises and with those from Kazakhstan. In addition, we have taken part in the tenders for fulfilling work for the European Commission. We have developments in the spheres of Eurasian transport corridors, points for high-speed trains operating in winter conditions, we are members of the group of developers of a universal coupler for the EU. And for the “Elbrus” project, VNIIZHT scientists became laureates of the Global Award in the field of railway research and innovation of the International Council for Rail Research. We are very proud of this.



– Should we conclude that railway companies operating in the market and interested in innovations to increase their share in the market will place orders and implement them?



– Yes, of course. It is already happening. Even operators began to make orders. There are few such orders, but they exist. Wagon building plants contact us, realising that they need to make railcars infrastructure-friendly for them not to destroy tracks, and to use railcar body space, its dead weight, etc. more efficiently 



– Being a joint-stock company, is VNIIZHT going to use any new investment instruments? Loans, for example, or anything else to attract capital… 



– A strategic direction developed by the Railway Transport Council of the CIS countries, is opening the charter capital of VNIIZHT for administrations of the Commonwealth. Two of the administrations have already expressed their desire to participate in this project. They are Kazakhstan and Belarus. The shareholder will announce additional issue and these shares will amount to little more than 30% of the charter capital. The funds will be used to modernise the technical base of the institute.



We Are Ready to Help the Sector Solve Crucial Problems



– Plants complain that they start to produce innovative railcars, for example with a larger volume of car body, but nobody buys them. Operators say they wait for discounts on transportation in such railcars. It should seem, however, that an advanced railcar must be more efficient, and consequently, more profitable for its owners even without any discounts.



– Yes, you are absolutely right. The design of a railcar is to give advantages to its owner due to better functional characteristics. Discounts are not the best choice. There appears a following question: at whose expense? One should not think that there must be tariff discounts for every new railcar. To produce a new wagon does not mean that it will be innovative. 

An innovative railcar is to have a smaller impact on tracks and simplify the use of loads, the space, and a lower train resistance. So, these investment discounts will not cover all wagons, moreover, I think, the decision should be based on the mirror principle in this situation: if innovative discounts are implemented for infrastructure-friendly railcars, there should be fines for railcars with a poor dynamics, which destroy tracks.



– The shortage caused an ambition to satisfy the demand with minimum expenditure, to simplify technologies and standards, to use counterfeit, defective components, etc., didn’t it?



– Yes, of course. Now we continue to examine all of the damaged bolsters, we have a unique database. Two years ago, when we received damaged elements of bolsters for inspection, we noted that the quality of castings made by many plants was very low. RZD has a United Scientific Council, and last year we raised the problem of casting and the performance of these nodes, created a special working group, which consists of academic institutes, universities, planning and design offices, and plants. It developed a whole program of recommendations to be implemented at plants, and in the railway transport sector. The focus is on monitoring, diagnostics, tougher requirements for products at plants, and of course improved design. The bogie is very old, it has been working for more than five decades, and many changes have taken place in the field of materials technology. Also, to prevent the use of defective components, we need stricter sanctions for that. As for the diagnostics, we propose to create monitoring centers on the Russian railway network, with standard sections equipped with the system for measuring the real impact of railcars, practically every wheelset on the track. This information will help identify railcars at risk, and not just at structural risk, but specific wagons with a stronger impact on tracks, which knock loudly, vibrate more than others, etc. Then we will define two categories: the first is dangerous railcars. By means of the informational system, they should be set aside at the nearest maintenance point. The second group is the rolling stock, which is diagnosed as risky, but there is no real danger yet, still it requires more attention at the maintenance point. So, the owner of these railcars is to pay additional money for the use of wagons, because the infrastructure owner will spend more efforts to check them.



– Does this system have any equivalents?



– There are similar systems elsewhere in the world. After we established a working group, we learned what systems exist, but they differ from what we want to make. Every wheelset of more than a million railcars operating on the network should be in the information system, and after a certain period of time, for example once a day, its impact on tracks should be monitored. The main objective for us now is to equip one testing site to test all the dynamic parameters - standard and limiting. As soon as this monitoring system appears, an objective base will be created for the economic stimuli and sanctions for wagons.



– You are the head of the United Scientific Council of RZD. What was discussed, for example, at the last meeting?



– Our Council is a unique scientific public organisation. Launched three years ago, it has become a real site for combining fundamental and applied railway technology and practice. During this time we had 36 meetings of the Council, where 50 scientific reports were examined. Nine members of the Academy of Science and associate members of the Russian Academy of Sciences, directors of institutes, principals of universities, representatives of fundamental science, and many leading scientists of the industry participate in the Council’s work. The last meeting was devoted to the problem of speed. We believe that speed is one of the most important economic categories, which is the basis of business and social development. We examined this category from the standpoint of socio-economic and technological effects, structural elements and opportunities to achieve some limits in transportation by railway in the future. There was a very interesting report made by a representative of the Federal Nuclear Center, about the long-term tests of objects moving on rail tracks at the speed of up to 8,000 kph. We concluded that today we need to focus on the study of potential opportunities of railways. I think that the work of the Council is a topic for another interview. I’d like to note that senior managers at RZD are interested in the discussion of urgent issues and the development of strategic solutions at a high scientific level at the meetings of the Council.

Interviewed by Andrey Guryev       
    [~DETAIL_TEXT] => 
Adapting to the Market



– Mr Lapidus, I’d like to start our talk with a question about the institute’s life in a new economic situation, as a joint-stock company…



– First of all, I’d like to be optimistic and say that the science in the railway sector is alive, and this is, perhaps, our main achievement in this sphere in the last two decades, because in some industries the situation is dramatically different. As for VNIIZHT, one of the most illustrative figures is last year’s financial and economic results. It was the first year, when the institute made a profit since it became a joint-stock company. On the whole, in 2010-2012 total revenue increased by more than 50%, and investment in the institute’s innovative development grew by 450%. Labour efficiency increased by 50%, and salaries grew proportionally. We plan to wipe out debts and expand revenues, developing in-demand sectors of railway technology, enlarging the circle of our customers and partners, actively offering them new innovative products.



– Are there any structural changes underway in the Institute to adapt it to the market environment?



– Certainly. As I have mentioned, the Programme of the Development of the Scientific Potential of the Institute till 2015 was adopted in 2011. Its first stage is stabilisation of the financial position of VNIIZHT in 2012. The institute has become profitable, and, of course, it inspires the team, because now we have an opportunity for motivation and modernisation. Now we can invest in human resources, and we put a lot of effort into that. People are the main capital of the scientific organisation. At the same time, practice has shown that the organisational and functional model, which was used in the Institute previously, has become outdated. It was focused not on the market, but on donor relationships with the main customer, which is impossible today. Therefore, our strategy envisages a transition to a process model in which research works are to result in a project product, which will be in demand in the market. For this we need to learn to work in accordance with the specifications for quality, meeting deadlines more thoroughly than in previous years. Today, re-engineering, i.e. the transformation of internal control processes, is underway in the institute. We try to make all the important decisions by ourselves; nine working groups develop processes, information technologies and marketing management tools, a program of modernisation of laboratory facilities and equipment, personnel motivation, etc. We will be focusing on this during 2013. We need to organise things, to launch a new organisational structure, removing one control link, simultaneously raising the status of research laboratories as the main link of the research activity. Thus, it is similar to the reform of the holding company, which is carried out in Russian Railways. In fact, we are switching to vertical management for competences in different spheres. I mean, such spheres as infrastructure, rolling stock, tests, and others are divided into specific departments under the responsibility of one particular person. Also, a commercial administration is created; it will have marketing and sales functions.



– What is the share of orders from RZD and other organisations in the portfolio of VNIIZHT? Is it possible to say that the customer market is developing? 



– Yes, it is. The share of RZD together with its subsidiaries is about 60%. Although, according to the business plan of VNIIZHT, the target figure is 75%. Therefore, we have improved it. One should take into account that many of our customers are not incorporated within RZD holding company, but are its partners. For example, we work closely with Transmashholding, Sinara, and Siemens. It is very important that there are other customers. For example, recently we entered into a long-term agreement with the Moscow Metro. We participated in preparing the infrastructure of Uzbek Railways for fast and high-speed traffic – we examined the infrastructure and made recommendations. We concluded agreements with Ukrainian machine-building enterprises and with those from Kazakhstan. In addition, we have taken part in the tenders for fulfilling work for the European Commission. We have developments in the spheres of Eurasian transport corridors, points for high-speed trains operating in winter conditions, we are members of the group of developers of a universal coupler for the EU. And for the “Elbrus” project, VNIIZHT scientists became laureates of the Global Award in the field of railway research and innovation of the International Council for Rail Research. We are very proud of this.



– Should we conclude that railway companies operating in the market and interested in innovations to increase their share in the market will place orders and implement them?



– Yes, of course. It is already happening. Even operators began to make orders. There are few such orders, but they exist. Wagon building plants contact us, realising that they need to make railcars infrastructure-friendly for them not to destroy tracks, and to use railcar body space, its dead weight, etc. more efficiently 



– Being a joint-stock company, is VNIIZHT going to use any new investment instruments? Loans, for example, or anything else to attract capital… 



– A strategic direction developed by the Railway Transport Council of the CIS countries, is opening the charter capital of VNIIZHT for administrations of the Commonwealth. Two of the administrations have already expressed their desire to participate in this project. They are Kazakhstan and Belarus. The shareholder will announce additional issue and these shares will amount to little more than 30% of the charter capital. The funds will be used to modernise the technical base of the institute.



We Are Ready to Help the Sector Solve Crucial Problems



– Plants complain that they start to produce innovative railcars, for example with a larger volume of car body, but nobody buys them. Operators say they wait for discounts on transportation in such railcars. It should seem, however, that an advanced railcar must be more efficient, and consequently, more profitable for its owners even without any discounts.



– Yes, you are absolutely right. The design of a railcar is to give advantages to its owner due to better functional characteristics. Discounts are not the best choice. There appears a following question: at whose expense? One should not think that there must be tariff discounts for every new railcar. To produce a new wagon does not mean that it will be innovative. 

An innovative railcar is to have a smaller impact on tracks and simplify the use of loads, the space, and a lower train resistance. So, these investment discounts will not cover all wagons, moreover, I think, the decision should be based on the mirror principle in this situation: if innovative discounts are implemented for infrastructure-friendly railcars, there should be fines for railcars with a poor dynamics, which destroy tracks.



– The shortage caused an ambition to satisfy the demand with minimum expenditure, to simplify technologies and standards, to use counterfeit, defective components, etc., didn’t it?



– Yes, of course. Now we continue to examine all of the damaged bolsters, we have a unique database. Two years ago, when we received damaged elements of bolsters for inspection, we noted that the quality of castings made by many plants was very low. RZD has a United Scientific Council, and last year we raised the problem of casting and the performance of these nodes, created a special working group, which consists of academic institutes, universities, planning and design offices, and plants. It developed a whole program of recommendations to be implemented at plants, and in the railway transport sector. The focus is on monitoring, diagnostics, tougher requirements for products at plants, and of course improved design. The bogie is very old, it has been working for more than five decades, and many changes have taken place in the field of materials technology. Also, to prevent the use of defective components, we need stricter sanctions for that. As for the diagnostics, we propose to create monitoring centers on the Russian railway network, with standard sections equipped with the system for measuring the real impact of railcars, practically every wheelset on the track. This information will help identify railcars at risk, and not just at structural risk, but specific wagons with a stronger impact on tracks, which knock loudly, vibrate more than others, etc. Then we will define two categories: the first is dangerous railcars. By means of the informational system, they should be set aside at the nearest maintenance point. The second group is the rolling stock, which is diagnosed as risky, but there is no real danger yet, still it requires more attention at the maintenance point. So, the owner of these railcars is to pay additional money for the use of wagons, because the infrastructure owner will spend more efforts to check them.



– Does this system have any equivalents?



– There are similar systems elsewhere in the world. After we established a working group, we learned what systems exist, but they differ from what we want to make. Every wheelset of more than a million railcars operating on the network should be in the information system, and after a certain period of time, for example once a day, its impact on tracks should be monitored. The main objective for us now is to equip one testing site to test all the dynamic parameters - standard and limiting. As soon as this monitoring system appears, an objective base will be created for the economic stimuli and sanctions for wagons.



– You are the head of the United Scientific Council of RZD. What was discussed, for example, at the last meeting?



– Our Council is a unique scientific public organisation. Launched three years ago, it has become a real site for combining fundamental and applied railway technology and practice. During this time we had 36 meetings of the Council, where 50 scientific reports were examined. Nine members of the Academy of Science and associate members of the Russian Academy of Sciences, directors of institutes, principals of universities, representatives of fundamental science, and many leading scientists of the industry participate in the Council’s work. The last meeting was devoted to the problem of speed. We believe that speed is one of the most important economic categories, which is the basis of business and social development. We examined this category from the standpoint of socio-economic and technological effects, structural elements and opportunities to achieve some limits in transportation by railway in the future. There was a very interesting report made by a representative of the Federal Nuclear Center, about the long-term tests of objects moving on rail tracks at the speed of up to 8,000 kph. We concluded that today we need to focus on the study of potential opportunities of railways. I think that the work of the Council is a topic for another interview. I’d like to note that senior managers at RZD are interested in the discussion of urgent issues and the development of strategic solutions at a high scientific level at the meetings of the Council.

Interviewed by Andrey Guryev       
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All Roads Lead to Russia



– Mr Melnikov, what was behind the decision of your company to start doing business in this country?



– The decision to start forwarding business in Russia and the CIS was a logical progression. It was caused by the liberalisation of the transport services market in the early 1990-s. The monopoly on external transportation that had existed in the USSR till 1991 collapsed, and many Russian companies, which had international contracts, faced the problem of cargo transportation to their partners. That was when foreign, and first of all German companies, experienced in logistics, started to open offices in the Russian Federation and worked having practically no competitors among Russian companies.



– What are the main differences in doing business in Russia from doing business in other countries? I mean all imaginable matters — clients, regulation, and even the weather...



– The major difference is the legal regulation of several transport issues. Getting a permission for transportation of heavy or oversized cargo is a process, even the thought of which dismays many our customers. The online procedure of adjusting such transportation with authorised bodies in Europe turns into a heap of paper documents to be received in Russia. There are some advantages, however: Russian companies, which learnt how to survive in difficult conditions, differ from their foreign colleagues by a strong will to succeed and a readiness to combine risk and prudence, spirit and self-possession. For example, our Russian subsidiary signed a contract with Hydromashservice CJSC for transportation of equipment for the reconstruction of pumping stations at the Bukharsky canal in Uzbekistan. Our foreign partners doubted that we would succeed in delivering all cargo to the destination point and avoid problems with customs or wagon idling. There was a risk, but prudence and foresight helped to avoid them. There are more difficult routes than that to Uzbekistan. For example, during the transportation of compactors from Central China to Tajikistan, a customer initially examined the scheme of cargo delivery to the port of Shanghai with further transportation to St Petersburg or Klaipeda by sea, and then – to Dushanbe by railway. The cost of transportation in this case became equal to the cost of the cargo. We offered direct railway transportation via Western China and Kazakhstan, though we knew about traffic jams at the border, and that it could take more than 20 days to pass customs clearance procedures and reload the equipment. We had a tough deadline, so our employees left for the border beforehand, carried out preparatory works, and, as a result, the rolling stock with the freight didn’t idle for even one day.



– In your opinion, is competition between logistics companies in Russia tough? 



– There is competition between Russian and foreign companies, and the former are gradually winning in Russia, because they know their country better, and their price policy is more profitable for clients – their prices are lower, and all payments are in Russian roubles. In the sector of project cargo transportation the competition is not as tough as in the sector of transportation of containers or other cargoes, where the market is divided between large operators. Naturally, logistics mistakes come at a high cost - one can even lose customers because of them.



Appetite comes with eating



– What’s your company’s development strategy in Russia?



– This question has been urgent for us since the foundation of the company in 1991. We specialise in transportation of project cargoes for large industrial facilities. The range of transportation must be constantly expanded – European countries, China, Latin America, states in the Middle East, including Iraq and Syria (work is underway in spite of military operations there). A new direction is Western Africa. There are countries in this region with which Russia has no fully-fledged diplomatic contact, so delivery of cargo for construction facilities in Benin, Ghana, and Niger is difficult, but urgent. We have delivered them enough equipment, which allowed spanning the Niger river. Transport work in Africa is complicated not only because of the climate, but because of the unstable domestic policy situation, so there is a necessity to use security companies to provide security. To get to the construction site or to administrative offices one needs an armoured car, a bullet proof vest, a helmet, and armed security. 



– What is your estimation of the quality of transport services in Russia compared to that in Europe?



– The quality is better in Europe due to perfectly developed infrastructure and properly organised document circulation, especially at customs clearance. Every time in Germany, when I see specialists in Dusseldorf providing customs clearance of cargo delivered to the Hamburg port, it reminds me of business trips and dozens of meetings and negotiations we have to hold in Russia for similar processes, especially if it is connected with transportation of project cargo. 

There is another thing: in many Russian representative offices of foreign companies, especially forwarding and logistics companies, there are practically no employees from other countries, the lion’s share of specialists are citizens of the CIS, who have gained experience and have even surpassed their colleagues from other countries. Foreigners often continue to think that Russia is the country of super profits and not very informed residents, meanwhile, the situation has changed. We often outperform our colleagues from Dusseldorf with prices we get from our Russian operators, and these are mainly railway operators. There are other problems, but in terms of price policy Russian companies frequently surpass foreign ones.

On the whole, despite the high qualification of Russian transporters, the quality of service in Russia depends on the pitfalls of domestic infrastructure, such as the lack of ports and high-quality motorways.



By Hook or by Crook          



– It’s commonplace that transport infrastructure is developed poorly in Russia. What are the weakest points in it, where are the worst bottle-necks?



– The main weakness is the number and the quality of motorways. What is constructed and repaired is a drop in the ocean. For example, drivers just do not want to drive to Chelyabinsk and its suburbs, where a lot of industrial enterprises are located, - there are holes on the roads so big there that one can “fall in” to them together with his vehicle. And prices for road transportation continue to increase. What about the safety of freight on such a motorway? You open a truck and think – what will be in there? Another weakness is port services. Prices are unjustifiably high; they exceed prices in northern European ports, and even those in the harbours of Istanbul and Constantza. We often think how to avoid adding to the route, for example, handling in the Novorossiysk port, or how to by-pass the port of St Petersburg. There were no specific problems with railways until the beginning of wagon fleet privatisation. Last year we organised shipment of a small lot of equipment from Tambov to Uzbekistan – about 50 wagons. The local producer had dispatched this freight for decades without any special difficulties. When the cargo was ready, however, there appeared a problem – there were no railcars. As a result, the delay in shipment was three months. Sometimes, when we apply to large operators, they make us a “counter offer”: they will provide railcars in exchange for the whole freight.  



– If we talk about the types of cargoes you are dealing with, do you see any new trends here? I mean, do some types of cargo become more popular whilst others decrease?



– The current trend is equipment for the energy industry: generators, transformers, and oil-loading equipment. Unfortunately, the amount of cargoes we used to transport from Russia to other countries is decreasing. Some large energy equipment producers have practically lost their trade network abroad. Earlier we transported equipment for large energy facilities in Latin America two or three times a year, and now we are glad if there is one such project per year. And the cargo flow of the same equipment from China has increased. For example, one of the largest Belarusian enterprises orders equipment from China, though there are plants in Moscow and St Petersburg producing similar machinery. The amount of incoming equipment from Europe, in particular from Germany, grows.  



Honesty Is the Best Policy



– Russian customs are well known for the difficulties they create for the business community. What kind of problems do you face when dealing with customs operations?



– We tell our clients, “Do take into account the specifics of customs clearance in Russia and the CIS countries.” One can sometimes fail to foresee all the frequently changing rules and requirements, which can arise after the cargo has left for the customs office. And two different customs offices can have different requirements. That’s why we usually choose to work with customs brokers.  



– Russia, Kazakhstan and Belarus established the Customs Union. What’s your opinion, will it make the life of logistics and trade companies easier? 



– It was a splendid initiative, which simplified the lives of many companies, and we never had any problems caused by its establishment. Unfortunately, Ukraine with its enormous transit space has not joined this alliance yet.  

By Marina Ermolenko
    [~DETAIL_TEXT] => 
All Roads Lead to Russia



– Mr Melnikov, what was behind the decision of your company to start doing business in this country?



– The decision to start forwarding business in Russia and the CIS was a logical progression. It was caused by the liberalisation of the transport services market in the early 1990-s. The monopoly on external transportation that had existed in the USSR till 1991 collapsed, and many Russian companies, which had international contracts, faced the problem of cargo transportation to their partners. That was when foreign, and first of all German companies, experienced in logistics, started to open offices in the Russian Federation and worked having practically no competitors among Russian companies.



– What are the main differences in doing business in Russia from doing business in other countries? I mean all imaginable matters — clients, regulation, and even the weather...



– The major difference is the legal regulation of several transport issues. Getting a permission for transportation of heavy or oversized cargo is a process, even the thought of which dismays many our customers. The online procedure of adjusting such transportation with authorised bodies in Europe turns into a heap of paper documents to be received in Russia. There are some advantages, however: Russian companies, which learnt how to survive in difficult conditions, differ from their foreign colleagues by a strong will to succeed and a readiness to combine risk and prudence, spirit and self-possession. For example, our Russian subsidiary signed a contract with Hydromashservice CJSC for transportation of equipment for the reconstruction of pumping stations at the Bukharsky canal in Uzbekistan. Our foreign partners doubted that we would succeed in delivering all cargo to the destination point and avoid problems with customs or wagon idling. There was a risk, but prudence and foresight helped to avoid them. There are more difficult routes than that to Uzbekistan. For example, during the transportation of compactors from Central China to Tajikistan, a customer initially examined the scheme of cargo delivery to the port of Shanghai with further transportation to St Petersburg or Klaipeda by sea, and then – to Dushanbe by railway. The cost of transportation in this case became equal to the cost of the cargo. We offered direct railway transportation via Western China and Kazakhstan, though we knew about traffic jams at the border, and that it could take more than 20 days to pass customs clearance procedures and reload the equipment. We had a tough deadline, so our employees left for the border beforehand, carried out preparatory works, and, as a result, the rolling stock with the freight didn’t idle for even one day.



– In your opinion, is competition between logistics companies in Russia tough? 



– There is competition between Russian and foreign companies, and the former are gradually winning in Russia, because they know their country better, and their price policy is more profitable for clients – their prices are lower, and all payments are in Russian roubles. In the sector of project cargo transportation the competition is not as tough as in the sector of transportation of containers or other cargoes, where the market is divided between large operators. Naturally, logistics mistakes come at a high cost - one can even lose customers because of them.



Appetite comes with eating



– What’s your company’s development strategy in Russia?



– This question has been urgent for us since the foundation of the company in 1991. We specialise in transportation of project cargoes for large industrial facilities. The range of transportation must be constantly expanded – European countries, China, Latin America, states in the Middle East, including Iraq and Syria (work is underway in spite of military operations there). A new direction is Western Africa. There are countries in this region with which Russia has no fully-fledged diplomatic contact, so delivery of cargo for construction facilities in Benin, Ghana, and Niger is difficult, but urgent. We have delivered them enough equipment, which allowed spanning the Niger river. Transport work in Africa is complicated not only because of the climate, but because of the unstable domestic policy situation, so there is a necessity to use security companies to provide security. To get to the construction site or to administrative offices one needs an armoured car, a bullet proof vest, a helmet, and armed security. 



– What is your estimation of the quality of transport services in Russia compared to that in Europe?



– The quality is better in Europe due to perfectly developed infrastructure and properly organised document circulation, especially at customs clearance. Every time in Germany, when I see specialists in Dusseldorf providing customs clearance of cargo delivered to the Hamburg port, it reminds me of business trips and dozens of meetings and negotiations we have to hold in Russia for similar processes, especially if it is connected with transportation of project cargo. 

There is another thing: in many Russian representative offices of foreign companies, especially forwarding and logistics companies, there are practically no employees from other countries, the lion’s share of specialists are citizens of the CIS, who have gained experience and have even surpassed their colleagues from other countries. Foreigners often continue to think that Russia is the country of super profits and not very informed residents, meanwhile, the situation has changed. We often outperform our colleagues from Dusseldorf with prices we get from our Russian operators, and these are mainly railway operators. There are other problems, but in terms of price policy Russian companies frequently surpass foreign ones.

On the whole, despite the high qualification of Russian transporters, the quality of service in Russia depends on the pitfalls of domestic infrastructure, such as the lack of ports and high-quality motorways.



By Hook or by Crook          



– It’s commonplace that transport infrastructure is developed poorly in Russia. What are the weakest points in it, where are the worst bottle-necks?



– The main weakness is the number and the quality of motorways. What is constructed and repaired is a drop in the ocean. For example, drivers just do not want to drive to Chelyabinsk and its suburbs, where a lot of industrial enterprises are located, - there are holes on the roads so big there that one can “fall in” to them together with his vehicle. And prices for road transportation continue to increase. What about the safety of freight on such a motorway? You open a truck and think – what will be in there? Another weakness is port services. Prices are unjustifiably high; they exceed prices in northern European ports, and even those in the harbours of Istanbul and Constantza. We often think how to avoid adding to the route, for example, handling in the Novorossiysk port, or how to by-pass the port of St Petersburg. There were no specific problems with railways until the beginning of wagon fleet privatisation. Last year we organised shipment of a small lot of equipment from Tambov to Uzbekistan – about 50 wagons. The local producer had dispatched this freight for decades without any special difficulties. When the cargo was ready, however, there appeared a problem – there were no railcars. As a result, the delay in shipment was three months. Sometimes, when we apply to large operators, they make us a “counter offer”: they will provide railcars in exchange for the whole freight.  



– If we talk about the types of cargoes you are dealing with, do you see any new trends here? I mean, do some types of cargo become more popular whilst others decrease?



– The current trend is equipment for the energy industry: generators, transformers, and oil-loading equipment. Unfortunately, the amount of cargoes we used to transport from Russia to other countries is decreasing. Some large energy equipment producers have practically lost their trade network abroad. Earlier we transported equipment for large energy facilities in Latin America two or three times a year, and now we are glad if there is one such project per year. And the cargo flow of the same equipment from China has increased. For example, one of the largest Belarusian enterprises orders equipment from China, though there are plants in Moscow and St Petersburg producing similar machinery. The amount of incoming equipment from Europe, in particular from Germany, grows.  



Honesty Is the Best Policy



– Russian customs are well known for the difficulties they create for the business community. What kind of problems do you face when dealing with customs operations?



– We tell our clients, “Do take into account the specifics of customs clearance in Russia and the CIS countries.” One can sometimes fail to foresee all the frequently changing rules and requirements, which can arise after the cargo has left for the customs office. And two different customs offices can have different requirements. That’s why we usually choose to work with customs brokers.  



– Russia, Kazakhstan and Belarus established the Customs Union. What’s your opinion, will it make the life of logistics and trade companies easier? 



– It was a splendid initiative, which simplified the lives of many companies, and we never had any problems caused by its establishment. Unfortunately, Ukraine with its enormous transit space has not joined this alliance yet.  

By Marina Ermolenko
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Sergey Melnikov has been representing a German logistics company DAKO WORLDWIDE TRANSPORT GMBH, specialising in project cargo transportation in Russia for more than 20 year. The situation, when a Russian subsidiary of a foreign company becomes not only a partner, but to some degree a competitor to its parent company, allows comparison of the organisation of the transport services market in Russia and Europe, using examples from its own practices.
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All Roads Lead to Russia



– Mr Melnikov, what was behind the decision of your company to start doing business in this country?



– The decision to start forwarding business in Russia and the CIS was a logical progression. It was caused by the liberalisation of the transport services market in the early 1990-s. The monopoly on external transportation that had existed in the USSR till 1991 collapsed, and many Russian companies, which had international contracts, faced the problem of cargo transportation to their partners. That was when foreign, and first of all German companies, experienced in logistics, started to open offices in the Russian Federation and worked having practically no competitors among Russian companies.



– What are the main differences in doing business in Russia from doing business in other countries? I mean all imaginable matters — clients, regulation, and even the weather...



– The major difference is the legal regulation of several transport issues. Getting a permission for transportation of heavy or oversized cargo is a process, even the thought of which dismays many our customers. The online procedure of adjusting such transportation with authorised bodies in Europe turns into a heap of paper documents to be received in Russia. There are some advantages, however: Russian companies, which learnt how to survive in difficult conditions, differ from their foreign colleagues by a strong will to succeed and a readiness to combine risk and prudence, spirit and self-possession. For example, our Russian subsidiary signed a contract with Hydromashservice CJSC for transportation of equipment for the reconstruction of pumping stations at the Bukharsky canal in Uzbekistan. Our foreign partners doubted that we would succeed in delivering all cargo to the destination point and avoid problems with customs or wagon idling. There was a risk, but prudence and foresight helped to avoid them. There are more difficult routes than that to Uzbekistan. For example, during the transportation of compactors from Central China to Tajikistan, a customer initially examined the scheme of cargo delivery to the port of Shanghai with further transportation to St Petersburg or Klaipeda by sea, and then – to Dushanbe by railway. The cost of transportation in this case became equal to the cost of the cargo. We offered direct railway transportation via Western China and Kazakhstan, though we knew about traffic jams at the border, and that it could take more than 20 days to pass customs clearance procedures and reload the equipment. We had a tough deadline, so our employees left for the border beforehand, carried out preparatory works, and, as a result, the rolling stock with the freight didn’t idle for even one day.



– In your opinion, is competition between logistics companies in Russia tough? 



– There is competition between Russian and foreign companies, and the former are gradually winning in Russia, because they know their country better, and their price policy is more profitable for clients – their prices are lower, and all payments are in Russian roubles. In the sector of project cargo transportation the competition is not as tough as in the sector of transportation of containers or other cargoes, where the market is divided between large operators. Naturally, logistics mistakes come at a high cost - one can even lose customers because of them.



Appetite comes with eating



– What’s your company’s development strategy in Russia?



– This question has been urgent for us since the foundation of the company in 1991. We specialise in transportation of project cargoes for large industrial facilities. The range of transportation must be constantly expanded – European countries, China, Latin America, states in the Middle East, including Iraq and Syria (work is underway in spite of military operations there). A new direction is Western Africa. There are countries in this region with which Russia has no fully-fledged diplomatic contact, so delivery of cargo for construction facilities in Benin, Ghana, and Niger is difficult, but urgent. We have delivered them enough equipment, which allowed spanning the Niger river. Transport work in Africa is complicated not only because of the climate, but because of the unstable domestic policy situation, so there is a necessity to use security companies to provide security. To get to the construction site or to administrative offices one needs an armoured car, a bullet proof vest, a helmet, and armed security. 



– What is your estimation of the quality of transport services in Russia compared to that in Europe?



– The quality is better in Europe due to perfectly developed infrastructure and properly organised document circulation, especially at customs clearance. Every time in Germany, when I see specialists in Dusseldorf providing customs clearance of cargo delivered to the Hamburg port, it reminds me of business trips and dozens of meetings and negotiations we have to hold in Russia for similar processes, especially if it is connected with transportation of project cargo. 

There is another thing: in many Russian representative offices of foreign companies, especially forwarding and logistics companies, there are practically no employees from other countries, the lion’s share of specialists are citizens of the CIS, who have gained experience and have even surpassed their colleagues from other countries. Foreigners often continue to think that Russia is the country of super profits and not very informed residents, meanwhile, the situation has changed. We often outperform our colleagues from Dusseldorf with prices we get from our Russian operators, and these are mainly railway operators. There are other problems, but in terms of price policy Russian companies frequently surpass foreign ones.

On the whole, despite the high qualification of Russian transporters, the quality of service in Russia depends on the pitfalls of domestic infrastructure, such as the lack of ports and high-quality motorways.



By Hook or by Crook          



– It’s commonplace that transport infrastructure is developed poorly in Russia. What are the weakest points in it, where are the worst bottle-necks?



– The main weakness is the number and the quality of motorways. What is constructed and repaired is a drop in the ocean. For example, drivers just do not want to drive to Chelyabinsk and its suburbs, where a lot of industrial enterprises are located, - there are holes on the roads so big there that one can “fall in” to them together with his vehicle. And prices for road transportation continue to increase. What about the safety of freight on such a motorway? You open a truck and think – what will be in there? Another weakness is port services. Prices are unjustifiably high; they exceed prices in northern European ports, and even those in the harbours of Istanbul and Constantza. We often think how to avoid adding to the route, for example, handling in the Novorossiysk port, or how to by-pass the port of St Petersburg. There were no specific problems with railways until the beginning of wagon fleet privatisation. Last year we organised shipment of a small lot of equipment from Tambov to Uzbekistan – about 50 wagons. The local producer had dispatched this freight for decades without any special difficulties. When the cargo was ready, however, there appeared a problem – there were no railcars. As a result, the delay in shipment was three months. Sometimes, when we apply to large operators, they make us a “counter offer”: they will provide railcars in exchange for the whole freight.  



– If we talk about the types of cargoes you are dealing with, do you see any new trends here? I mean, do some types of cargo become more popular whilst others decrease?



– The current trend is equipment for the energy industry: generators, transformers, and oil-loading equipment. Unfortunately, the amount of cargoes we used to transport from Russia to other countries is decreasing. Some large energy equipment producers have practically lost their trade network abroad. Earlier we transported equipment for large energy facilities in Latin America two or three times a year, and now we are glad if there is one such project per year. And the cargo flow of the same equipment from China has increased. For example, one of the largest Belarusian enterprises orders equipment from China, though there are plants in Moscow and St Petersburg producing similar machinery. The amount of incoming equipment from Europe, in particular from Germany, grows.  



Honesty Is the Best Policy



– Russian customs are well known for the difficulties they create for the business community. What kind of problems do you face when dealing with customs operations?



– We tell our clients, “Do take into account the specifics of customs clearance in Russia and the CIS countries.” One can sometimes fail to foresee all the frequently changing rules and requirements, which can arise after the cargo has left for the customs office. And two different customs offices can have different requirements. That’s why we usually choose to work with customs brokers.  



– Russia, Kazakhstan and Belarus established the Customs Union. What’s your opinion, will it make the life of logistics and trade companies easier? 



– It was a splendid initiative, which simplified the lives of many companies, and we never had any problems caused by its establishment. Unfortunately, Ukraine with its enormous transit space has not joined this alliance yet.  

By Marina Ermolenko
    [~DETAIL_TEXT] => 
All Roads Lead to Russia



– Mr Melnikov, what was behind the decision of your company to start doing business in this country?



– The decision to start forwarding business in Russia and the CIS was a logical progression. It was caused by the liberalisation of the transport services market in the early 1990-s. The monopoly on external transportation that had existed in the USSR till 1991 collapsed, and many Russian companies, which had international contracts, faced the problem of cargo transportation to their partners. That was when foreign, and first of all German companies, experienced in logistics, started to open offices in the Russian Federation and worked having practically no competitors among Russian companies.



– What are the main differences in doing business in Russia from doing business in other countries? I mean all imaginable matters — clients, regulation, and even the weather...



– The major difference is the legal regulation of several transport issues. Getting a permission for transportation of heavy or oversized cargo is a process, even the thought of which dismays many our customers. The online procedure of adjusting such transportation with authorised bodies in Europe turns into a heap of paper documents to be received in Russia. There are some advantages, however: Russian companies, which learnt how to survive in difficult conditions, differ from their foreign colleagues by a strong will to succeed and a readiness to combine risk and prudence, spirit and self-possession. For example, our Russian subsidiary signed a contract with Hydromashservice CJSC for transportation of equipment for the reconstruction of pumping stations at the Bukharsky canal in Uzbekistan. Our foreign partners doubted that we would succeed in delivering all cargo to the destination point and avoid problems with customs or wagon idling. There was a risk, but prudence and foresight helped to avoid them. There are more difficult routes than that to Uzbekistan. For example, during the transportation of compactors from Central China to Tajikistan, a customer initially examined the scheme of cargo delivery to the port of Shanghai with further transportation to St Petersburg or Klaipeda by sea, and then – to Dushanbe by railway. The cost of transportation in this case became equal to the cost of the cargo. We offered direct railway transportation via Western China and Kazakhstan, though we knew about traffic jams at the border, and that it could take more than 20 days to pass customs clearance procedures and reload the equipment. We had a tough deadline, so our employees left for the border beforehand, carried out preparatory works, and, as a result, the rolling stock with the freight didn’t idle for even one day.



– In your opinion, is competition between logistics companies in Russia tough? 



– There is competition between Russian and foreign companies, and the former are gradually winning in Russia, because they know their country better, and their price policy is more profitable for clients – their prices are lower, and all payments are in Russian roubles. In the sector of project cargo transportation the competition is not as tough as in the sector of transportation of containers or other cargoes, where the market is divided between large operators. Naturally, logistics mistakes come at a high cost - one can even lose customers because of them.



Appetite comes with eating



– What’s your company’s development strategy in Russia?



– This question has been urgent for us since the foundation of the company in 1991. We specialise in transportation of project cargoes for large industrial facilities. The range of transportation must be constantly expanded – European countries, China, Latin America, states in the Middle East, including Iraq and Syria (work is underway in spite of military operations there). A new direction is Western Africa. There are countries in this region with which Russia has no fully-fledged diplomatic contact, so delivery of cargo for construction facilities in Benin, Ghana, and Niger is difficult, but urgent. We have delivered them enough equipment, which allowed spanning the Niger river. Transport work in Africa is complicated not only because of the climate, but because of the unstable domestic policy situation, so there is a necessity to use security companies to provide security. To get to the construction site or to administrative offices one needs an armoured car, a bullet proof vest, a helmet, and armed security. 



– What is your estimation of the quality of transport services in Russia compared to that in Europe?



– The quality is better in Europe due to perfectly developed infrastructure and properly organised document circulation, especially at customs clearance. Every time in Germany, when I see specialists in Dusseldorf providing customs clearance of cargo delivered to the Hamburg port, it reminds me of business trips and dozens of meetings and negotiations we have to hold in Russia for similar processes, especially if it is connected with transportation of project cargo. 

There is another thing: in many Russian representative offices of foreign companies, especially forwarding and logistics companies, there are practically no employees from other countries, the lion’s share of specialists are citizens of the CIS, who have gained experience and have even surpassed their colleagues from other countries. Foreigners often continue to think that Russia is the country of super profits and not very informed residents, meanwhile, the situation has changed. We often outperform our colleagues from Dusseldorf with prices we get from our Russian operators, and these are mainly railway operators. There are other problems, but in terms of price policy Russian companies frequently surpass foreign ones.

On the whole, despite the high qualification of Russian transporters, the quality of service in Russia depends on the pitfalls of domestic infrastructure, such as the lack of ports and high-quality motorways.



By Hook or by Crook          



– It’s commonplace that transport infrastructure is developed poorly in Russia. What are the weakest points in it, where are the worst bottle-necks?



– The main weakness is the number and the quality of motorways. What is constructed and repaired is a drop in the ocean. For example, drivers just do not want to drive to Chelyabinsk and its suburbs, where a lot of industrial enterprises are located, - there are holes on the roads so big there that one can “fall in” to them together with his vehicle. And prices for road transportation continue to increase. What about the safety of freight on such a motorway? You open a truck and think – what will be in there? Another weakness is port services. Prices are unjustifiably high; they exceed prices in northern European ports, and even those in the harbours of Istanbul and Constantza. We often think how to avoid adding to the route, for example, handling in the Novorossiysk port, or how to by-pass the port of St Petersburg. There were no specific problems with railways until the beginning of wagon fleet privatisation. Last year we organised shipment of a small lot of equipment from Tambov to Uzbekistan – about 50 wagons. The local producer had dispatched this freight for decades without any special difficulties. When the cargo was ready, however, there appeared a problem – there were no railcars. As a result, the delay in shipment was three months. Sometimes, when we apply to large operators, they make us a “counter offer”: they will provide railcars in exchange for the whole freight.  



– If we talk about the types of cargoes you are dealing with, do you see any new trends here? I mean, do some types of cargo become more popular whilst others decrease?



– The current trend is equipment for the energy industry: generators, transformers, and oil-loading equipment. Unfortunately, the amount of cargoes we used to transport from Russia to other countries is decreasing. Some large energy equipment producers have practically lost their trade network abroad. Earlier we transported equipment for large energy facilities in Latin America two or three times a year, and now we are glad if there is one such project per year. And the cargo flow of the same equipment from China has increased. For example, one of the largest Belarusian enterprises orders equipment from China, though there are plants in Moscow and St Petersburg producing similar machinery. The amount of incoming equipment from Europe, in particular from Germany, grows.  



Honesty Is the Best Policy



– Russian customs are well known for the difficulties they create for the business community. What kind of problems do you face when dealing with customs operations?



– We tell our clients, “Do take into account the specifics of customs clearance in Russia and the CIS countries.” One can sometimes fail to foresee all the frequently changing rules and requirements, which can arise after the cargo has left for the customs office. And two different customs offices can have different requirements. That’s why we usually choose to work with customs brokers.  



– Russia, Kazakhstan and Belarus established the Customs Union. What’s your opinion, will it make the life of logistics and trade companies easier? 



– It was a splendid initiative, which simplified the lives of many companies, and we never had any problems caused by its establishment. Unfortunately, Ukraine with its enormous transit space has not joined this alliance yet.  

By Marina Ermolenko
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