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Total deterioration
The entire park of freight wagons in the CIS and Baltic states numbers 1,393,960 units. The larger part are gondola cars, the average age of which is 22 years. Other types of railcars are also deteriorating. Over 300,000 wagons whose standard life-time is over are still being used. In particular, the average age of wagons in the park of OAO RZD is 20 years, and worn out equipment accounts for 75% of the park. Eighty per cent of the railcars in the Ukrainian park are worn out. 
Considering the real requirements of clients and potential possibilities of existing wagon building capacities, the high demand for freight railcars must continue for the next three to five years. The reason for such a situation is the decrease of wagon production caused by the economic crisis in Russia and the CIS in the 1990s which led to an abrupt reduction in railway transportation volumes. For example, by 1998 the volume of transportation by railway had fallen by 2.5 times in comparison with 1990. The decrease of transportation volume caused a sharp reduction in purchases of new railway rolling stock. In 1998, the volume of cargo wagons manufactured fell more than six-fold in comparison with 1990, and at some wagon building enterprises it fell to almost zero. As a result, more than 600,000 wagons are to be written off. Meanwhile, it is necessary that at least 80,000 wagons are added to the park annually.

Promising opportunities
It should be remembered that a significant number of new cargo railcars are to be purchased according to the recently adopted Strategy of Railway Transport Development. In particular, the document adopted by the RF Government envisages that 526,000 units of freight machinery will be bought in the next seven years at a total cost of RUR 1.3 trillion. However, official data about freight wagon purchases of the main consumer in the sector, OAO RZD, show that the requested volumes have not been reached. “In 2007, OAO RZD purchased almost 16,000 wagons. Since the sum of expenses on new cargo railcars has not been published, the volume of OAO RZD’s purchases may be evaluated at RUR 19-20 billion (according to average wagon prices). It is expected that freight wagon purchases will grow by at least 10-15% in 2008,” comments Konstantin Kostrikin, expert analyst at the Engineering Sector Research Department, Natural Monopolies’ Problems Institute (IPEM).
Except for the main consumer of freight wagons, the park of private operators is developing actively in Russia now. According to the data of the IPEM experts, last year private companies bought more than 43,000 freight wagons, including about 20,000 units produced in Ukraine. “All in all, it makes about RUR 65 billion. This year, the demand of private companies is forecasted to grow to 10-15% in comparison with 2007,” says Mr Kostrikin.
Specialists from the Federal state unitary enterprise (FGUP) Production Union Uralvagonzavod mention similar figures. “In 2007, state and private transport companies in the CIS bought about 71,000 ‘Type A’ wagons”. OAO RZD was the largest consumer of cargo rolling stock. In particular, last year OAO RZD purchased 15,400 freight wagons of all types, including 14,200 gondola cars manufactured by Uralvagonzavod. Also, in 2007 Russian Railways purchased covered wagons as well as hoppers for cement and grain transportation. The companies supplying special wagons were Altaivagon, Ruzkhimmash, and Armavir ZTM,” tells Sergey Kolosok, Deputy CEO for Marketing and Sales of FGUP Production Union Uralvagonzavod.
The number of freight wagons purchased is falling behind the plan and the reason for it is clear - the plants lack capacity and they have only just started to enlarge the existing capacities to fulfil increasing orders. In the words of specialists from Transmashholding, only 2,112 wagons were produced, i.e. the enterprise is running at 100% capacity. In 2007, the capacity to manufacture 500 flat wagons for large capacity containers was created. The investment for this capacity amounted to RUR 16 million, the company’s spokesman says. In the near future, the company plans to manufacture a covered universal wagon with sliding side walls as well as flat wagons for transporting contrailers.
Another large player in the freight railcar production market, FGUP Production Union Uralvagonzavod produced and sold to Russian and foreign consumers 17,800 cargo wagons of different types in 2007, which exceeds by 10% the 2006 figures, which saw 16,100 freight railcars sold. “According to the results of 2007, the share of Uralvagonzavod in the CIS freight wagon-building market is 25%. As for the key segments for our union – gondola cars and tank wagons - our share is 41% and 23% respectively. It should be mentioned that these segments are most attractive, given effective demand. Thus, in 2007 the share of gondola cars and tank wagons in the total volume of freight wagons used in the CIS amounted to 66%,” highlights Mr Kolosok.
Due to all this, the demand significantly exceeds the offer in the freight wagon-building market today. To meet all the requirements of consumers, all the leading enterprises in the sector are striving to enlarge output volumes and start production of new types of wagons. It is necessary to mention another important trend that has emerged in the past two or three years – the growth of demand for special freight wagons: hoppers, modified flat wagons and tank wagons for transportation of chemicals. In the next several years, the share of special wagons in the total volume of demand will gradually increase.

Growing slowly
Considering the main trends of the sector, large operators’ rolling stock purchase plans and the sums envisaged by the Railway Transport Development Strategy, the manufacturers plan to increase their own capacities for wagon production.
The construction of a new wagon-building plant in the Leningrad region will be the lar­gest project in the sector. In the words of the top managers of ZAO KTS - a managing organisation for ZAO Tikhvinsky Wagon Building Plant - work is underway on a high-tech wa­gon-building factory able to produce mo­dern cargo railcars, including a new ge­neration of wagons. “The area of the factory will be 40 hectares with a workshop area of about 220,000 sq.m. The plant will include two major manufacturing areas. First, a foundry with the ability to cast 67,000 tons of heavy and medium-capacity wagons annually. Of that, 38,000 tons will be produced for the company’s own needs, and 29,000 tons will be sold to external companies. The second area will produce 10,000 wagons per annum, inclu­ding gondola cars, hoppers and container platforms,” tells Alexey Aleshin, CEO of ZAO KTS. The volume of capital expenditure on the project is about USD 600 million.
The concept project of the plant is deve­loped, the types of wagons for production and their design are defined, and common project of the plant has also been developed. The supervisory bodies have examined the project and permission for construction has been received. 
Almost all freight railcar manufacturers have declared projects targeted at improving the quality of production and growing production volumes. In particular, OAO Altaivagon is increasing its wagon casting production. Today, OAO Altaivagon manu­factures 2,400 tons of medium-size and small castings a month; in future the company plans to start production of heavy casting – solebars and bolsters. Moreover, the company is going to increase its capacities from making 120-150 flat wagons in four or five models a month now to 200 or more, and there will be two or three more models.
Launched in December 2007, Russian Transport Engineering Company (RKTM – JV incorporated into the Basic Element of Russian Machines and Mordovia Wagon Building Company’s holding) plans to produce 15,000 wagons by 2010, and 20,000 units by 2015. “Thus, we would like to control 25-30% of the cargo wagon-building market by 2015. We make these plans taking into account the capacities of Abakanvagonmash (incorporated into Russian Machines), since a single sales structure will be established in 2008. It will allow efficient distribution of freight wagon orders between all plants,” say the top management of RKTM.
Tractor Plants Concern has announced construction of a wagon-building enterprise with an annual capacity of 6,000 railcars in the Krasnoyarsk region. The first products are to be made before the end of 2008. Investment will amount to RUR 4 billion. “We are initiating opening of a plant on the basis of existing assets and considering the shortage of cargo railcars in the country, we plan to provide the market with wagons of an increased axle loading of 25 tons,” says Mikhail Bolotin, Head of Tractor Plants Concern.
Uralvagonzavod has similar plans. “The mid-term program of manufacture mo­dernisation to 2012 has been developed. The program envisages reconstruction of metallurgic and wagon assembling plants to increase output volume and improve quality,” says Mr Kolosok. In his words, an important competitive advantage of Uralvagonzavod is providing its own manufacturers with wagon casting, while most enterprises in the sector go in for wagon semi knocked down out of purchased details.
Before the end of 2008, the establishment of OAO NPK Uralvagonzavod, a scientific and production corporation, is to be completed. According to the company’s top management, OAO Chelyabinsk Tractor Plant-Uraltrack (ChTZ) will be the basis for a new corporation and will forge ahead of the group’s other factories, i.e. GUP Omsktransmash and OAO Rubtsovsky machine-building plant. In the next two or three years, a small series of rolling stock will be organised at these enterprises, the forecasted capacity of which will amount to 10-15 cargo railcars monthly. It will be mainly specialised rolling stock.
Metallurgical giant OAO Mechel plans to develop a wagon-building production line based at the Neryungrinsky Repair Mechanical Plant. Today it has two manufacturing options for the future. According to the first variant, the plant will be able to produce 2,500 gondola cars annually and will  have a repair depot. The payback term is 5.2 years. The second variant envisa­ges production of 5,000 wagons per annum, and the payback period is 5 years. In either case, first wagons will be produced two years after modernisation starts. 
Projects in the wagon-building sector are being launched in other CIS countries. At the base of TOO Martuksky Mechanical Plant (MMZ) in Kazakhstan, it is planned to launch a scaled factory, able to produce about 15,600 wagons. The planned investments into the project amount to USD 300 million. The plant will produce 500 oil tank wagons, 300 tank wagons for LNG, foodstuffs and chemicals, and 500 cargo railcars with other modifications. The enterprise will also produce wheel-sets.
Between now and 2010 it is planned to enlarge the capacities of Stakhanovsky Wagon Building Plant (up to 4,200 units), Ukrainian repair enterprises (up to 3,600 units), and Dneprvagonmash and UVZ & AVR (Estonia) (up to 600 units at each plant).

Plans will never come true without modernisation 
Meanwhile, there are problems in the industry, which could slow down deve­lopment of the freight railcar sector. The main restraining factor for further growth of production volumes is the problem of bogie casting. A similar problem exists for manufacturers in Russia as elsewhere, agree experts of IPEM. “One should take into account the limitation common for all wagon producers. It concerns the capacities for heavy wagon casting. Without establishment of new manufacturers in Russia, the sector seems to be crucially dependent on wagon-casting supplies from the CIS and Chinese enterprises,” highlights Mr Kostrikin.
Another difficulty is the production of enterprises falling behind, technologically speaking, the requirements of modern wagons. “Under tough competition conditions, we have to focus on demand and constantly improve the technical characteristics of hoppers. Besides, a flat wagon for carrying large capacity containers now needs to be tested to get a certificate,” says Mr Naumov. The improvement of the technical level of manufactured wagons, i.e. enlargement of their carrying capacity and prolonging the time between repairs, is an important task for the wagon-engineering sector, agree top managers at FGUP Uralvagonzavod.
Perhaps the most urgent problem is the lack of finances for modernisation and capacity enlargement, since the payback period in the sector is much longer than the 5-10 year standard in other sectors of the industry.  Public-private partnerships may be used as an instrument to attract investments. “As for the freight wagon-building sector, it is reasonable to apply public-private partnership schemes for scientific research, the results of which may be used by all manufacturers. It would be unreasonable for the state to participate in projects to develop new railcar models if they have no principally new elements,” considers Mr Kostrikin. 
Active modernisation and enlargement of Russian railcar engineering capacities as well as development and implementation of a new generation of freight rolling stock require reconstruction of railways and infrastructure, highlight top managers at Uralvagonzavod. Scaled reconstruction of tracks, bridges, wagon tippers, etc are necessary for safe usage of wagons with a loading of 25 tons per axle, and in future with those carrying 35 tons per axle. “A more extensive usage of container flat wagons and the growth of container transportation by railway is hardly possible if no up-to-date terminals at railways and ports are constructed,” emphasises Mr Kolosok.

Resume
In 2010 the total manufacturing capa­city of the wagon-building industry in the CIS may amount to 115,000-120,000 units, and the volume of consumer demand will be less than 100,000 units. That is why, forecasts warn, the situation that took place in late 1990’s will repeat itself in 2010.
By Maria Shevchenko 
viewpoint

Sergey Kolosok, 
Deputy CEO for Marketing and Sales, FGUP Production Union Uralvagonzavod:
– To replace the wagons with an expired life-time and to reduce the average age of its park, OAO RZD (taking into account its daughter companies) must purchase annually at least 30,000 freight railcars of all types for several years running. In the next 2-3 years, the growth of demand for cargo wagons may cause an increase in the total wagon-building market’s capacity in the CIS to 100,000 units per annum.  
 
 
Konstantin Kostrikin, 
Expert Analyst, Engineering Sector Research Department, Natural Monopolies’ Problems Institute:
– The forecasts for the development of manufacturing and production in the sector are defined in the Transport Machine Building Development Strategy. It envisages the volume of freight wagon manufacturing as well as exploitation characteristics, such as output, axle loading and the time between repairs. Perhaps the production of specialised rolling stock, for example wagons for cars or timber transportation, will develop faster. If the tariff policy is favourable, the demand for transit container transportation may increase, and then the supply of flat railcars for box transportation may also grow. 
    [~DETAIL_TEXT] => 
Total deterioration
The entire park of freight wagons in the CIS and Baltic states numbers 1,393,960 units. The larger part are gondola cars, the average age of which is 22 years. Other types of railcars are also deteriorating. Over 300,000 wagons whose standard life-time is over are still being used. In particular, the average age of wagons in the park of OAO RZD is 20 years, and worn out equipment accounts for 75% of the park. Eighty per cent of the railcars in the Ukrainian park are worn out. 
Considering the real requirements of clients and potential possibilities of existing wagon building capacities, the high demand for freight railcars must continue for the next three to five years. The reason for such a situation is the decrease of wagon production caused by the economic crisis in Russia and the CIS in the 1990s which led to an abrupt reduction in railway transportation volumes. For example, by 1998 the volume of transportation by railway had fallen by 2.5 times in comparison with 1990. The decrease of transportation volume caused a sharp reduction in purchases of new railway rolling stock. In 1998, the volume of cargo wagons manufactured fell more than six-fold in comparison with 1990, and at some wagon building enterprises it fell to almost zero. As a result, more than 600,000 wagons are to be written off. Meanwhile, it is necessary that at least 80,000 wagons are added to the park annually.

Promising opportunities
It should be remembered that a significant number of new cargo railcars are to be purchased according to the recently adopted Strategy of Railway Transport Development. In particular, the document adopted by the RF Government envisages that 526,000 units of freight machinery will be bought in the next seven years at a total cost of RUR 1.3 trillion. However, official data about freight wagon purchases of the main consumer in the sector, OAO RZD, show that the requested volumes have not been reached. “In 2007, OAO RZD purchased almost 16,000 wagons. Since the sum of expenses on new cargo railcars has not been published, the volume of OAO RZD’s purchases may be evaluated at RUR 19-20 billion (according to average wagon prices). It is expected that freight wagon purchases will grow by at least 10-15% in 2008,” comments Konstantin Kostrikin, expert analyst at the Engineering Sector Research Department, Natural Monopolies’ Problems Institute (IPEM).
Except for the main consumer of freight wagons, the park of private operators is developing actively in Russia now. According to the data of the IPEM experts, last year private companies bought more than 43,000 freight wagons, including about 20,000 units produced in Ukraine. “All in all, it makes about RUR 65 billion. This year, the demand of private companies is forecasted to grow to 10-15% in comparison with 2007,” says Mr Kostrikin.
Specialists from the Federal state unitary enterprise (FGUP) Production Union Uralvagonzavod mention similar figures. “In 2007, state and private transport companies in the CIS bought about 71,000 ‘Type A’ wagons”. OAO RZD was the largest consumer of cargo rolling stock. In particular, last year OAO RZD purchased 15,400 freight wagons of all types, including 14,200 gondola cars manufactured by Uralvagonzavod. Also, in 2007 Russian Railways purchased covered wagons as well as hoppers for cement and grain transportation. The companies supplying special wagons were Altaivagon, Ruzkhimmash, and Armavir ZTM,” tells Sergey Kolosok, Deputy CEO for Marketing and Sales of FGUP Production Union Uralvagonzavod.
The number of freight wagons purchased is falling behind the plan and the reason for it is clear - the plants lack capacity and they have only just started to enlarge the existing capacities to fulfil increasing orders. In the words of specialists from Transmashholding, only 2,112 wagons were produced, i.e. the enterprise is running at 100% capacity. In 2007, the capacity to manufacture 500 flat wagons for large capacity containers was created. The investment for this capacity amounted to RUR 16 million, the company’s spokesman says. In the near future, the company plans to manufacture a covered universal wagon with sliding side walls as well as flat wagons for transporting contrailers.
Another large player in the freight railcar production market, FGUP Production Union Uralvagonzavod produced and sold to Russian and foreign consumers 17,800 cargo wagons of different types in 2007, which exceeds by 10% the 2006 figures, which saw 16,100 freight railcars sold. “According to the results of 2007, the share of Uralvagonzavod in the CIS freight wagon-building market is 25%. As for the key segments for our union – gondola cars and tank wagons - our share is 41% and 23% respectively. It should be mentioned that these segments are most attractive, given effective demand. Thus, in 2007 the share of gondola cars and tank wagons in the total volume of freight wagons used in the CIS amounted to 66%,” highlights Mr Kolosok.
Due to all this, the demand significantly exceeds the offer in the freight wagon-building market today. To meet all the requirements of consumers, all the leading enterprises in the sector are striving to enlarge output volumes and start production of new types of wagons. It is necessary to mention another important trend that has emerged in the past two or three years – the growth of demand for special freight wagons: hoppers, modified flat wagons and tank wagons for transportation of chemicals. In the next several years, the share of special wagons in the total volume of demand will gradually increase.

Growing slowly
Considering the main trends of the sector, large operators’ rolling stock purchase plans and the sums envisaged by the Railway Transport Development Strategy, the manufacturers plan to increase their own capacities for wagon production.
The construction of a new wagon-building plant in the Leningrad region will be the lar­gest project in the sector. In the words of the top managers of ZAO KTS - a managing organisation for ZAO Tikhvinsky Wagon Building Plant - work is underway on a high-tech wa­gon-building factory able to produce mo­dern cargo railcars, including a new ge­neration of wagons. “The area of the factory will be 40 hectares with a workshop area of about 220,000 sq.m. The plant will include two major manufacturing areas. First, a foundry with the ability to cast 67,000 tons of heavy and medium-capacity wagons annually. Of that, 38,000 tons will be produced for the company’s own needs, and 29,000 tons will be sold to external companies. The second area will produce 10,000 wagons per annum, inclu­ding gondola cars, hoppers and container platforms,” tells Alexey Aleshin, CEO of ZAO KTS. The volume of capital expenditure on the project is about USD 600 million.
The concept project of the plant is deve­loped, the types of wagons for production and their design are defined, and common project of the plant has also been developed. The supervisory bodies have examined the project and permission for construction has been received. 
Almost all freight railcar manufacturers have declared projects targeted at improving the quality of production and growing production volumes. In particular, OAO Altaivagon is increasing its wagon casting production. Today, OAO Altaivagon manu­factures 2,400 tons of medium-size and small castings a month; in future the company plans to start production of heavy casting – solebars and bolsters. Moreover, the company is going to increase its capacities from making 120-150 flat wagons in four or five models a month now to 200 or more, and there will be two or three more models.
Launched in December 2007, Russian Transport Engineering Company (RKTM – JV incorporated into the Basic Element of Russian Machines and Mordovia Wagon Building Company’s holding) plans to produce 15,000 wagons by 2010, and 20,000 units by 2015. “Thus, we would like to control 25-30% of the cargo wagon-building market by 2015. We make these plans taking into account the capacities of Abakanvagonmash (incorporated into Russian Machines), since a single sales structure will be established in 2008. It will allow efficient distribution of freight wagon orders between all plants,” say the top management of RKTM.
Tractor Plants Concern has announced construction of a wagon-building enterprise with an annual capacity of 6,000 railcars in the Krasnoyarsk region. The first products are to be made before the end of 2008. Investment will amount to RUR 4 billion. “We are initiating opening of a plant on the basis of existing assets and considering the shortage of cargo railcars in the country, we plan to provide the market with wagons of an increased axle loading of 25 tons,” says Mikhail Bolotin, Head of Tractor Plants Concern.
Uralvagonzavod has similar plans. “The mid-term program of manufacture mo­dernisation to 2012 has been developed. The program envisages reconstruction of metallurgic and wagon assembling plants to increase output volume and improve quality,” says Mr Kolosok. In his words, an important competitive advantage of Uralvagonzavod is providing its own manufacturers with wagon casting, while most enterprises in the sector go in for wagon semi knocked down out of purchased details.
Before the end of 2008, the establishment of OAO NPK Uralvagonzavod, a scientific and production corporation, is to be completed. According to the company’s top management, OAO Chelyabinsk Tractor Plant-Uraltrack (ChTZ) will be the basis for a new corporation and will forge ahead of the group’s other factories, i.e. GUP Omsktransmash and OAO Rubtsovsky machine-building plant. In the next two or three years, a small series of rolling stock will be organised at these enterprises, the forecasted capacity of which will amount to 10-15 cargo railcars monthly. It will be mainly specialised rolling stock.
Metallurgical giant OAO Mechel plans to develop a wagon-building production line based at the Neryungrinsky Repair Mechanical Plant. Today it has two manufacturing options for the future. According to the first variant, the plant will be able to produce 2,500 gondola cars annually and will  have a repair depot. The payback term is 5.2 years. The second variant envisa­ges production of 5,000 wagons per annum, and the payback period is 5 years. In either case, first wagons will be produced two years after modernisation starts. 
Projects in the wagon-building sector are being launched in other CIS countries. At the base of TOO Martuksky Mechanical Plant (MMZ) in Kazakhstan, it is planned to launch a scaled factory, able to produce about 15,600 wagons. The planned investments into the project amount to USD 300 million. The plant will produce 500 oil tank wagons, 300 tank wagons for LNG, foodstuffs and chemicals, and 500 cargo railcars with other modifications. The enterprise will also produce wheel-sets.
Between now and 2010 it is planned to enlarge the capacities of Stakhanovsky Wagon Building Plant (up to 4,200 units), Ukrainian repair enterprises (up to 3,600 units), and Dneprvagonmash and UVZ & AVR (Estonia) (up to 600 units at each plant).

Plans will never come true without modernisation 
Meanwhile, there are problems in the industry, which could slow down deve­lopment of the freight railcar sector. The main restraining factor for further growth of production volumes is the problem of bogie casting. A similar problem exists for manufacturers in Russia as elsewhere, agree experts of IPEM. “One should take into account the limitation common for all wagon producers. It concerns the capacities for heavy wagon casting. Without establishment of new manufacturers in Russia, the sector seems to be crucially dependent on wagon-casting supplies from the CIS and Chinese enterprises,” highlights Mr Kostrikin.
Another difficulty is the production of enterprises falling behind, technologically speaking, the requirements of modern wagons. “Under tough competition conditions, we have to focus on demand and constantly improve the technical characteristics of hoppers. Besides, a flat wagon for carrying large capacity containers now needs to be tested to get a certificate,” says Mr Naumov. The improvement of the technical level of manufactured wagons, i.e. enlargement of their carrying capacity and prolonging the time between repairs, is an important task for the wagon-engineering sector, agree top managers at FGUP Uralvagonzavod.
Perhaps the most urgent problem is the lack of finances for modernisation and capacity enlargement, since the payback period in the sector is much longer than the 5-10 year standard in other sectors of the industry.  Public-private partnerships may be used as an instrument to attract investments. “As for the freight wagon-building sector, it is reasonable to apply public-private partnership schemes for scientific research, the results of which may be used by all manufacturers. It would be unreasonable for the state to participate in projects to develop new railcar models if they have no principally new elements,” considers Mr Kostrikin. 
Active modernisation and enlargement of Russian railcar engineering capacities as well as development and implementation of a new generation of freight rolling stock require reconstruction of railways and infrastructure, highlight top managers at Uralvagonzavod. Scaled reconstruction of tracks, bridges, wagon tippers, etc are necessary for safe usage of wagons with a loading of 25 tons per axle, and in future with those carrying 35 tons per axle. “A more extensive usage of container flat wagons and the growth of container transportation by railway is hardly possible if no up-to-date terminals at railways and ports are constructed,” emphasises Mr Kolosok.

Resume
In 2010 the total manufacturing capa­city of the wagon-building industry in the CIS may amount to 115,000-120,000 units, and the volume of consumer demand will be less than 100,000 units. That is why, forecasts warn, the situation that took place in late 1990’s will repeat itself in 2010.
By Maria Shevchenko 
viewpoint

Sergey Kolosok, 
Deputy CEO for Marketing and Sales, FGUP Production Union Uralvagonzavod:
– To replace the wagons with an expired life-time and to reduce the average age of its park, OAO RZD (taking into account its daughter companies) must purchase annually at least 30,000 freight railcars of all types for several years running. In the next 2-3 years, the growth of demand for cargo wagons may cause an increase in the total wagon-building market’s capacity in the CIS to 100,000 units per annum.  
 
 
Konstantin Kostrikin, 
Expert Analyst, Engineering Sector Research Department, Natural Monopolies’ Problems Institute:
– The forecasts for the development of manufacturing and production in the sector are defined in the Transport Machine Building Development Strategy. It envisages the volume of freight wagon manufacturing as well as exploitation characteristics, such as output, axle loading and the time between repairs. Perhaps the production of specialised rolling stock, for example wagons for cars or timber transportation, will develop faster. If the tariff policy is favourable, the demand for transit container transportation may increase, and then the supply of flat railcars for box transportation may also grow. 
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Total deterioration
The entire park of freight wagons in the CIS and Baltic states numbers 1,393,960 units. The larger part are gondola cars, the average age of which is 22 years. Other types of railcars are also deteriorating. Over 300,000 wagons whose standard life-time is over are still being used. In particular, the average age of wagons in the park of OAO RZD is 20 years, and worn out equipment accounts for 75% of the park. Eighty per cent of the railcars in the Ukrainian park are worn out. 
Considering the real requirements of clients and potential possibilities of existing wagon building capacities, the high demand for freight railcars must continue for the next three to five years. The reason for such a situation is the decrease of wagon production caused by the economic crisis in Russia and the CIS in the 1990s which led to an abrupt reduction in railway transportation volumes. For example, by 1998 the volume of transportation by railway had fallen by 2.5 times in comparison with 1990. The decrease of transportation volume caused a sharp reduction in purchases of new railway rolling stock. In 1998, the volume of cargo wagons manufactured fell more than six-fold in comparison with 1990, and at some wagon building enterprises it fell to almost zero. As a result, more than 600,000 wagons are to be written off. Meanwhile, it is necessary that at least 80,000 wagons are added to the park annually.

Promising opportunities
It should be remembered that a significant number of new cargo railcars are to be purchased according to the recently adopted Strategy of Railway Transport Development. In particular, the document adopted by the RF Government envisages that 526,000 units of freight machinery will be bought in the next seven years at a total cost of RUR 1.3 trillion. However, official data about freight wagon purchases of the main consumer in the sector, OAO RZD, show that the requested volumes have not been reached. “In 2007, OAO RZD purchased almost 16,000 wagons. Since the sum of expenses on new cargo railcars has not been published, the volume of OAO RZD’s purchases may be evaluated at RUR 19-20 billion (according to average wagon prices). It is expected that freight wagon purchases will grow by at least 10-15% in 2008,” comments Konstantin Kostrikin, expert analyst at the Engineering Sector Research Department, Natural Monopolies’ Problems Institute (IPEM).
Except for the main consumer of freight wagons, the park of private operators is developing actively in Russia now. According to the data of the IPEM experts, last year private companies bought more than 43,000 freight wagons, including about 20,000 units produced in Ukraine. “All in all, it makes about RUR 65 billion. This year, the demand of private companies is forecasted to grow to 10-15% in comparison with 2007,” says Mr Kostrikin.
Specialists from the Federal state unitary enterprise (FGUP) Production Union Uralvagonzavod mention similar figures. “In 2007, state and private transport companies in the CIS bought about 71,000 ‘Type A’ wagons”. OAO RZD was the largest consumer of cargo rolling stock. In particular, last year OAO RZD purchased 15,400 freight wagons of all types, including 14,200 gondola cars manufactured by Uralvagonzavod. Also, in 2007 Russian Railways purchased covered wagons as well as hoppers for cement and grain transportation. The companies supplying special wagons were Altaivagon, Ruzkhimmash, and Armavir ZTM,” tells Sergey Kolosok, Deputy CEO for Marketing and Sales of FGUP Production Union Uralvagonzavod.
The number of freight wagons purchased is falling behind the plan and the reason for it is clear - the plants lack capacity and they have only just started to enlarge the existing capacities to fulfil increasing orders. In the words of specialists from Transmashholding, only 2,112 wagons were produced, i.e. the enterprise is running at 100% capacity. In 2007, the capacity to manufacture 500 flat wagons for large capacity containers was created. The investment for this capacity amounted to RUR 16 million, the company’s spokesman says. In the near future, the company plans to manufacture a covered universal wagon with sliding side walls as well as flat wagons for transporting contrailers.
Another large player in the freight railcar production market, FGUP Production Union Uralvagonzavod produced and sold to Russian and foreign consumers 17,800 cargo wagons of different types in 2007, which exceeds by 10% the 2006 figures, which saw 16,100 freight railcars sold. “According to the results of 2007, the share of Uralvagonzavod in the CIS freight wagon-building market is 25%. As for the key segments for our union – gondola cars and tank wagons - our share is 41% and 23% respectively. It should be mentioned that these segments are most attractive, given effective demand. Thus, in 2007 the share of gondola cars and tank wagons in the total volume of freight wagons used in the CIS amounted to 66%,” highlights Mr Kolosok.
Due to all this, the demand significantly exceeds the offer in the freight wagon-building market today. To meet all the requirements of consumers, all the leading enterprises in the sector are striving to enlarge output volumes and start production of new types of wagons. It is necessary to mention another important trend that has emerged in the past two or three years – the growth of demand for special freight wagons: hoppers, modified flat wagons and tank wagons for transportation of chemicals. In the next several years, the share of special wagons in the total volume of demand will gradually increase.

Growing slowly
Considering the main trends of the sector, large operators’ rolling stock purchase plans and the sums envisaged by the Railway Transport Development Strategy, the manufacturers plan to increase their own capacities for wagon production.
The construction of a new wagon-building plant in the Leningrad region will be the lar­gest project in the sector. In the words of the top managers of ZAO KTS - a managing organisation for ZAO Tikhvinsky Wagon Building Plant - work is underway on a high-tech wa­gon-building factory able to produce mo­dern cargo railcars, including a new ge­neration of wagons. “The area of the factory will be 40 hectares with a workshop area of about 220,000 sq.m. The plant will include two major manufacturing areas. First, a foundry with the ability to cast 67,000 tons of heavy and medium-capacity wagons annually. Of that, 38,000 tons will be produced for the company’s own needs, and 29,000 tons will be sold to external companies. The second area will produce 10,000 wagons per annum, inclu­ding gondola cars, hoppers and container platforms,” tells Alexey Aleshin, CEO of ZAO KTS. The volume of capital expenditure on the project is about USD 600 million.
The concept project of the plant is deve­loped, the types of wagons for production and their design are defined, and common project of the plant has also been developed. The supervisory bodies have examined the project and permission for construction has been received. 
Almost all freight railcar manufacturers have declared projects targeted at improving the quality of production and growing production volumes. In particular, OAO Altaivagon is increasing its wagon casting production. Today, OAO Altaivagon manu­factures 2,400 tons of medium-size and small castings a month; in future the company plans to start production of heavy casting – solebars and bolsters. Moreover, the company is going to increase its capacities from making 120-150 flat wagons in four or five models a month now to 200 or more, and there will be two or three more models.
Launched in December 2007, Russian Transport Engineering Company (RKTM – JV incorporated into the Basic Element of Russian Machines and Mordovia Wagon Building Company’s holding) plans to produce 15,000 wagons by 2010, and 20,000 units by 2015. “Thus, we would like to control 25-30% of the cargo wagon-building market by 2015. We make these plans taking into account the capacities of Abakanvagonmash (incorporated into Russian Machines), since a single sales structure will be established in 2008. It will allow efficient distribution of freight wagon orders between all plants,” say the top management of RKTM.
Tractor Plants Concern has announced construction of a wagon-building enterprise with an annual capacity of 6,000 railcars in the Krasnoyarsk region. The first products are to be made before the end of 2008. Investment will amount to RUR 4 billion. “We are initiating opening of a plant on the basis of existing assets and considering the shortage of cargo railcars in the country, we plan to provide the market with wagons of an increased axle loading of 25 tons,” says Mikhail Bolotin, Head of Tractor Plants Concern.
Uralvagonzavod has similar plans. “The mid-term program of manufacture mo­dernisation to 2012 has been developed. The program envisages reconstruction of metallurgic and wagon assembling plants to increase output volume and improve quality,” says Mr Kolosok. In his words, an important competitive advantage of Uralvagonzavod is providing its own manufacturers with wagon casting, while most enterprises in the sector go in for wagon semi knocked down out of purchased details.
Before the end of 2008, the establishment of OAO NPK Uralvagonzavod, a scientific and production corporation, is to be completed. According to the company’s top management, OAO Chelyabinsk Tractor Plant-Uraltrack (ChTZ) will be the basis for a new corporation and will forge ahead of the group’s other factories, i.e. GUP Omsktransmash and OAO Rubtsovsky machine-building plant. In the next two or three years, a small series of rolling stock will be organised at these enterprises, the forecasted capacity of which will amount to 10-15 cargo railcars monthly. It will be mainly specialised rolling stock.
Metallurgical giant OAO Mechel plans to develop a wagon-building production line based at the Neryungrinsky Repair Mechanical Plant. Today it has two manufacturing options for the future. According to the first variant, the plant will be able to produce 2,500 gondola cars annually and will  have a repair depot. The payback term is 5.2 years. The second variant envisa­ges production of 5,000 wagons per annum, and the payback period is 5 years. In either case, first wagons will be produced two years after modernisation starts. 
Projects in the wagon-building sector are being launched in other CIS countries. At the base of TOO Martuksky Mechanical Plant (MMZ) in Kazakhstan, it is planned to launch a scaled factory, able to produce about 15,600 wagons. The planned investments into the project amount to USD 300 million. The plant will produce 500 oil tank wagons, 300 tank wagons for LNG, foodstuffs and chemicals, and 500 cargo railcars with other modifications. The enterprise will also produce wheel-sets.
Between now and 2010 it is planned to enlarge the capacities of Stakhanovsky Wagon Building Plant (up to 4,200 units), Ukrainian repair enterprises (up to 3,600 units), and Dneprvagonmash and UVZ & AVR (Estonia) (up to 600 units at each plant).

Plans will never come true without modernisation 
Meanwhile, there are problems in the industry, which could slow down deve­lopment of the freight railcar sector. The main restraining factor for further growth of production volumes is the problem of bogie casting. A similar problem exists for manufacturers in Russia as elsewhere, agree experts of IPEM. “One should take into account the limitation common for all wagon producers. It concerns the capacities for heavy wagon casting. Without establishment of new manufacturers in Russia, the sector seems to be crucially dependent on wagon-casting supplies from the CIS and Chinese enterprises,” highlights Mr Kostrikin.
Another difficulty is the production of enterprises falling behind, technologically speaking, the requirements of modern wagons. “Under tough competition conditions, we have to focus on demand and constantly improve the technical characteristics of hoppers. Besides, a flat wagon for carrying large capacity containers now needs to be tested to get a certificate,” says Mr Naumov. The improvement of the technical level of manufactured wagons, i.e. enlargement of their carrying capacity and prolonging the time between repairs, is an important task for the wagon-engineering sector, agree top managers at FGUP Uralvagonzavod.
Perhaps the most urgent problem is the lack of finances for modernisation and capacity enlargement, since the payback period in the sector is much longer than the 5-10 year standard in other sectors of the industry.  Public-private partnerships may be used as an instrument to attract investments. “As for the freight wagon-building sector, it is reasonable to apply public-private partnership schemes for scientific research, the results of which may be used by all manufacturers. It would be unreasonable for the state to participate in projects to develop new railcar models if they have no principally new elements,” considers Mr Kostrikin. 
Active modernisation and enlargement of Russian railcar engineering capacities as well as development and implementation of a new generation of freight rolling stock require reconstruction of railways and infrastructure, highlight top managers at Uralvagonzavod. Scaled reconstruction of tracks, bridges, wagon tippers, etc are necessary for safe usage of wagons with a loading of 25 tons per axle, and in future with those carrying 35 tons per axle. “A more extensive usage of container flat wagons and the growth of container transportation by railway is hardly possible if no up-to-date terminals at railways and ports are constructed,” emphasises Mr Kolosok.

Resume
In 2010 the total manufacturing capa­city of the wagon-building industry in the CIS may amount to 115,000-120,000 units, and the volume of consumer demand will be less than 100,000 units. That is why, forecasts warn, the situation that took place in late 1990’s will repeat itself in 2010.
By Maria Shevchenko 
viewpoint

Sergey Kolosok, 
Deputy CEO for Marketing and Sales, FGUP Production Union Uralvagonzavod:
– To replace the wagons with an expired life-time and to reduce the average age of its park, OAO RZD (taking into account its daughter companies) must purchase annually at least 30,000 freight railcars of all types for several years running. In the next 2-3 years, the growth of demand for cargo wagons may cause an increase in the total wagon-building market’s capacity in the CIS to 100,000 units per annum.  
 
 
Konstantin Kostrikin, 
Expert Analyst, Engineering Sector Research Department, Natural Monopolies’ Problems Institute:
– The forecasts for the development of manufacturing and production in the sector are defined in the Transport Machine Building Development Strategy. It envisages the volume of freight wagon manufacturing as well as exploitation characteristics, such as output, axle loading and the time between repairs. Perhaps the production of specialised rolling stock, for example wagons for cars or timber transportation, will develop faster. If the tariff policy is favourable, the demand for transit container transportation may increase, and then the supply of flat railcars for box transportation may also grow. 
    [~DETAIL_TEXT] => 
Total deterioration
The entire park of freight wagons in the CIS and Baltic states numbers 1,393,960 units. The larger part are gondola cars, the average age of which is 22 years. Other types of railcars are also deteriorating. Over 300,000 wagons whose standard life-time is over are still being used. In particular, the average age of wagons in the park of OAO RZD is 20 years, and worn out equipment accounts for 75% of the park. Eighty per cent of the railcars in the Ukrainian park are worn out. 
Considering the real requirements of clients and potential possibilities of existing wagon building capacities, the high demand for freight railcars must continue for the next three to five years. The reason for such a situation is the decrease of wagon production caused by the economic crisis in Russia and the CIS in the 1990s which led to an abrupt reduction in railway transportation volumes. For example, by 1998 the volume of transportation by railway had fallen by 2.5 times in comparison with 1990. The decrease of transportation volume caused a sharp reduction in purchases of new railway rolling stock. In 1998, the volume of cargo wagons manufactured fell more than six-fold in comparison with 1990, and at some wagon building enterprises it fell to almost zero. As a result, more than 600,000 wagons are to be written off. Meanwhile, it is necessary that at least 80,000 wagons are added to the park annually.

Promising opportunities
It should be remembered that a significant number of new cargo railcars are to be purchased according to the recently adopted Strategy of Railway Transport Development. In particular, the document adopted by the RF Government envisages that 526,000 units of freight machinery will be bought in the next seven years at a total cost of RUR 1.3 trillion. However, official data about freight wagon purchases of the main consumer in the sector, OAO RZD, show that the requested volumes have not been reached. “In 2007, OAO RZD purchased almost 16,000 wagons. Since the sum of expenses on new cargo railcars has not been published, the volume of OAO RZD’s purchases may be evaluated at RUR 19-20 billion (according to average wagon prices). It is expected that freight wagon purchases will grow by at least 10-15% in 2008,” comments Konstantin Kostrikin, expert analyst at the Engineering Sector Research Department, Natural Monopolies’ Problems Institute (IPEM).
Except for the main consumer of freight wagons, the park of private operators is developing actively in Russia now. According to the data of the IPEM experts, last year private companies bought more than 43,000 freight wagons, including about 20,000 units produced in Ukraine. “All in all, it makes about RUR 65 billion. This year, the demand of private companies is forecasted to grow to 10-15% in comparison with 2007,” says Mr Kostrikin.
Specialists from the Federal state unitary enterprise (FGUP) Production Union Uralvagonzavod mention similar figures. “In 2007, state and private transport companies in the CIS bought about 71,000 ‘Type A’ wagons”. OAO RZD was the largest consumer of cargo rolling stock. In particular, last year OAO RZD purchased 15,400 freight wagons of all types, including 14,200 gondola cars manufactured by Uralvagonzavod. Also, in 2007 Russian Railways purchased covered wagons as well as hoppers for cement and grain transportation. The companies supplying special wagons were Altaivagon, Ruzkhimmash, and Armavir ZTM,” tells Sergey Kolosok, Deputy CEO for Marketing and Sales of FGUP Production Union Uralvagonzavod.
The number of freight wagons purchased is falling behind the plan and the reason for it is clear - the plants lack capacity and they have only just started to enlarge the existing capacities to fulfil increasing orders. In the words of specialists from Transmashholding, only 2,112 wagons were produced, i.e. the enterprise is running at 100% capacity. In 2007, the capacity to manufacture 500 flat wagons for large capacity containers was created. The investment for this capacity amounted to RUR 16 million, the company’s spokesman says. In the near future, the company plans to manufacture a covered universal wagon with sliding side walls as well as flat wagons for transporting contrailers.
Another large player in the freight railcar production market, FGUP Production Union Uralvagonzavod produced and sold to Russian and foreign consumers 17,800 cargo wagons of different types in 2007, which exceeds by 10% the 2006 figures, which saw 16,100 freight railcars sold. “According to the results of 2007, the share of Uralvagonzavod in the CIS freight wagon-building market is 25%. As for the key segments for our union – gondola cars and tank wagons - our share is 41% and 23% respectively. It should be mentioned that these segments are most attractive, given effective demand. Thus, in 2007 the share of gondola cars and tank wagons in the total volume of freight wagons used in the CIS amounted to 66%,” highlights Mr Kolosok.
Due to all this, the demand significantly exceeds the offer in the freight wagon-building market today. To meet all the requirements of consumers, all the leading enterprises in the sector are striving to enlarge output volumes and start production of new types of wagons. It is necessary to mention another important trend that has emerged in the past two or three years – the growth of demand for special freight wagons: hoppers, modified flat wagons and tank wagons for transportation of chemicals. In the next several years, the share of special wagons in the total volume of demand will gradually increase.

Growing slowly
Considering the main trends of the sector, large operators’ rolling stock purchase plans and the sums envisaged by the Railway Transport Development Strategy, the manufacturers plan to increase their own capacities for wagon production.
The construction of a new wagon-building plant in the Leningrad region will be the lar­gest project in the sector. In the words of the top managers of ZAO KTS - a managing organisation for ZAO Tikhvinsky Wagon Building Plant - work is underway on a high-tech wa­gon-building factory able to produce mo­dern cargo railcars, including a new ge­neration of wagons. “The area of the factory will be 40 hectares with a workshop area of about 220,000 sq.m. The plant will include two major manufacturing areas. First, a foundry with the ability to cast 67,000 tons of heavy and medium-capacity wagons annually. Of that, 38,000 tons will be produced for the company’s own needs, and 29,000 tons will be sold to external companies. The second area will produce 10,000 wagons per annum, inclu­ding gondola cars, hoppers and container platforms,” tells Alexey Aleshin, CEO of ZAO KTS. The volume of capital expenditure on the project is about USD 600 million.
The concept project of the plant is deve­loped, the types of wagons for production and their design are defined, and common project of the plant has also been developed. The supervisory bodies have examined the project and permission for construction has been received. 
Almost all freight railcar manufacturers have declared projects targeted at improving the quality of production and growing production volumes. In particular, OAO Altaivagon is increasing its wagon casting production. Today, OAO Altaivagon manu­factures 2,400 tons of medium-size and small castings a month; in future the company plans to start production of heavy casting – solebars and bolsters. Moreover, the company is going to increase its capacities from making 120-150 flat wagons in four or five models a month now to 200 or more, and there will be two or three more models.
Launched in December 2007, Russian Transport Engineering Company (RKTM – JV incorporated into the Basic Element of Russian Machines and Mordovia Wagon Building Company’s holding) plans to produce 15,000 wagons by 2010, and 20,000 units by 2015. “Thus, we would like to control 25-30% of the cargo wagon-building market by 2015. We make these plans taking into account the capacities of Abakanvagonmash (incorporated into Russian Machines), since a single sales structure will be established in 2008. It will allow efficient distribution of freight wagon orders between all plants,” say the top management of RKTM.
Tractor Plants Concern has announced construction of a wagon-building enterprise with an annual capacity of 6,000 railcars in the Krasnoyarsk region. The first products are to be made before the end of 2008. Investment will amount to RUR 4 billion. “We are initiating opening of a plant on the basis of existing assets and considering the shortage of cargo railcars in the country, we plan to provide the market with wagons of an increased axle loading of 25 tons,” says Mikhail Bolotin, Head of Tractor Plants Concern.
Uralvagonzavod has similar plans. “The mid-term program of manufacture mo­dernisation to 2012 has been developed. The program envisages reconstruction of metallurgic and wagon assembling plants to increase output volume and improve quality,” says Mr Kolosok. In his words, an important competitive advantage of Uralvagonzavod is providing its own manufacturers with wagon casting, while most enterprises in the sector go in for wagon semi knocked down out of purchased details.
Before the end of 2008, the establishment of OAO NPK Uralvagonzavod, a scientific and production corporation, is to be completed. According to the company’s top management, OAO Chelyabinsk Tractor Plant-Uraltrack (ChTZ) will be the basis for a new corporation and will forge ahead of the group’s other factories, i.e. GUP Omsktransmash and OAO Rubtsovsky machine-building plant. In the next two or three years, a small series of rolling stock will be organised at these enterprises, the forecasted capacity of which will amount to 10-15 cargo railcars monthly. It will be mainly specialised rolling stock.
Metallurgical giant OAO Mechel plans to develop a wagon-building production line based at the Neryungrinsky Repair Mechanical Plant. Today it has two manufacturing options for the future. According to the first variant, the plant will be able to produce 2,500 gondola cars annually and will  have a repair depot. The payback term is 5.2 years. The second variant envisa­ges production of 5,000 wagons per annum, and the payback period is 5 years. In either case, first wagons will be produced two years after modernisation starts. 
Projects in the wagon-building sector are being launched in other CIS countries. At the base of TOO Martuksky Mechanical Plant (MMZ) in Kazakhstan, it is planned to launch a scaled factory, able to produce about 15,600 wagons. The planned investments into the project amount to USD 300 million. The plant will produce 500 oil tank wagons, 300 tank wagons for LNG, foodstuffs and chemicals, and 500 cargo railcars with other modifications. The enterprise will also produce wheel-sets.
Between now and 2010 it is planned to enlarge the capacities of Stakhanovsky Wagon Building Plant (up to 4,200 units), Ukrainian repair enterprises (up to 3,600 units), and Dneprvagonmash and UVZ & AVR (Estonia) (up to 600 units at each plant).

Plans will never come true without modernisation 
Meanwhile, there are problems in the industry, which could slow down deve­lopment of the freight railcar sector. The main restraining factor for further growth of production volumes is the problem of bogie casting. A similar problem exists for manufacturers in Russia as elsewhere, agree experts of IPEM. “One should take into account the limitation common for all wagon producers. It concerns the capacities for heavy wagon casting. Without establishment of new manufacturers in Russia, the sector seems to be crucially dependent on wagon-casting supplies from the CIS and Chinese enterprises,” highlights Mr Kostrikin.
Another difficulty is the production of enterprises falling behind, technologically speaking, the requirements of modern wagons. “Under tough competition conditions, we have to focus on demand and constantly improve the technical characteristics of hoppers. Besides, a flat wagon for carrying large capacity containers now needs to be tested to get a certificate,” says Mr Naumov. The improvement of the technical level of manufactured wagons, i.e. enlargement of their carrying capacity and prolonging the time between repairs, is an important task for the wagon-engineering sector, agree top managers at FGUP Uralvagonzavod.
Perhaps the most urgent problem is the lack of finances for modernisation and capacity enlargement, since the payback period in the sector is much longer than the 5-10 year standard in other sectors of the industry.  Public-private partnerships may be used as an instrument to attract investments. “As for the freight wagon-building sector, it is reasonable to apply public-private partnership schemes for scientific research, the results of which may be used by all manufacturers. It would be unreasonable for the state to participate in projects to develop new railcar models if they have no principally new elements,” considers Mr Kostrikin. 
Active modernisation and enlargement of Russian railcar engineering capacities as well as development and implementation of a new generation of freight rolling stock require reconstruction of railways and infrastructure, highlight top managers at Uralvagonzavod. Scaled reconstruction of tracks, bridges, wagon tippers, etc are necessary for safe usage of wagons with a loading of 25 tons per axle, and in future with those carrying 35 tons per axle. “A more extensive usage of container flat wagons and the growth of container transportation by railway is hardly possible if no up-to-date terminals at railways and ports are constructed,” emphasises Mr Kolosok.

Resume
In 2010 the total manufacturing capa­city of the wagon-building industry in the CIS may amount to 115,000-120,000 units, and the volume of consumer demand will be less than 100,000 units. That is why, forecasts warn, the situation that took place in late 1990’s will repeat itself in 2010.
By Maria Shevchenko 
viewpoint

Sergey Kolosok, 
Deputy CEO for Marketing and Sales, FGUP Production Union Uralvagonzavod:
– To replace the wagons with an expired life-time and to reduce the average age of its park, OAO RZD (taking into account its daughter companies) must purchase annually at least 30,000 freight railcars of all types for several years running. In the next 2-3 years, the growth of demand for cargo wagons may cause an increase in the total wagon-building market’s capacity in the CIS to 100,000 units per annum.  
 
 
Konstantin Kostrikin, 
Expert Analyst, Engineering Sector Research Department, Natural Monopolies’ Problems Institute:
– The forecasts for the development of manufacturing and production in the sector are defined in the Transport Machine Building Development Strategy. It envisages the volume of freight wagon manufacturing as well as exploitation characteristics, such as output, axle loading and the time between repairs. Perhaps the production of specialised rolling stock, for example wagons for cars or timber transportation, will develop faster. If the tariff policy is favourable, the demand for transit container transportation may increase, and then the supply of flat railcars for box transportation may also grow. 
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    [DETAIL_TEXT] => – Mr Shpakov, do you think that the sale of the depots will impact the price situation in the sector?
–  Most planned wagon repair is fulfilled by the wagon repair enterprises of the Central Directorate for Wagons Repair (CDRW) of OAO RZD and by the 22 wagon repair enterprises put up for auction. The prices for wagon repair after the 22 depots are sold will be formed by market conditions. On the whole, in the short-term prospect, their influence on the market will be small.
I’d like to emphasise that the total volume of repair capacity in the market will never grow unless manufacturing is modernised. Today the volume of repaired railcars increases due to additional shifts instead of equipment renewal. And the number of new depots is very small. With the advent of private owners, the enterprises may be modernised, and consequently, their efficiency and capacities will grow in several years’ time. 
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– Globaltrans group of companies does not have wagon repair capacities now. It may be interesting for us to purchase a depot. But it is an absolutely different type of business; the final decision will be made by the Board of Directors of Globaltrans. Nowadays, the park of Novaya Perevozochnaya Kompaniya (NPK) amounts to over 20,000 units of rolling stock. The average age of the park is not very great, however, about 15,000 wagons from it require scheduled maintenance.
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– What measures must be taken to create competition in the wagon repair sector? Is competition possible in this case at all?
– The further development of the railway transportation market requires wagon repair businesses to be hived off. Today, the number of wagon repair enterprises is insufficient and their location is sometimes not convenient for customers.
I would also like to mention that the depots put up for auction by OAO RZD are located in unfavourable places from a geographical standpoint. In addition, all the wagon depots have deteriorated, the equipment there needs to be modernised; thus, additional investment is necessary. The wagon repair market is just being developed. And it can be considered developed only when several large companies provide wagon repair services at their own wagon repair enterprises. And the capacities of the latter are similar to those of OAO RZD. That is possible only if the new owners start modernisation, then the capacity of the sold depots will grow and construction of new wagon repair depots will begin.
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I’d like to emphasise that the total volume of repair capacity in the market will never grow unless manufacturing is modernised. Today the volume of repaired railcars increases due to additional shifts instead of equipment renewal. And the number of new depots is very small. With the advent of private owners, the enterprises may be modernised, and consequently, their efficiency and capacities will grow in several years’ time. 
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– Globaltrans group of companies does not have wagon repair capacities now. It may be interesting for us to purchase a depot. But it is an absolutely different type of business; the final decision will be made by the Board of Directors of Globaltrans. Nowadays, the park of Novaya Perevozochnaya Kompaniya (NPK) amounts to over 20,000 units of rolling stock. The average age of the park is not very great, however, about 15,000 wagons from it require scheduled maintenance.
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– The further development of the railway transportation market requires wagon repair businesses to be hived off. Today, the number of wagon repair enterprises is insufficient and their location is sometimes not convenient for customers.
I would also like to mention that the depots put up for auction by OAO RZD are located in unfavourable places from a geographical standpoint. In addition, all the wagon depots have deteriorated, the equipment there needs to be modernised; thus, additional investment is necessary. The wagon repair market is just being developed. And it can be considered developed only when several large companies provide wagon repair services at their own wagon repair enterprises. And the capacities of the latter are similar to those of OAO RZD. That is possible only if the new owners start modernisation, then the capacity of the sold depots will grow and construction of new wagon repair depots will begin.
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He believes that the main factor influencing the increase in wagon repair costs is the rise of prices for metal - which is the raw material for production of nodes and components - as well as salary growth.
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    [DETAIL_TEXT] => – Mr Shpakov, do you think that the sale of the depots will impact the price situation in the sector?
–  Most planned wagon repair is fulfilled by the wagon repair enterprises of the Central Directorate for Wagons Repair (CDRW) of OAO RZD and by the 22 wagon repair enterprises put up for auction. The prices for wagon repair after the 22 depots are sold will be formed by market conditions. On the whole, in the short-term prospect, their influence on the market will be small.
I’d like to emphasise that the total volume of repair capacity in the market will never grow unless manufacturing is modernised. Today the volume of repaired railcars increases due to additional shifts instead of equipment renewal. And the number of new depots is very small. With the advent of private owners, the enterprises may be modernised, and consequently, their efficiency and capacities will grow in several years’ time. 
– Does your company have repair capacities? Does it plan to purchase them in future?
– Globaltrans group of companies does not have wagon repair capacities now. It may be interesting for us to purchase a depot. But it is an absolutely different type of business; the final decision will be made by the Board of Directors of Globaltrans. Nowadays, the park of Novaya Perevozochnaya Kompaniya (NPK) amounts to over 20,000 units of rolling stock. The average age of the park is not very great, however, about 15,000 wagons from it require scheduled maintenance.
– Does NPK use the services of Russian Railways’ repair enterprises?
– Yes, NPK interacts with the Central Directorate for Cargo Wagons Repair on a contractual basis. In 2008, the average monthly repair volume is approximately 1,000-1,200 wagons. The set plan tasks are fulfilled. We control the quality of services provided by the CDRW. All the existing problems are solved through teamwork.
– What measures must be taken to create competition in the wagon repair sector? Is competition possible in this case at all?
– The further development of the railway transportation market requires wagon repair businesses to be hived off. Today, the number of wagon repair enterprises is insufficient and their location is sometimes not convenient for customers.
I would also like to mention that the depots put up for auction by OAO RZD are located in unfavourable places from a geographical standpoint. In addition, all the wagon depots have deteriorated, the equipment there needs to be modernised; thus, additional investment is necessary. The wagon repair market is just being developed. And it can be considered developed only when several large companies provide wagon repair services at their own wagon repair enterprises. And the capacities of the latter are similar to those of OAO RZD. That is possible only if the new owners start modernisation, then the capacity of the sold depots will grow and construction of new wagon repair depots will begin.
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I’d like to emphasise that the total volume of repair capacity in the market will never grow unless manufacturing is modernised. Today the volume of repaired railcars increases due to additional shifts instead of equipment renewal. And the number of new depots is very small. With the advent of private owners, the enterprises may be modernised, and consequently, their efficiency and capacities will grow in several years’ time. 
– Does your company have repair capacities? Does it plan to purchase them in future?
– Globaltrans group of companies does not have wagon repair capacities now. It may be interesting for us to purchase a depot. But it is an absolutely different type of business; the final decision will be made by the Board of Directors of Globaltrans. Nowadays, the park of Novaya Perevozochnaya Kompaniya (NPK) amounts to over 20,000 units of rolling stock. The average age of the park is not very great, however, about 15,000 wagons from it require scheduled maintenance.
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– What measures must be taken to create competition in the wagon repair sector? Is competition possible in this case at all?
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I would also like to mention that the depots put up for auction by OAO RZD are located in unfavourable places from a geographical standpoint. In addition, all the wagon depots have deteriorated, the equipment there needs to be modernised; thus, additional investment is necessary. The wagon repair market is just being developed. And it can be considered developed only when several large companies provide wagon repair services at their own wagon repair enterprises. And the capacities of the latter are similar to those of OAO RZD. That is possible only if the new owners start modernisation, then the capacity of the sold depots will grow and construction of new wagon repair depots will begin.
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He believes that the main factor influencing the increase in wagon repair costs is the rise of prices for metal - which is the raw material for production of nodes and components - as well as salary growth.
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He believes that the main factor influencing the increase in wagon repair costs is the rise of prices for metal - which is the raw material for production of nodes and components - as well as salary growth.
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Successful auction in spite of scepticism
Two years ago the Board of Directors of OAO RZD decided to take 30% of the company’s wagon repair capacity to the market. In June-July of 2008 the first auction took place. In spite of the fact that the depots for sale amounted to just 16% instead of 30%, it is possible to say that the process has at least started. As planned, the auction was held in several stages. At each stage four or five lots were offered to market players.
From the very beginning, when the list of depots for sale was announced, representatives of the companies interested in enlarging their wagon-repair assets were rather sceptical about the attractiveness of the facilities. The main stumbling block was the condition of the infrastructure in the depots. Everyone knew that the transfer of any of the 22 depots would never influence the quality of services provided by the repair segment of OAO RZD. Since the company could easily do without these objects – and it took OAO RZD a long time to make the decision about the sale - no investments were made into the assets put up for auction. That is why a lot of transport companies doubted the reasonability of such purchase.
Meanwhile, as the results showed, the opportunity to decrease rolling stock repair cost prices tipped the scale. After the first stage of the auction it became clear that the preliminary figures for likely reve­nue were underestimated (according to i­nitial estimates, OAO RZD was to gain at least RUR 2.6 billion). For example, wa­gon repair depot Verkhny Ufaley, which had a starting price of RUR 95.3 million, was sold to ZAO Uralgorshakhtkomplekt for RUR 328.9 million. The property of wagon repair depot Murashi (Kirovskaya region) was sold to OOO Uralkhimtrans for RUR 358.9 million, while its starting price was RUR 107.4 million. OOO Armavirsky Plant of Heavy Engineering paid RUR 258.697 million for wagon depot Armavir (the starting price was RUR 76.297 million). Thus, the revenue of OAO RZD from the auction amounted to RUR 3.2 billion.
One should keep in mind that the buyers will spend even more. For example, ZAO Uralgorshakhtkomplekt (UGShK), which won over such companies as Transgarant, Spetscisterns and Eurosib, is getting ready to double the capacity of the depot during the next three years. In the words of Gennady Prokh, Chairman of the Board of Directors of UGShK group of companies and CEO of parent company ZAO UGShK, “the company was ready for a rush.”
“ZAO UGShK participated in the auction for lot №1 and was happy to pay up to RUR 350 million, and it won with an offer of RUR 328 million. The serious attention of the market players to this area is caused by the demand for our own wagon repair capacity. ZAO UGShK plans to enlarge the capacity of Verkhny Ufaley depot two-fold. More than RUR 200-250 million of additional investment is necessary for that,” says Mr Prokh. It is planned to create a high-tech wagon repair enterprise, able to provide high-quality repair of all types of wagons, including clearance and wash and repair of barrels of different tank-wagons. In the future, UGShK is going to launch a wagon-assembling plant, which is an independent project.
Evaluating the importance of the purchase, Sergey Momtsemlidze, Director General of OOO Uralkhimtrans, explained that depot Murashi is a strategically important object for the company because it is located close to the Kirovo-Cherepetsky chemical plant – the company’s main consignor. “After unloading, the wagons we exploit are returned to the address of the consignor, consequently, the cost of an empty run of wagons to/from repair will be smaller than if we use other depots of the Gorkovskaya railway. That is why it took us little time to make the decision,” emphasised Mr Momtsemlidze.
It is worth noting that the winners must carry out a number of conditions, in particular, keeping the functions of the purchased property by organising wagon repair manufacture as its basis, and providing depot employees with jobs, keeping or improving the terms of acting labour contracts and the collective agreement of OAO RZD. 

On the way to competition
Specialists at the Institute of Natural Monopolies’ Problems (IPEM) say that the sale of 22 wagon repair depots will double the production capacities of private companies (from 34,500 wagon repairs in 2007 to 74,400 wagon repairs). Thus, the share of private companies in the wagon repair market will grow to 15.5%.
It is clear that, whatever the prospects, the depots may not compete with OAO RZD immediately. But some owners of rolling stock are sure that a private depot may be competitive due to flexible prices for services, fast reaction to market situations, and additional services.
Vladimir Savchuk, Head of the Railway Transport Research Department, IPEM, believes that the freight wagon repair sector is a classic example of competition activity.
“The more holding companies uniting repair enterprises in different regions of Russia there are in the sector, the lower the expenses for repair suffered by freight wagon owners. In my opinion, the development of wagon-repair holding companies is optimal. In this case the competition will be most effective. It is especially important for large operators, managing heterogeneous wagon parks of gondola cars, covered wagons, flat railcars etc,” considers Mr Savchuk.
At the same time, he says that development of private repair enterprises servicing a limited number of cargo wagon models and located along major freight flows may also be efficient. For example, tank-wagons repair is characterised by a stable flow, localised according to geographic principle where loading and unloading takes place in refineries, ports etc. “The geography of transportation changes only slightly. Consequently, it is not reasonable to develop a wide network of tank-wagon repair enterprises, because the number of places for cargo loading/unloading is limited. There is a similar situation in the mineral fertilisers sector,” explains Mr Savchuk.
He also suggested the sale of repair enterprises will improve competition in the repair market, which will on the one hand lead to stabilisation of profit figures from this activity (reduction of the spread of prices for similar types of repair), and on the other hand improve the level of services and make the policy of repair enterprises more client-oriented. 

The second attempt
While the owners of the purchased depots are compiling documentation for their new property, organisers of the auction and representatives of OAO RZD decide how many stages – one or two – will be used to sell the depots considered unattractive by the investors who participated in the first auction.
Nowadays, it is much more important to avoid delays in the work of sold enterprises. Otherwise it may negatively influence the production process as well as the rhythmical work of the employees. 
“After each stage we negotiate with the new owners of the facilities to explain to them what the consequences of their actions must be and how the fast transfer of depot property may be organised,” tells Petr Pyrenkov, Head of Strategic Development Department at the Central Directorate for Wagon Repair (CDRW) – an affiliate of OAO RZD. In his words, it may take 7-10 days to compile all the necessary technical documentation.
Simultaneously with the processes of sale and property registration, the technological foundation for launching daughter companies on the basis of the CDRW pro­perty is being developed. It is possible to say that this is the next step to be taken after the depots are sold. In autumn, specialists of OAO RZD are to make a report on this area to the President of the company. Today, evaluating information about the rest of the depots is going on. According to the data of the CDRW, it is necessary to evaluate 2.991 objects.
Evaluating the prospects for the wagon repair sector reform, Mr Pyrenkov noted that the specialists of OAO RZD will strive for centralised management of assets in the first stage of the reform. 
The Ministry of Economic Development, on the contrary, supports the idea of launching several daughter companies using the extraterritorial principle, i.e. each of the launched companies is to unite depots located on different sectors of the railways, and each of the organisations is to have a representative office at the main freight traffic destinations. The subsidiaries created according to that principle will have a reason to compete to attract private rolling stock owners. And later, when the shareholdings of the enterprises are sold to interested investors, these depots will compete for the right to provide repair services to the wagon park of OAO RZD. Meanwhile, this approach worries railwaymen. In their opinion, it may damage the transportation management process and threaten traffic safety.
What scheme will OAO RZD use? How will the wagon repair sector develop? We will learn the answers to the questions this year. 
By Tatyana Ovcharova

reference
In 2007, the enterprises, which were for sale repaired 18,540 wagons in the OAO RZD park and 20,840 units of private rolling stock. Their capacity is 51,230 depot repairs per annum.
viewpoint

Nikolay Titchenko, 
Technical Director, OOO BaltTransService:
– Naturally, after the purchased wagon repair capacities are taken to the market, the situation in the rolling stock repair sector must change, although, it will not happen immediately. I would like to say that wagon owners are striving not for the competition, but for reduction of expenses on repair. As for modernisation of the manufacture, OOO BaltTransService - as well as any other owner of an enterprise - is interested in development of its structures and work optimisation. Although, it is too early to name any definite figures and dates, we are thinking about enlarging our regional wagon repair base in the future, but the issue is still being researched.
Nowadays, it is necessary for us to establish partner relations with OAO RZD. The wagon repair business is new for BaltTransService, though we manage 8,905 units of our own and rented rolling stock. 
Among the main difficulties the depot owners will face in the near future, there is getting the organisation of spares delivery schemes rubber-stamped. In my opinion, it would be reasonable to conclude a contract with Roszheldorsnab to organise non-stop work and provide supplies at the initial stage.
 
    [~DETAIL_TEXT] => 
Successful auction in spite of scepticism
Two years ago the Board of Directors of OAO RZD decided to take 30% of the company’s wagon repair capacity to the market. In June-July of 2008 the first auction took place. In spite of the fact that the depots for sale amounted to just 16% instead of 30%, it is possible to say that the process has at least started. As planned, the auction was held in several stages. At each stage four or five lots were offered to market players.
From the very beginning, when the list of depots for sale was announced, representatives of the companies interested in enlarging their wagon-repair assets were rather sceptical about the attractiveness of the facilities. The main stumbling block was the condition of the infrastructure in the depots. Everyone knew that the transfer of any of the 22 depots would never influence the quality of services provided by the repair segment of OAO RZD. Since the company could easily do without these objects – and it took OAO RZD a long time to make the decision about the sale - no investments were made into the assets put up for auction. That is why a lot of transport companies doubted the reasonability of such purchase.
Meanwhile, as the results showed, the opportunity to decrease rolling stock repair cost prices tipped the scale. After the first stage of the auction it became clear that the preliminary figures for likely reve­nue were underestimated (according to i­nitial estimates, OAO RZD was to gain at least RUR 2.6 billion). For example, wa­gon repair depot Verkhny Ufaley, which had a starting price of RUR 95.3 million, was sold to ZAO Uralgorshakhtkomplekt for RUR 328.9 million. The property of wagon repair depot Murashi (Kirovskaya region) was sold to OOO Uralkhimtrans for RUR 358.9 million, while its starting price was RUR 107.4 million. OOO Armavirsky Plant of Heavy Engineering paid RUR 258.697 million for wagon depot Armavir (the starting price was RUR 76.297 million). Thus, the revenue of OAO RZD from the auction amounted to RUR 3.2 billion.
One should keep in mind that the buyers will spend even more. For example, ZAO Uralgorshakhtkomplekt (UGShK), which won over such companies as Transgarant, Spetscisterns and Eurosib, is getting ready to double the capacity of the depot during the next three years. In the words of Gennady Prokh, Chairman of the Board of Directors of UGShK group of companies and CEO of parent company ZAO UGShK, “the company was ready for a rush.”
“ZAO UGShK participated in the auction for lot №1 and was happy to pay up to RUR 350 million, and it won with an offer of RUR 328 million. The serious attention of the market players to this area is caused by the demand for our own wagon repair capacity. ZAO UGShK plans to enlarge the capacity of Verkhny Ufaley depot two-fold. More than RUR 200-250 million of additional investment is necessary for that,” says Mr Prokh. It is planned to create a high-tech wagon repair enterprise, able to provide high-quality repair of all types of wagons, including clearance and wash and repair of barrels of different tank-wagons. In the future, UGShK is going to launch a wagon-assembling plant, which is an independent project.
Evaluating the importance of the purchase, Sergey Momtsemlidze, Director General of OOO Uralkhimtrans, explained that depot Murashi is a strategically important object for the company because it is located close to the Kirovo-Cherepetsky chemical plant – the company’s main consignor. “After unloading, the wagons we exploit are returned to the address of the consignor, consequently, the cost of an empty run of wagons to/from repair will be smaller than if we use other depots of the Gorkovskaya railway. That is why it took us little time to make the decision,” emphasised Mr Momtsemlidze.
It is worth noting that the winners must carry out a number of conditions, in particular, keeping the functions of the purchased property by organising wagon repair manufacture as its basis, and providing depot employees with jobs, keeping or improving the terms of acting labour contracts and the collective agreement of OAO RZD. 

On the way to competition
Specialists at the Institute of Natural Monopolies’ Problems (IPEM) say that the sale of 22 wagon repair depots will double the production capacities of private companies (from 34,500 wagon repairs in 2007 to 74,400 wagon repairs). Thus, the share of private companies in the wagon repair market will grow to 15.5%.
It is clear that, whatever the prospects, the depots may not compete with OAO RZD immediately. But some owners of rolling stock are sure that a private depot may be competitive due to flexible prices for services, fast reaction to market situations, and additional services.
Vladimir Savchuk, Head of the Railway Transport Research Department, IPEM, believes that the freight wagon repair sector is a classic example of competition activity.
“The more holding companies uniting repair enterprises in different regions of Russia there are in the sector, the lower the expenses for repair suffered by freight wagon owners. In my opinion, the development of wagon-repair holding companies is optimal. In this case the competition will be most effective. It is especially important for large operators, managing heterogeneous wagon parks of gondola cars, covered wagons, flat railcars etc,” considers Mr Savchuk.
At the same time, he says that development of private repair enterprises servicing a limited number of cargo wagon models and located along major freight flows may also be efficient. For example, tank-wagons repair is characterised by a stable flow, localised according to geographic principle where loading and unloading takes place in refineries, ports etc. “The geography of transportation changes only slightly. Consequently, it is not reasonable to develop a wide network of tank-wagon repair enterprises, because the number of places for cargo loading/unloading is limited. There is a similar situation in the mineral fertilisers sector,” explains Mr Savchuk.
He also suggested the sale of repair enterprises will improve competition in the repair market, which will on the one hand lead to stabilisation of profit figures from this activity (reduction of the spread of prices for similar types of repair), and on the other hand improve the level of services and make the policy of repair enterprises more client-oriented. 

The second attempt
While the owners of the purchased depots are compiling documentation for their new property, organisers of the auction and representatives of OAO RZD decide how many stages – one or two – will be used to sell the depots considered unattractive by the investors who participated in the first auction.
Nowadays, it is much more important to avoid delays in the work of sold enterprises. Otherwise it may negatively influence the production process as well as the rhythmical work of the employees. 
“After each stage we negotiate with the new owners of the facilities to explain to them what the consequences of their actions must be and how the fast transfer of depot property may be organised,” tells Petr Pyrenkov, Head of Strategic Development Department at the Central Directorate for Wagon Repair (CDRW) – an affiliate of OAO RZD. In his words, it may take 7-10 days to compile all the necessary technical documentation.
Simultaneously with the processes of sale and property registration, the technological foundation for launching daughter companies on the basis of the CDRW pro­perty is being developed. It is possible to say that this is the next step to be taken after the depots are sold. In autumn, specialists of OAO RZD are to make a report on this area to the President of the company. Today, evaluating information about the rest of the depots is going on. According to the data of the CDRW, it is necessary to evaluate 2.991 objects.
Evaluating the prospects for the wagon repair sector reform, Mr Pyrenkov noted that the specialists of OAO RZD will strive for centralised management of assets in the first stage of the reform. 
The Ministry of Economic Development, on the contrary, supports the idea of launching several daughter companies using the extraterritorial principle, i.e. each of the launched companies is to unite depots located on different sectors of the railways, and each of the organisations is to have a representative office at the main freight traffic destinations. The subsidiaries created according to that principle will have a reason to compete to attract private rolling stock owners. And later, when the shareholdings of the enterprises are sold to interested investors, these depots will compete for the right to provide repair services to the wagon park of OAO RZD. Meanwhile, this approach worries railwaymen. In their opinion, it may damage the transportation management process and threaten traffic safety.
What scheme will OAO RZD use? How will the wagon repair sector develop? We will learn the answers to the questions this year. 
By Tatyana Ovcharova

reference
In 2007, the enterprises, which were for sale repaired 18,540 wagons in the OAO RZD park and 20,840 units of private rolling stock. Their capacity is 51,230 depot repairs per annum.
viewpoint

Nikolay Titchenko, 
Technical Director, OOO BaltTransService:
– Naturally, after the purchased wagon repair capacities are taken to the market, the situation in the rolling stock repair sector must change, although, it will not happen immediately. I would like to say that wagon owners are striving not for the competition, but for reduction of expenses on repair. As for modernisation of the manufacture, OOO BaltTransService - as well as any other owner of an enterprise - is interested in development of its structures and work optimisation. Although, it is too early to name any definite figures and dates, we are thinking about enlarging our regional wagon repair base in the future, but the issue is still being researched.
Nowadays, it is necessary for us to establish partner relations with OAO RZD. The wagon repair business is new for BaltTransService, though we manage 8,905 units of our own and rented rolling stock. 
Among the main difficulties the depot owners will face in the near future, there is getting the organisation of spares delivery schemes rubber-stamped. In my opinion, it would be reasonable to conclude a contract with Roszheldorsnab to organise non-stop work and provide supplies at the initial stage.
 
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They were bought by private companies, which is sure to spark formation of a market in rolling stock repair services in Russia.
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They were bought by private companies, which is sure to spark formation of a market in rolling stock repair services in Russia.
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            [SECTION_META_DESCRIPTION] => <img src="/ufiles/image/rus/partner/2008/3/45.jpg" border="1" alt=" " hspace="5" width="140" height="110" align="left" />In the framework of restructuring its business and optimising its structure, OAO RZD held a public sale of 22 wagon repair depots. Thirteen lots out of 22 were sold; the revenue amounted to RUR 3.2 billion. <br />They were bought by private companies, which is sure to spark formation of a market in rolling stock repair services in Russia.
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    [DETAIL_TEXT] => 
Successful auction in spite of scepticism
Two years ago the Board of Directors of OAO RZD decided to take 30% of the company’s wagon repair capacity to the market. In June-July of 2008 the first auction took place. In spite of the fact that the depots for sale amounted to just 16% instead of 30%, it is possible to say that the process has at least started. As planned, the auction was held in several stages. At each stage four or five lots were offered to market players.
From the very beginning, when the list of depots for sale was announced, representatives of the companies interested in enlarging their wagon-repair assets were rather sceptical about the attractiveness of the facilities. The main stumbling block was the condition of the infrastructure in the depots. Everyone knew that the transfer of any of the 22 depots would never influence the quality of services provided by the repair segment of OAO RZD. Since the company could easily do without these objects – and it took OAO RZD a long time to make the decision about the sale - no investments were made into the assets put up for auction. That is why a lot of transport companies doubted the reasonability of such purchase.
Meanwhile, as the results showed, the opportunity to decrease rolling stock repair cost prices tipped the scale. After the first stage of the auction it became clear that the preliminary figures for likely reve­nue were underestimated (according to i­nitial estimates, OAO RZD was to gain at least RUR 2.6 billion). For example, wa­gon repair depot Verkhny Ufaley, which had a starting price of RUR 95.3 million, was sold to ZAO Uralgorshakhtkomplekt for RUR 328.9 million. The property of wagon repair depot Murashi (Kirovskaya region) was sold to OOO Uralkhimtrans for RUR 358.9 million, while its starting price was RUR 107.4 million. OOO Armavirsky Plant of Heavy Engineering paid RUR 258.697 million for wagon depot Armavir (the starting price was RUR 76.297 million). Thus, the revenue of OAO RZD from the auction amounted to RUR 3.2 billion.
One should keep in mind that the buyers will spend even more. For example, ZAO Uralgorshakhtkomplekt (UGShK), which won over such companies as Transgarant, Spetscisterns and Eurosib, is getting ready to double the capacity of the depot during the next three years. In the words of Gennady Prokh, Chairman of the Board of Directors of UGShK group of companies and CEO of parent company ZAO UGShK, “the company was ready for a rush.”
“ZAO UGShK participated in the auction for lot №1 and was happy to pay up to RUR 350 million, and it won with an offer of RUR 328 million. The serious attention of the market players to this area is caused by the demand for our own wagon repair capacity. ZAO UGShK plans to enlarge the capacity of Verkhny Ufaley depot two-fold. More than RUR 200-250 million of additional investment is necessary for that,” says Mr Prokh. It is planned to create a high-tech wagon repair enterprise, able to provide high-quality repair of all types of wagons, including clearance and wash and repair of barrels of different tank-wagons. In the future, UGShK is going to launch a wagon-assembling plant, which is an independent project.
Evaluating the importance of the purchase, Sergey Momtsemlidze, Director General of OOO Uralkhimtrans, explained that depot Murashi is a strategically important object for the company because it is located close to the Kirovo-Cherepetsky chemical plant – the company’s main consignor. “After unloading, the wagons we exploit are returned to the address of the consignor, consequently, the cost of an empty run of wagons to/from repair will be smaller than if we use other depots of the Gorkovskaya railway. That is why it took us little time to make the decision,” emphasised Mr Momtsemlidze.
It is worth noting that the winners must carry out a number of conditions, in particular, keeping the functions of the purchased property by organising wagon repair manufacture as its basis, and providing depot employees with jobs, keeping or improving the terms of acting labour contracts and the collective agreement of OAO RZD. 

On the way to competition
Specialists at the Institute of Natural Monopolies’ Problems (IPEM) say that the sale of 22 wagon repair depots will double the production capacities of private companies (from 34,500 wagon repairs in 2007 to 74,400 wagon repairs). Thus, the share of private companies in the wagon repair market will grow to 15.5%.
It is clear that, whatever the prospects, the depots may not compete with OAO RZD immediately. But some owners of rolling stock are sure that a private depot may be competitive due to flexible prices for services, fast reaction to market situations, and additional services.
Vladimir Savchuk, Head of the Railway Transport Research Department, IPEM, believes that the freight wagon repair sector is a classic example of competition activity.
“The more holding companies uniting repair enterprises in different regions of Russia there are in the sector, the lower the expenses for repair suffered by freight wagon owners. In my opinion, the development of wagon-repair holding companies is optimal. In this case the competition will be most effective. It is especially important for large operators, managing heterogeneous wagon parks of gondola cars, covered wagons, flat railcars etc,” considers Mr Savchuk.
At the same time, he says that development of private repair enterprises servicing a limited number of cargo wagon models and located along major freight flows may also be efficient. For example, tank-wagons repair is characterised by a stable flow, localised according to geographic principle where loading and unloading takes place in refineries, ports etc. “The geography of transportation changes only slightly. Consequently, it is not reasonable to develop a wide network of tank-wagon repair enterprises, because the number of places for cargo loading/unloading is limited. There is a similar situation in the mineral fertilisers sector,” explains Mr Savchuk.
He also suggested the sale of repair enterprises will improve competition in the repair market, which will on the one hand lead to stabilisation of profit figures from this activity (reduction of the spread of prices for similar types of repair), and on the other hand improve the level of services and make the policy of repair enterprises more client-oriented. 

The second attempt
While the owners of the purchased depots are compiling documentation for their new property, organisers of the auction and representatives of OAO RZD decide how many stages – one or two – will be used to sell the depots considered unattractive by the investors who participated in the first auction.
Nowadays, it is much more important to avoid delays in the work of sold enterprises. Otherwise it may negatively influence the production process as well as the rhythmical work of the employees. 
“After each stage we negotiate with the new owners of the facilities to explain to them what the consequences of their actions must be and how the fast transfer of depot property may be organised,” tells Petr Pyrenkov, Head of Strategic Development Department at the Central Directorate for Wagon Repair (CDRW) – an affiliate of OAO RZD. In his words, it may take 7-10 days to compile all the necessary technical documentation.
Simultaneously with the processes of sale and property registration, the technological foundation for launching daughter companies on the basis of the CDRW pro­perty is being developed. It is possible to say that this is the next step to be taken after the depots are sold. In autumn, specialists of OAO RZD are to make a report on this area to the President of the company. Today, evaluating information about the rest of the depots is going on. According to the data of the CDRW, it is necessary to evaluate 2.991 objects.
Evaluating the prospects for the wagon repair sector reform, Mr Pyrenkov noted that the specialists of OAO RZD will strive for centralised management of assets in the first stage of the reform. 
The Ministry of Economic Development, on the contrary, supports the idea of launching several daughter companies using the extraterritorial principle, i.e. each of the launched companies is to unite depots located on different sectors of the railways, and each of the organisations is to have a representative office at the main freight traffic destinations. The subsidiaries created according to that principle will have a reason to compete to attract private rolling stock owners. And later, when the shareholdings of the enterprises are sold to interested investors, these depots will compete for the right to provide repair services to the wagon park of OAO RZD. Meanwhile, this approach worries railwaymen. In their opinion, it may damage the transportation management process and threaten traffic safety.
What scheme will OAO RZD use? How will the wagon repair sector develop? We will learn the answers to the questions this year. 
By Tatyana Ovcharova

reference
In 2007, the enterprises, which were for sale repaired 18,540 wagons in the OAO RZD park and 20,840 units of private rolling stock. Their capacity is 51,230 depot repairs per annum.
viewpoint

Nikolay Titchenko, 
Technical Director, OOO BaltTransService:
– Naturally, after the purchased wagon repair capacities are taken to the market, the situation in the rolling stock repair sector must change, although, it will not happen immediately. I would like to say that wagon owners are striving not for the competition, but for reduction of expenses on repair. As for modernisation of the manufacture, OOO BaltTransService - as well as any other owner of an enterprise - is interested in development of its structures and work optimisation. Although, it is too early to name any definite figures and dates, we are thinking about enlarging our regional wagon repair base in the future, but the issue is still being researched.
Nowadays, it is necessary for us to establish partner relations with OAO RZD. The wagon repair business is new for BaltTransService, though we manage 8,905 units of our own and rented rolling stock. 
Among the main difficulties the depot owners will face in the near future, there is getting the organisation of spares delivery schemes rubber-stamped. In my opinion, it would be reasonable to conclude a contract with Roszheldorsnab to organise non-stop work and provide supplies at the initial stage.
 
    [~DETAIL_TEXT] => 
Successful auction in spite of scepticism
Two years ago the Board of Directors of OAO RZD decided to take 30% of the company’s wagon repair capacity to the market. In June-July of 2008 the first auction took place. In spite of the fact that the depots for sale amounted to just 16% instead of 30%, it is possible to say that the process has at least started. As planned, the auction was held in several stages. At each stage four or five lots were offered to market players.
From the very beginning, when the list of depots for sale was announced, representatives of the companies interested in enlarging their wagon-repair assets were rather sceptical about the attractiveness of the facilities. The main stumbling block was the condition of the infrastructure in the depots. Everyone knew that the transfer of any of the 22 depots would never influence the quality of services provided by the repair segment of OAO RZD. Since the company could easily do without these objects – and it took OAO RZD a long time to make the decision about the sale - no investments were made into the assets put up for auction. That is why a lot of transport companies doubted the reasonability of such purchase.
Meanwhile, as the results showed, the opportunity to decrease rolling stock repair cost prices tipped the scale. After the first stage of the auction it became clear that the preliminary figures for likely reve­nue were underestimated (according to i­nitial estimates, OAO RZD was to gain at least RUR 2.6 billion). For example, wa­gon repair depot Verkhny Ufaley, which had a starting price of RUR 95.3 million, was sold to ZAO Uralgorshakhtkomplekt for RUR 328.9 million. The property of wagon repair depot Murashi (Kirovskaya region) was sold to OOO Uralkhimtrans for RUR 358.9 million, while its starting price was RUR 107.4 million. OOO Armavirsky Plant of Heavy Engineering paid RUR 258.697 million for wagon depot Armavir (the starting price was RUR 76.297 million). Thus, the revenue of OAO RZD from the auction amounted to RUR 3.2 billion.
One should keep in mind that the buyers will spend even more. For example, ZAO Uralgorshakhtkomplekt (UGShK), which won over such companies as Transgarant, Spetscisterns and Eurosib, is getting ready to double the capacity of the depot during the next three years. In the words of Gennady Prokh, Chairman of the Board of Directors of UGShK group of companies and CEO of parent company ZAO UGShK, “the company was ready for a rush.”
“ZAO UGShK participated in the auction for lot №1 and was happy to pay up to RUR 350 million, and it won with an offer of RUR 328 million. The serious attention of the market players to this area is caused by the demand for our own wagon repair capacity. ZAO UGShK plans to enlarge the capacity of Verkhny Ufaley depot two-fold. More than RUR 200-250 million of additional investment is necessary for that,” says Mr Prokh. It is planned to create a high-tech wagon repair enterprise, able to provide high-quality repair of all types of wagons, including clearance and wash and repair of barrels of different tank-wagons. In the future, UGShK is going to launch a wagon-assembling plant, which is an independent project.
Evaluating the importance of the purchase, Sergey Momtsemlidze, Director General of OOO Uralkhimtrans, explained that depot Murashi is a strategically important object for the company because it is located close to the Kirovo-Cherepetsky chemical plant – the company’s main consignor. “After unloading, the wagons we exploit are returned to the address of the consignor, consequently, the cost of an empty run of wagons to/from repair will be smaller than if we use other depots of the Gorkovskaya railway. That is why it took us little time to make the decision,” emphasised Mr Momtsemlidze.
It is worth noting that the winners must carry out a number of conditions, in particular, keeping the functions of the purchased property by organising wagon repair manufacture as its basis, and providing depot employees with jobs, keeping or improving the terms of acting labour contracts and the collective agreement of OAO RZD. 

On the way to competition
Specialists at the Institute of Natural Monopolies’ Problems (IPEM) say that the sale of 22 wagon repair depots will double the production capacities of private companies (from 34,500 wagon repairs in 2007 to 74,400 wagon repairs). Thus, the share of private companies in the wagon repair market will grow to 15.5%.
It is clear that, whatever the prospects, the depots may not compete with OAO RZD immediately. But some owners of rolling stock are sure that a private depot may be competitive due to flexible prices for services, fast reaction to market situations, and additional services.
Vladimir Savchuk, Head of the Railway Transport Research Department, IPEM, believes that the freight wagon repair sector is a classic example of competition activity.
“The more holding companies uniting repair enterprises in different regions of Russia there are in the sector, the lower the expenses for repair suffered by freight wagon owners. In my opinion, the development of wagon-repair holding companies is optimal. In this case the competition will be most effective. It is especially important for large operators, managing heterogeneous wagon parks of gondola cars, covered wagons, flat railcars etc,” considers Mr Savchuk.
At the same time, he says that development of private repair enterprises servicing a limited number of cargo wagon models and located along major freight flows may also be efficient. For example, tank-wagons repair is characterised by a stable flow, localised according to geographic principle where loading and unloading takes place in refineries, ports etc. “The geography of transportation changes only slightly. Consequently, it is not reasonable to develop a wide network of tank-wagon repair enterprises, because the number of places for cargo loading/unloading is limited. There is a similar situation in the mineral fertilisers sector,” explains Mr Savchuk.
He also suggested the sale of repair enterprises will improve competition in the repair market, which will on the one hand lead to stabilisation of profit figures from this activity (reduction of the spread of prices for similar types of repair), and on the other hand improve the level of services and make the policy of repair enterprises more client-oriented. 

The second attempt
While the owners of the purchased depots are compiling documentation for their new property, organisers of the auction and representatives of OAO RZD decide how many stages – one or two – will be used to sell the depots considered unattractive by the investors who participated in the first auction.
Nowadays, it is much more important to avoid delays in the work of sold enterprises. Otherwise it may negatively influence the production process as well as the rhythmical work of the employees. 
“After each stage we negotiate with the new owners of the facilities to explain to them what the consequences of their actions must be and how the fast transfer of depot property may be organised,” tells Petr Pyrenkov, Head of Strategic Development Department at the Central Directorate for Wagon Repair (CDRW) – an affiliate of OAO RZD. In his words, it may take 7-10 days to compile all the necessary technical documentation.
Simultaneously with the processes of sale and property registration, the technological foundation for launching daughter companies on the basis of the CDRW pro­perty is being developed. It is possible to say that this is the next step to be taken after the depots are sold. In autumn, specialists of OAO RZD are to make a report on this area to the President of the company. Today, evaluating information about the rest of the depots is going on. According to the data of the CDRW, it is necessary to evaluate 2.991 objects.
Evaluating the prospects for the wagon repair sector reform, Mr Pyrenkov noted that the specialists of OAO RZD will strive for centralised management of assets in the first stage of the reform. 
The Ministry of Economic Development, on the contrary, supports the idea of launching several daughter companies using the extraterritorial principle, i.e. each of the launched companies is to unite depots located on different sectors of the railways, and each of the organisations is to have a representative office at the main freight traffic destinations. The subsidiaries created according to that principle will have a reason to compete to attract private rolling stock owners. And later, when the shareholdings of the enterprises are sold to interested investors, these depots will compete for the right to provide repair services to the wagon park of OAO RZD. Meanwhile, this approach worries railwaymen. In their opinion, it may damage the transportation management process and threaten traffic safety.
What scheme will OAO RZD use? How will the wagon repair sector develop? We will learn the answers to the questions this year. 
By Tatyana Ovcharova

reference
In 2007, the enterprises, which were for sale repaired 18,540 wagons in the OAO RZD park and 20,840 units of private rolling stock. Their capacity is 51,230 depot repairs per annum.
viewpoint

Nikolay Titchenko, 
Technical Director, OOO BaltTransService:
– Naturally, after the purchased wagon repair capacities are taken to the market, the situation in the rolling stock repair sector must change, although, it will not happen immediately. I would like to say that wagon owners are striving not for the competition, but for reduction of expenses on repair. As for modernisation of the manufacture, OOO BaltTransService - as well as any other owner of an enterprise - is interested in development of its structures and work optimisation. Although, it is too early to name any definite figures and dates, we are thinking about enlarging our regional wagon repair base in the future, but the issue is still being researched.
Nowadays, it is necessary for us to establish partner relations with OAO RZD. The wagon repair business is new for BaltTransService, though we manage 8,905 units of our own and rented rolling stock. 
Among the main difficulties the depot owners will face in the near future, there is getting the organisation of spares delivery schemes rubber-stamped. In my opinion, it would be reasonable to conclude a contract with Roszheldorsnab to organise non-stop work and provide supplies at the initial stage.
 
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    [PREVIEW_TEXT] => In the framework of restructuring its business and optimising its structure, OAO RZD held a public sale of 22 wagon repair depots. Thirteen lots out of 22 were sold; the revenue amounted to RUR 3.2 billion. 
They were bought by private companies, which is sure to spark formation of a market in rolling stock repair services in Russia.
    [~PREVIEW_TEXT] => In the framework of restructuring its business and optimising its structure, OAO RZD held a public sale of 22 wagon repair depots. Thirteen lots out of 22 were sold; the revenue amounted to RUR 3.2 billion. 
They were bought by private companies, which is sure to spark formation of a market in rolling stock repair services in Russia.
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    [DETAIL_TEXT] => – Mr Kopeyin, СТМ - Sinara Transportation is a young company, but it has already become a serious player in the Russian market and even outside it. What is the secret of such dynamic development?

– СТМ - Sinara Transportation is one of the leading companies in the Russian locomotive-building sector. We chose stage-by-stage development of a corporation, uniting the scientific and technical potential of the leading national engineering enterprises in the sector of railway machinery development and manufacturing.
The success is the total effect of a number of factors. Firstly, the firm position of the company’s shareholders, who are sure about the future, in spite of the natural market risks. Secondly, an efficient team of managers and specialists united by experience who focus on results. Thirdly, the production potential of enterprises incorporated into the holding company. Nowadays, there is the Ural Plant of Railway Engineering and the Ural Diesel-Engine Plant (Yekate­rinburg, Sverdlovskaya region) and Lyudinovsky Diesel Electric Locomotive Building Plant (Lyudinovo, Kaluzhskaya region).
The company is one year old, and it has done much already. Among the achieved results there is the launch of a principally new locomotive for Russian railways – a cargo electric direct current locomotive of the 2ES6 model. This is a new generation of locomotive, developed on the basis of advanced engineering solutions which have no equal in the national machine-building sector. We have already started to fulfil the contract on building 25 locomotives for OAO RZD. 2ES6 locomotives will be 25% (and even more – according to some criteria) economically more efficient than the rolling stock used now. Also, due to railway sector reform, the private carriers market is developing fast. Consequently, the competition and the requirements for railway rolling stock producers and suppliers will increase. We think about the future, and our company is ready to provide carriers with products of high quality. Also, we use any opportunity for the development of our business.
High-tech production capacities at our plants meet the international standards of modern engineering enterprises. Innovation processes are implemented at the plants, the existing production capacities are being modernised, and new ones are being created using progressive European experience. The enterprises are being certified to meet ISO 9001 standard. Another reason to be proud is our engineering potential, allowing us to react appropriately to the demands of the market, and to regularly improve and enlarge the company’s model range.
СТМ - Sinara Transportation is open to cooperation in engineering as well as manufacture technologies. We have a clear vision of the market and we are ready to interact with other enterprises and to adopt the progressive experience of competitors and foreign companies. Our company is turning into an expert, who talks about his ambitions as well as carrying out long-term programmes in the national locomotive building market and seeks to participate in international processes. Nowadays, the IRIS international standard is being implemented at the enterprises incorporated into the holding company.

– Technologies are important. But there are other companies that pay attention to them. This means that it is necessary to offer consumers a number of additional services. What does СТМ - Sinara Transportation offer to its clients?

– We understand the real situation. And our every activity features additional services. As for the production, it is service. We do not just produce rolling stock. A locomotive’s life-time is about 40 years, and all this time it is necessary to provide spares, qualified service personnel and all the necessary works for a high-quality service.
The manufacturing technologies are accompanied by a diverse approach to development. We use all possible methods to minimise the final cost of production, to provide a flexible approach to every client. In this sector we consider the experience of such companies as Bombardier, Siemens, General Electric, etc.
Cooperation with OAO RZD plays an important role in the increase of the quality of products. It is possible to say that the company is our tutor. We take its requirement as the basis even at the product design stage. 
A lot of attention is paid to the company’s employees. We consider it very important to implement specific programmes to motivate the personnel, social programmes and guarantees are carried out, and employees’ rights are observed. The stability of a company depends on everyone’s understanding that he is a part of a well-organised mechanism, and knowledge that common efforts will lead to success.

– The advanced solutions allow a company to occupy a worthy place in the global market. What are СТМ - Sinara Transportation’ relations with western audiences?

– There is such a modern definition as “transfer of technologies”, which has already become a part of the vocabulary of railway specialists. Nowadays, world-famous brands want to come to the Russian market, offering their most progressive technologies. We have a number of agreements with Bombardier and Siemens on experience transfer for designing and manufacturing locomotives, which helps to provide an up-to-date level of production quality.
Nowadays, our electric locomotives are not exported to Europe. After our new generation locomotive is adapted, we will be ready to supply it to Europe and China. As for diesel electric locomotives, they have been operating in the CIS, Europe, Mexico, Cuba, Iran and Pakistan for 30 years already, and they have proved their efficiency. Today we have agreements on future supplies to those states. Active work is going on, and we expect much from it.

– What are your company’s plans for the future?

– The major activities of СТМ - Sinara Transportation are engineering, development and implementation of investment projects, development of technologies, product innovation and after-sales service. And all these targets are dynamic. We make the business mobile, react to the changes, keep track of trends. We increase our own requirements in each of the activities, and we fulfill them. And at once we set a new, more serious task for ourselves.
As the head of the company, I would like to emphasise that a lot was done by the company last year. And there is much to do. The main thing here is that we have plenty of plans and are sure about the future.  
By Maria Shevchenko
    [~DETAIL_TEXT] => – Mr Kopeyin, СТМ - Sinara Transportation is a young company, but it has already become a serious player in the Russian market and even outside it. What is the secret of such dynamic development?

– СТМ - Sinara Transportation is one of the leading companies in the Russian locomotive-building sector. We chose stage-by-stage development of a corporation, uniting the scientific and technical potential of the leading national engineering enterprises in the sector of railway machinery development and manufacturing.
The success is the total effect of a number of factors. Firstly, the firm position of the company’s shareholders, who are sure about the future, in spite of the natural market risks. Secondly, an efficient team of managers and specialists united by experience who focus on results. Thirdly, the production potential of enterprises incorporated into the holding company. Nowadays, there is the Ural Plant of Railway Engineering and the Ural Diesel-Engine Plant (Yekate­rinburg, Sverdlovskaya region) and Lyudinovsky Diesel Electric Locomotive Building Plant (Lyudinovo, Kaluzhskaya region).
The company is one year old, and it has done much already. Among the achieved results there is the launch of a principally new locomotive for Russian railways – a cargo electric direct current locomotive of the 2ES6 model. This is a new generation of locomotive, developed on the basis of advanced engineering solutions which have no equal in the national machine-building sector. We have already started to fulfil the contract on building 25 locomotives for OAO RZD. 2ES6 locomotives will be 25% (and even more – according to some criteria) economically more efficient than the rolling stock used now. Also, due to railway sector reform, the private carriers market is developing fast. Consequently, the competition and the requirements for railway rolling stock producers and suppliers will increase. We think about the future, and our company is ready to provide carriers with products of high quality. Also, we use any opportunity for the development of our business.
High-tech production capacities at our plants meet the international standards of modern engineering enterprises. Innovation processes are implemented at the plants, the existing production capacities are being modernised, and new ones are being created using progressive European experience. The enterprises are being certified to meet ISO 9001 standard. Another reason to be proud is our engineering potential, allowing us to react appropriately to the demands of the market, and to regularly improve and enlarge the company’s model range.
СТМ - Sinara Transportation is open to cooperation in engineering as well as manufacture technologies. We have a clear vision of the market and we are ready to interact with other enterprises and to adopt the progressive experience of competitors and foreign companies. Our company is turning into an expert, who talks about his ambitions as well as carrying out long-term programmes in the national locomotive building market and seeks to participate in international processes. Nowadays, the IRIS international standard is being implemented at the enterprises incorporated into the holding company.

– Technologies are important. But there are other companies that pay attention to them. This means that it is necessary to offer consumers a number of additional services. What does СТМ - Sinara Transportation offer to its clients?

– We understand the real situation. And our every activity features additional services. As for the production, it is service. We do not just produce rolling stock. A locomotive’s life-time is about 40 years, and all this time it is necessary to provide spares, qualified service personnel and all the necessary works for a high-quality service.
The manufacturing technologies are accompanied by a diverse approach to development. We use all possible methods to minimise the final cost of production, to provide a flexible approach to every client. In this sector we consider the experience of such companies as Bombardier, Siemens, General Electric, etc.
Cooperation with OAO RZD plays an important role in the increase of the quality of products. It is possible to say that the company is our tutor. We take its requirement as the basis even at the product design stage. 
A lot of attention is paid to the company’s employees. We consider it very important to implement specific programmes to motivate the personnel, social programmes and guarantees are carried out, and employees’ rights are observed. The stability of a company depends on everyone’s understanding that he is a part of a well-organised mechanism, and knowledge that common efforts will lead to success.

– The advanced solutions allow a company to occupy a worthy place in the global market. What are СТМ - Sinara Transportation’ relations with western audiences?

– There is such a modern definition as “transfer of technologies”, which has already become a part of the vocabulary of railway specialists. Nowadays, world-famous brands want to come to the Russian market, offering their most progressive technologies. We have a number of agreements with Bombardier and Siemens on experience transfer for designing and manufacturing locomotives, which helps to provide an up-to-date level of production quality.
Nowadays, our electric locomotives are not exported to Europe. After our new generation locomotive is adapted, we will be ready to supply it to Europe and China. As for diesel electric locomotives, they have been operating in the CIS, Europe, Mexico, Cuba, Iran and Pakistan for 30 years already, and they have proved their efficiency. Today we have agreements on future supplies to those states. Active work is going on, and we expect much from it.

– What are your company’s plans for the future?

– The major activities of СТМ - Sinara Transportation are engineering, development and implementation of investment projects, development of technologies, product innovation and after-sales service. And all these targets are dynamic. We make the business mobile, react to the changes, keep track of trends. We increase our own requirements in each of the activities, and we fulfill them. And at once we set a new, more serious task for ourselves.
As the head of the company, I would like to emphasise that a lot was done by the company last year. And there is much to do. The main thing here is that we have plenty of plans and are sure about the future.  
By Maria Shevchenko
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    [DETAIL_TEXT] => – Mr Kopeyin, СТМ - Sinara Transportation is a young company, but it has already become a serious player in the Russian market and even outside it. What is the secret of such dynamic development?

– СТМ - Sinara Transportation is one of the leading companies in the Russian locomotive-building sector. We chose stage-by-stage development of a corporation, uniting the scientific and technical potential of the leading national engineering enterprises in the sector of railway machinery development and manufacturing.
The success is the total effect of a number of factors. Firstly, the firm position of the company’s shareholders, who are sure about the future, in spite of the natural market risks. Secondly, an efficient team of managers and specialists united by experience who focus on results. Thirdly, the production potential of enterprises incorporated into the holding company. Nowadays, there is the Ural Plant of Railway Engineering and the Ural Diesel-Engine Plant (Yekate­rinburg, Sverdlovskaya region) and Lyudinovsky Diesel Electric Locomotive Building Plant (Lyudinovo, Kaluzhskaya region).
The company is one year old, and it has done much already. Among the achieved results there is the launch of a principally new locomotive for Russian railways – a cargo electric direct current locomotive of the 2ES6 model. This is a new generation of locomotive, developed on the basis of advanced engineering solutions which have no equal in the national machine-building sector. We have already started to fulfil the contract on building 25 locomotives for OAO RZD. 2ES6 locomotives will be 25% (and even more – according to some criteria) economically more efficient than the rolling stock used now. Also, due to railway sector reform, the private carriers market is developing fast. Consequently, the competition and the requirements for railway rolling stock producers and suppliers will increase. We think about the future, and our company is ready to provide carriers with products of high quality. Also, we use any opportunity for the development of our business.
High-tech production capacities at our plants meet the international standards of modern engineering enterprises. Innovation processes are implemented at the plants, the existing production capacities are being modernised, and new ones are being created using progressive European experience. The enterprises are being certified to meet ISO 9001 standard. Another reason to be proud is our engineering potential, allowing us to react appropriately to the demands of the market, and to regularly improve and enlarge the company’s model range.
СТМ - Sinara Transportation is open to cooperation in engineering as well as manufacture technologies. We have a clear vision of the market and we are ready to interact with other enterprises and to adopt the progressive experience of competitors and foreign companies. Our company is turning into an expert, who talks about his ambitions as well as carrying out long-term programmes in the national locomotive building market and seeks to participate in international processes. Nowadays, the IRIS international standard is being implemented at the enterprises incorporated into the holding company.

– Technologies are important. But there are other companies that pay attention to them. This means that it is necessary to offer consumers a number of additional services. What does СТМ - Sinara Transportation offer to its clients?

– We understand the real situation. And our every activity features additional services. As for the production, it is service. We do not just produce rolling stock. A locomotive’s life-time is about 40 years, and all this time it is necessary to provide spares, qualified service personnel and all the necessary works for a high-quality service.
The manufacturing technologies are accompanied by a diverse approach to development. We use all possible methods to minimise the final cost of production, to provide a flexible approach to every client. In this sector we consider the experience of such companies as Bombardier, Siemens, General Electric, etc.
Cooperation with OAO RZD plays an important role in the increase of the quality of products. It is possible to say that the company is our tutor. We take its requirement as the basis even at the product design stage. 
A lot of attention is paid to the company’s employees. We consider it very important to implement specific programmes to motivate the personnel, social programmes and guarantees are carried out, and employees’ rights are observed. The stability of a company depends on everyone’s understanding that he is a part of a well-organised mechanism, and knowledge that common efforts will lead to success.

– The advanced solutions allow a company to occupy a worthy place in the global market. What are СТМ - Sinara Transportation’ relations with western audiences?

– There is such a modern definition as “transfer of technologies”, which has already become a part of the vocabulary of railway specialists. Nowadays, world-famous brands want to come to the Russian market, offering their most progressive technologies. We have a number of agreements with Bombardier and Siemens on experience transfer for designing and manufacturing locomotives, which helps to provide an up-to-date level of production quality.
Nowadays, our electric locomotives are not exported to Europe. After our new generation locomotive is adapted, we will be ready to supply it to Europe and China. As for diesel electric locomotives, they have been operating in the CIS, Europe, Mexico, Cuba, Iran and Pakistan for 30 years already, and they have proved their efficiency. Today we have agreements on future supplies to those states. Active work is going on, and we expect much from it.

– What are your company’s plans for the future?

– The major activities of СТМ - Sinara Transportation are engineering, development and implementation of investment projects, development of technologies, product innovation and after-sales service. And all these targets are dynamic. We make the business mobile, react to the changes, keep track of trends. We increase our own requirements in each of the activities, and we fulfill them. And at once we set a new, more serious task for ourselves.
As the head of the company, I would like to emphasise that a lot was done by the company last year. And there is much to do. The main thing here is that we have plenty of plans and are sure about the future.  
By Maria Shevchenko
    [~DETAIL_TEXT] => – Mr Kopeyin, СТМ - Sinara Transportation is a young company, but it has already become a serious player in the Russian market and even outside it. What is the secret of such dynamic development?

– СТМ - Sinara Transportation is one of the leading companies in the Russian locomotive-building sector. We chose stage-by-stage development of a corporation, uniting the scientific and technical potential of the leading national engineering enterprises in the sector of railway machinery development and manufacturing.
The success is the total effect of a number of factors. Firstly, the firm position of the company’s shareholders, who are sure about the future, in spite of the natural market risks. Secondly, an efficient team of managers and specialists united by experience who focus on results. Thirdly, the production potential of enterprises incorporated into the holding company. Nowadays, there is the Ural Plant of Railway Engineering and the Ural Diesel-Engine Plant (Yekate­rinburg, Sverdlovskaya region) and Lyudinovsky Diesel Electric Locomotive Building Plant (Lyudinovo, Kaluzhskaya region).
The company is one year old, and it has done much already. Among the achieved results there is the launch of a principally new locomotive for Russian railways – a cargo electric direct current locomotive of the 2ES6 model. This is a new generation of locomotive, developed on the basis of advanced engineering solutions which have no equal in the national machine-building sector. We have already started to fulfil the contract on building 25 locomotives for OAO RZD. 2ES6 locomotives will be 25% (and even more – according to some criteria) economically more efficient than the rolling stock used now. Also, due to railway sector reform, the private carriers market is developing fast. Consequently, the competition and the requirements for railway rolling stock producers and suppliers will increase. We think about the future, and our company is ready to provide carriers with products of high quality. Also, we use any opportunity for the development of our business.
High-tech production capacities at our plants meet the international standards of modern engineering enterprises. Innovation processes are implemented at the plants, the existing production capacities are being modernised, and new ones are being created using progressive European experience. The enterprises are being certified to meet ISO 9001 standard. Another reason to be proud is our engineering potential, allowing us to react appropriately to the demands of the market, and to regularly improve and enlarge the company’s model range.
СТМ - Sinara Transportation is open to cooperation in engineering as well as manufacture technologies. We have a clear vision of the market and we are ready to interact with other enterprises and to adopt the progressive experience of competitors and foreign companies. Our company is turning into an expert, who talks about his ambitions as well as carrying out long-term programmes in the national locomotive building market and seeks to participate in international processes. Nowadays, the IRIS international standard is being implemented at the enterprises incorporated into the holding company.

– Technologies are important. But there are other companies that pay attention to them. This means that it is necessary to offer consumers a number of additional services. What does СТМ - Sinara Transportation offer to its clients?

– We understand the real situation. And our every activity features additional services. As for the production, it is service. We do not just produce rolling stock. A locomotive’s life-time is about 40 years, and all this time it is necessary to provide spares, qualified service personnel and all the necessary works for a high-quality service.
The manufacturing technologies are accompanied by a diverse approach to development. We use all possible methods to minimise the final cost of production, to provide a flexible approach to every client. In this sector we consider the experience of such companies as Bombardier, Siemens, General Electric, etc.
Cooperation with OAO RZD plays an important role in the increase of the quality of products. It is possible to say that the company is our tutor. We take its requirement as the basis even at the product design stage. 
A lot of attention is paid to the company’s employees. We consider it very important to implement specific programmes to motivate the personnel, social programmes and guarantees are carried out, and employees’ rights are observed. The stability of a company depends on everyone’s understanding that he is a part of a well-organised mechanism, and knowledge that common efforts will lead to success.

– The advanced solutions allow a company to occupy a worthy place in the global market. What are СТМ - Sinara Transportation’ relations with western audiences?

– There is such a modern definition as “transfer of technologies”, which has already become a part of the vocabulary of railway specialists. Nowadays, world-famous brands want to come to the Russian market, offering their most progressive technologies. We have a number of agreements with Bombardier and Siemens on experience transfer for designing and manufacturing locomotives, which helps to provide an up-to-date level of production quality.
Nowadays, our electric locomotives are not exported to Europe. After our new generation locomotive is adapted, we will be ready to supply it to Europe and China. As for diesel electric locomotives, they have been operating in the CIS, Europe, Mexico, Cuba, Iran and Pakistan for 30 years already, and they have proved their efficiency. Today we have agreements on future supplies to those states. Active work is going on, and we expect much from it.

– What are your company’s plans for the future?

– The major activities of СТМ - Sinara Transportation are engineering, development and implementation of investment projects, development of technologies, product innovation and after-sales service. And all these targets are dynamic. We make the business mobile, react to the changes, keep track of trends. We increase our own requirements in each of the activities, and we fulfill them. And at once we set a new, more serious task for ourselves.
As the head of the company, I would like to emphasise that a lot was done by the company last year. And there is much to do. The main thing here is that we have plenty of plans and are sure about the future.  
By Maria Shevchenko
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To integrate all efforts into one network
– Mr Manevich, what was the reason for hiving off the communication departments of Russian Railways’ structure? How could this affect the general level of communication services?

– The main purpose of the structural reform of communication directorates is to create a telecommunication network of OAO RZD with a single organisational, as well financial and technical, policy.  It’s natural that optimisation of work and technical modernisation go hand in hand. 
The reform started in 2005. At that moment a two-stage development conception was designed and approved. The first stage included creation of communication directorates (with regional centres) at a local railways level.
The main point of the second stage was to consolidate all communication operators into one functional branch. It meant the creation of a vertically oriented system to control telecommunications and develop a unified technical policy in this sector. After CCS was reformed, departments of communications and computing were abolished, and our department received all control and coordination functions. We also established the unified approach to using the network.
These changes were long-awaited. The point is that telecommunications of Russian Railways have a double purpose. On the one hand, they are part of a railway structure. They provide Russian railroads with all kinds of communications, guaranteeing their efficient work. On the other hand, our communication networks, with a staff of 32,000 specialists, are a large part of Russia’s communication space. The list of our services is very long: train and hot-fix communications, operative and general technological communications and channels of primary communications (they are used for organisation of data networks and distribution of information technologies).
Formerly, our operators were subordinated to railroads – the affiliates of OAO RZD (see “Who Is Who” section) and it caused disunity. It was maybe 30 years ago… The conditions were different at that time – analogue communications networks, old-style equipment. Correspondingly, the methods of exploitation were based on the specific maintenance of such equipment. Nowadays, digital technologies are developing. Fibre-optic lines are being introduced – we’ve got more than 60,000 km of them. And now we need quite different ways of working and have different technological and organisational requirements. 
The network is steadily growing into a united structure where everything is interconnected. For example, if somewhere in Krasnoyarsk we have a failure in the communication systems and we don’t fix it immediately it may cause trouble with communications in Kaliningrad.
We must understand that, these days, information volumes are growing much more intensively than traffic. Mass introduction of modern information technologies is one of the main methods to achieve a higher level of OAO RZD work. Considering this fundamental statement, we are to set to have high expectations of our telecommunication networks and data transfer methods.

Digital technologies of the future work for railway transport
– What events lasting recent years do you consider the most important for OAO RZD in the telecommunications sector?

– Modern telecommunications is a single sector that allows the creation of control systems for different railway services. The efficiency of future introduction of information technologies depends on the quality of communications. If we compare levels of communication channels deve­lopment now with ten years ago we cannot ignore the fact that channel capacity has increased a dozen or even a hundred times. The main changes happened in the past 5-7 years.
In practical terms, we got a modern digital network. On this basis, we could improve control of automatic and remote control systems, signalling and communication systems. Using a digital communications network we interconnected and connected more than 700,000 computers to the data network. 
United automated control system for traffic and ETRAN and Express (booking) systems were also implemented. We modernised automated control systems for traction substations. Systems of video- and audioconference were implemented throughout the whole railway network. It allowed the coordination of the functioning of the greatest transport holding company.

– Could you tell us about main guidelines and checkpoints of Telecommunication Development Program to 2030?

– The program includes several directions. First of all I’d like to say about development of a digital technological communications network. We’ll continue to build fibre-optic lines to strengthen and develop the sector in terms of digital operative technological communication and general technological communication. Secondly, we’ll need serious modernisation of the existing radiocommunications network. Now we want to get access to the required frequencies and draw on the experience of foreign railways, which have been using this standard successfully for a long time.
Then, I want to tell about plans for using satellite transmission facilities and satellite navigation systems. It’s a special and very promising line of the development program. At the same time we don’t simply organise connection with a given object (track machine station, for example) but determinate it’s location in real time. The result will also allow for analysis of work schedules and set standards for traffic and accounting and better awareness of reasons for possible failures in the technological process.
There are already pilot projects in this field. For example, on Gorkovskaya railway 140 units of machinery are equipped with satellite navigation systems and these technologies work successfully. Track facilities as well as locomotives, passenger carriages and wagon need them because it upgrades function quality. 

Very important details
– What difficulties in reforming could you name?

– It turned out that there were different kinds of equipment of OAO RZD’s communications network. There was no uniformity either in delivery dates or in the assortment of manufacturers involved. However, taking into account the scale of the operation, uniformity is hardly possible. 
As I already said, the telecommunication structure wasn’t considered as a single unit until recently – it was a quantity of components with different control schemes. As a result, we’ve got different levels of staff grounding and qualification, different trains and different staff lists on different railways. So now with one department we’ve got a global problem – how to train the personnel and unify the technology of the digital communications network.

– Nearly all aerial lines have exhausted their potential today. What are you going to do about it?

– We are cutting use of these, in compliance with our investment program. Now we have about 20,000 km of aerial lines. One year ago 13.5 km of them were duplicated with cable buses, now there are about 10,000 km of such lines. We’ll need a few years more to change them all. This year we plan to replace 1,700 – 1,800 km.
I must say that aerial lines remain on low-activity railways mainly. Certainly when planning our work it’s necessary to study the cost-effectiveness of the project in every case. If freight traffic density on some railroad section is low and there is no prospect of that changing – the appearance of fibre-optic lines is very doubtful.
If the economic situation changes and there’s growth of cargo handling operations on the railroad in question, then we will have an opportunity to improve things. I mean stations that are in developing areas but not listed in the program of network replacement will be equipped with satellite terminals for data transfer. We buy satellite communication service actually without buying equipment – we spend money only on the operational costs. So we’ve got an opportunity to solve the problem with a different method and at the least cost.
Nowadays about 150 stations on different railroads work this way. Later, when our investment program is formed and we are able to modernise the line, we’ll move on from satellite communication.

– Are you going to invite outsourcing organisations to improve quality of some services?

– Outsourcing is vitally important for some kinds of work. For example, it’s more profitable to put sectors such as equipment maintenance out to external organisations. Of course we do have service stations. But when you take into account the heterogeneity, complexity and specificity of equipment, many test benches, measuring and testing instruments are needed as well as qualified personnel. That’s why it is reasonable to outsource the maintenance to specialised service centres.
Now we’re working out a list of all kinds of activities that can be profitably transferred to an outsourcing support system. As you see, the main problem here is to improve the quality of work without increasing the costs (it would be better still to reduce them). Unsurprisingly, inviting outsourcing companies doesn’t cancel the necessity of strict observance of all aspects related to traffic safety. Safety levels must not drop in any area. We are currently performing economic research to verify our suggestions. The concrete practical result will appear in 2009.
Maybe we’ll use some pilot projects. We already used benefits of manufacturers in some aspects of our activity so we’ve got some experience. For instance, in the repair of radio stations and technical support. 
By Tatyana Ovcharova
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To integrate all efforts into one network
– Mr Manevich, what was the reason for hiving off the communication departments of Russian Railways’ structure? How could this affect the general level of communication services?

– The main purpose of the structural reform of communication directorates is to create a telecommunication network of OAO RZD with a single organisational, as well financial and technical, policy.  It’s natural that optimisation of work and technical modernisation go hand in hand. 
The reform started in 2005. At that moment a two-stage development conception was designed and approved. The first stage included creation of communication directorates (with regional centres) at a local railways level.
The main point of the second stage was to consolidate all communication operators into one functional branch. It meant the creation of a vertically oriented system to control telecommunications and develop a unified technical policy in this sector. After CCS was reformed, departments of communications and computing were abolished, and our department received all control and coordination functions. We also established the unified approach to using the network.
These changes were long-awaited. The point is that telecommunications of Russian Railways have a double purpose. On the one hand, they are part of a railway structure. They provide Russian railroads with all kinds of communications, guaranteeing their efficient work. On the other hand, our communication networks, with a staff of 32,000 specialists, are a large part of Russia’s communication space. The list of our services is very long: train and hot-fix communications, operative and general technological communications and channels of primary communications (they are used for organisation of data networks and distribution of information technologies).
Formerly, our operators were subordinated to railroads – the affiliates of OAO RZD (see “Who Is Who” section) and it caused disunity. It was maybe 30 years ago… The conditions were different at that time – analogue communications networks, old-style equipment. Correspondingly, the methods of exploitation were based on the specific maintenance of such equipment. Nowadays, digital technologies are developing. Fibre-optic lines are being introduced – we’ve got more than 60,000 km of them. And now we need quite different ways of working and have different technological and organisational requirements. 
The network is steadily growing into a united structure where everything is interconnected. For example, if somewhere in Krasnoyarsk we have a failure in the communication systems and we don’t fix it immediately it may cause trouble with communications in Kaliningrad.
We must understand that, these days, information volumes are growing much more intensively than traffic. Mass introduction of modern information technologies is one of the main methods to achieve a higher level of OAO RZD work. Considering this fundamental statement, we are to set to have high expectations of our telecommunication networks and data transfer methods.

Digital technologies of the future work for railway transport
– What events lasting recent years do you consider the most important for OAO RZD in the telecommunications sector?

– Modern telecommunications is a single sector that allows the creation of control systems for different railway services. The efficiency of future introduction of information technologies depends on the quality of communications. If we compare levels of communication channels deve­lopment now with ten years ago we cannot ignore the fact that channel capacity has increased a dozen or even a hundred times. The main changes happened in the past 5-7 years.
In practical terms, we got a modern digital network. On this basis, we could improve control of automatic and remote control systems, signalling and communication systems. Using a digital communications network we interconnected and connected more than 700,000 computers to the data network. 
United automated control system for traffic and ETRAN and Express (booking) systems were also implemented. We modernised automated control systems for traction substations. Systems of video- and audioconference were implemented throughout the whole railway network. It allowed the coordination of the functioning of the greatest transport holding company.

– Could you tell us about main guidelines and checkpoints of Telecommunication Development Program to 2030?

– The program includes several directions. First of all I’d like to say about development of a digital technological communications network. We’ll continue to build fibre-optic lines to strengthen and develop the sector in terms of digital operative technological communication and general technological communication. Secondly, we’ll need serious modernisation of the existing radiocommunications network. Now we want to get access to the required frequencies and draw on the experience of foreign railways, which have been using this standard successfully for a long time.
Then, I want to tell about plans for using satellite transmission facilities and satellite navigation systems. It’s a special and very promising line of the development program. At the same time we don’t simply organise connection with a given object (track machine station, for example) but determinate it’s location in real time. The result will also allow for analysis of work schedules and set standards for traffic and accounting and better awareness of reasons for possible failures in the technological process.
There are already pilot projects in this field. For example, on Gorkovskaya railway 140 units of machinery are equipped with satellite navigation systems and these technologies work successfully. Track facilities as well as locomotives, passenger carriages and wagon need them because it upgrades function quality. 

Very important details
– What difficulties in reforming could you name?

– It turned out that there were different kinds of equipment of OAO RZD’s communications network. There was no uniformity either in delivery dates or in the assortment of manufacturers involved. However, taking into account the scale of the operation, uniformity is hardly possible. 
As I already said, the telecommunication structure wasn’t considered as a single unit until recently – it was a quantity of components with different control schemes. As a result, we’ve got different levels of staff grounding and qualification, different trains and different staff lists on different railways. So now with one department we’ve got a global problem – how to train the personnel and unify the technology of the digital communications network.

– Nearly all aerial lines have exhausted their potential today. What are you going to do about it?

– We are cutting use of these, in compliance with our investment program. Now we have about 20,000 km of aerial lines. One year ago 13.5 km of them were duplicated with cable buses, now there are about 10,000 km of such lines. We’ll need a few years more to change them all. This year we plan to replace 1,700 – 1,800 km.
I must say that aerial lines remain on low-activity railways mainly. Certainly when planning our work it’s necessary to study the cost-effectiveness of the project in every case. If freight traffic density on some railroad section is low and there is no prospect of that changing – the appearance of fibre-optic lines is very doubtful.
If the economic situation changes and there’s growth of cargo handling operations on the railroad in question, then we will have an opportunity to improve things. I mean stations that are in developing areas but not listed in the program of network replacement will be equipped with satellite terminals for data transfer. We buy satellite communication service actually without buying equipment – we spend money only on the operational costs. So we’ve got an opportunity to solve the problem with a different method and at the least cost.
Nowadays about 150 stations on different railroads work this way. Later, when our investment program is formed and we are able to modernise the line, we’ll move on from satellite communication.

– Are you going to invite outsourcing organisations to improve quality of some services?

– Outsourcing is vitally important for some kinds of work. For example, it’s more profitable to put sectors such as equipment maintenance out to external organisations. Of course we do have service stations. But when you take into account the heterogeneity, complexity and specificity of equipment, many test benches, measuring and testing instruments are needed as well as qualified personnel. That’s why it is reasonable to outsource the maintenance to specialised service centres.
Now we’re working out a list of all kinds of activities that can be profitably transferred to an outsourcing support system. As you see, the main problem here is to improve the quality of work without increasing the costs (it would be better still to reduce them). Unsurprisingly, inviting outsourcing companies doesn’t cancel the necessity of strict observance of all aspects related to traffic safety. Safety levels must not drop in any area. We are currently performing economic research to verify our suggestions. The concrete practical result will appear in 2009.
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By Tatyana Ovcharova
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To integrate all efforts into one network
– Mr Manevich, what was the reason for hiving off the communication departments of Russian Railways’ structure? How could this affect the general level of communication services?

– The main purpose of the structural reform of communication directorates is to create a telecommunication network of OAO RZD with a single organisational, as well financial and technical, policy.  It’s natural that optimisation of work and technical modernisation go hand in hand. 
The reform started in 2005. At that moment a two-stage development conception was designed and approved. The first stage included creation of communication directorates (with regional centres) at a local railways level.
The main point of the second stage was to consolidate all communication operators into one functional branch. It meant the creation of a vertically oriented system to control telecommunications and develop a unified technical policy in this sector. After CCS was reformed, departments of communications and computing were abolished, and our department received all control and coordination functions. We also established the unified approach to using the network.
These changes were long-awaited. The point is that telecommunications of Russian Railways have a double purpose. On the one hand, they are part of a railway structure. They provide Russian railroads with all kinds of communications, guaranteeing their efficient work. On the other hand, our communication networks, with a staff of 32,000 specialists, are a large part of Russia’s communication space. The list of our services is very long: train and hot-fix communications, operative and general technological communications and channels of primary communications (they are used for organisation of data networks and distribution of information technologies).
Formerly, our operators were subordinated to railroads – the affiliates of OAO RZD (see “Who Is Who” section) and it caused disunity. It was maybe 30 years ago… The conditions were different at that time – analogue communications networks, old-style equipment. Correspondingly, the methods of exploitation were based on the specific maintenance of such equipment. Nowadays, digital technologies are developing. Fibre-optic lines are being introduced – we’ve got more than 60,000 km of them. And now we need quite different ways of working and have different technological and organisational requirements. 
The network is steadily growing into a united structure where everything is interconnected. For example, if somewhere in Krasnoyarsk we have a failure in the communication systems and we don’t fix it immediately it may cause trouble with communications in Kaliningrad.
We must understand that, these days, information volumes are growing much more intensively than traffic. Mass introduction of modern information technologies is one of the main methods to achieve a higher level of OAO RZD work. Considering this fundamental statement, we are to set to have high expectations of our telecommunication networks and data transfer methods.

Digital technologies of the future work for railway transport
– What events lasting recent years do you consider the most important for OAO RZD in the telecommunications sector?

– Modern telecommunications is a single sector that allows the creation of control systems for different railway services. The efficiency of future introduction of information technologies depends on the quality of communications. If we compare levels of communication channels deve­lopment now with ten years ago we cannot ignore the fact that channel capacity has increased a dozen or even a hundred times. The main changes happened in the past 5-7 years.
In practical terms, we got a modern digital network. On this basis, we could improve control of automatic and remote control systems, signalling and communication systems. Using a digital communications network we interconnected and connected more than 700,000 computers to the data network. 
United automated control system for traffic and ETRAN and Express (booking) systems were also implemented. We modernised automated control systems for traction substations. Systems of video- and audioconference were implemented throughout the whole railway network. It allowed the coordination of the functioning of the greatest transport holding company.

– Could you tell us about main guidelines and checkpoints of Telecommunication Development Program to 2030?

– The program includes several directions. First of all I’d like to say about development of a digital technological communications network. We’ll continue to build fibre-optic lines to strengthen and develop the sector in terms of digital operative technological communication and general technological communication. Secondly, we’ll need serious modernisation of the existing radiocommunications network. Now we want to get access to the required frequencies and draw on the experience of foreign railways, which have been using this standard successfully for a long time.
Then, I want to tell about plans for using satellite transmission facilities and satellite navigation systems. It’s a special and very promising line of the development program. At the same time we don’t simply organise connection with a given object (track machine station, for example) but determinate it’s location in real time. The result will also allow for analysis of work schedules and set standards for traffic and accounting and better awareness of reasons for possible failures in the technological process.
There are already pilot projects in this field. For example, on Gorkovskaya railway 140 units of machinery are equipped with satellite navigation systems and these technologies work successfully. Track facilities as well as locomotives, passenger carriages and wagon need them because it upgrades function quality. 

Very important details
– What difficulties in reforming could you name?

– It turned out that there were different kinds of equipment of OAO RZD’s communications network. There was no uniformity either in delivery dates or in the assortment of manufacturers involved. However, taking into account the scale of the operation, uniformity is hardly possible. 
As I already said, the telecommunication structure wasn’t considered as a single unit until recently – it was a quantity of components with different control schemes. As a result, we’ve got different levels of staff grounding and qualification, different trains and different staff lists on different railways. So now with one department we’ve got a global problem – how to train the personnel and unify the technology of the digital communications network.

– Nearly all aerial lines have exhausted their potential today. What are you going to do about it?

– We are cutting use of these, in compliance with our investment program. Now we have about 20,000 km of aerial lines. One year ago 13.5 km of them were duplicated with cable buses, now there are about 10,000 km of such lines. We’ll need a few years more to change them all. This year we plan to replace 1,700 – 1,800 km.
I must say that aerial lines remain on low-activity railways mainly. Certainly when planning our work it’s necessary to study the cost-effectiveness of the project in every case. If freight traffic density on some railroad section is low and there is no prospect of that changing – the appearance of fibre-optic lines is very doubtful.
If the economic situation changes and there’s growth of cargo handling operations on the railroad in question, then we will have an opportunity to improve things. I mean stations that are in developing areas but not listed in the program of network replacement will be equipped with satellite terminals for data transfer. We buy satellite communication service actually without buying equipment – we spend money only on the operational costs. So we’ve got an opportunity to solve the problem with a different method and at the least cost.
Nowadays about 150 stations on different railroads work this way. Later, when our investment program is formed and we are able to modernise the line, we’ll move on from satellite communication.

– Are you going to invite outsourcing organisations to improve quality of some services?

– Outsourcing is vitally important for some kinds of work. For example, it’s more profitable to put sectors such as equipment maintenance out to external organisations. Of course we do have service stations. But when you take into account the heterogeneity, complexity and specificity of equipment, many test benches, measuring and testing instruments are needed as well as qualified personnel. That’s why it is reasonable to outsource the maintenance to specialised service centres.
Now we’re working out a list of all kinds of activities that can be profitably transferred to an outsourcing support system. As you see, the main problem here is to improve the quality of work without increasing the costs (it would be better still to reduce them). Unsurprisingly, inviting outsourcing companies doesn’t cancel the necessity of strict observance of all aspects related to traffic safety. Safety levels must not drop in any area. We are currently performing economic research to verify our suggestions. The concrete practical result will appear in 2009.
Maybe we’ll use some pilot projects. We already used benefits of manufacturers in some aspects of our activity so we’ve got some experience. For instance, in the repair of radio stations and technical support. 
By Tatyana Ovcharova
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To integrate all efforts into one network
– Mr Manevich, what was the reason for hiving off the communication departments of Russian Railways’ structure? How could this affect the general level of communication services?

– The main purpose of the structural reform of communication directorates is to create a telecommunication network of OAO RZD with a single organisational, as well financial and technical, policy.  It’s natural that optimisation of work and technical modernisation go hand in hand. 
The reform started in 2005. At that moment a two-stage development conception was designed and approved. The first stage included creation of communication directorates (with regional centres) at a local railways level.
The main point of the second stage was to consolidate all communication operators into one functional branch. It meant the creation of a vertically oriented system to control telecommunications and develop a unified technical policy in this sector. After CCS was reformed, departments of communications and computing were abolished, and our department received all control and coordination functions. We also established the unified approach to using the network.
These changes were long-awaited. The point is that telecommunications of Russian Railways have a double purpose. On the one hand, they are part of a railway structure. They provide Russian railroads with all kinds of communications, guaranteeing their efficient work. On the other hand, our communication networks, with a staff of 32,000 specialists, are a large part of Russia’s communication space. The list of our services is very long: train and hot-fix communications, operative and general technological communications and channels of primary communications (they are used for organisation of data networks and distribution of information technologies).
Formerly, our operators were subordinated to railroads – the affiliates of OAO RZD (see “Who Is Who” section) and it caused disunity. It was maybe 30 years ago… The conditions were different at that time – analogue communications networks, old-style equipment. Correspondingly, the methods of exploitation were based on the specific maintenance of such equipment. Nowadays, digital technologies are developing. Fibre-optic lines are being introduced – we’ve got more than 60,000 km of them. And now we need quite different ways of working and have different technological and organisational requirements. 
The network is steadily growing into a united structure where everything is interconnected. For example, if somewhere in Krasnoyarsk we have a failure in the communication systems and we don’t fix it immediately it may cause trouble with communications in Kaliningrad.
We must understand that, these days, information volumes are growing much more intensively than traffic. Mass introduction of modern information technologies is one of the main methods to achieve a higher level of OAO RZD work. Considering this fundamental statement, we are to set to have high expectations of our telecommunication networks and data transfer methods.

Digital technologies of the future work for railway transport
– What events lasting recent years do you consider the most important for OAO RZD in the telecommunications sector?

– Modern telecommunications is a single sector that allows the creation of control systems for different railway services. The efficiency of future introduction of information technologies depends on the quality of communications. If we compare levels of communication channels deve­lopment now with ten years ago we cannot ignore the fact that channel capacity has increased a dozen or even a hundred times. The main changes happened in the past 5-7 years.
In practical terms, we got a modern digital network. On this basis, we could improve control of automatic and remote control systems, signalling and communication systems. Using a digital communications network we interconnected and connected more than 700,000 computers to the data network. 
United automated control system for traffic and ETRAN and Express (booking) systems were also implemented. We modernised automated control systems for traction substations. Systems of video- and audioconference were implemented throughout the whole railway network. It allowed the coordination of the functioning of the greatest transport holding company.

– Could you tell us about main guidelines and checkpoints of Telecommunication Development Program to 2030?

– The program includes several directions. First of all I’d like to say about development of a digital technological communications network. We’ll continue to build fibre-optic lines to strengthen and develop the sector in terms of digital operative technological communication and general technological communication. Secondly, we’ll need serious modernisation of the existing radiocommunications network. Now we want to get access to the required frequencies and draw on the experience of foreign railways, which have been using this standard successfully for a long time.
Then, I want to tell about plans for using satellite transmission facilities and satellite navigation systems. It’s a special and very promising line of the development program. At the same time we don’t simply organise connection with a given object (track machine station, for example) but determinate it’s location in real time. The result will also allow for analysis of work schedules and set standards for traffic and accounting and better awareness of reasons for possible failures in the technological process.
There are already pilot projects in this field. For example, on Gorkovskaya railway 140 units of machinery are equipped with satellite navigation systems and these technologies work successfully. Track facilities as well as locomotives, passenger carriages and wagon need them because it upgrades function quality. 

Very important details
– What difficulties in reforming could you name?

– It turned out that there were different kinds of equipment of OAO RZD’s communications network. There was no uniformity either in delivery dates or in the assortment of manufacturers involved. However, taking into account the scale of the operation, uniformity is hardly possible. 
As I already said, the telecommunication structure wasn’t considered as a single unit until recently – it was a quantity of components with different control schemes. As a result, we’ve got different levels of staff grounding and qualification, different trains and different staff lists on different railways. So now with one department we’ve got a global problem – how to train the personnel and unify the technology of the digital communications network.

– Nearly all aerial lines have exhausted their potential today. What are you going to do about it?

– We are cutting use of these, in compliance with our investment program. Now we have about 20,000 km of aerial lines. One year ago 13.5 km of them were duplicated with cable buses, now there are about 10,000 km of such lines. We’ll need a few years more to change them all. This year we plan to replace 1,700 – 1,800 km.
I must say that aerial lines remain on low-activity railways mainly. Certainly when planning our work it’s necessary to study the cost-effectiveness of the project in every case. If freight traffic density on some railroad section is low and there is no prospect of that changing – the appearance of fibre-optic lines is very doubtful.
If the economic situation changes and there’s growth of cargo handling operations on the railroad in question, then we will have an opportunity to improve things. I mean stations that are in developing areas but not listed in the program of network replacement will be equipped with satellite terminals for data transfer. We buy satellite communication service actually without buying equipment – we spend money only on the operational costs. So we’ve got an opportunity to solve the problem with a different method and at the least cost.
Nowadays about 150 stations on different railroads work this way. Later, when our investment program is formed and we are able to modernise the line, we’ll move on from satellite communication.

– Are you going to invite outsourcing organisations to improve quality of some services?

– Outsourcing is vitally important for some kinds of work. For example, it’s more profitable to put sectors such as equipment maintenance out to external organisations. Of course we do have service stations. But when you take into account the heterogeneity, complexity and specificity of equipment, many test benches, measuring and testing instruments are needed as well as qualified personnel. That’s why it is reasonable to outsource the maintenance to specialised service centres.
Now we’re working out a list of all kinds of activities that can be profitably transferred to an outsourcing support system. As you see, the main problem here is to improve the quality of work without increasing the costs (it would be better still to reduce them). Unsurprisingly, inviting outsourcing companies doesn’t cancel the necessity of strict observance of all aspects related to traffic safety. Safety levels must not drop in any area. We are currently performing economic research to verify our suggestions. The concrete practical result will appear in 2009.
Maybe we’ll use some pilot projects. We already used benefits of manufacturers in some aspects of our activity so we’ve got some experience. For instance, in the repair of radio stations and technical support. 
By Tatyana Ovcharova
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Port Jam
Much has been said about the inability of Russian ports to compete with foreign ones. Every vessel is inspected thoroughly. At first it is checked by frontier guards, then by customers, after that by specialists of veterinarian, pest control, and transport control. Only then is cargo unloaded and customs formalities take place. That is why cargo carriers strive to use the ports of other countries. Due to Russian red tape, the ports of Finland, Latvia, Lithuania, Poland and Norway located to the North-West of Russia flourish. And there appear queues on the border with the EU states. The vehicles idling there carry cargo from European ports to Russia. So, the reason why freight is unloaded in Europe and transported to Russia by road when there are ports in the RF is very simple.
In the words of businessmen specialising in international cargo transportation, the estimated time for freight servicing in Russia and the EU is the same – a maximum 48 hours may be spent on customs formalities and loading. In fact, it takes usually approximately 2 hours to fulfil customs formalities and load the freight in any European port. During this time, a truck drives onto the port’s territory, registers the cargo and customs declaration, gets the cargo loaded, and leaves the port’s territory. Meanwhile, customs formalities may be held outside the port, as often happens. Sometimes, customs formalities in Russian ports last two days. Also, the cargo must be loaded and the documents registered. It can take anything from several days to two weeks to receive the cargo; during which time a truck can run to Europe and back two or three times.
In the light of this situation, at the beginning of May the Federal Customs Service (FTS) offered to prohibit customs registration of goods and vehicles in Russian ports.
According to the initiative of the FTS, which must be mentioned in normative acts, the customs registration of cargo delivered by sea transport is supposed to be completed at so-called “dry ports” instead of at the berths. First of all, it is to be used for containers, in which almost any production may be transported. 
A necessary condition for such dry terminals is that they must be located close either to a port or to goods consumption centres.
If the initiative is supported, its results will be positive, say customs officers. They believe that the throughput of Russian ports will increase because freight will not stay on a berth for a long time. According to experts’ estimations, the speed of cargo passing will rise by at least 60%, and perhaps two- or even three-fold. Moreover, it will be harder to use “grey” and black market import and export schemes. As a result, the level of corruption will fall.
“Container carriers would be glad if such an amendment to the legislation was made. Customs clearance of containers could be held at any customs office, where a container would be delivered by a customs carrier. Road hauliers provide such a service today, but the railway doesn’t,” says Egor Govorukhin, Vice President for Commercial Work of the National Container Company (NCC).
Due to the amendment, the problem of vehicle queues at the borders of Russia and its neighbouring states (Finland, Estonia and Latvia) will be solved in the North-West of Russia. The queues are caused by, firstly, a large amount of imports bound for Russia via its neighbouring states, which are partly transported by road and, secondly, by customs officers who inspect and register almost every container.
Inland barriers  
World practice shows that the best places for dry port locations are territories close to large universal seaports, handling the lion’s share of containerised freight. Although, in the Russian North-West, as well as in the whole country, there is hardly a port which has a sufficient number of inland terminals. Moreover, the work of existing terminals is inefficient for a number of reasons. This fact threatens realisation of the FTS’s plans and also restricts development of universal sea ports, whose container-handling capacities are at full stretch.
There are two ways to increase the throughput of ports: either build additional capacities, or take freight from the berths away very fast and transport it outside ports to clear space for new cargo.
Unfortunately, the first method cannot be applied in any Russian large port, because they are located inside cities and have no territorial potential for expansion. In the opinion of Sergey Kozlov, the First Deputy CEO for Container Transportation, the Far Eastern Shipping Company, 60% of Russian container flow is carried via the centres of Saint Petersburg, Novorossiysk and Vladivostok.
The second method, offered by the FTS, may be effective only if a sufficient amount of dry ports are constructed and they are able to provide the whole pack of services for cargoes – accumulating shipload lots, reception, storing, hand­ling and further distribution, including customs clearance.
In the North-West, the best place for dry ports is the Big Port of Saint Petersburg. Last year it handled 1.7 million TEU. The fact that the port is the largest in the country according to container throughput explains why almost all Russian off-dock terminals are located in Saint Petersburg.
It is senseless to build such terminals near regional northern ports such as Murmansk and Arkhangelsk because their share in total Russian container throughput is small, just a few per cent. The main disadvantage of the cities is that they are far from the largest consumption centres – Moscow and Saint Petersburg. Perhaps, the situation will not change even if there appears a special economic zone in Murmansk for the port. Although the privileges in special port economic zones stimulate re-orientation of stevedoring companies to let them service a range of high-tech containerised cargo, the central ports – the Big Port of Saint Petersburg and Ust-Luga – will attract the most profitable cargoes and the rest will be directed to the provinces.  Coal and oil handling will remain most attractive for Murmansk, for instance.
The initiative of the FTS is not important for the ports of Vladivostok and Novorossiysk, because most volume is handled by the Big Port of Saint Petersburg. Consequently, the problem of idling is especially urgent there.
Not Ready Yet, but Developing Fast
Dry ports are widely used throughout the world and their services are popular. The schedule of block trains, transporting containers out of the ports to off-dock terminals, is very detailed – almost every minute is considered. Alongside the stable trucks traffic and customs clearance of freight at the terminals, reliable and regular railway communication with a sea port is essential for any off-dock terminal. But these demands cannot be fulfilled in Russia and there are several reasons for this. Firstly, the transport infrastructure in most port cities is underdeveloped. 
Secondly, there is a lack of coordination between customs, transport companies and terminal ow­ners. That is why there are few such objects. For instance, there are only three of them in Saint Petersburg – Voskhod, Interterminal and Predportovy. Several years ago, a transport and forwarding company in Saint Petersburg tried to launch a regular block train between its terminal and the First Container Terminal in the port. Unfortunately, realisation of the idea has not yet been completed: nowadays the block train runs rarely and the company’s management decided to close the temporary sto­rage warehouse at the terminal.
In the near future the number of dry ports in Saint Petersburg may increase. The National Container Company plans to launch a terminal with a capacity of 200,000 TEU in Shushary industrial zone (suburban of Saint Petersburg) in autumn. Similar projects are being carried out by Multi-Link Terminals (owned on parity shares by Container Finance Group (Finland) and N-Trans (Russia)) in Yanino settlement (Leningrad region); by Eurasia-Logistic in Kolpino, and Ruskon company in Gatchinsky district (Leningrad region). The peculiarity of the first two pro­jects is that their owners have handling capacities in the Big Port of Saint Petersburg. For instance, the National Container Company controls the First Container Terminal, and N-Trans manages Petrolesport. The companies need new facilities for the harmonious development of sea and onland links as part of one technological chain.
Meanwhile, the North-Western region of Russia is no exception. For example, a dry port – the Southern Maritime Terminal – is being built near Vladivostok. But it is the Baltic Sea where business is thriving: more than 60% of total Russian containerised freight is transported there. But even all the new terminals are a drop in the ocean. Such terminals must occupy much greater area than they do today.
 
Leaving Road for Railways?
Almost all containers (up to 90%) are carried by trucks from the Saint Petersburg port. The loading on road infrastructure is enormous already now. After new dry ports are put into operation, thousands of new trucks will run along the streets of the city. This will only make the already creaking transport system worse, not to mention that regular traffic between the port and the inland terminals can hardly be organised because of the constant traffic jams. 
There seems to be only one way out – use railway transport more actively. Meanwhile, experts think that the low carrying capacity of the railway network at access points to the port and the lack of railway freight terminals prevent it from increasing its share of container transportation from ports. To launch speeded up block trains, the railway and the port must work together. Also, proper technologies are needed. The process of putting a container on a platform and the procedure of preparation of documents for the cargo must be simultaneous. Now the document turnover for transportation by trucks is much easier, and the process is cheaper. The situation in other ports is similar. For instance, in Novorossiysk consignors cannot get proper service because of wagon idling: a container may get stuck for up to 20 days. Block trains cannot run on time between the port and an inland terminal because of an underdeveloped railway network. Mr Govorukhin considers that after measures are taken, route trains may transport up to 40% of all containers between sea and dry ports.
The question is whether OAO RZD is ready to take such serious steps. It is necessary to invest much into infrastructure as well as use market principles for servicing clients – to simplify the process of traffic organisation and document registration, and abolish special tariffs for block trains.
A Single Customs Area Is Needed
Apart from the problems with stable traffic organisation, the development of a dry port network is hampered by the complicated procedure of inner customs transit for containers from a sea port to inland terminals. Speaking about Saint Petersburg, no inland terminal has yet been connected with the port by a single customs corridor. There is a customs post at the Voskhod terminal only. But it is under the responsibility of the Saint Petersburg customs, while the port is under the responsibility of the Baltiyskaya customs. 
Both Baltiyskaya and Saint Petersburg customs are divisions of the FTS, but the former is engaged in customs registration of cargoes delivered to Saint Petersburg and Kronshtadt by sea, and the latter registers freight delivered by road and railway transport, and has 12 customs posts in Saint Petersburg and the Leningrad region. Both of them are on the area of the Big Port of Saint Petersburg, so it turns out that the dry port and the berth are under the jurisdiction of different customs bodies. And to transport a container between them, an additional pack of documents is needed, which complicates the logistical process.
To change the situation, it is necessary to put the Saint Petersburg sea port and inland terminals under the jurisdiction of a single customs body. Amendments to legislation are required for that. And only the FTS can initiate the process. Unfortunately, nothing has been heard on this so far…
Resume
Representatives of transport and logistics businesses say that basic difficulties arise in relation to customs. In the words of Sergey Stolyarov, Deputy Head of the Economic Forecasts and Strategic Development Department of OAO RZD, the customs servicing in ports is not up to scratch. “Up to 50% of the total time for cargo transportation via Russia may be lost in ports. A way out is minimisation of time spent on inspections in ports, and implementation of preliminary declarations,” he believes. Meanwhile, not everybody is interested in transparency and the simplification of customs procedures because it may destroy opportunities to abuse it by businessmen and customs officers. That is why to succeed in carrying out the FTS’s project for dry ports, the customs should change for the better itself. Practice shows that innovations rarely survive in the FTS, although there has been some progress. It is a pity, but at its meeting the FTS did not define even approximate terms for when customs registration of freight is to stop being held in ports. It was a mistake. A clear-cut deadline could become an additional stimulus for private business to activate construction of dry ports, in spite of all the stumbling blocks awaiting it. If the FTS ever corrects the mistake, it will be necessary to postpone putting the “ban” into operation for a year or two. Otherwise, it would be impossible to get ready for it in advance and, consequently, there may be serious failures in the new customs practice.

by Stanislav Russkov
 
Viewpoint 
Egor Govorukhin, 
Vice President for Commercial Work, the National Container Company:
- From the standpoint of shipping companies, who are the basic clients of the NCC terminals, it is unreasonable to transfer customs clearance of cargo to dry ports by prohibiting it in sea ports. Any bans will cause inconveniences for consignors and make them search elsewhere for better and economically reasonable delivery schemes. The possibility of customs clearance in dry ports is necessary, but only if it remains an additional service. Otherwise, the competitiveness of container terminals in the RF ports may be harmed. In my opinion, a client must have a chance to choose where to get his freight registered. The main target of the NCC as a container terminal operator is to provide its clients with good and competitive services. We are building a dry port in Shushary as an extension of the First Container Terminal (FCT) and as an additional service for our client. It can handle 200,000 TEU outside the sea port, out of 1.6 million TEU to be handled by the FCT. So, as for the customs clearance, Shushary will not be able to replace the FCT. We will be able to offer additional room for container storage as well as additional services of cargo repacking to those cargo owners who choose Shushary. 
To carry out our plans, we need a “customs corridor” – the client must feel no inconvenience transporting his container from the sea terminal to the dry port. Speaking of limitation of customs registration in the sea ports means limiting the possibilities for our clients and cargo owners. 
    [~DETAIL_TEXT] => 
Port Jam
Much has been said about the inability of Russian ports to compete with foreign ones. Every vessel is inspected thoroughly. At first it is checked by frontier guards, then by customers, after that by specialists of veterinarian, pest control, and transport control. Only then is cargo unloaded and customs formalities take place. That is why cargo carriers strive to use the ports of other countries. Due to Russian red tape, the ports of Finland, Latvia, Lithuania, Poland and Norway located to the North-West of Russia flourish. And there appear queues on the border with the EU states. The vehicles idling there carry cargo from European ports to Russia. So, the reason why freight is unloaded in Europe and transported to Russia by road when there are ports in the RF is very simple.
In the words of businessmen specialising in international cargo transportation, the estimated time for freight servicing in Russia and the EU is the same – a maximum 48 hours may be spent on customs formalities and loading. In fact, it takes usually approximately 2 hours to fulfil customs formalities and load the freight in any European port. During this time, a truck drives onto the port’s territory, registers the cargo and customs declaration, gets the cargo loaded, and leaves the port’s territory. Meanwhile, customs formalities may be held outside the port, as often happens. Sometimes, customs formalities in Russian ports last two days. Also, the cargo must be loaded and the documents registered. It can take anything from several days to two weeks to receive the cargo; during which time a truck can run to Europe and back two or three times.
In the light of this situation, at the beginning of May the Federal Customs Service (FTS) offered to prohibit customs registration of goods and vehicles in Russian ports.
According to the initiative of the FTS, which must be mentioned in normative acts, the customs registration of cargo delivered by sea transport is supposed to be completed at so-called “dry ports” instead of at the berths. First of all, it is to be used for containers, in which almost any production may be transported. 
A necessary condition for such dry terminals is that they must be located close either to a port or to goods consumption centres.
If the initiative is supported, its results will be positive, say customs officers. They believe that the throughput of Russian ports will increase because freight will not stay on a berth for a long time. According to experts’ estimations, the speed of cargo passing will rise by at least 60%, and perhaps two- or even three-fold. Moreover, it will be harder to use “grey” and black market import and export schemes. As a result, the level of corruption will fall.
“Container carriers would be glad if such an amendment to the legislation was made. Customs clearance of containers could be held at any customs office, where a container would be delivered by a customs carrier. Road hauliers provide such a service today, but the railway doesn’t,” says Egor Govorukhin, Vice President for Commercial Work of the National Container Company (NCC).
Due to the amendment, the problem of vehicle queues at the borders of Russia and its neighbouring states (Finland, Estonia and Latvia) will be solved in the North-West of Russia. The queues are caused by, firstly, a large amount of imports bound for Russia via its neighbouring states, which are partly transported by road and, secondly, by customs officers who inspect and register almost every container.
Inland barriers  
World practice shows that the best places for dry port locations are territories close to large universal seaports, handling the lion’s share of containerised freight. Although, in the Russian North-West, as well as in the whole country, there is hardly a port which has a sufficient number of inland terminals. Moreover, the work of existing terminals is inefficient for a number of reasons. This fact threatens realisation of the FTS’s plans and also restricts development of universal sea ports, whose container-handling capacities are at full stretch.
There are two ways to increase the throughput of ports: either build additional capacities, or take freight from the berths away very fast and transport it outside ports to clear space for new cargo.
Unfortunately, the first method cannot be applied in any Russian large port, because they are located inside cities and have no territorial potential for expansion. In the opinion of Sergey Kozlov, the First Deputy CEO for Container Transportation, the Far Eastern Shipping Company, 60% of Russian container flow is carried via the centres of Saint Petersburg, Novorossiysk and Vladivostok.
The second method, offered by the FTS, may be effective only if a sufficient amount of dry ports are constructed and they are able to provide the whole pack of services for cargoes – accumulating shipload lots, reception, storing, hand­ling and further distribution, including customs clearance.
In the North-West, the best place for dry ports is the Big Port of Saint Petersburg. Last year it handled 1.7 million TEU. The fact that the port is the largest in the country according to container throughput explains why almost all Russian off-dock terminals are located in Saint Petersburg.
It is senseless to build such terminals near regional northern ports such as Murmansk and Arkhangelsk because their share in total Russian container throughput is small, just a few per cent. The main disadvantage of the cities is that they are far from the largest consumption centres – Moscow and Saint Petersburg. Perhaps, the situation will not change even if there appears a special economic zone in Murmansk for the port. Although the privileges in special port economic zones stimulate re-orientation of stevedoring companies to let them service a range of high-tech containerised cargo, the central ports – the Big Port of Saint Petersburg and Ust-Luga – will attract the most profitable cargoes and the rest will be directed to the provinces.  Coal and oil handling will remain most attractive for Murmansk, for instance.
The initiative of the FTS is not important for the ports of Vladivostok and Novorossiysk, because most volume is handled by the Big Port of Saint Petersburg. Consequently, the problem of idling is especially urgent there.
Not Ready Yet, but Developing Fast
Dry ports are widely used throughout the world and their services are popular. The schedule of block trains, transporting containers out of the ports to off-dock terminals, is very detailed – almost every minute is considered. Alongside the stable trucks traffic and customs clearance of freight at the terminals, reliable and regular railway communication with a sea port is essential for any off-dock terminal. But these demands cannot be fulfilled in Russia and there are several reasons for this. Firstly, the transport infrastructure in most port cities is underdeveloped. 
Secondly, there is a lack of coordination between customs, transport companies and terminal ow­ners. That is why there are few such objects. For instance, there are only three of them in Saint Petersburg – Voskhod, Interterminal and Predportovy. Several years ago, a transport and forwarding company in Saint Petersburg tried to launch a regular block train between its terminal and the First Container Terminal in the port. Unfortunately, realisation of the idea has not yet been completed: nowadays the block train runs rarely and the company’s management decided to close the temporary sto­rage warehouse at the terminal.
In the near future the number of dry ports in Saint Petersburg may increase. The National Container Company plans to launch a terminal with a capacity of 200,000 TEU in Shushary industrial zone (suburban of Saint Petersburg) in autumn. Similar projects are being carried out by Multi-Link Terminals (owned on parity shares by Container Finance Group (Finland) and N-Trans (Russia)) in Yanino settlement (Leningrad region); by Eurasia-Logistic in Kolpino, and Ruskon company in Gatchinsky district (Leningrad region). The peculiarity of the first two pro­jects is that their owners have handling capacities in the Big Port of Saint Petersburg. For instance, the National Container Company controls the First Container Terminal, and N-Trans manages Petrolesport. The companies need new facilities for the harmonious development of sea and onland links as part of one technological chain.
Meanwhile, the North-Western region of Russia is no exception. For example, a dry port – the Southern Maritime Terminal – is being built near Vladivostok. But it is the Baltic Sea where business is thriving: more than 60% of total Russian containerised freight is transported there. But even all the new terminals are a drop in the ocean. Such terminals must occupy much greater area than they do today.
 
Leaving Road for Railways?
Almost all containers (up to 90%) are carried by trucks from the Saint Petersburg port. The loading on road infrastructure is enormous already now. After new dry ports are put into operation, thousands of new trucks will run along the streets of the city. This will only make the already creaking transport system worse, not to mention that regular traffic between the port and the inland terminals can hardly be organised because of the constant traffic jams. 
There seems to be only one way out – use railway transport more actively. Meanwhile, experts think that the low carrying capacity of the railway network at access points to the port and the lack of railway freight terminals prevent it from increasing its share of container transportation from ports. To launch speeded up block trains, the railway and the port must work together. Also, proper technologies are needed. The process of putting a container on a platform and the procedure of preparation of documents for the cargo must be simultaneous. Now the document turnover for transportation by trucks is much easier, and the process is cheaper. The situation in other ports is similar. For instance, in Novorossiysk consignors cannot get proper service because of wagon idling: a container may get stuck for up to 20 days. Block trains cannot run on time between the port and an inland terminal because of an underdeveloped railway network. Mr Govorukhin considers that after measures are taken, route trains may transport up to 40% of all containers between sea and dry ports.
The question is whether OAO RZD is ready to take such serious steps. It is necessary to invest much into infrastructure as well as use market principles for servicing clients – to simplify the process of traffic organisation and document registration, and abolish special tariffs for block trains.
A Single Customs Area Is Needed
Apart from the problems with stable traffic organisation, the development of a dry port network is hampered by the complicated procedure of inner customs transit for containers from a sea port to inland terminals. Speaking about Saint Petersburg, no inland terminal has yet been connected with the port by a single customs corridor. There is a customs post at the Voskhod terminal only. But it is under the responsibility of the Saint Petersburg customs, while the port is under the responsibility of the Baltiyskaya customs. 
Both Baltiyskaya and Saint Petersburg customs are divisions of the FTS, but the former is engaged in customs registration of cargoes delivered to Saint Petersburg and Kronshtadt by sea, and the latter registers freight delivered by road and railway transport, and has 12 customs posts in Saint Petersburg and the Leningrad region. Both of them are on the area of the Big Port of Saint Petersburg, so it turns out that the dry port and the berth are under the jurisdiction of different customs bodies. And to transport a container between them, an additional pack of documents is needed, which complicates the logistical process.
To change the situation, it is necessary to put the Saint Petersburg sea port and inland terminals under the jurisdiction of a single customs body. Amendments to legislation are required for that. And only the FTS can initiate the process. Unfortunately, nothing has been heard on this so far…
Resume
Representatives of transport and logistics businesses say that basic difficulties arise in relation to customs. In the words of Sergey Stolyarov, Deputy Head of the Economic Forecasts and Strategic Development Department of OAO RZD, the customs servicing in ports is not up to scratch. “Up to 50% of the total time for cargo transportation via Russia may be lost in ports. A way out is minimisation of time spent on inspections in ports, and implementation of preliminary declarations,” he believes. Meanwhile, not everybody is interested in transparency and the simplification of customs procedures because it may destroy opportunities to abuse it by businessmen and customs officers. That is why to succeed in carrying out the FTS’s project for dry ports, the customs should change for the better itself. Practice shows that innovations rarely survive in the FTS, although there has been some progress. It is a pity, but at its meeting the FTS did not define even approximate terms for when customs registration of freight is to stop being held in ports. It was a mistake. A clear-cut deadline could become an additional stimulus for private business to activate construction of dry ports, in spite of all the stumbling blocks awaiting it. If the FTS ever corrects the mistake, it will be necessary to postpone putting the “ban” into operation for a year or two. Otherwise, it would be impossible to get ready for it in advance and, consequently, there may be serious failures in the new customs practice.

by Stanislav Russkov
 
Viewpoint 
Egor Govorukhin, 
Vice President for Commercial Work, the National Container Company:
- From the standpoint of shipping companies, who are the basic clients of the NCC terminals, it is unreasonable to transfer customs clearance of cargo to dry ports by prohibiting it in sea ports. Any bans will cause inconveniences for consignors and make them search elsewhere for better and economically reasonable delivery schemes. The possibility of customs clearance in dry ports is necessary, but only if it remains an additional service. Otherwise, the competitiveness of container terminals in the RF ports may be harmed. In my opinion, a client must have a chance to choose where to get his freight registered. The main target of the NCC as a container terminal operator is to provide its clients with good and competitive services. We are building a dry port in Shushary as an extension of the First Container Terminal (FCT) and as an additional service for our client. It can handle 200,000 TEU outside the sea port, out of 1.6 million TEU to be handled by the FCT. So, as for the customs clearance, Shushary will not be able to replace the FCT. We will be able to offer additional room for container storage as well as additional services of cargo repacking to those cargo owners who choose Shushary. 
To carry out our plans, we need a “customs corridor” – the client must feel no inconvenience transporting his container from the sea terminal to the dry port. Speaking of limitation of customs registration in the sea ports means limiting the possibilities for our clients and cargo owners. 
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Port Jam
Much has been said about the inability of Russian ports to compete with foreign ones. Every vessel is inspected thoroughly. At first it is checked by frontier guards, then by customers, after that by specialists of veterinarian, pest control, and transport control. Only then is cargo unloaded and customs formalities take place. That is why cargo carriers strive to use the ports of other countries. Due to Russian red tape, the ports of Finland, Latvia, Lithuania, Poland and Norway located to the North-West of Russia flourish. And there appear queues on the border with the EU states. The vehicles idling there carry cargo from European ports to Russia. So, the reason why freight is unloaded in Europe and transported to Russia by road when there are ports in the RF is very simple.
In the words of businessmen specialising in international cargo transportation, the estimated time for freight servicing in Russia and the EU is the same – a maximum 48 hours may be spent on customs formalities and loading. In fact, it takes usually approximately 2 hours to fulfil customs formalities and load the freight in any European port. During this time, a truck drives onto the port’s territory, registers the cargo and customs declaration, gets the cargo loaded, and leaves the port’s territory. Meanwhile, customs formalities may be held outside the port, as often happens. Sometimes, customs formalities in Russian ports last two days. Also, the cargo must be loaded and the documents registered. It can take anything from several days to two weeks to receive the cargo; during which time a truck can run to Europe and back two or three times.
In the light of this situation, at the beginning of May the Federal Customs Service (FTS) offered to prohibit customs registration of goods and vehicles in Russian ports.
According to the initiative of the FTS, which must be mentioned in normative acts, the customs registration of cargo delivered by sea transport is supposed to be completed at so-called “dry ports” instead of at the berths. First of all, it is to be used for containers, in which almost any production may be transported. 
A necessary condition for such dry terminals is that they must be located close either to a port or to goods consumption centres.
If the initiative is supported, its results will be positive, say customs officers. They believe that the throughput of Russian ports will increase because freight will not stay on a berth for a long time. According to experts’ estimations, the speed of cargo passing will rise by at least 60%, and perhaps two- or even three-fold. Moreover, it will be harder to use “grey” and black market import and export schemes. As a result, the level of corruption will fall.
“Container carriers would be glad if such an amendment to the legislation was made. Customs clearance of containers could be held at any customs office, where a container would be delivered by a customs carrier. Road hauliers provide such a service today, but the railway doesn’t,” says Egor Govorukhin, Vice President for Commercial Work of the National Container Company (NCC).
Due to the amendment, the problem of vehicle queues at the borders of Russia and its neighbouring states (Finland, Estonia and Latvia) will be solved in the North-West of Russia. The queues are caused by, firstly, a large amount of imports bound for Russia via its neighbouring states, which are partly transported by road and, secondly, by customs officers who inspect and register almost every container.
Inland barriers  
World practice shows that the best places for dry port locations are territories close to large universal seaports, handling the lion’s share of containerised freight. Although, in the Russian North-West, as well as in the whole country, there is hardly a port which has a sufficient number of inland terminals. Moreover, the work of existing terminals is inefficient for a number of reasons. This fact threatens realisation of the FTS’s plans and also restricts development of universal sea ports, whose container-handling capacities are at full stretch.
There are two ways to increase the throughput of ports: either build additional capacities, or take freight from the berths away very fast and transport it outside ports to clear space for new cargo.
Unfortunately, the first method cannot be applied in any Russian large port, because they are located inside cities and have no territorial potential for expansion. In the opinion of Sergey Kozlov, the First Deputy CEO for Container Transportation, the Far Eastern Shipping Company, 60% of Russian container flow is carried via the centres of Saint Petersburg, Novorossiysk and Vladivostok.
The second method, offered by the FTS, may be effective only if a sufficient amount of dry ports are constructed and they are able to provide the whole pack of services for cargoes – accumulating shipload lots, reception, storing, hand­ling and further distribution, including customs clearance.
In the North-West, the best place for dry ports is the Big Port of Saint Petersburg. Last year it handled 1.7 million TEU. The fact that the port is the largest in the country according to container throughput explains why almost all Russian off-dock terminals are located in Saint Petersburg.
It is senseless to build such terminals near regional northern ports such as Murmansk and Arkhangelsk because their share in total Russian container throughput is small, just a few per cent. The main disadvantage of the cities is that they are far from the largest consumption centres – Moscow and Saint Petersburg. Perhaps, the situation will not change even if there appears a special economic zone in Murmansk for the port. Although the privileges in special port economic zones stimulate re-orientation of stevedoring companies to let them service a range of high-tech containerised cargo, the central ports – the Big Port of Saint Petersburg and Ust-Luga – will attract the most profitable cargoes and the rest will be directed to the provinces.  Coal and oil handling will remain most attractive for Murmansk, for instance.
The initiative of the FTS is not important for the ports of Vladivostok and Novorossiysk, because most volume is handled by the Big Port of Saint Petersburg. Consequently, the problem of idling is especially urgent there.
Not Ready Yet, but Developing Fast
Dry ports are widely used throughout the world and their services are popular. The schedule of block trains, transporting containers out of the ports to off-dock terminals, is very detailed – almost every minute is considered. Alongside the stable trucks traffic and customs clearance of freight at the terminals, reliable and regular railway communication with a sea port is essential for any off-dock terminal. But these demands cannot be fulfilled in Russia and there are several reasons for this. Firstly, the transport infrastructure in most port cities is underdeveloped. 
Secondly, there is a lack of coordination between customs, transport companies and terminal ow­ners. That is why there are few such objects. For instance, there are only three of them in Saint Petersburg – Voskhod, Interterminal and Predportovy. Several years ago, a transport and forwarding company in Saint Petersburg tried to launch a regular block train between its terminal and the First Container Terminal in the port. Unfortunately, realisation of the idea has not yet been completed: nowadays the block train runs rarely and the company’s management decided to close the temporary sto­rage warehouse at the terminal.
In the near future the number of dry ports in Saint Petersburg may increase. The National Container Company plans to launch a terminal with a capacity of 200,000 TEU in Shushary industrial zone (suburban of Saint Petersburg) in autumn. Similar projects are being carried out by Multi-Link Terminals (owned on parity shares by Container Finance Group (Finland) and N-Trans (Russia)) in Yanino settlement (Leningrad region); by Eurasia-Logistic in Kolpino, and Ruskon company in Gatchinsky district (Leningrad region). The peculiarity of the first two pro­jects is that their owners have handling capacities in the Big Port of Saint Petersburg. For instance, the National Container Company controls the First Container Terminal, and N-Trans manages Petrolesport. The companies need new facilities for the harmonious development of sea and onland links as part of one technological chain.
Meanwhile, the North-Western region of Russia is no exception. For example, a dry port – the Southern Maritime Terminal – is being built near Vladivostok. But it is the Baltic Sea where business is thriving: more than 60% of total Russian containerised freight is transported there. But even all the new terminals are a drop in the ocean. Such terminals must occupy much greater area than they do today.
 
Leaving Road for Railways?
Almost all containers (up to 90%) are carried by trucks from the Saint Petersburg port. The loading on road infrastructure is enormous already now. After new dry ports are put into operation, thousands of new trucks will run along the streets of the city. This will only make the already creaking transport system worse, not to mention that regular traffic between the port and the inland terminals can hardly be organised because of the constant traffic jams. 
There seems to be only one way out – use railway transport more actively. Meanwhile, experts think that the low carrying capacity of the railway network at access points to the port and the lack of railway freight terminals prevent it from increasing its share of container transportation from ports. To launch speeded up block trains, the railway and the port must work together. Also, proper technologies are needed. The process of putting a container on a platform and the procedure of preparation of documents for the cargo must be simultaneous. Now the document turnover for transportation by trucks is much easier, and the process is cheaper. The situation in other ports is similar. For instance, in Novorossiysk consignors cannot get proper service because of wagon idling: a container may get stuck for up to 20 days. Block trains cannot run on time between the port and an inland terminal because of an underdeveloped railway network. Mr Govorukhin considers that after measures are taken, route trains may transport up to 40% of all containers between sea and dry ports.
The question is whether OAO RZD is ready to take such serious steps. It is necessary to invest much into infrastructure as well as use market principles for servicing clients – to simplify the process of traffic organisation and document registration, and abolish special tariffs for block trains.
A Single Customs Area Is Needed
Apart from the problems with stable traffic organisation, the development of a dry port network is hampered by the complicated procedure of inner customs transit for containers from a sea port to inland terminals. Speaking about Saint Petersburg, no inland terminal has yet been connected with the port by a single customs corridor. There is a customs post at the Voskhod terminal only. But it is under the responsibility of the Saint Petersburg customs, while the port is under the responsibility of the Baltiyskaya customs. 
Both Baltiyskaya and Saint Petersburg customs are divisions of the FTS, but the former is engaged in customs registration of cargoes delivered to Saint Petersburg and Kronshtadt by sea, and the latter registers freight delivered by road and railway transport, and has 12 customs posts in Saint Petersburg and the Leningrad region. Both of them are on the area of the Big Port of Saint Petersburg, so it turns out that the dry port and the berth are under the jurisdiction of different customs bodies. And to transport a container between them, an additional pack of documents is needed, which complicates the logistical process.
To change the situation, it is necessary to put the Saint Petersburg sea port and inland terminals under the jurisdiction of a single customs body. Amendments to legislation are required for that. And only the FTS can initiate the process. Unfortunately, nothing has been heard on this so far…
Resume
Representatives of transport and logistics businesses say that basic difficulties arise in relation to customs. In the words of Sergey Stolyarov, Deputy Head of the Economic Forecasts and Strategic Development Department of OAO RZD, the customs servicing in ports is not up to scratch. “Up to 50% of the total time for cargo transportation via Russia may be lost in ports. A way out is minimisation of time spent on inspections in ports, and implementation of preliminary declarations,” he believes. Meanwhile, not everybody is interested in transparency and the simplification of customs procedures because it may destroy opportunities to abuse it by businessmen and customs officers. That is why to succeed in carrying out the FTS’s project for dry ports, the customs should change for the better itself. Practice shows that innovations rarely survive in the FTS, although there has been some progress. It is a pity, but at its meeting the FTS did not define even approximate terms for when customs registration of freight is to stop being held in ports. It was a mistake. A clear-cut deadline could become an additional stimulus for private business to activate construction of dry ports, in spite of all the stumbling blocks awaiting it. If the FTS ever corrects the mistake, it will be necessary to postpone putting the “ban” into operation for a year or two. Otherwise, it would be impossible to get ready for it in advance and, consequently, there may be serious failures in the new customs practice.

by Stanislav Russkov
 
Viewpoint 
Egor Govorukhin, 
Vice President for Commercial Work, the National Container Company:
- From the standpoint of shipping companies, who are the basic clients of the NCC terminals, it is unreasonable to transfer customs clearance of cargo to dry ports by prohibiting it in sea ports. Any bans will cause inconveniences for consignors and make them search elsewhere for better and economically reasonable delivery schemes. The possibility of customs clearance in dry ports is necessary, but only if it remains an additional service. Otherwise, the competitiveness of container terminals in the RF ports may be harmed. In my opinion, a client must have a chance to choose where to get his freight registered. The main target of the NCC as a container terminal operator is to provide its clients with good and competitive services. We are building a dry port in Shushary as an extension of the First Container Terminal (FCT) and as an additional service for our client. It can handle 200,000 TEU outside the sea port, out of 1.6 million TEU to be handled by the FCT. So, as for the customs clearance, Shushary will not be able to replace the FCT. We will be able to offer additional room for container storage as well as additional services of cargo repacking to those cargo owners who choose Shushary. 
To carry out our plans, we need a “customs corridor” – the client must feel no inconvenience transporting his container from the sea terminal to the dry port. Speaking of limitation of customs registration in the sea ports means limiting the possibilities for our clients and cargo owners. 
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Port Jam
Much has been said about the inability of Russian ports to compete with foreign ones. Every vessel is inspected thoroughly. At first it is checked by frontier guards, then by customers, after that by specialists of veterinarian, pest control, and transport control. Only then is cargo unloaded and customs formalities take place. That is why cargo carriers strive to use the ports of other countries. Due to Russian red tape, the ports of Finland, Latvia, Lithuania, Poland and Norway located to the North-West of Russia flourish. And there appear queues on the border with the EU states. The vehicles idling there carry cargo from European ports to Russia. So, the reason why freight is unloaded in Europe and transported to Russia by road when there are ports in the RF is very simple.
In the words of businessmen specialising in international cargo transportation, the estimated time for freight servicing in Russia and the EU is the same – a maximum 48 hours may be spent on customs formalities and loading. In fact, it takes usually approximately 2 hours to fulfil customs formalities and load the freight in any European port. During this time, a truck drives onto the port’s territory, registers the cargo and customs declaration, gets the cargo loaded, and leaves the port’s territory. Meanwhile, customs formalities may be held outside the port, as often happens. Sometimes, customs formalities in Russian ports last two days. Also, the cargo must be loaded and the documents registered. It can take anything from several days to two weeks to receive the cargo; during which time a truck can run to Europe and back two or three times.
In the light of this situation, at the beginning of May the Federal Customs Service (FTS) offered to prohibit customs registration of goods and vehicles in Russian ports.
According to the initiative of the FTS, which must be mentioned in normative acts, the customs registration of cargo delivered by sea transport is supposed to be completed at so-called “dry ports” instead of at the berths. First of all, it is to be used for containers, in which almost any production may be transported. 
A necessary condition for such dry terminals is that they must be located close either to a port or to goods consumption centres.
If the initiative is supported, its results will be positive, say customs officers. They believe that the throughput of Russian ports will increase because freight will not stay on a berth for a long time. According to experts’ estimations, the speed of cargo passing will rise by at least 60%, and perhaps two- or even three-fold. Moreover, it will be harder to use “grey” and black market import and export schemes. As a result, the level of corruption will fall.
“Container carriers would be glad if such an amendment to the legislation was made. Customs clearance of containers could be held at any customs office, where a container would be delivered by a customs carrier. Road hauliers provide such a service today, but the railway doesn’t,” says Egor Govorukhin, Vice President for Commercial Work of the National Container Company (NCC).
Due to the amendment, the problem of vehicle queues at the borders of Russia and its neighbouring states (Finland, Estonia and Latvia) will be solved in the North-West of Russia. The queues are caused by, firstly, a large amount of imports bound for Russia via its neighbouring states, which are partly transported by road and, secondly, by customs officers who inspect and register almost every container.
Inland barriers  
World practice shows that the best places for dry port locations are territories close to large universal seaports, handling the lion’s share of containerised freight. Although, in the Russian North-West, as well as in the whole country, there is hardly a port which has a sufficient number of inland terminals. Moreover, the work of existing terminals is inefficient for a number of reasons. This fact threatens realisation of the FTS’s plans and also restricts development of universal sea ports, whose container-handling capacities are at full stretch.
There are two ways to increase the throughput of ports: either build additional capacities, or take freight from the berths away very fast and transport it outside ports to clear space for new cargo.
Unfortunately, the first method cannot be applied in any Russian large port, because they are located inside cities and have no territorial potential for expansion. In the opinion of Sergey Kozlov, the First Deputy CEO for Container Transportation, the Far Eastern Shipping Company, 60% of Russian container flow is carried via the centres of Saint Petersburg, Novorossiysk and Vladivostok.
The second method, offered by the FTS, may be effective only if a sufficient amount of dry ports are constructed and they are able to provide the whole pack of services for cargoes – accumulating shipload lots, reception, storing, hand­ling and further distribution, including customs clearance.
In the North-West, the best place for dry ports is the Big Port of Saint Petersburg. Last year it handled 1.7 million TEU. The fact that the port is the largest in the country according to container throughput explains why almost all Russian off-dock terminals are located in Saint Petersburg.
It is senseless to build such terminals near regional northern ports such as Murmansk and Arkhangelsk because their share in total Russian container throughput is small, just a few per cent. The main disadvantage of the cities is that they are far from the largest consumption centres – Moscow and Saint Petersburg. Perhaps, the situation will not change even if there appears a special economic zone in Murmansk for the port. Although the privileges in special port economic zones stimulate re-orientation of stevedoring companies to let them service a range of high-tech containerised cargo, the central ports – the Big Port of Saint Petersburg and Ust-Luga – will attract the most profitable cargoes and the rest will be directed to the provinces.  Coal and oil handling will remain most attractive for Murmansk, for instance.
The initiative of the FTS is not important for the ports of Vladivostok and Novorossiysk, because most volume is handled by the Big Port of Saint Petersburg. Consequently, the problem of idling is especially urgent there.
Not Ready Yet, but Developing Fast
Dry ports are widely used throughout the world and their services are popular. The schedule of block trains, transporting containers out of the ports to off-dock terminals, is very detailed – almost every minute is considered. Alongside the stable trucks traffic and customs clearance of freight at the terminals, reliable and regular railway communication with a sea port is essential for any off-dock terminal. But these demands cannot be fulfilled in Russia and there are several reasons for this. Firstly, the transport infrastructure in most port cities is underdeveloped. 
Secondly, there is a lack of coordination between customs, transport companies and terminal ow­ners. That is why there are few such objects. For instance, there are only three of them in Saint Petersburg – Voskhod, Interterminal and Predportovy. Several years ago, a transport and forwarding company in Saint Petersburg tried to launch a regular block train between its terminal and the First Container Terminal in the port. Unfortunately, realisation of the idea has not yet been completed: nowadays the block train runs rarely and the company’s management decided to close the temporary sto­rage warehouse at the terminal.
In the near future the number of dry ports in Saint Petersburg may increase. The National Container Company plans to launch a terminal with a capacity of 200,000 TEU in Shushary industrial zone (suburban of Saint Petersburg) in autumn. Similar projects are being carried out by Multi-Link Terminals (owned on parity shares by Container Finance Group (Finland) and N-Trans (Russia)) in Yanino settlement (Leningrad region); by Eurasia-Logistic in Kolpino, and Ruskon company in Gatchinsky district (Leningrad region). The peculiarity of the first two pro­jects is that their owners have handling capacities in the Big Port of Saint Petersburg. For instance, the National Container Company controls the First Container Terminal, and N-Trans manages Petrolesport. The companies need new facilities for the harmonious development of sea and onland links as part of one technological chain.
Meanwhile, the North-Western region of Russia is no exception. For example, a dry port – the Southern Maritime Terminal – is being built near Vladivostok. But it is the Baltic Sea where business is thriving: more than 60% of total Russian containerised freight is transported there. But even all the new terminals are a drop in the ocean. Such terminals must occupy much greater area than they do today.
 
Leaving Road for Railways?
Almost all containers (up to 90%) are carried by trucks from the Saint Petersburg port. The loading on road infrastructure is enormous already now. After new dry ports are put into operation, thousands of new trucks will run along the streets of the city. This will only make the already creaking transport system worse, not to mention that regular traffic between the port and the inland terminals can hardly be organised because of the constant traffic jams. 
There seems to be only one way out – use railway transport more actively. Meanwhile, experts think that the low carrying capacity of the railway network at access points to the port and the lack of railway freight terminals prevent it from increasing its share of container transportation from ports. To launch speeded up block trains, the railway and the port must work together. Also, proper technologies are needed. The process of putting a container on a platform and the procedure of preparation of documents for the cargo must be simultaneous. Now the document turnover for transportation by trucks is much easier, and the process is cheaper. The situation in other ports is similar. For instance, in Novorossiysk consignors cannot get proper service because of wagon idling: a container may get stuck for up to 20 days. Block trains cannot run on time between the port and an inland terminal because of an underdeveloped railway network. Mr Govorukhin considers that after measures are taken, route trains may transport up to 40% of all containers between sea and dry ports.
The question is whether OAO RZD is ready to take such serious steps. It is necessary to invest much into infrastructure as well as use market principles for servicing clients – to simplify the process of traffic organisation and document registration, and abolish special tariffs for block trains.
A Single Customs Area Is Needed
Apart from the problems with stable traffic organisation, the development of a dry port network is hampered by the complicated procedure of inner customs transit for containers from a sea port to inland terminals. Speaking about Saint Petersburg, no inland terminal has yet been connected with the port by a single customs corridor. There is a customs post at the Voskhod terminal only. But it is under the responsibility of the Saint Petersburg customs, while the port is under the responsibility of the Baltiyskaya customs. 
Both Baltiyskaya and Saint Petersburg customs are divisions of the FTS, but the former is engaged in customs registration of cargoes delivered to Saint Petersburg and Kronshtadt by sea, and the latter registers freight delivered by road and railway transport, and has 12 customs posts in Saint Petersburg and the Leningrad region. Both of them are on the area of the Big Port of Saint Petersburg, so it turns out that the dry port and the berth are under the jurisdiction of different customs bodies. And to transport a container between them, an additional pack of documents is needed, which complicates the logistical process.
To change the situation, it is necessary to put the Saint Petersburg sea port and inland terminals under the jurisdiction of a single customs body. Amendments to legislation are required for that. And only the FTS can initiate the process. Unfortunately, nothing has been heard on this so far…
Resume
Representatives of transport and logistics businesses say that basic difficulties arise in relation to customs. In the words of Sergey Stolyarov, Deputy Head of the Economic Forecasts and Strategic Development Department of OAO RZD, the customs servicing in ports is not up to scratch. “Up to 50% of the total time for cargo transportation via Russia may be lost in ports. A way out is minimisation of time spent on inspections in ports, and implementation of preliminary declarations,” he believes. Meanwhile, not everybody is interested in transparency and the simplification of customs procedures because it may destroy opportunities to abuse it by businessmen and customs officers. That is why to succeed in carrying out the FTS’s project for dry ports, the customs should change for the better itself. Practice shows that innovations rarely survive in the FTS, although there has been some progress. It is a pity, but at its meeting the FTS did not define even approximate terms for when customs registration of freight is to stop being held in ports. It was a mistake. A clear-cut deadline could become an additional stimulus for private business to activate construction of dry ports, in spite of all the stumbling blocks awaiting it. If the FTS ever corrects the mistake, it will be necessary to postpone putting the “ban” into operation for a year or two. Otherwise, it would be impossible to get ready for it in advance and, consequently, there may be serious failures in the new customs practice.

by Stanislav Russkov
 
Viewpoint 
Egor Govorukhin, 
Vice President for Commercial Work, the National Container Company:
- From the standpoint of shipping companies, who are the basic clients of the NCC terminals, it is unreasonable to transfer customs clearance of cargo to dry ports by prohibiting it in sea ports. Any bans will cause inconveniences for consignors and make them search elsewhere for better and economically reasonable delivery schemes. The possibility of customs clearance in dry ports is necessary, but only if it remains an additional service. Otherwise, the competitiveness of container terminals in the RF ports may be harmed. In my opinion, a client must have a chance to choose where to get his freight registered. The main target of the NCC as a container terminal operator is to provide its clients with good and competitive services. We are building a dry port in Shushary as an extension of the First Container Terminal (FCT) and as an additional service for our client. It can handle 200,000 TEU outside the sea port, out of 1.6 million TEU to be handled by the FCT. So, as for the customs clearance, Shushary will not be able to replace the FCT. We will be able to offer additional room for container storage as well as additional services of cargo repacking to those cargo owners who choose Shushary. 
To carry out our plans, we need a “customs corridor” – the client must feel no inconvenience transporting his container from the sea terminal to the dry port. Speaking of limitation of customs registration in the sea ports means limiting the possibilities for our clients and cargo owners. 
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National Aspects
– How does the company deliver car components from Japan to Saint Petersburg?
– From the very beginning, Toyota chose sea to deliver car components. And there were a number of reasons for that. Firstly, our corporation is experienced in exporting necessary components and assembly units by vessel. Also, there is a shipping company incorporated into Toyota Motor group. Toyota Corporation has a lot of know-how in terms of goods loading and delivering them by sea. So, it was natural that we chose the shipping scheme. Simultaneously we tried to use the Transsiberian railway to deliver the cargo. Perhaps, we need some more time to examine the opportunity of interacting with Russian railway operators to see whether the Transsiberian railway meets our requirements from a technical and economic perspective.
– What are your company’s requirements for cargo packaging during transportation?
– Some goods need special transportation conditions. In particular, special configuration is necessary for the holdings set inside containers into which components are loaded. There must be no friction, and the holdings must be shockproof and be able to resist damage, for example, rust. Toyota is experienced in transporting freight by sea – the company started doing this in 1950. So, we developed a number of definite requirements for the quality of packing long ago. 
– The sea port of Saint Petersburg is where your cargo is handled now. Are there any other places to be used in future?
– The components are delivered from terminals in Japan to the sea port of Saint Petersburg, and then the customs clearance is provided for the goods at the Vostochny terminal. It is difficult to speak about the future. I think, the sea port of Saint Petersburg requires modernisation and enlargement of its capacities. Now we handle about 4,500 containers per annum, and the capacities of the local port are sufficient for us. But we must remember that if at the first stage of manufacturing development Toyota decides to produce 20,000 cars annually, the production volume will double in the next two years. Perhaps, another stage of the plant will be built in Shushary (a suburb of Saint Petersburg). As a result, at that time the percentage of manufacturing localisation will increase, and the transportation volume will grow too. Consequently, to handle a larger volume, the Saint Petersburg port may need to enlarge its capacities, since the loading volume will continue to grow in future. In particular, when we chose Saint Petersburg, our company did not know that there would appear so many plants with similar demand for logistic schemes in the region.
Now there are few alternative terminals to handle our containers, so it is too early to speak about using another one or additional port capacities.
Transport Corridors Need Modernisation Badly
– What share of logistics services have been outsourced by Toyota? How does the company choose the operator?
– In car manufacturing, usually a large share of logistics services (such as customs clearance, getting state registration, transportation by lorry or any other transport mode, etc.) is outsourced. It is the ma­nagement, however, that decides whether the company’s internal planning of logistics schemes and internal processes may be outsourced. Now Toyota controls the logistics processes inside the plant. It also plans component delivery – how many lots and when they are to be delivered to the plant. As for the standard internal schemes, including customs clearance and transportation on the territory of Russia, we choose partners from local suppliers. As for transportation by sea, the winner is chosen according to the results of a standard international tender, i.e. the company’s purchasing department in Japan, which is responsible for the choice of suppliers, and the logistics department held an international tender and chose the carrier – a shipping company.
– Which company provides transport and customs clearance services to Toyota today? Is it possible that in future the operator will open its own agency on the plant’s territory, and it will fulfil all the transport and logistics demands of the company?
– We use Trans Business company as the operator and the customs broker. It provides cargo delivery from the main port to Vostochny terminal, customs clearance and transfer from the bonded warehouse to the factory. All this is done via a single structure, which coordinates its actions with our shipping company, NYK. As a result, representatives of these companies are present in the plant and we provide them with work places in our office. The finished product is carried out of the plant by a specially launched local company, Toyota Logistics Services Russia. As soon as cars leave the territory of the factory and are delivered to the finished products storage area, Toyota Motor Ltd (the Russian distributor of Toyota) becomes their owner automatically. Together with the head sales office in the European subsidiary – Toyota Motor Europe – it launched a separate organisation – Toyota Logistics Services Russia. In its turn, the latter uses the services of a Russian company, specialising in car packing before they are loaded into trailers. Toyota Logistics Services Russia has a small office near the factory but we do not own it.
Problems of a New Market
– What were the most serious problems faced by the company after it entered Russian market?
– First of all, it seems that port capacities may become a real problem in future. Naturally, some difficulties for Japanese companies appear because the western part of Russia is far away, if to compare with Vladivostok, for example. It is not a problem but some difficulties occur because the logistics scheme must be thoroughly developed. We have a good team in the sales and transport departments, so we have no problems here. Meanwhile, some companies often face problems when they are recruiting staff for the positions. The explanation is rather simple. The Russian economy has developed very fast recently; consequently, labour market capacity has grown significantly. But the population is not increasing as quickly as the economy is developing. So, there appear problems in staff recruitment. It is a characteristic feature of swift economic growth, and it can be avoided only if development is stabilised.
– Does the company plan to become an owner of logistics terminals to keep components there?
– It has always been a question for us as to whether Toyota must own or rent such a warehouse, or must it be our suppliers’ area of responsibility. Even now we discuss the question. Components are to be deli­vered in a strict order to the manufacturer. It means that a special area is needed where the components are sorted out and kept according to the order in which they are needed for assembling. Let’s take for example seats – in Toyota cars they may be made of either leather or textile. The principle of Toyota manufacturing does not envisage that first 100 cars with leather seats are assembled and then 100 units with textile ones. Every car is produced in accordance with a strict system, dictated by the order received by the factory from a distributor. As a result, we may produce two cars with leather seats, then one with textile seats, after that a unit with leather seats, and later five cars with textile ones, etc. To fulfil these requirements, the supplier is to deliver the seats in this order. Consequently, the supplier must have its own warehousing capacities.
Also, we are examining the possibility of installing a forge in the plant in Russia. So, we will face the problem of storing metal raw materials, i.e. we will need a warehouse. And it must be large enough to unroll sheet iron, which is cut into pieces large enough to produce car components. So now the question of who will be the owner of such storage capacities is high on the agenda. On the other hand, one of our suppliers, Toyota Boshoku (seats producer), owns warehousing capacities close to the plant. So in other respects, Toyota does not need its own warehouses. 
Interviewed by Maria Shevchenko 
    [~DETAIL_TEXT] => 
National Aspects
– How does the company deliver car components from Japan to Saint Petersburg?
– From the very beginning, Toyota chose sea to deliver car components. And there were a number of reasons for that. Firstly, our corporation is experienced in exporting necessary components and assembly units by vessel. Also, there is a shipping company incorporated into Toyota Motor group. Toyota Corporation has a lot of know-how in terms of goods loading and delivering them by sea. So, it was natural that we chose the shipping scheme. Simultaneously we tried to use the Transsiberian railway to deliver the cargo. Perhaps, we need some more time to examine the opportunity of interacting with Russian railway operators to see whether the Transsiberian railway meets our requirements from a technical and economic perspective.
– What are your company’s requirements for cargo packaging during transportation?
– Some goods need special transportation conditions. In particular, special configuration is necessary for the holdings set inside containers into which components are loaded. There must be no friction, and the holdings must be shockproof and be able to resist damage, for example, rust. Toyota is experienced in transporting freight by sea – the company started doing this in 1950. So, we developed a number of definite requirements for the quality of packing long ago. 
– The sea port of Saint Petersburg is where your cargo is handled now. Are there any other places to be used in future?
– The components are delivered from terminals in Japan to the sea port of Saint Petersburg, and then the customs clearance is provided for the goods at the Vostochny terminal. It is difficult to speak about the future. I think, the sea port of Saint Petersburg requires modernisation and enlargement of its capacities. Now we handle about 4,500 containers per annum, and the capacities of the local port are sufficient for us. But we must remember that if at the first stage of manufacturing development Toyota decides to produce 20,000 cars annually, the production volume will double in the next two years. Perhaps, another stage of the plant will be built in Shushary (a suburb of Saint Petersburg). As a result, at that time the percentage of manufacturing localisation will increase, and the transportation volume will grow too. Consequently, to handle a larger volume, the Saint Petersburg port may need to enlarge its capacities, since the loading volume will continue to grow in future. In particular, when we chose Saint Petersburg, our company did not know that there would appear so many plants with similar demand for logistic schemes in the region.
Now there are few alternative terminals to handle our containers, so it is too early to speak about using another one or additional port capacities.
Transport Corridors Need Modernisation Badly
– What share of logistics services have been outsourced by Toyota? How does the company choose the operator?
– In car manufacturing, usually a large share of logistics services (such as customs clearance, getting state registration, transportation by lorry or any other transport mode, etc.) is outsourced. It is the ma­nagement, however, that decides whether the company’s internal planning of logistics schemes and internal processes may be outsourced. Now Toyota controls the logistics processes inside the plant. It also plans component delivery – how many lots and when they are to be delivered to the plant. As for the standard internal schemes, including customs clearance and transportation on the territory of Russia, we choose partners from local suppliers. As for transportation by sea, the winner is chosen according to the results of a standard international tender, i.e. the company’s purchasing department in Japan, which is responsible for the choice of suppliers, and the logistics department held an international tender and chose the carrier – a shipping company.
– Which company provides transport and customs clearance services to Toyota today? Is it possible that in future the operator will open its own agency on the plant’s territory, and it will fulfil all the transport and logistics demands of the company?
– We use Trans Business company as the operator and the customs broker. It provides cargo delivery from the main port to Vostochny terminal, customs clearance and transfer from the bonded warehouse to the factory. All this is done via a single structure, which coordinates its actions with our shipping company, NYK. As a result, representatives of these companies are present in the plant and we provide them with work places in our office. The finished product is carried out of the plant by a specially launched local company, Toyota Logistics Services Russia. As soon as cars leave the territory of the factory and are delivered to the finished products storage area, Toyota Motor Ltd (the Russian distributor of Toyota) becomes their owner automatically. Together with the head sales office in the European subsidiary – Toyota Motor Europe – it launched a separate organisation – Toyota Logistics Services Russia. In its turn, the latter uses the services of a Russian company, specialising in car packing before they are loaded into trailers. Toyota Logistics Services Russia has a small office near the factory but we do not own it.
Problems of a New Market
– What were the most serious problems faced by the company after it entered Russian market?
– First of all, it seems that port capacities may become a real problem in future. Naturally, some difficulties for Japanese companies appear because the western part of Russia is far away, if to compare with Vladivostok, for example. It is not a problem but some difficulties occur because the logistics scheme must be thoroughly developed. We have a good team in the sales and transport departments, so we have no problems here. Meanwhile, some companies often face problems when they are recruiting staff for the positions. The explanation is rather simple. The Russian economy has developed very fast recently; consequently, labour market capacity has grown significantly. But the population is not increasing as quickly as the economy is developing. So, there appear problems in staff recruitment. It is a characteristic feature of swift economic growth, and it can be avoided only if development is stabilised.
– Does the company plan to become an owner of logistics terminals to keep components there?
– It has always been a question for us as to whether Toyota must own or rent such a warehouse, or must it be our suppliers’ area of responsibility. Even now we discuss the question. Components are to be deli­vered in a strict order to the manufacturer. It means that a special area is needed where the components are sorted out and kept according to the order in which they are needed for assembling. Let’s take for example seats – in Toyota cars they may be made of either leather or textile. The principle of Toyota manufacturing does not envisage that first 100 cars with leather seats are assembled and then 100 units with textile ones. Every car is produced in accordance with a strict system, dictated by the order received by the factory from a distributor. As a result, we may produce two cars with leather seats, then one with textile seats, after that a unit with leather seats, and later five cars with textile ones, etc. To fulfil these requirements, the supplier is to deliver the seats in this order. Consequently, the supplier must have its own warehousing capacities.
Also, we are examining the possibility of installing a forge in the plant in Russia. So, we will face the problem of storing metal raw materials, i.e. we will need a warehouse. And it must be large enough to unroll sheet iron, which is cut into pieces large enough to produce car components. So now the question of who will be the owner of such storage capacities is high on the agenda. On the other hand, one of our suppliers, Toyota Boshoku (seats producer), owns warehousing capacities close to the plant. So in other respects, Toyota does not need its own warehouses. 
Interviewed by Maria Shevchenko 
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    [DETAIL_TEXT] => 
National Aspects
– How does the company deliver car components from Japan to Saint Petersburg?
– From the very beginning, Toyota chose sea to deliver car components. And there were a number of reasons for that. Firstly, our corporation is experienced in exporting necessary components and assembly units by vessel. Also, there is a shipping company incorporated into Toyota Motor group. Toyota Corporation has a lot of know-how in terms of goods loading and delivering them by sea. So, it was natural that we chose the shipping scheme. Simultaneously we tried to use the Transsiberian railway to deliver the cargo. Perhaps, we need some more time to examine the opportunity of interacting with Russian railway operators to see whether the Transsiberian railway meets our requirements from a technical and economic perspective.
– What are your company’s requirements for cargo packaging during transportation?
– Some goods need special transportation conditions. In particular, special configuration is necessary for the holdings set inside containers into which components are loaded. There must be no friction, and the holdings must be shockproof and be able to resist damage, for example, rust. Toyota is experienced in transporting freight by sea – the company started doing this in 1950. So, we developed a number of definite requirements for the quality of packing long ago. 
– The sea port of Saint Petersburg is where your cargo is handled now. Are there any other places to be used in future?
– The components are delivered from terminals in Japan to the sea port of Saint Petersburg, and then the customs clearance is provided for the goods at the Vostochny terminal. It is difficult to speak about the future. I think, the sea port of Saint Petersburg requires modernisation and enlargement of its capacities. Now we handle about 4,500 containers per annum, and the capacities of the local port are sufficient for us. But we must remember that if at the first stage of manufacturing development Toyota decides to produce 20,000 cars annually, the production volume will double in the next two years. Perhaps, another stage of the plant will be built in Shushary (a suburb of Saint Petersburg). As a result, at that time the percentage of manufacturing localisation will increase, and the transportation volume will grow too. Consequently, to handle a larger volume, the Saint Petersburg port may need to enlarge its capacities, since the loading volume will continue to grow in future. In particular, when we chose Saint Petersburg, our company did not know that there would appear so many plants with similar demand for logistic schemes in the region.
Now there are few alternative terminals to handle our containers, so it is too early to speak about using another one or additional port capacities.
Transport Corridors Need Modernisation Badly
– What share of logistics services have been outsourced by Toyota? How does the company choose the operator?
– In car manufacturing, usually a large share of logistics services (such as customs clearance, getting state registration, transportation by lorry or any other transport mode, etc.) is outsourced. It is the ma­nagement, however, that decides whether the company’s internal planning of logistics schemes and internal processes may be outsourced. Now Toyota controls the logistics processes inside the plant. It also plans component delivery – how many lots and when they are to be delivered to the plant. As for the standard internal schemes, including customs clearance and transportation on the territory of Russia, we choose partners from local suppliers. As for transportation by sea, the winner is chosen according to the results of a standard international tender, i.e. the company’s purchasing department in Japan, which is responsible for the choice of suppliers, and the logistics department held an international tender and chose the carrier – a shipping company.
– Which company provides transport and customs clearance services to Toyota today? Is it possible that in future the operator will open its own agency on the plant’s territory, and it will fulfil all the transport and logistics demands of the company?
– We use Trans Business company as the operator and the customs broker. It provides cargo delivery from the main port to Vostochny terminal, customs clearance and transfer from the bonded warehouse to the factory. All this is done via a single structure, which coordinates its actions with our shipping company, NYK. As a result, representatives of these companies are present in the plant and we provide them with work places in our office. The finished product is carried out of the plant by a specially launched local company, Toyota Logistics Services Russia. As soon as cars leave the territory of the factory and are delivered to the finished products storage area, Toyota Motor Ltd (the Russian distributor of Toyota) becomes their owner automatically. Together with the head sales office in the European subsidiary – Toyota Motor Europe – it launched a separate organisation – Toyota Logistics Services Russia. In its turn, the latter uses the services of a Russian company, specialising in car packing before they are loaded into trailers. Toyota Logistics Services Russia has a small office near the factory but we do not own it.
Problems of a New Market
– What were the most serious problems faced by the company after it entered Russian market?
– First of all, it seems that port capacities may become a real problem in future. Naturally, some difficulties for Japanese companies appear because the western part of Russia is far away, if to compare with Vladivostok, for example. It is not a problem but some difficulties occur because the logistics scheme must be thoroughly developed. We have a good team in the sales and transport departments, so we have no problems here. Meanwhile, some companies often face problems when they are recruiting staff for the positions. The explanation is rather simple. The Russian economy has developed very fast recently; consequently, labour market capacity has grown significantly. But the population is not increasing as quickly as the economy is developing. So, there appear problems in staff recruitment. It is a characteristic feature of swift economic growth, and it can be avoided only if development is stabilised.
– Does the company plan to become an owner of logistics terminals to keep components there?
– It has always been a question for us as to whether Toyota must own or rent such a warehouse, or must it be our suppliers’ area of responsibility. Even now we discuss the question. Components are to be deli­vered in a strict order to the manufacturer. It means that a special area is needed where the components are sorted out and kept according to the order in which they are needed for assembling. Let’s take for example seats – in Toyota cars they may be made of either leather or textile. The principle of Toyota manufacturing does not envisage that first 100 cars with leather seats are assembled and then 100 units with textile ones. Every car is produced in accordance with a strict system, dictated by the order received by the factory from a distributor. As a result, we may produce two cars with leather seats, then one with textile seats, after that a unit with leather seats, and later five cars with textile ones, etc. To fulfil these requirements, the supplier is to deliver the seats in this order. Consequently, the supplier must have its own warehousing capacities.
Also, we are examining the possibility of installing a forge in the plant in Russia. So, we will face the problem of storing metal raw materials, i.e. we will need a warehouse. And it must be large enough to unroll sheet iron, which is cut into pieces large enough to produce car components. So now the question of who will be the owner of such storage capacities is high on the agenda. On the other hand, one of our suppliers, Toyota Boshoku (seats producer), owns warehousing capacities close to the plant. So in other respects, Toyota does not need its own warehouses. 
Interviewed by Maria Shevchenko 
    [~DETAIL_TEXT] => 
National Aspects
– How does the company deliver car components from Japan to Saint Petersburg?
– From the very beginning, Toyota chose sea to deliver car components. And there were a number of reasons for that. Firstly, our corporation is experienced in exporting necessary components and assembly units by vessel. Also, there is a shipping company incorporated into Toyota Motor group. Toyota Corporation has a lot of know-how in terms of goods loading and delivering them by sea. So, it was natural that we chose the shipping scheme. Simultaneously we tried to use the Transsiberian railway to deliver the cargo. Perhaps, we need some more time to examine the opportunity of interacting with Russian railway operators to see whether the Transsiberian railway meets our requirements from a technical and economic perspective.
– What are your company’s requirements for cargo packaging during transportation?
– Some goods need special transportation conditions. In particular, special configuration is necessary for the holdings set inside containers into which components are loaded. There must be no friction, and the holdings must be shockproof and be able to resist damage, for example, rust. Toyota is experienced in transporting freight by sea – the company started doing this in 1950. So, we developed a number of definite requirements for the quality of packing long ago. 
– The sea port of Saint Petersburg is where your cargo is handled now. Are there any other places to be used in future?
– The components are delivered from terminals in Japan to the sea port of Saint Petersburg, and then the customs clearance is provided for the goods at the Vostochny terminal. It is difficult to speak about the future. I think, the sea port of Saint Petersburg requires modernisation and enlargement of its capacities. Now we handle about 4,500 containers per annum, and the capacities of the local port are sufficient for us. But we must remember that if at the first stage of manufacturing development Toyota decides to produce 20,000 cars annually, the production volume will double in the next two years. Perhaps, another stage of the plant will be built in Shushary (a suburb of Saint Petersburg). As a result, at that time the percentage of manufacturing localisation will increase, and the transportation volume will grow too. Consequently, to handle a larger volume, the Saint Petersburg port may need to enlarge its capacities, since the loading volume will continue to grow in future. In particular, when we chose Saint Petersburg, our company did not know that there would appear so many plants with similar demand for logistic schemes in the region.
Now there are few alternative terminals to handle our containers, so it is too early to speak about using another one or additional port capacities.
Transport Corridors Need Modernisation Badly
– What share of logistics services have been outsourced by Toyota? How does the company choose the operator?
– In car manufacturing, usually a large share of logistics services (such as customs clearance, getting state registration, transportation by lorry or any other transport mode, etc.) is outsourced. It is the ma­nagement, however, that decides whether the company’s internal planning of logistics schemes and internal processes may be outsourced. Now Toyota controls the logistics processes inside the plant. It also plans component delivery – how many lots and when they are to be delivered to the plant. As for the standard internal schemes, including customs clearance and transportation on the territory of Russia, we choose partners from local suppliers. As for transportation by sea, the winner is chosen according to the results of a standard international tender, i.e. the company’s purchasing department in Japan, which is responsible for the choice of suppliers, and the logistics department held an international tender and chose the carrier – a shipping company.
– Which company provides transport and customs clearance services to Toyota today? Is it possible that in future the operator will open its own agency on the plant’s territory, and it will fulfil all the transport and logistics demands of the company?
– We use Trans Business company as the operator and the customs broker. It provides cargo delivery from the main port to Vostochny terminal, customs clearance and transfer from the bonded warehouse to the factory. All this is done via a single structure, which coordinates its actions with our shipping company, NYK. As a result, representatives of these companies are present in the plant and we provide them with work places in our office. The finished product is carried out of the plant by a specially launched local company, Toyota Logistics Services Russia. As soon as cars leave the territory of the factory and are delivered to the finished products storage area, Toyota Motor Ltd (the Russian distributor of Toyota) becomes their owner automatically. Together with the head sales office in the European subsidiary – Toyota Motor Europe – it launched a separate organisation – Toyota Logistics Services Russia. In its turn, the latter uses the services of a Russian company, specialising in car packing before they are loaded into trailers. Toyota Logistics Services Russia has a small office near the factory but we do not own it.
Problems of a New Market
– What were the most serious problems faced by the company after it entered Russian market?
– First of all, it seems that port capacities may become a real problem in future. Naturally, some difficulties for Japanese companies appear because the western part of Russia is far away, if to compare with Vladivostok, for example. It is not a problem but some difficulties occur because the logistics scheme must be thoroughly developed. We have a good team in the sales and transport departments, so we have no problems here. Meanwhile, some companies often face problems when they are recruiting staff for the positions. The explanation is rather simple. The Russian economy has developed very fast recently; consequently, labour market capacity has grown significantly. But the population is not increasing as quickly as the economy is developing. So, there appear problems in staff recruitment. It is a characteristic feature of swift economic growth, and it can be avoided only if development is stabilised.
– Does the company plan to become an owner of logistics terminals to keep components there?
– It has always been a question for us as to whether Toyota must own or rent such a warehouse, or must it be our suppliers’ area of responsibility. Even now we discuss the question. Components are to be deli­vered in a strict order to the manufacturer. It means that a special area is needed where the components are sorted out and kept according to the order in which they are needed for assembling. Let’s take for example seats – in Toyota cars they may be made of either leather or textile. The principle of Toyota manufacturing does not envisage that first 100 cars with leather seats are assembled and then 100 units with textile ones. Every car is produced in accordance with a strict system, dictated by the order received by the factory from a distributor. As a result, we may produce two cars with leather seats, then one with textile seats, after that a unit with leather seats, and later five cars with textile ones, etc. To fulfil these requirements, the supplier is to deliver the seats in this order. Consequently, the supplier must have its own warehousing capacities.
Also, we are examining the possibility of installing a forge in the plant in Russia. So, we will face the problem of storing metal raw materials, i.e. we will need a warehouse. And it must be large enough to unroll sheet iron, which is cut into pieces large enough to produce car components. So now the question of who will be the owner of such storage capacities is high on the agenda. On the other hand, one of our suppliers, Toyota Boshoku (seats producer), owns warehousing capacities close to the plant. So in other respects, Toyota does not need its own warehouses. 
Interviewed by Maria Shevchenko 
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Ways of Development
– Mr Wolfson, what new technologies used in the railway sector may be imported to Russia in the near future?

– As a rule, the economy of transportation is defined by expenditure on a transported ton-kilometre. It depends on the power intensity and costs of maintenance and off-schedule repair, i.e. rolling stock availability. To improve these results, it is necessary to develop the key technologies used in the design process, manufacture and further exploitation of rolling stock and infrastructure. 

The fastest and cheapest way is the transfer of technologies. This method is used after analysis of the efficiency from their application in a region whose characteristics are similar to those in Russia.

On the whole, there are two ways out of the situation – manufacturing specialisation and usage of high-level IT solutions.  

Speaking about specialisation, I mean the production solutions put into operation in Europe several decades ago. Practice shows that division of manufacturing is reasonable – for instance, production of bogies separately from transformers, etc. The Russian transport sector still has some way to go, although the first steps have already been made. An important thing in upgrading the work of an enterprise to a new level is the use of advanced IT products adopted to particular economic conditions.

Since system flexibility is one of the basic requirements in IT solutions, the software must be integrated into the schemes already used at the plant. Naturally, in this case, there must be an important stage of certifying manufacturing processes, using ISO 9001:2000. The latter is simultaneously the quality management system and the guarantee that the final production is of the proper quality. Only then is the software adapted. Simultaneously, the production or design process are improved and optimised in the enterprise or holding company.

Advanced Software for Everyday Work  
– What software may be useful for OAO RZD and its partners?

– Examining the whole market, I have to say that there is no universal system for business management nowadays in Russia. Meanwhile, European transport producers are using such software successfully. This problem originates from the time when every enterprise did everything by itself, including attempts to develop IT platforms.

As for the foreign experience, I could mention for example some software supporting the functions of companies and uniting them with other market players. In particular, Bombardier Transportation uses programmes such as SAP for financial provision. The software is popular in Europe. It accumulates and analyses the data of such important segments as the purchase system, information about suppliers and prices, allowing thorough analysis of price formation. The trend is that the system will become universal for the analysis of supplies and consistency of the enterprise’s activity.

The second system applied for design developments is Product Data Management (PDM). It is a single database with level access, used all over the world by designers for projecting transport facilities. It contains the data about materials and components used in the design and manufacture of rolling stock as well as the working drafts and all technical information about the structure and utilities.

Such a platform helps unify work on junctions for different transport modes. Its effect is to speed up development and implementation of new generations of rolling stock. For instance, the diesel locomotive created by Bombardier passed all the stages from the design to final product in 15 months. Unfortunately, such rates are impossible in Russian enterprises.

As with any other system, PMD has its own advantages and disadvantages. Nevertheless, its implementation in the next two years would help to make a qualitative step forward: design times could reduce significantly, and this is very important for OAO RZD.

Also, the development and the launch of a system forming a global transport information space would be timely. It could unite all the adjacent structures, for example, customs and border services. This would present great opportunities for analysing and forecasting market development, and Russian railways would be able to integrate into the global system as well.

Staff Problem
– How can the innovative technologies be transferred to Russia, if there is neither new equipment nor personnel? 

– First of all, new technologies are popular in the spheres of design, manufacture and rolling stock servicing. We should also take into account traffic safety systems and infrastructure equipment. For instance, induction motor drive usage would decrease the size and weight of a propulsion engine per power unit. The same thing goes for wagons, both cargo and passenger ones. The use of aluminum would reduce a wa­gon’s own weight by 50% in comparison with a similar steel railcar with the same carrying capacity. Thus, the power expenditures per ton of carried freight would fall significantly.

The demand announced by OAO RZD, and the programme of investment in the railway sector signed recently by the Russian Prime Minister, gave an impulse to the leading producers of railway machinery to step up and fight for the Russian market. It created a situation favourable for the Russian company during its negotiations with foreign companies, targeted at attraction of their experience and technologies to equipment production and modernisation of infrastructure on parity basis, and to launch joint ventures as well. Thus, conditions are created for joint work between foreign and Russian specialists, which is the best basis for sharing experience and implementation of innovations under foreign direction. Parallel staff training in Russian high schools and enterprises and increasing the prestige of the technical professions will help solve the problem of the lack of qualified personnel and mastering advanced technologies in the mid-term.

Forms of Technology Transfer
– Please tell us about the choice of technology transfer mechanism.

– Technology transfer goes alongside a number of peculiarities and conditions, such as the impossibility of using ready-made solutions in Russia. Meanwhile, analysis of the best variants and assessment of their readiness for work in Russia allow us to hold target negotiations with foreign companies. Also, the latter must analyse the optimal ways to apply the technologies and maximise the profit from their transfer, for example, an increase of their share in the Russian market.

The definition “technology transfer” is connected, first of all, with the activities of a company. Depending on that, there are several ways to transfer intellectual property. It may be done by:
• assignment of rights (full – assignment of a patent; or partial – licensing);
• venture investments, when the deposit of one party is the transfer of scientific and technical knowledge and its reputation in the franchise and distribution as well as qualified personnel, equipment, etc.;
• technical equipment and materials supply in the form of sales or renting;
• establishment of strategic alliances (joint research works, operating on the scheme “made in Russia – distributed abroad”, cooperation agreements on specialised production of nodes and details using the technology of one of the partners, etc).
In addition to it, experts name the following forms of technology transfer:
• engineering services as an aggregate of practical works, including exploratory design and analysing planned investments, necessary laboratory revision of the technology, designing industrial development from a sketch to a detailed project with available specification of components or equipment, meeting the consumer’s requirements and further services and consultations;
• intellectual (human) capital flow;
• information diffusion, including so-called informational communication with representatives of other enterprises.

According to the estimation of the importance of different technology transfer channels in the states – experts at the Economic Cooperation and Development Organisation, prefer informational channels for communication with industrial enterprises, usage of third party inventions (i.e. purchase of patents, licenses) and equipment trade. The least important or effective methods, in their opinion, are contracts for joint research works, and finished business purchase. Obviously, such estimation is connected with the differentiation of information channels’ reliability levels, authenticity of the received information and guarantees of a positive result from the transfer.

Everything mentioned above is interesting from the position of examining the preferences in choosing the technology transfer mechanism prevailing in a given state. Russian companies may make use of that when they are developing the terms of a contract for cooperation with foreign companies.

– What problems may arise in future, when the technologies are transferred or applied in Russia?

– The technology transfer is connected with a number of problems such as a lack of qualified staff, also, the human factor is a restraining one in developed countries too, when the lack of high-quality engineers and technicians slows down or even makes impossible the development of some technologies. After any product is manufactured, there appears the issue of its servicing. No machinery, even advanced units, can be exploited without it. I.e. it is necessary to decide on staff training, and it should be done in time to avoid a gap between the level of supplied machinery and the ability to maintain it. To solve the problem, a company may attract workers from adjacent sectors of the industry, offering them a larger salary with simultaneous growth of their labour productivity that appears due to implementation of advanced technologies. This will help young people to choose popular professions. Moreover, due to toughening competition, the cost of machinery per production unit constantly decreases. Thus, it is senseless to purchase out-of-date equipment and then invest much into its maintenance, because it is more expensive than investment in modern machinery. In addition, Russian peculiarities must be considered for choosing products tested under conditions similar to those in Russia. One should also take into account the mentality of the people – this plays an important role in the acceptance of a new technology. All in all, nowadays there are a lot of prerequisites for speeding up implementation of advanced technologies and taking a qualitative step forward in railway sector development.
    [~DETAIL_TEXT] => 
Ways of Development
– Mr Wolfson, what new technologies used in the railway sector may be imported to Russia in the near future?

– As a rule, the economy of transportation is defined by expenditure on a transported ton-kilometre. It depends on the power intensity and costs of maintenance and off-schedule repair, i.e. rolling stock availability. To improve these results, it is necessary to develop the key technologies used in the design process, manufacture and further exploitation of rolling stock and infrastructure. 

The fastest and cheapest way is the transfer of technologies. This method is used after analysis of the efficiency from their application in a region whose characteristics are similar to those in Russia.

On the whole, there are two ways out of the situation – manufacturing specialisation and usage of high-level IT solutions.  

Speaking about specialisation, I mean the production solutions put into operation in Europe several decades ago. Practice shows that division of manufacturing is reasonable – for instance, production of bogies separately from transformers, etc. The Russian transport sector still has some way to go, although the first steps have already been made. An important thing in upgrading the work of an enterprise to a new level is the use of advanced IT products adopted to particular economic conditions.

Since system flexibility is one of the basic requirements in IT solutions, the software must be integrated into the schemes already used at the plant. Naturally, in this case, there must be an important stage of certifying manufacturing processes, using ISO 9001:2000. The latter is simultaneously the quality management system and the guarantee that the final production is of the proper quality. Only then is the software adapted. Simultaneously, the production or design process are improved and optimised in the enterprise or holding company.

Advanced Software for Everyday Work  
– What software may be useful for OAO RZD and its partners?

– Examining the whole market, I have to say that there is no universal system for business management nowadays in Russia. Meanwhile, European transport producers are using such software successfully. This problem originates from the time when every enterprise did everything by itself, including attempts to develop IT platforms.

As for the foreign experience, I could mention for example some software supporting the functions of companies and uniting them with other market players. In particular, Bombardier Transportation uses programmes such as SAP for financial provision. The software is popular in Europe. It accumulates and analyses the data of such important segments as the purchase system, information about suppliers and prices, allowing thorough analysis of price formation. The trend is that the system will become universal for the analysis of supplies and consistency of the enterprise’s activity.

The second system applied for design developments is Product Data Management (PDM). It is a single database with level access, used all over the world by designers for projecting transport facilities. It contains the data about materials and components used in the design and manufacture of rolling stock as well as the working drafts and all technical information about the structure and utilities.

Such a platform helps unify work on junctions for different transport modes. Its effect is to speed up development and implementation of new generations of rolling stock. For instance, the diesel locomotive created by Bombardier passed all the stages from the design to final product in 15 months. Unfortunately, such rates are impossible in Russian enterprises.

As with any other system, PMD has its own advantages and disadvantages. Nevertheless, its implementation in the next two years would help to make a qualitative step forward: design times could reduce significantly, and this is very important for OAO RZD.

Also, the development and the launch of a system forming a global transport information space would be timely. It could unite all the adjacent structures, for example, customs and border services. This would present great opportunities for analysing and forecasting market development, and Russian railways would be able to integrate into the global system as well.

Staff Problem
– How can the innovative technologies be transferred to Russia, if there is neither new equipment nor personnel? 

– First of all, new technologies are popular in the spheres of design, manufacture and rolling stock servicing. We should also take into account traffic safety systems and infrastructure equipment. For instance, induction motor drive usage would decrease the size and weight of a propulsion engine per power unit. The same thing goes for wagons, both cargo and passenger ones. The use of aluminum would reduce a wa­gon’s own weight by 50% in comparison with a similar steel railcar with the same carrying capacity. Thus, the power expenditures per ton of carried freight would fall significantly.

The demand announced by OAO RZD, and the programme of investment in the railway sector signed recently by the Russian Prime Minister, gave an impulse to the leading producers of railway machinery to step up and fight for the Russian market. It created a situation favourable for the Russian company during its negotiations with foreign companies, targeted at attraction of their experience and technologies to equipment production and modernisation of infrastructure on parity basis, and to launch joint ventures as well. Thus, conditions are created for joint work between foreign and Russian specialists, which is the best basis for sharing experience and implementation of innovations under foreign direction. Parallel staff training in Russian high schools and enterprises and increasing the prestige of the technical professions will help solve the problem of the lack of qualified personnel and mastering advanced technologies in the mid-term.

Forms of Technology Transfer
– Please tell us about the choice of technology transfer mechanism.

– Technology transfer goes alongside a number of peculiarities and conditions, such as the impossibility of using ready-made solutions in Russia. Meanwhile, analysis of the best variants and assessment of their readiness for work in Russia allow us to hold target negotiations with foreign companies. Also, the latter must analyse the optimal ways to apply the technologies and maximise the profit from their transfer, for example, an increase of their share in the Russian market.

The definition “technology transfer” is connected, first of all, with the activities of a company. Depending on that, there are several ways to transfer intellectual property. It may be done by:
• assignment of rights (full – assignment of a patent; or partial – licensing);
• venture investments, when the deposit of one party is the transfer of scientific and technical knowledge and its reputation in the franchise and distribution as well as qualified personnel, equipment, etc.;
• technical equipment and materials supply in the form of sales or renting;
• establishment of strategic alliances (joint research works, operating on the scheme “made in Russia – distributed abroad”, cooperation agreements on specialised production of nodes and details using the technology of one of the partners, etc).
In addition to it, experts name the following forms of technology transfer:
• engineering services as an aggregate of practical works, including exploratory design and analysing planned investments, necessary laboratory revision of the technology, designing industrial development from a sketch to a detailed project with available specification of components or equipment, meeting the consumer’s requirements and further services and consultations;
• intellectual (human) capital flow;
• information diffusion, including so-called informational communication with representatives of other enterprises.

According to the estimation of the importance of different technology transfer channels in the states – experts at the Economic Cooperation and Development Organisation, prefer informational channels for communication with industrial enterprises, usage of third party inventions (i.e. purchase of patents, licenses) and equipment trade. The least important or effective methods, in their opinion, are contracts for joint research works, and finished business purchase. Obviously, such estimation is connected with the differentiation of information channels’ reliability levels, authenticity of the received information and guarantees of a positive result from the transfer.

Everything mentioned above is interesting from the position of examining the preferences in choosing the technology transfer mechanism prevailing in a given state. Russian companies may make use of that when they are developing the terms of a contract for cooperation with foreign companies.

– What problems may arise in future, when the technologies are transferred or applied in Russia?

– The technology transfer is connected with a number of problems such as a lack of qualified staff, also, the human factor is a restraining one in developed countries too, when the lack of high-quality engineers and technicians slows down or even makes impossible the development of some technologies. After any product is manufactured, there appears the issue of its servicing. No machinery, even advanced units, can be exploited without it. I.e. it is necessary to decide on staff training, and it should be done in time to avoid a gap between the level of supplied machinery and the ability to maintain it. To solve the problem, a company may attract workers from adjacent sectors of the industry, offering them a larger salary with simultaneous growth of their labour productivity that appears due to implementation of advanced technologies. This will help young people to choose popular professions. Moreover, due to toughening competition, the cost of machinery per production unit constantly decreases. Thus, it is senseless to purchase out-of-date equipment and then invest much into its maintenance, because it is more expensive than investment in modern machinery. In addition, Russian peculiarities must be considered for choosing products tested under conditions similar to those in Russia. One should also take into account the mentality of the people – this plays an important role in the acceptance of a new technology. All in all, nowadays there are a lot of prerequisites for speeding up implementation of advanced technologies and taking a qualitative step forward in railway sector development.
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Ways of Development
– Mr Wolfson, what new technologies used in the railway sector may be imported to Russia in the near future?

– As a rule, the economy of transportation is defined by expenditure on a transported ton-kilometre. It depends on the power intensity and costs of maintenance and off-schedule repair, i.e. rolling stock availability. To improve these results, it is necessary to develop the key technologies used in the design process, manufacture and further exploitation of rolling stock and infrastructure. 

The fastest and cheapest way is the transfer of technologies. This method is used after analysis of the efficiency from their application in a region whose characteristics are similar to those in Russia.

On the whole, there are two ways out of the situation – manufacturing specialisation and usage of high-level IT solutions.  

Speaking about specialisation, I mean the production solutions put into operation in Europe several decades ago. Practice shows that division of manufacturing is reasonable – for instance, production of bogies separately from transformers, etc. The Russian transport sector still has some way to go, although the first steps have already been made. An important thing in upgrading the work of an enterprise to a new level is the use of advanced IT products adopted to particular economic conditions.

Since system flexibility is one of the basic requirements in IT solutions, the software must be integrated into the schemes already used at the plant. Naturally, in this case, there must be an important stage of certifying manufacturing processes, using ISO 9001:2000. The latter is simultaneously the quality management system and the guarantee that the final production is of the proper quality. Only then is the software adapted. Simultaneously, the production or design process are improved and optimised in the enterprise or holding company.

Advanced Software for Everyday Work  
– What software may be useful for OAO RZD and its partners?

– Examining the whole market, I have to say that there is no universal system for business management nowadays in Russia. Meanwhile, European transport producers are using such software successfully. This problem originates from the time when every enterprise did everything by itself, including attempts to develop IT platforms.

As for the foreign experience, I could mention for example some software supporting the functions of companies and uniting them with other market players. In particular, Bombardier Transportation uses programmes such as SAP for financial provision. The software is popular in Europe. It accumulates and analyses the data of such important segments as the purchase system, information about suppliers and prices, allowing thorough analysis of price formation. The trend is that the system will become universal for the analysis of supplies and consistency of the enterprise’s activity.

The second system applied for design developments is Product Data Management (PDM). It is a single database with level access, used all over the world by designers for projecting transport facilities. It contains the data about materials and components used in the design and manufacture of rolling stock as well as the working drafts and all technical information about the structure and utilities.

Such a platform helps unify work on junctions for different transport modes. Its effect is to speed up development and implementation of new generations of rolling stock. For instance, the diesel locomotive created by Bombardier passed all the stages from the design to final product in 15 months. Unfortunately, such rates are impossible in Russian enterprises.

As with any other system, PMD has its own advantages and disadvantages. Nevertheless, its implementation in the next two years would help to make a qualitative step forward: design times could reduce significantly, and this is very important for OAO RZD.

Also, the development and the launch of a system forming a global transport information space would be timely. It could unite all the adjacent structures, for example, customs and border services. This would present great opportunities for analysing and forecasting market development, and Russian railways would be able to integrate into the global system as well.

Staff Problem
– How can the innovative technologies be transferred to Russia, if there is neither new equipment nor personnel? 

– First of all, new technologies are popular in the spheres of design, manufacture and rolling stock servicing. We should also take into account traffic safety systems and infrastructure equipment. For instance, induction motor drive usage would decrease the size and weight of a propulsion engine per power unit. The same thing goes for wagons, both cargo and passenger ones. The use of aluminum would reduce a wa­gon’s own weight by 50% in comparison with a similar steel railcar with the same carrying capacity. Thus, the power expenditures per ton of carried freight would fall significantly.

The demand announced by OAO RZD, and the programme of investment in the railway sector signed recently by the Russian Prime Minister, gave an impulse to the leading producers of railway machinery to step up and fight for the Russian market. It created a situation favourable for the Russian company during its negotiations with foreign companies, targeted at attraction of their experience and technologies to equipment production and modernisation of infrastructure on parity basis, and to launch joint ventures as well. Thus, conditions are created for joint work between foreign and Russian specialists, which is the best basis for sharing experience and implementation of innovations under foreign direction. Parallel staff training in Russian high schools and enterprises and increasing the prestige of the technical professions will help solve the problem of the lack of qualified personnel and mastering advanced technologies in the mid-term.

Forms of Technology Transfer
– Please tell us about the choice of technology transfer mechanism.

– Technology transfer goes alongside a number of peculiarities and conditions, such as the impossibility of using ready-made solutions in Russia. Meanwhile, analysis of the best variants and assessment of their readiness for work in Russia allow us to hold target negotiations with foreign companies. Also, the latter must analyse the optimal ways to apply the technologies and maximise the profit from their transfer, for example, an increase of their share in the Russian market.

The definition “technology transfer” is connected, first of all, with the activities of a company. Depending on that, there are several ways to transfer intellectual property. It may be done by:
• assignment of rights (full – assignment of a patent; or partial – licensing);
• venture investments, when the deposit of one party is the transfer of scientific and technical knowledge and its reputation in the franchise and distribution as well as qualified personnel, equipment, etc.;
• technical equipment and materials supply in the form of sales or renting;
• establishment of strategic alliances (joint research works, operating on the scheme “made in Russia – distributed abroad”, cooperation agreements on specialised production of nodes and details using the technology of one of the partners, etc).
In addition to it, experts name the following forms of technology transfer:
• engineering services as an aggregate of practical works, including exploratory design and analysing planned investments, necessary laboratory revision of the technology, designing industrial development from a sketch to a detailed project with available specification of components or equipment, meeting the consumer’s requirements and further services and consultations;
• intellectual (human) capital flow;
• information diffusion, including so-called informational communication with representatives of other enterprises.

According to the estimation of the importance of different technology transfer channels in the states – experts at the Economic Cooperation and Development Organisation, prefer informational channels for communication with industrial enterprises, usage of third party inventions (i.e. purchase of patents, licenses) and equipment trade. The least important or effective methods, in their opinion, are contracts for joint research works, and finished business purchase. Obviously, such estimation is connected with the differentiation of information channels’ reliability levels, authenticity of the received information and guarantees of a positive result from the transfer.

Everything mentioned above is interesting from the position of examining the preferences in choosing the technology transfer mechanism prevailing in a given state. Russian companies may make use of that when they are developing the terms of a contract for cooperation with foreign companies.

– What problems may arise in future, when the technologies are transferred or applied in Russia?

– The technology transfer is connected with a number of problems such as a lack of qualified staff, also, the human factor is a restraining one in developed countries too, when the lack of high-quality engineers and technicians slows down or even makes impossible the development of some technologies. After any product is manufactured, there appears the issue of its servicing. No machinery, even advanced units, can be exploited without it. I.e. it is necessary to decide on staff training, and it should be done in time to avoid a gap between the level of supplied machinery and the ability to maintain it. To solve the problem, a company may attract workers from adjacent sectors of the industry, offering them a larger salary with simultaneous growth of their labour productivity that appears due to implementation of advanced technologies. This will help young people to choose popular professions. Moreover, due to toughening competition, the cost of machinery per production unit constantly decreases. Thus, it is senseless to purchase out-of-date equipment and then invest much into its maintenance, because it is more expensive than investment in modern machinery. In addition, Russian peculiarities must be considered for choosing products tested under conditions similar to those in Russia. One should also take into account the mentality of the people – this plays an important role in the acceptance of a new technology. All in all, nowadays there are a lot of prerequisites for speeding up implementation of advanced technologies and taking a qualitative step forward in railway sector development.
    [~DETAIL_TEXT] => 
Ways of Development
– Mr Wolfson, what new technologies used in the railway sector may be imported to Russia in the near future?

– As a rule, the economy of transportation is defined by expenditure on a transported ton-kilometre. It depends on the power intensity and costs of maintenance and off-schedule repair, i.e. rolling stock availability. To improve these results, it is necessary to develop the key technologies used in the design process, manufacture and further exploitation of rolling stock and infrastructure. 

The fastest and cheapest way is the transfer of technologies. This method is used after analysis of the efficiency from their application in a region whose characteristics are similar to those in Russia.

On the whole, there are two ways out of the situation – manufacturing specialisation and usage of high-level IT solutions.  

Speaking about specialisation, I mean the production solutions put into operation in Europe several decades ago. Practice shows that division of manufacturing is reasonable – for instance, production of bogies separately from transformers, etc. The Russian transport sector still has some way to go, although the first steps have already been made. An important thing in upgrading the work of an enterprise to a new level is the use of advanced IT products adopted to particular economic conditions.

Since system flexibility is one of the basic requirements in IT solutions, the software must be integrated into the schemes already used at the plant. Naturally, in this case, there must be an important stage of certifying manufacturing processes, using ISO 9001:2000. The latter is simultaneously the quality management system and the guarantee that the final production is of the proper quality. Only then is the software adapted. Simultaneously, the production or design process are improved and optimised in the enterprise or holding company.

Advanced Software for Everyday Work  
– What software may be useful for OAO RZD and its partners?

– Examining the whole market, I have to say that there is no universal system for business management nowadays in Russia. Meanwhile, European transport producers are using such software successfully. This problem originates from the time when every enterprise did everything by itself, including attempts to develop IT platforms.

As for the foreign experience, I could mention for example some software supporting the functions of companies and uniting them with other market players. In particular, Bombardier Transportation uses programmes such as SAP for financial provision. The software is popular in Europe. It accumulates and analyses the data of such important segments as the purchase system, information about suppliers and prices, allowing thorough analysis of price formation. The trend is that the system will become universal for the analysis of supplies and consistency of the enterprise’s activity.

The second system applied for design developments is Product Data Management (PDM). It is a single database with level access, used all over the world by designers for projecting transport facilities. It contains the data about materials and components used in the design and manufacture of rolling stock as well as the working drafts and all technical information about the structure and utilities.

Such a platform helps unify work on junctions for different transport modes. Its effect is to speed up development and implementation of new generations of rolling stock. For instance, the diesel locomotive created by Bombardier passed all the stages from the design to final product in 15 months. Unfortunately, such rates are impossible in Russian enterprises.

As with any other system, PMD has its own advantages and disadvantages. Nevertheless, its implementation in the next two years would help to make a qualitative step forward: design times could reduce significantly, and this is very important for OAO RZD.

Also, the development and the launch of a system forming a global transport information space would be timely. It could unite all the adjacent structures, for example, customs and border services. This would present great opportunities for analysing and forecasting market development, and Russian railways would be able to integrate into the global system as well.

Staff Problem
– How can the innovative technologies be transferred to Russia, if there is neither new equipment nor personnel? 

– First of all, new technologies are popular in the spheres of design, manufacture and rolling stock servicing. We should also take into account traffic safety systems and infrastructure equipment. For instance, induction motor drive usage would decrease the size and weight of a propulsion engine per power unit. The same thing goes for wagons, both cargo and passenger ones. The use of aluminum would reduce a wa­gon’s own weight by 50% in comparison with a similar steel railcar with the same carrying capacity. Thus, the power expenditures per ton of carried freight would fall significantly.

The demand announced by OAO RZD, and the programme of investment in the railway sector signed recently by the Russian Prime Minister, gave an impulse to the leading producers of railway machinery to step up and fight for the Russian market. It created a situation favourable for the Russian company during its negotiations with foreign companies, targeted at attraction of their experience and technologies to equipment production and modernisation of infrastructure on parity basis, and to launch joint ventures as well. Thus, conditions are created for joint work between foreign and Russian specialists, which is the best basis for sharing experience and implementation of innovations under foreign direction. Parallel staff training in Russian high schools and enterprises and increasing the prestige of the technical professions will help solve the problem of the lack of qualified personnel and mastering advanced technologies in the mid-term.

Forms of Technology Transfer
– Please tell us about the choice of technology transfer mechanism.

– Technology transfer goes alongside a number of peculiarities and conditions, such as the impossibility of using ready-made solutions in Russia. Meanwhile, analysis of the best variants and assessment of their readiness for work in Russia allow us to hold target negotiations with foreign companies. Also, the latter must analyse the optimal ways to apply the technologies and maximise the profit from their transfer, for example, an increase of their share in the Russian market.

The definition “technology transfer” is connected, first of all, with the activities of a company. Depending on that, there are several ways to transfer intellectual property. It may be done by:
• assignment of rights (full – assignment of a patent; or partial – licensing);
• venture investments, when the deposit of one party is the transfer of scientific and technical knowledge and its reputation in the franchise and distribution as well as qualified personnel, equipment, etc.;
• technical equipment and materials supply in the form of sales or renting;
• establishment of strategic alliances (joint research works, operating on the scheme “made in Russia – distributed abroad”, cooperation agreements on specialised production of nodes and details using the technology of one of the partners, etc).
In addition to it, experts name the following forms of technology transfer:
• engineering services as an aggregate of practical works, including exploratory design and analysing planned investments, necessary laboratory revision of the technology, designing industrial development from a sketch to a detailed project with available specification of components or equipment, meeting the consumer’s requirements and further services and consultations;
• intellectual (human) capital flow;
• information diffusion, including so-called informational communication with representatives of other enterprises.

According to the estimation of the importance of different technology transfer channels in the states – experts at the Economic Cooperation and Development Organisation, prefer informational channels for communication with industrial enterprises, usage of third party inventions (i.e. purchase of patents, licenses) and equipment trade. The least important or effective methods, in their opinion, are contracts for joint research works, and finished business purchase. Obviously, such estimation is connected with the differentiation of information channels’ reliability levels, authenticity of the received information and guarantees of a positive result from the transfer.

Everything mentioned above is interesting from the position of examining the preferences in choosing the technology transfer mechanism prevailing in a given state. Russian companies may make use of that when they are developing the terms of a contract for cooperation with foreign companies.

– What problems may arise in future, when the technologies are transferred or applied in Russia?

– The technology transfer is connected with a number of problems such as a lack of qualified staff, also, the human factor is a restraining one in developed countries too, when the lack of high-quality engineers and technicians slows down or even makes impossible the development of some technologies. After any product is manufactured, there appears the issue of its servicing. No machinery, even advanced units, can be exploited without it. I.e. it is necessary to decide on staff training, and it should be done in time to avoid a gap between the level of supplied machinery and the ability to maintain it. To solve the problem, a company may attract workers from adjacent sectors of the industry, offering them a larger salary with simultaneous growth of their labour productivity that appears due to implementation of advanced technologies. This will help young people to choose popular professions. Moreover, due to toughening competition, the cost of machinery per production unit constantly decreases. Thus, it is senseless to purchase out-of-date equipment and then invest much into its maintenance, because it is more expensive than investment in modern machinery. In addition, Russian peculiarities must be considered for choosing products tested under conditions similar to those in Russia. One should also take into account the mentality of the people – this plays an important role in the acceptance of a new technology. All in all, nowadays there are a lot of prerequisites for speeding up implementation of advanced technologies and taking a qualitative step forward in railway sector development.
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ONCE AGAIN ON THE ADVANTAGES OF RAILWAY 
– Mr Gerendas, could you tell us about the «Far East Land Bridge Ltd» project? 
 – FELB is a newly established company which intends to transfer containers from a supplier’s railway station to a buyer’s cargo station using the infrastructure of the European, Transsiberian (RZD) and Chinese railway networks. 
 TransContainer is serving us on Russian and Ukrainian territory. We are using the containers of the TransContainer company. 
As for the FELB company, we are serving big European cities, which are located far from ports. Thus we are able to compete with the low price of sea transport companies. 
In terms of cooperation with Chinese clients, we are not working with companies located in the south part of the country, we are serving those in the North-Eastern regions, which are near to the Russian –Chinese border. 
– In which scenarios is the land bridge more competitive than sea transportation of container freight? 
– The advantages of land transportation are well known. First of all, we save a lot of time in comparison to sea shipments by using the Transsiberian Line via the RZD infrastructure.  Transit time by railway is around 15-18 days, while sea shipment takes around 45 days. Transit time between Beijing and Vienna, for example, will be as little as 15-18 days over a route measuring about 11,000 km.
Secondly, one of the most important advantages of railway transportation is that heavy containers are no problem on the land bridge route. The train can carry 20ft containers up to a gross weight of 30 tons and the vessel can carry individual 20ft containers up to a maximum weight of 16-18 tons.
More than that, railway transportation makes it easier for forwarders to offer door-to-door services, as the Far East Land Bridge service is railway station to railway station.
– Some RF specialists say that, nowadays, the price of transportation which includes an ocean route is merely equal to the price of the railway transportation. E.g., specialists at the Coordinating Council of Transsiberian Transportation have worked out that railway transportation of 40ft container is USD 97 more expensive than sea transportation. (E.G., sea transportation from Shanghai to Hamburg costs USD 2,100, railway transportation from Hamburg to Berlin costs EUR 1200 and transportation from Berlin to, say, Munich, costs EUR 1900). Do you still have to compete with the sea carriers? 
– The price is not always the same, railway transportation is mostly more expensive, but we are doing our best to make it approximately the same. Sea transportation prices are going down. But at the same time, the low price of vessel shipment may not last for a long time as fuel costs are increasing. If our Russian, Ukrainian, Chinese and Hungarian partners keep the agreed railway prices for the transportation, we will be able to compete with the sea carriers. But every small increase in prices will cause problems. 
TRANSIT MAY CLEAR OUT BECAUSE OF CUSTOMS CLEARANCE 
– Nowadays the Asia-Europe cargo flow is mostly West-bound. Most transport companies are suffering from a lack of clients that want to deliver freight to China because most of the freight is delivered from Chinese factories. Is it possible to equalise the cargo flows? 
– At this moment, we are running one West-bound train per week and one East-bound train every two to three weeks. We are intending to increase the number next summer, operating a train per week in each direction. 
We are very optimistic and we do hope that, in a year, it will be equal. As Austrian and German industries produce goods which are being sold on the Chinese market. The possibility of land transportation is being discussed nowadays. 
– Most of the companies that operate land bridge routes are saying that it is very difficult to hit a transportation time of 11-12 days as customs procedures can last too long. 
– Russian companies are very cooperative in organising trains running across territories, the Russian observation system is perfect and we have no problems with it. Nowadays the main obstacle in the transport market of the CIS countries is the custom documentation problem. Russia must understand that the freight is for the other country, not for Russia, so the freights are not stopping in Russia. There is no reason to make trouble with any small mistake in the documentation. That is a transit matter, transit freights should not be threatened in the same way as normal import-export goods. 
If Russia is interested in transit, the problem must be solved. As I have already said, a shorter time is the main advantage of the Transsiberian route. If we are losing three to four days at customs, e.g. in Bryansk, we are losing our clients – it is obvious. It is possible to transport freights in 15-18 days but we have to allow for 20-25 days. 
I guess that the problem is too many people are involved in that area. I know many companies stopped organising land transportation via Russian territory for that reason. 
– What must be done in order to raise the attractiveness of the RF transit routes?
– To raise the attractiveness of the transit route, Russia must reduce the transportation time by overcoming bureaucracy and the documentation issues and increase the use of electronic security controls to save time and money. 
WHAT HIDDEN OPPORTUNITIES ARE THERE FOR CIS COUNTRIES?  
– Does the company consider the possibility of the further development of operations in the RF and CIS?
– At the moment we’re using only the route Russia/Ukraine-China (Zabaykalsk and Chop border crossings) but perhaps more at a later stage. After exploring the best way through the RF and Ukrainian territory it is possible that later on we’ll also use other CIS countries’ territories. In the near future we hope to also use the Mongolian route via the terminals at Erenhot/Erdene. 
At the moment we are not using Mongolian railways, as we know there are a lot of delays at the Mongolian-Russian and Mongolian-Chinese border crossings. The other reason is that there is only one line in each direction in Mongolia and the train may have to stop for a long time. 
At the same time we hope, that the situation will change in one or two years, as OAO RZD and Mongolian railways develop their co-operation. In that case we hope we will be able to take more transit freight via Mongolia, as that gives us the possibility of making transportation two days quicker. 
– Russian authorities are planning to extend the railway with the Russian 1520 mm gauge width to Europe. Does Europe need Russian type of railways? Would that simplify operations for European freight forwarders? 
– There is no clear reason for that. The transshipment of the container is going very quickly, everything is sophisticated. I don’t think that such a big investment will be useful. 
Reference
Far East Land Bridge Ltd company (FELB) was established specially for transportation of freight along the Transsiberian route. 
The company operates in Hungary, Slovakia, Czech Republic, Austria and a part of Germany. On the eastern side the company serves Beijing and the provinces of North East China, in particular the cities of Shenyang, Fushun, Chanchun, Harbin, and Qiqihar, with container transfer at Manzouli/Zabaykalsk. 
The main products carried from the Far East to Central Europe are: raw materials for the steel industry, minerals, automotive industry parts, glass, etc. and from Europe to China they are raw materials, automotive spare parts, etc.
A single Way-bill will be issued for the container’s entire route, using an NVOCC (non vessel operator common carrier) on an E-D (electronic document).
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ONCE AGAIN ON THE ADVANTAGES OF RAILWAY 
– Mr Gerendas, could you tell us about the «Far East Land Bridge Ltd» project? 
 – FELB is a newly established company which intends to transfer containers from a supplier’s railway station to a buyer’s cargo station using the infrastructure of the European, Transsiberian (RZD) and Chinese railway networks. 
 TransContainer is serving us on Russian and Ukrainian territory. We are using the containers of the TransContainer company. 
As for the FELB company, we are serving big European cities, which are located far from ports. Thus we are able to compete with the low price of sea transport companies. 
In terms of cooperation with Chinese clients, we are not working with companies located in the south part of the country, we are serving those in the North-Eastern regions, which are near to the Russian –Chinese border. 
– In which scenarios is the land bridge more competitive than sea transportation of container freight? 
– The advantages of land transportation are well known. First of all, we save a lot of time in comparison to sea shipments by using the Transsiberian Line via the RZD infrastructure.  Transit time by railway is around 15-18 days, while sea shipment takes around 45 days. Transit time between Beijing and Vienna, for example, will be as little as 15-18 days over a route measuring about 11,000 km.
Secondly, one of the most important advantages of railway transportation is that heavy containers are no problem on the land bridge route. The train can carry 20ft containers up to a gross weight of 30 tons and the vessel can carry individual 20ft containers up to a maximum weight of 16-18 tons.
More than that, railway transportation makes it easier for forwarders to offer door-to-door services, as the Far East Land Bridge service is railway station to railway station.
– Some RF specialists say that, nowadays, the price of transportation which includes an ocean route is merely equal to the price of the railway transportation. E.g., specialists at the Coordinating Council of Transsiberian Transportation have worked out that railway transportation of 40ft container is USD 97 more expensive than sea transportation. (E.G., sea transportation from Shanghai to Hamburg costs USD 2,100, railway transportation from Hamburg to Berlin costs EUR 1200 and transportation from Berlin to, say, Munich, costs EUR 1900). Do you still have to compete with the sea carriers? 
– The price is not always the same, railway transportation is mostly more expensive, but we are doing our best to make it approximately the same. Sea transportation prices are going down. But at the same time, the low price of vessel shipment may not last for a long time as fuel costs are increasing. If our Russian, Ukrainian, Chinese and Hungarian partners keep the agreed railway prices for the transportation, we will be able to compete with the sea carriers. But every small increase in prices will cause problems. 
TRANSIT MAY CLEAR OUT BECAUSE OF CUSTOMS CLEARANCE 
– Nowadays the Asia-Europe cargo flow is mostly West-bound. Most transport companies are suffering from a lack of clients that want to deliver freight to China because most of the freight is delivered from Chinese factories. Is it possible to equalise the cargo flows? 
– At this moment, we are running one West-bound train per week and one East-bound train every two to three weeks. We are intending to increase the number next summer, operating a train per week in each direction. 
We are very optimistic and we do hope that, in a year, it will be equal. As Austrian and German industries produce goods which are being sold on the Chinese market. The possibility of land transportation is being discussed nowadays. 
– Most of the companies that operate land bridge routes are saying that it is very difficult to hit a transportation time of 11-12 days as customs procedures can last too long. 
– Russian companies are very cooperative in organising trains running across territories, the Russian observation system is perfect and we have no problems with it. Nowadays the main obstacle in the transport market of the CIS countries is the custom documentation problem. Russia must understand that the freight is for the other country, not for Russia, so the freights are not stopping in Russia. There is no reason to make trouble with any small mistake in the documentation. That is a transit matter, transit freights should not be threatened in the same way as normal import-export goods. 
If Russia is interested in transit, the problem must be solved. As I have already said, a shorter time is the main advantage of the Transsiberian route. If we are losing three to four days at customs, e.g. in Bryansk, we are losing our clients – it is obvious. It is possible to transport freights in 15-18 days but we have to allow for 20-25 days. 
I guess that the problem is too many people are involved in that area. I know many companies stopped organising land transportation via Russian territory for that reason. 
– What must be done in order to raise the attractiveness of the RF transit routes?
– To raise the attractiveness of the transit route, Russia must reduce the transportation time by overcoming bureaucracy and the documentation issues and increase the use of electronic security controls to save time and money. 
WHAT HIDDEN OPPORTUNITIES ARE THERE FOR CIS COUNTRIES?  
– Does the company consider the possibility of the further development of operations in the RF and CIS?
– At the moment we’re using only the route Russia/Ukraine-China (Zabaykalsk and Chop border crossings) but perhaps more at a later stage. After exploring the best way through the RF and Ukrainian territory it is possible that later on we’ll also use other CIS countries’ territories. In the near future we hope to also use the Mongolian route via the terminals at Erenhot/Erdene. 
At the moment we are not using Mongolian railways, as we know there are a lot of delays at the Mongolian-Russian and Mongolian-Chinese border crossings. The other reason is that there is only one line in each direction in Mongolia and the train may have to stop for a long time. 
At the same time we hope, that the situation will change in one or two years, as OAO RZD and Mongolian railways develop their co-operation. In that case we hope we will be able to take more transit freight via Mongolia, as that gives us the possibility of making transportation two days quicker. 
– Russian authorities are planning to extend the railway with the Russian 1520 mm gauge width to Europe. Does Europe need Russian type of railways? Would that simplify operations for European freight forwarders? 
– There is no clear reason for that. The transshipment of the container is going very quickly, everything is sophisticated. I don’t think that such a big investment will be useful. 
Reference
Far East Land Bridge Ltd company (FELB) was established specially for transportation of freight along the Transsiberian route. 
The company operates in Hungary, Slovakia, Czech Republic, Austria and a part of Germany. On the eastern side the company serves Beijing and the provinces of North East China, in particular the cities of Shenyang, Fushun, Chanchun, Harbin, and Qiqihar, with container transfer at Manzouli/Zabaykalsk. 
The main products carried from the Far East to Central Europe are: raw materials for the steel industry, minerals, automotive industry parts, glass, etc. and from Europe to China they are raw materials, automotive spare parts, etc.
A single Way-bill will be issued for the container’s entire route, using an NVOCC (non vessel operator common carrier) on an E-D (electronic document).
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ONCE AGAIN ON THE ADVANTAGES OF RAILWAY 
– Mr Gerendas, could you tell us about the «Far East Land Bridge Ltd» project? 
 – FELB is a newly established company which intends to transfer containers from a supplier’s railway station to a buyer’s cargo station using the infrastructure of the European, Transsiberian (RZD) and Chinese railway networks. 
 TransContainer is serving us on Russian and Ukrainian territory. We are using the containers of the TransContainer company. 
As for the FELB company, we are serving big European cities, which are located far from ports. Thus we are able to compete with the low price of sea transport companies. 
In terms of cooperation with Chinese clients, we are not working with companies located in the south part of the country, we are serving those in the North-Eastern regions, which are near to the Russian –Chinese border. 
– In which scenarios is the land bridge more competitive than sea transportation of container freight? 
– The advantages of land transportation are well known. First of all, we save a lot of time in comparison to sea shipments by using the Transsiberian Line via the RZD infrastructure.  Transit time by railway is around 15-18 days, while sea shipment takes around 45 days. Transit time between Beijing and Vienna, for example, will be as little as 15-18 days over a route measuring about 11,000 km.
Secondly, one of the most important advantages of railway transportation is that heavy containers are no problem on the land bridge route. The train can carry 20ft containers up to a gross weight of 30 tons and the vessel can carry individual 20ft containers up to a maximum weight of 16-18 tons.
More than that, railway transportation makes it easier for forwarders to offer door-to-door services, as the Far East Land Bridge service is railway station to railway station.
– Some RF specialists say that, nowadays, the price of transportation which includes an ocean route is merely equal to the price of the railway transportation. E.g., specialists at the Coordinating Council of Transsiberian Transportation have worked out that railway transportation of 40ft container is USD 97 more expensive than sea transportation. (E.G., sea transportation from Shanghai to Hamburg costs USD 2,100, railway transportation from Hamburg to Berlin costs EUR 1200 and transportation from Berlin to, say, Munich, costs EUR 1900). Do you still have to compete with the sea carriers? 
– The price is not always the same, railway transportation is mostly more expensive, but we are doing our best to make it approximately the same. Sea transportation prices are going down. But at the same time, the low price of vessel shipment may not last for a long time as fuel costs are increasing. If our Russian, Ukrainian, Chinese and Hungarian partners keep the agreed railway prices for the transportation, we will be able to compete with the sea carriers. But every small increase in prices will cause problems. 
TRANSIT MAY CLEAR OUT BECAUSE OF CUSTOMS CLEARANCE 
– Nowadays the Asia-Europe cargo flow is mostly West-bound. Most transport companies are suffering from a lack of clients that want to deliver freight to China because most of the freight is delivered from Chinese factories. Is it possible to equalise the cargo flows? 
– At this moment, we are running one West-bound train per week and one East-bound train every two to three weeks. We are intending to increase the number next summer, operating a train per week in each direction. 
We are very optimistic and we do hope that, in a year, it will be equal. As Austrian and German industries produce goods which are being sold on the Chinese market. The possibility of land transportation is being discussed nowadays. 
– Most of the companies that operate land bridge routes are saying that it is very difficult to hit a transportation time of 11-12 days as customs procedures can last too long. 
– Russian companies are very cooperative in organising trains running across territories, the Russian observation system is perfect and we have no problems with it. Nowadays the main obstacle in the transport market of the CIS countries is the custom documentation problem. Russia must understand that the freight is for the other country, not for Russia, so the freights are not stopping in Russia. There is no reason to make trouble with any small mistake in the documentation. That is a transit matter, transit freights should not be threatened in the same way as normal import-export goods. 
If Russia is interested in transit, the problem must be solved. As I have already said, a shorter time is the main advantage of the Transsiberian route. If we are losing three to four days at customs, e.g. in Bryansk, we are losing our clients – it is obvious. It is possible to transport freights in 15-18 days but we have to allow for 20-25 days. 
I guess that the problem is too many people are involved in that area. I know many companies stopped organising land transportation via Russian territory for that reason. 
– What must be done in order to raise the attractiveness of the RF transit routes?
– To raise the attractiveness of the transit route, Russia must reduce the transportation time by overcoming bureaucracy and the documentation issues and increase the use of electronic security controls to save time and money. 
WHAT HIDDEN OPPORTUNITIES ARE THERE FOR CIS COUNTRIES?  
– Does the company consider the possibility of the further development of operations in the RF and CIS?
– At the moment we’re using only the route Russia/Ukraine-China (Zabaykalsk and Chop border crossings) but perhaps more at a later stage. After exploring the best way through the RF and Ukrainian territory it is possible that later on we’ll also use other CIS countries’ territories. In the near future we hope to also use the Mongolian route via the terminals at Erenhot/Erdene. 
At the moment we are not using Mongolian railways, as we know there are a lot of delays at the Mongolian-Russian and Mongolian-Chinese border crossings. The other reason is that there is only one line in each direction in Mongolia and the train may have to stop for a long time. 
At the same time we hope, that the situation will change in one or two years, as OAO RZD and Mongolian railways develop their co-operation. In that case we hope we will be able to take more transit freight via Mongolia, as that gives us the possibility of making transportation two days quicker. 
– Russian authorities are planning to extend the railway with the Russian 1520 mm gauge width to Europe. Does Europe need Russian type of railways? Would that simplify operations for European freight forwarders? 
– There is no clear reason for that. The transshipment of the container is going very quickly, everything is sophisticated. I don’t think that such a big investment will be useful. 
Reference
Far East Land Bridge Ltd company (FELB) was established specially for transportation of freight along the Transsiberian route. 
The company operates in Hungary, Slovakia, Czech Republic, Austria and a part of Germany. On the eastern side the company serves Beijing and the provinces of North East China, in particular the cities of Shenyang, Fushun, Chanchun, Harbin, and Qiqihar, with container transfer at Manzouli/Zabaykalsk. 
The main products carried from the Far East to Central Europe are: raw materials for the steel industry, minerals, automotive industry parts, glass, etc. and from Europe to China they are raw materials, automotive spare parts, etc.
A single Way-bill will be issued for the container’s entire route, using an NVOCC (non vessel operator common carrier) on an E-D (electronic document).
    [~DETAIL_TEXT] => 
ONCE AGAIN ON THE ADVANTAGES OF RAILWAY 
– Mr Gerendas, could you tell us about the «Far East Land Bridge Ltd» project? 
 – FELB is a newly established company which intends to transfer containers from a supplier’s railway station to a buyer’s cargo station using the infrastructure of the European, Transsiberian (RZD) and Chinese railway networks. 
 TransContainer is serving us on Russian and Ukrainian territory. We are using the containers of the TransContainer company. 
As for the FELB company, we are serving big European cities, which are located far from ports. Thus we are able to compete with the low price of sea transport companies. 
In terms of cooperation with Chinese clients, we are not working with companies located in the south part of the country, we are serving those in the North-Eastern regions, which are near to the Russian –Chinese border. 
– In which scenarios is the land bridge more competitive than sea transportation of container freight? 
– The advantages of land transportation are well known. First of all, we save a lot of time in comparison to sea shipments by using the Transsiberian Line via the RZD infrastructure.  Transit time by railway is around 15-18 days, while sea shipment takes around 45 days. Transit time between Beijing and Vienna, for example, will be as little as 15-18 days over a route measuring about 11,000 km.
Secondly, one of the most important advantages of railway transportation is that heavy containers are no problem on the land bridge route. The train can carry 20ft containers up to a gross weight of 30 tons and the vessel can carry individual 20ft containers up to a maximum weight of 16-18 tons.
More than that, railway transportation makes it easier for forwarders to offer door-to-door services, as the Far East Land Bridge service is railway station to railway station.
– Some RF specialists say that, nowadays, the price of transportation which includes an ocean route is merely equal to the price of the railway transportation. E.g., specialists at the Coordinating Council of Transsiberian Transportation have worked out that railway transportation of 40ft container is USD 97 more expensive than sea transportation. (E.G., sea transportation from Shanghai to Hamburg costs USD 2,100, railway transportation from Hamburg to Berlin costs EUR 1200 and transportation from Berlin to, say, Munich, costs EUR 1900). Do you still have to compete with the sea carriers? 
– The price is not always the same, railway transportation is mostly more expensive, but we are doing our best to make it approximately the same. Sea transportation prices are going down. But at the same time, the low price of vessel shipment may not last for a long time as fuel costs are increasing. If our Russian, Ukrainian, Chinese and Hungarian partners keep the agreed railway prices for the transportation, we will be able to compete with the sea carriers. But every small increase in prices will cause problems. 
TRANSIT MAY CLEAR OUT BECAUSE OF CUSTOMS CLEARANCE 
– Nowadays the Asia-Europe cargo flow is mostly West-bound. Most transport companies are suffering from a lack of clients that want to deliver freight to China because most of the freight is delivered from Chinese factories. Is it possible to equalise the cargo flows? 
– At this moment, we are running one West-bound train per week and one East-bound train every two to three weeks. We are intending to increase the number next summer, operating a train per week in each direction. 
We are very optimistic and we do hope that, in a year, it will be equal. As Austrian and German industries produce goods which are being sold on the Chinese market. The possibility of land transportation is being discussed nowadays. 
– Most of the companies that operate land bridge routes are saying that it is very difficult to hit a transportation time of 11-12 days as customs procedures can last too long. 
– Russian companies are very cooperative in organising trains running across territories, the Russian observation system is perfect and we have no problems with it. Nowadays the main obstacle in the transport market of the CIS countries is the custom documentation problem. Russia must understand that the freight is for the other country, not for Russia, so the freights are not stopping in Russia. There is no reason to make trouble with any small mistake in the documentation. That is a transit matter, transit freights should not be threatened in the same way as normal import-export goods. 
If Russia is interested in transit, the problem must be solved. As I have already said, a shorter time is the main advantage of the Transsiberian route. If we are losing three to four days at customs, e.g. in Bryansk, we are losing our clients – it is obvious. It is possible to transport freights in 15-18 days but we have to allow for 20-25 days. 
I guess that the problem is too many people are involved in that area. I know many companies stopped organising land transportation via Russian territory for that reason. 
– What must be done in order to raise the attractiveness of the RF transit routes?
– To raise the attractiveness of the transit route, Russia must reduce the transportation time by overcoming bureaucracy and the documentation issues and increase the use of electronic security controls to save time and money. 
WHAT HIDDEN OPPORTUNITIES ARE THERE FOR CIS COUNTRIES?  
– Does the company consider the possibility of the further development of operations in the RF and CIS?
– At the moment we’re using only the route Russia/Ukraine-China (Zabaykalsk and Chop border crossings) but perhaps more at a later stage. After exploring the best way through the RF and Ukrainian territory it is possible that later on we’ll also use other CIS countries’ territories. In the near future we hope to also use the Mongolian route via the terminals at Erenhot/Erdene. 
At the moment we are not using Mongolian railways, as we know there are a lot of delays at the Mongolian-Russian and Mongolian-Chinese border crossings. The other reason is that there is only one line in each direction in Mongolia and the train may have to stop for a long time. 
At the same time we hope, that the situation will change in one or two years, as OAO RZD and Mongolian railways develop their co-operation. In that case we hope we will be able to take more transit freight via Mongolia, as that gives us the possibility of making transportation two days quicker. 
– Russian authorities are planning to extend the railway with the Russian 1520 mm gauge width to Europe. Does Europe need Russian type of railways? Would that simplify operations for European freight forwarders? 
– There is no clear reason for that. The transshipment of the container is going very quickly, everything is sophisticated. I don’t think that such a big investment will be useful. 
Reference
Far East Land Bridge Ltd company (FELB) was established specially for transportation of freight along the Transsiberian route. 
The company operates in Hungary, Slovakia, Czech Republic, Austria and a part of Germany. On the eastern side the company serves Beijing and the provinces of North East China, in particular the cities of Shenyang, Fushun, Chanchun, Harbin, and Qiqihar, with container transfer at Manzouli/Zabaykalsk. 
The main products carried from the Far East to Central Europe are: raw materials for the steel industry, minerals, automotive industry parts, glass, etc. and from Europe to China they are raw materials, automotive spare parts, etc.
A single Way-bill will be issued for the container’s entire route, using an NVOCC (non vessel operator common carrier) on an E-D (electronic document).
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    [~PREVIEW_TEXT] => Railway transportation via Russia and the CIS seems to be gaining popularity: 12-15 days transit time, the possibility of transportation of heavy containers and other advantages make Russia an attractive transit country. OAO TransContainer (a Russian container operating company which is going to provide door-to-door service) is making enormous efforts to attract EU forwarding companies. One of the joint projects was established by Far East Land Bridge Ltd company (Austria) and OAO TransContainer. Robert Gerendas, Member of the Board of FAR EAST LAND BRIDGE LTD (FELB) comments on the advantages of, and threats to railway container transportation in Russia.
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The company was set up in accordance with a Russian Government Decree dated May 2001: The Structural Reform Programme on Rail Transport and is the result of the first stage of reform in the rail sector. 

OAO RZD manages almost 100% of Russia’s public railways, thus the company is the backbone railway enterprise in Russia. The holding company, RZD, consists of mother company OAO RZD, its daughter companies (numbering about 60) and subsidiaries (of which there are more than 50). Also, OAO RZD has affiliates which provide certain services: 17 affiliates – railways, affiliates in the sectors of transportation, capital construction, rolling stock repair, railway equipment, social sector, IT and communication, etc. OAO RZD has representative offices in European and Asian countries – Pyongyan (North Korea), Beijing (China), Warsaw (Poland), Prague (Czech Republic), Helsinki (Finland), Berlin (Germany), Budapest (Hungary) and Tallinn (Estonia). The company employs over 1.2 million people. As of 31.12.2007, the company’s rolling stock park amounted to 19,900 cargo and passenger locomotives, 623,000 freight wagons of all types (including wagon parks of daughter companies), 24,100 passenger railcars for long-distance transportation and 15,600 wagons for suburban passenger trains.

As of 31.03.2008, the company’s assets amounted to RUR 3.2 trillion, while the equity capital was RUR 2.9 trillion. In 2007, the revenue of OAO RZD was RUR 975.6 billion, and the net profit amounted to RUR 84.5 billion. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Companies – affiliates of OAO RZD
1. Federal Passenger Directorate
2. Railway Stations Directorate
3. Central Directorate for Freight Wagon Repair
4. Central Directorate for Track Repair 
    [~DETAIL_TEXT] => 
The company was set up in accordance with a Russian Government Decree dated May 2001: The Structural Reform Programme on Rail Transport and is the result of the first stage of reform in the rail sector. 

OAO RZD manages almost 100% of Russia’s public railways, thus the company is the backbone railway enterprise in Russia. The holding company, RZD, consists of mother company OAO RZD, its daughter companies (numbering about 60) and subsidiaries (of which there are more than 50). Also, OAO RZD has affiliates which provide certain services: 17 affiliates – railways, affiliates in the sectors of transportation, capital construction, rolling stock repair, railway equipment, social sector, IT and communication, etc. OAO RZD has representative offices in European and Asian countries – Pyongyan (North Korea), Beijing (China), Warsaw (Poland), Prague (Czech Republic), Helsinki (Finland), Berlin (Germany), Budapest (Hungary) and Tallinn (Estonia). The company employs over 1.2 million people. As of 31.12.2007, the company’s rolling stock park amounted to 19,900 cargo and passenger locomotives, 623,000 freight wagons of all types (including wagon parks of daughter companies), 24,100 passenger railcars for long-distance transportation and 15,600 wagons for suburban passenger trains.

As of 31.03.2008, the company’s assets amounted to RUR 3.2 trillion, while the equity capital was RUR 2.9 trillion. In 2007, the revenue of OAO RZD was RUR 975.6 billion, and the net profit amounted to RUR 84.5 billion. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Companies – affiliates of OAO RZD
1. Federal Passenger Directorate
2. Railway Stations Directorate
3. Central Directorate for Freight Wagon Repair
4. Central Directorate for Track Repair 
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            [ELEMENT_META_DESCRIPTION] => Russian Railways is the second largest railway company in the world, with 85,500 km of track and 1.2 million employees. Almost 1.3 billion passengers travel via Russian Railways annually as well as 1.3 billion tons of freight. Russian Railways accounts for over 3.6 % of Russia’s GDP and handles almost 80% of all transportation in Russia.
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As of 31.03.2008, the company’s assets amounted to RUR 3.2 trillion, while the equity capital was RUR 2.9 trillion. In 2007, the revenue of OAO RZD was RUR 975.6 billion, and the net profit amounted to RUR 84.5 billion. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Companies – affiliates of OAO RZD
1. Federal Passenger Directorate
2. Railway Stations Directorate
3. Central Directorate for Freight Wagon Repair
4. Central Directorate for Track Repair 
    [~DETAIL_TEXT] => 
The company was set up in accordance with a Russian Government Decree dated May 2001: The Structural Reform Programme on Rail Transport and is the result of the first stage of reform in the rail sector. 

OAO RZD manages almost 100% of Russia’s public railways, thus the company is the backbone railway enterprise in Russia. The holding company, RZD, consists of mother company OAO RZD, its daughter companies (numbering about 60) and subsidiaries (of which there are more than 50). Also, OAO RZD has affiliates which provide certain services: 17 affiliates – railways, affiliates in the sectors of transportation, capital construction, rolling stock repair, railway equipment, social sector, IT and communication, etc. OAO RZD has representative offices in European and Asian countries – Pyongyan (North Korea), Beijing (China), Warsaw (Poland), Prague (Czech Republic), Helsinki (Finland), Berlin (Germany), Budapest (Hungary) and Tallinn (Estonia). The company employs over 1.2 million people. As of 31.12.2007, the company’s rolling stock park amounted to 19,900 cargo and passenger locomotives, 623,000 freight wagons of all types (including wagon parks of daughter companies), 24,100 passenger railcars for long-distance transportation and 15,600 wagons for suburban passenger trains.

As of 31.03.2008, the company’s assets amounted to RUR 3.2 trillion, while the equity capital was RUR 2.9 trillion. In 2007, the revenue of OAO RZD was RUR 975.6 billion, and the net profit amounted to RUR 84.5 billion. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Companies – affiliates of OAO RZD
1. Federal Passenger Directorate
2. Railway Stations Directorate
3. Central Directorate for Freight Wagon Repair
4. Central Directorate for Track Repair 
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