Russian Railways (RZD) Registered A 15% Year-On-Year Slump In Freight Tonnage In 2009

22.03.2010 (16:05) | OfficialSpin

State-owned Russian Railways (RZD) registered a 15% year-on-year (y-o-y) slump in freight tonnage to 1.11bn tonnes in 2009. The company attributed the dip to a general slowdown in industrial production, as well as a subsequent decline in demand for rail services. However, RZD said the slump was better than previously predicted, due to the anti-crisis programme that the company had implemented in association with the Russian government.

RZD is one of the biggest railway companies in the world, with 1.2mn employees and a monopoly in Russia. It accounts for more than 3.6% of Russia's GDP and handles 80% of passenger transport and 82% of freight in the country. The company owns about 20,000 locomotives, 25,000 passenger wagons and 650,000 freight wagons.

Since our last report, we have adjusted our macroeconomic forecasts for Russia. The country has been in the midst of a deep economic crisis and we now expect the economy in 2009 to have shrunk by 8.1% (vs. -7.8% previously). However, we also see the 2010 recovery coming through a little more strongly with 3.4% growth (was 2.0%). Our forecast for the next five years works out at an average annual GDP growth rate of 4.2%, compared to 3.9% in the 2005-2009 period. The effect on our freight traffic forecasts comparing the two periods is therefore moderately positive. We now expect freight carried across all modes, measured in mntkm, to achieve an annual average growth rate of 5.5% over the 2010-2014 period, therefore running a little ahead of the wide economy.

According to our latest estimates, transport and communications GDP contracted by 7.8% in 2009, less steeply than GDP as a whole which we believe plunged by 8.1%. For the 2010-2014 forecast period we expect the transport and communications sector to outpace the economy as a whole, but by a narrow margin. It will achieve average annual growth of 4.4%, versus 4.2% for overall GDP. The total value of transport and communications GDP will rise to US$309.4bn in nominal terms by 2014, representing 10.9% of Russia's GDP. The transport and communications sector employed 5.8mn people, or 9.0% of the labour force in 2009. We see that figure falling to 5.6mn by 2014, while remaining constant at 9.0% as a proportion of the total labour force.

Russia is a vast country with a thinly spread infrastructure. One of the faster rates of growth will be registered by pipeline throughput (an average of 6.3% per annum), reflecting resilient Asian demand for Russian oil and gas, as well as substantial, but slower-growing European demand. Air cargo will grow at an average of 6.4% per annum. This is a sharp reduction on earlier projections. Given the impact of the global financial crisis, we expect to see ongoing consolidation in the aviation sector.

The growth in pipeline turnover will, as mentioned, be based on continuing strong demand for Russian oil and gas, despite investor concerns over various issues, including the international recession, political risk, and the after-effects of gas disputes with Ukraine (in late 2005 and early 2009) and Belarus (in late 2006). On balance, we believe there will be ongoing funding for big pipeline projects to markets in both the West and the East, although foreign investors will be more cautious.

In the long term, demand for road haulage will be boosted by the expansion of the motor vehicle fleet, and the sophisticated door-to-door logistics requirements of an increasingly consumer-oriented society. However, the recent recession and the lack of enough new highway capacity will be a severe limiting factor. We are now predicting annual average road haulage growth of 5.0%. Other modes of transport will experience comparable growth curves. Shipping cargo turnover will also reflect the aftermath of the reduction in world trade in 2009, and will expand at an average 4.0% a year, while inland waterways will have a slower performance (+3.0% per annum). Railway freight turnover has been hard hit by the downturn in 2009 but will recover quite strongly with 5.4% annual growth, reflecting a strong long-term future, Russia has 85,000km of railways, making it the second largest network in the world after the US. Rail dominates the freight transport network accounting for 42.7% of total turnover, according to the Federal State Statistics Service, and around 85% of total turnover, if pipeline traffic is not included. Rail has a competitive advantage due to the large distances between different production centres in Russia. The road network is insufficient in terms of coverage and quality of the roads, while waterways freeze during Russia's long winter. The major cargo types carried by rail, are coal (23% of the total) followed by oil products (18%) and construction materials (15%).

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