— Oleg Vyacheslavovich, tell us, has RZD Logistics laid out a strategy for the year 2023? What does it entail and how has the company set out to achieve its goals?
— After certain events that have transpired, the transport sector has now taken a rather sharp sudden turn. Major shifts have taken place, from the flows of goods and route directions to partners and competitors. We had to reconsider our strategy in all the types of operations in which we engage in light of the new international politics and economic conditions.
We decided on the primary areas in which we shall continue our development.
First and foremost is organizing multimodal transport. In particular, we have concentrated on project logistics – transporting heavy-weight and oversize loads. We began engaging in agricultural logistics as well – the transport of groceries and products utilized in the agriculture industry.
Secondly, we are developing cooperation with industrial enterprises (intrafactory logistics and supply chain management) where the operator company fully assumes responsibility for the transport component of loading and removing the rolling stock. However, the enterprise only engages in its own direct tasks – processing and producing goods.
Previously, our main area of business was container and transit shipments on the Europe-China-Europe route. That accounted for the majority of shipments. However, as of now, RZD Logistics has switched its focus to the Asia-Pacific region where it is actively developing the aforementioned areas and domestic shipping within Russia.
— What assets does RZD Logistics currently have and in what amount? Does it plan to acquire any new equipment by the end of this year?
— A major and perhaps the most significant change for RZD Logistics in 2023 is acquiring its own assets. Key among them are autonomous refrigerated containers, a technically complex and expensive type of equipment which we acquired over 2021-2022. The company has around five hundred of them on its balance sheet.
It also has at its disposal around three hundred transporter cars; 5,000 open cars; and 4,500 covered cars. We don't plan to acquire any new assets this year. Next year, however, we expect to acquire a locomotives fleet. This will allow us to organize longer-term cooperation with industrial enterprises to which we are already outsourcing, as well as engage in cooperation with new ones.
— Which newly implemented projects and services would you point to as being the most exciting? Which projects are currently undergoing implementation?
— This year we are actively developing one of the most significant transport projects – the North-South ITC. In July 2022, RZD Logistics implemented a new shipment via the East corridor route and then announced a regular service in that direction in October.
I must say that this route wielded hardly any demand at all previously, since all the cargos that were arriving in Russia departed from it and continued on via the Northwestern sea ports and the ports in the Azov-Black Sea basin.
If everything had remained the same, it's doubtful that this route would have developed. It is indeed quite challenging due to the several regions that have to be traversed: Kazakhstan, Turkmenistan, Azerbaijan, as well as the tricky territory of Iran. We took on that job and completed quite a large route.
Our parent company helped us achieve that: we were each faced with the task of “rolling out” the route, and RZD Logistics did that step by step, from shipping technology to be able to traverse each border crossing and pass each railroad administration all the way to tariff issues.
The crossing tariff declared to us was too high. Nobody would be willing to assume such expenditures to go from, say, Moscow to Bandar Abbas (Iran) at those prices. We had to devote a fair amount of time to negotiating with our Kazakh, Turkmen, and Iranian partners to impact the tariff component. By working together, we managed to achieve nearly a 30% reduction in the shipment cost.
Issues still remain as a result of the technological processes though. Whereas it’s clear in the 1520 space that former Soviet republics would have to work based on the same rules as us, in the case with Iran, we had to work totally from scratch: such as, where to get a train car, how it’s supposed to travel, where it is to arrive, which documents regulate relations between Turkmenistan, Azerbaijan, and Iran, etc. On the whole, we’ve gotten on top of the situation, although there are still temporary reserves for shortening the timetable and reducing the cost. We currently happen to be undergoing continuous “improvement” of this route as we speak.
However, of course the corridor needs to be further “rolled out” and put to use on a regular basis.
— Previously the company tested two different directions on the ITC North-South and ended up going with the Eastern route. Why is that?
In actuality, we work in all directions (Western, Eastern, and Transcaspian), but we are just more concentrated on one route in particular, and that is the Eastern direction.
As far as the Western route is concerned, to complete the journey from Azerbaijan to Bandar Abbas, we end up at the border station of Astara (Azerbaijan), from which point we complete 160 km of automobile transport to the Resht station, where a transfer is then made onto the railroad to the port. For that reason, in the Western direction, for the time being there’s no regular, clear route. This is the result of a lack of a unified railroad line.
— On June 1, RZD Logistics struck an agreement with FESCO Transport Group to launch an accelerated cargo delivery service to Northern China called RailJet. What stage is that project currently at? Are any analogous partner services planned for 2023?
— RailJet is a fast delivery service for various consumer goods in mail cars for marketplaces (electronic retail platforms — ed. note).
All the main issues related to our relationship with our partner have ironed out. The service is technically ready for launch. A project between RZD and Chinese Railroads is currently being coordinated and I think a final decision will be reached soon.
We believe it to be a competitive service. It provides a means to deliver cargos more quickly than in a container but cheaper than just sending by plane. This project will definitely be embraced by the market, but we have to be careful working with it: if there is a small shift in price, then people will choose to send by air, while if there’s a small shift in the delivery time, then they’ll send via container. Despite this, the offer should be on the market. It is in-demand.
It is not among RZD Logistics’ primary objectives to implement as many projects with other transport companies as possible. Today we have enough cases that several participants are conducting at once. For instance, at the end of last year, a project began delivering - automobile parts service together with “TransContainer,” FESCO Group, RZD Business Aktiv, alongside sea carriers and Chinese colleagues.
— How do you evaluate your interaction with railroad operators and the level of competition for infrastructure access?
— Today, the railroad market is truly a highly competitive sphere, especially when it comes to the in-demand Eastern direction. I think things have gone rather successful. Several years ago, RZD began reconstructing Trans-Siberian Railroad and the Baikal-Amur line, for which reason by 2025, the traffic potential is expected to practically double, which will provide an abrupt development jolt.
Today we and our partners and competitors are constantly seeking out new solutions, with the restrictions in the Eastern direction partially giving the market the ability to cooperate. Again, if everything were free, it's doubtful that RZD Logistics would’ve entered into a joint project.
Any existing challenges need to be viewed not as a problem but rather as an opportunity. That is the way we choose to approach competition as it arises.
Interviewer Viktoria Yeletina
Read next content