Russian Rail, Containers,
and Growth
The rail container shipping market in Russia is set to soar
T
he economic recovery is upon us. World output levels have
improved notably; in April the IMF’s World Economic Outlook
projected global economic growth of 4.3 percent in 2010, compared to minus 0.5 percent in 2009. This is welcome news for the transportation industry, both internationally and in Russia, as transportation
is inherently tied to macroeconomic factors and global trade. Rail container transportation is particularly well positioned to capitalize on this
growth, as all signs indicate up to 10 percent annual growth in rail
container volumes through 2015. Yet to participate in this growth spurt,
rail container operators will have to broaden their service portfolios—
moving beyond pure rail transportation to focus on providing valueadded services such as door-to-door delivery, logistics management and
warehousing services.
The worldwide container market began in the
United States in the 1950s and has since grown
to more than 140 million containers or TEUs
shipped per year.1 The market has become the
impetus for global trade and, in turn, has been
driven by the exponential growth of intercontinental trade, especially in Asia, Europe
and North America. The shipping of maritime
containers launched the industry into a whole
new realm.
Industries served by containers and the products shipped in them tend to be of high “value
add,” meaning they are not the resource-type
products shipped in bulk. It is not surprising
then, that the container industry is cyclical,
sensitive to global economic conditions and the
inevitable peaks and troughs (see figure 1 on page 2).
Thus, when the economic crisis hit, volumes
1
of maritime container shipments fell sharply,
by 12 percent in 2008-2009.
Now, as the global market is seeing signs of
recovery, the container market is forecast to grow
at a stable 7 percent compound annual growth
rate (CAGR) in 2010-2015 (see figure 2 on page 2).
Yet the recovery in the global economy is expected
to be asymmetrical, with emerging markets growing substantially faster than developed economies
both in terms of output and trade. From this perspective, the BRIC countries (Brazil, Russia, India
and China), despite their deeper fall during the
crisis, are expected to recover faster and grow stronger than developed markets. In the next 10 years,
emerging markets are likely to grow at an average
annual rate of 5 to 7 percent compared with 1 to 2
percent average annual growth rates for developed
economies during the same time period.
Container transportation volumes are measured in TEUs,
twenty-foot equivalent units.
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1
Figure 1
Relationship between container handling growth and GDP growth (%, 1991-2010)
Container handling growth and GDP growth
20
Beginning
of the global
financial crisis
Impact of the
1997 Asian
financial crisis
15
R2 = 98%1
Slow recovery
after global
financial crisis
10
5
0
Bursting of dotcom
bubble and other
industries slowdown
–5
First negative growth
for containers from
introduction year
–10
–15
1991
1994
1997
2000
2003
C
Container
ggrowth
2006
2009
G
Global GDP
ggrowth
1
Based on cumulative growth
Source: World GDP data from the IMF World Economic Outlook 2010. Container handling growth data reported from Drewry Shipping Consultants; A.T. Kearney analysis
Figure 2
Steady growth forecast for maritime container market
Maritime container traffic growth (% YoY); GDP growth (% YoY);
global container transportation volumes (MM TEUs)
14
+ 7%
12
10
8
6
1128
28
142
149
4
156
134
169
181
192
205
180
160
145
140
120
2
100
0
80
–2
–4
60
–6
40
–8
20
–10
2006
006
2007
2008
2
2009
2010
2011
2012
2013
Sources: Economic Intelligence Unit, Drewry Shipping Consultants, International Monetary Fund; A.T. Kearney analysis
2
220
200
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2014
2015
0
C
Container
ggrowth
G
Global GDP
ggrowth
Global
container
transportation
volumes
Figure 3
Growth in transshipment of containers
in Russian ports
MM TEUs (2004-2010)
-38%
+29%
+25%
3.4
1.9
2.4
2.7
2.7
2.1
1.4
2004
2005
2006
2007
2008
2009
2010e
Sources: Association of Russian Parts (ASOP), RBC report, A.T. Kearney analysis
The Russian Container Market
The maritime container market in Russia is in its
adolescence and for years has been growing rapidly,
with rates resembling the global container market
in the 30-year period from the 1970s through the
1990s (see figure 3). Growth was fueled by structural improvements in the Russian economy, the
development of port infrastructure, and the introduction of new container lines. In 2009, when the
economic crisis caused a 38 percent decline in container shipments, it exposed a true vulnerability in
Russia’s container transportation market. The good
news, however, is that the “immature” state of the
Russian container freight market promises a faster
recovery post-recession and stronger future growth.
Indeed, as the economy begins its upturn, the
Russian container market is well positioned to
pursue growth due to the following factors:
• Strong historical and projected macroeconomic
outlook
• Significant potential to increase containeriza-
tion levels, considering the existing gap with
current international benchmarks
• Ambitious investment plans in port infrastructure
Strong historical and projected macroeconomic outlook. During the pre-crisis years of
2000-2008, Russia demonstrated a strong 7 percent average annual growth rate in both GDP and
external trade. Consequently, the country’s share of
world GDP (as reported by Economist Intelligence
Unit) increased from 2.6 percent in 2000 to more
than 3.2 percent in 2008. In 2009 Russia’s GDP
was comparable to that of Brazil or India.
Over the next 10 years, Russian macroeconomic indicators are expected to grow at a stable
pace with imports having the highest growth
potential. Exports are expected to remain, on the
whole, raw-material oriented. We anticipate that
imports will continue to be a major driver of containerization in Russian ports. The overall increase
of import flows will thus have a positive impact on
container handling volumes in Russia.
Significant potential to increase containerization levels, considering the existing gap with
current international benchmarks. While in
most developed countries and in the other BRIC
countries containers dominate in maritime
export and import flows of general cargo, Russia
still has some way to go to reach these levels.
Figure 4 on page 4 presents maritime containerization levels for a number of countries, expressed
as the share of containerized cargo in general
cargo handled at ports.
Most markets saw a further increase of containerization levels in 2007 and 2008 while Russia
appears to have plateaued at around 35 percent.
Export of containerized consumer goods has made
China the world’s leader in containerized general
cargo. Both Brazil and India have containerization
levels of more than 50 percent due to highly developed container-handling infrastructures.
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Figure 4
Compared to other countries, Russia has significant growth potential in port containerization
Containerized cargo vs. general cargo1 in selected countries (%, 2007-20092)
73.0 71.7
71.9 69.7
67.4 66.3
68.8
70.6
65.1
54.2
52.2
China
64.1
Europe
51.5
United States
35.9
35.3
34.6
Brazil
India
Russia
NA
2007
2008
NA
2009
Weight of cargo transported in containers divided by total weight transported without bulk and liquid cargo
2
Data for 2009 not available for all analyzed countries and regions
Sources: Agencia Nacional de Transportes Aquaviarios, China Ports Statistics Yearbooks, Eurostat, European Seaports Organization, Indian Ports Association, Ministry of Statistics
and Programme Implementation of India, Sea Information Center under Ministry of Transportation of Russia, American Association of Port Authorities, U.S. Waterborne Commerce,
official ports websites, BMI, Drewry Shipping Consultants; A.T. Kearney analysis
1
Dry and liquid bulk commodities can distort
international comparisons as they have limited
potential to be shipped via container. Therefore,
we have calculated containerization levels for
general cargo only. If assessed on a total cargo
basis (including bulk), the gap between containerization levels of Russia and Brazil will be lower,
while the gap between Russia and other regions
will be higher.2
We believe that over the next five years Russia
could bridge the gap with other BRIC countries
and increase its ports containerization levels up to
40 or 50 percent.
Ambitious investment plans in port infrastructure. Many major ports are planning to
expand capacity to facilitate further growth in
container transshipments. Leading stevedoring
companies and port authorities have announced
their investment plans in Russia, which, if realized, will increase overall capacity of Russian container terminals in ports by more than 50 percent
by 2012, and by more than 100 percent by 2020.
Under the “Federal Program of the Ministry of
Transport on Development of Russian Transportation Systems in 2010-2015,” funds will be
allocated to the development of port infrastructure.
In particular, the program includes development
of road and rail connections to the largest exportoriented ports, including those with container
terminals. Among the ports stated in the program
are Baltiysk, Murmansk, Ust-Luga, Novorossyisk,
Olya, Vostochny, Nakhodka and Vanino.
Infrastructure Is Key
One of the key enablers of container transportation
is the availability and quality of container-related
infrastructure and a well-developed network of
inland distribution. This includes container terminals, both at ports and inland, road and rail connections, and seamless intermodal transfers. Brazil
and India made significant investments in their
container-related infrastructures which led to an
Containerization levels in 2008 based on total cargo: China (29.8 percent), Europe (29.2 percent), India (17.6 percent), United States (15.2 percent), Brazil
(9.5 percent) and Russia (7.0 percent).
2
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increase in their container transportation levels.
In the past, container shipments in Russia
were limited by the capacity of container terminals at ports and the congestion of rail and road
approaches to ports. The most congested rail
lines were those serving the largest container
ports, including Saint Petersburg, Novorossiysk
and Vostochny. At its worst, this resulted in
suspension of container freight to these ports,
which happened in April-May 2009 when rail
container transportation to the port of Saint
Petersburg halted. Road congestion has also
proved to be a challenge, especially in northwest
Russia, where more than 80 percent of container shipments to and from the port of Saint
Petersburg travel by road.
In terms of container volumes lifted, roads are
currently the main transportation mode to and
from ports.3 Share of road in container transportation to and from major ports varies from 50 percent for Far East basin ports, to more than 80
percent in Northwest and South basin ports.
In terms of container volumes transported, share of
road is much lower, as roads are usually used for
short-distance deliveries or for first- and last-mile
rail connections.
Shippers’ choice between rail and road for
inland container transportation is determined by
the following criteria: price, speed of delivery, reliability and flexibility of service. The significance
of each criterion depends on the industry. For
example, food retailers dealing with products with
a short shelf life will focus on speed of delivery;
this may not be a focal point for other industries
such as heavy machinery.
However, it should not deter from the
fact that shippers are inherently price-sensitive.
Although they have been less so since the 1990s,
price continues to remain the key differentiator
for many shippers in Russia. This price sensitivity
ultimately benefits rail freight, which charges
lower prices for longer distances (greater than
1,000 kilometers). For shorter distances, due to
a high share of costs attributed to “origination and
completion” operations in the rail tariff, rail
becomes less competitive (see figure 5).
Cost per km (%)
Figure 5
Comparison of cost per kilometer of transportation of a cargo unit by rail and road (%)
Road
Rail
400
600
800
1,000
1,200
1,400
Sources: Tariff 10-01 and interviews with freight forwarders;
A.T. Kearney analysis
1,600
1,800
2,000
2,200
2,400
2,600
2,800
3,000
3,200
3,400
3,600
Distance (km)
Freight lifted (in tons) measures total volume of cargo on a weight basis only; freight transported (tons/km) measures total volume of cargo on the basis of weight
and the distance across which it was transported.
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5
Freight forwarders and logistics companies quote
road prices up to 10 to 20 percent lower than rail
on distances of less than 1,000 kilometers. For
example, the cost of transporting a 40-foot container from Moscow to Saint Petersburg by road is
10 percent less than by rail, demonstrating savings
equivalent to approximately US$200. Transporting
the same container 850 kilometers from Moscow
to Ulyanovsk by road generates savings of 20 percent or US$400 compared to rail.
The price for road and rail transportation
becomes more comparable for the distance of
about 1,100 to 1,200 kilometers. So it would cost
approximately US$300 (or 15 percent) less to
ship the aforementioned 40-ft container by train
than by road if sending it the 1,500 kilometers
from Moscow to Novorossiysk. Shipping the container more than 3,000 kilometers (for example,
Moscow-Novosibirsk or Moscow-Krasnoyarsk)
will cost almost twice as much by road than by rail.
Russia, Rail and Container Transportation
Overall, rail is well positioned to benefit from the
growth in inland container transportation. There
are several reasons why:
• Significance of rail for the Russian economy
• High growth rates of rail transportation, both
historical and forecasted
• Government commitment to develop the rail
infrastructure
• Ongoing liberalization of rail industry (resulting in increased competition and flexibility of
rail tariffs)
• Significant potential to increase share of containerized cargo, considering existing gap with
international benchmarks
Figure 6
Rail is the dominant mode of transport in Russia and the backbone of the economy
Freight transported by mode (Bn ton/km, 2008)
4,090
145
1,498
6,362
472
481
4,944
13,640
1,112
Pipelines
2,464
Road
8,450
1,923
Rail
216
1,878
1,209
2,657
443
3
15
2,116
EU271
United States
China
Russia2
10.5%
38.4%
18.8%
42.8%
Figures for EU27, United States and China are for 2006
Figures for Russia are for 2008
Sources: Rosstat, Eurostat, United States Bureau of Transportation Statistics, National Bureau of Statistics of China; A.T. Kearney analysis
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Air
% Share of rail
302
2,657
1
6
Inland waterways
Sea
814
124
64
84
Significance of rail for the Russian economy.
The Russian economy relies heavily on rail. Russia
is one of the largest countries in the world with
production facilities concentrated in several
industrial “pockets” across the country. Moreover,
certain locations are hardly accessible by road
due to climate conditions and landscape. For such
regions rail is the only reliable transportation
mode. In many areas roads are insufficient and
in poor condition leading to a heavy use of rail
transport. All of these factors have led to a significant share of rail transport in Russia, which clearly
boasts one of the largest rail systems in the world
(see figure 6).
Overall share of rail in Russia is 43 percent
compared to 38 percent in the United States and
much higher than in China and the EU 27, which
have 19 percent and 11 percent shares, respectively.
Importantly, the share of rail in Russia would be
much higher if we took into account structural
differences between these countries’ economies:
Excluding pipeline transport, share of rail in
Russia accounts for 88 percent.
The dominance of rail transport stems from
the significant distances between the industrial
pockets and thus the need to travel vast expanses.
The average transportation span traveled by rail in
Russia is among the longest in the world, comparable only to the United States—1,450 and 1,479
kilometers, respectively, dwarfing the 760 kilometers of average rail cargo transportation distance
in China and 350 kilometers in Europe.
High growth rates of rail transportation,
both historical and forecasted. Over the past
eight years (2000-2008), rail freight transportation volumes transported in Russia grew at an
average annual rate of 6 percent, demonstrating
higher growth than road transport, which only
grew at an average rate of 4 percent. We expect this
growth to continue into the future, although at
a slower pace (see figure 7). The rate of increase
will largely be attributed to the growth of
Figure 7
Total rail growth rate will continue but at a slower pace
Freight transported by rail (Bn ton-km)
+5%
0%
2,136
2,083
-12%
2,116
2,086
2,146
2010
2011
2,222
2,314
2,502
2,418
1,865
2006
2007
2008
2009
2012
2013
2014
2015
Sources: Historical data from RZD and A.T. Kearney rail forecast model; A.T. Kearney analysis
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7
domestic and export transportation. Domestic
transportation will be fueled by a thriving Russian
economy, while exports will be driven by high
export volumes of ferrous metals, construction
materials and chemicals, and major users of rail
freight services.
Government commitment to develop the
rail infrastructure. The government is committed
to infrastructure development, and within the
next five years around 2 trillion RUB (US$65 billion) is expected to be invested in constructing
new lines and modernizing existing infrastructure.
These investments are seen as obligatory given
the high utilization rates of rail infrastructure in
Russia, which are among the highest in the world.
For example, in comparing freight turnover per
kilometer of track in 2008 (MM ton-km/km),
only China (32.3) surpassed Russia (24.8), followed by Kazakhastan (15.7), United States (12.6),
Ukraine (11.8), India (9.0), Canada (7.4) and
Germany (2.8).
Ongoing liberalization of rail industry (resulting in increased competition and flexibility of rail
tariffs). Railway reform, which started in 2001, is
in its third and final stage. A significant part of the
reform was the spin-off of TransContainer and
Freight One to develop a competitive environment
within cargo transportation. TransContainer was
created in 2006 to serve a niche segment of the
container transportation market and to compete
effectively with other market players. Since then,
the container transportation market has expanded
to include numerous new market players, ranging
from international freight-forwarders to small
“mom-and-pop” businesses. However, rail container transportation in Russia remains a concentrated industry, with the top six players accounting for 70 percent of the market. In 2009, the six
Figure 8
Rail container transportation by market players in 2009 (%, ‘000 TEUs)
1,016
320
469
120
Other
Russian Troika
N-Trans
RusCon/Global Container Service
Fintrans
Sibur-Trans
DVTG
DV Transport
Fesco
73%
Modul
51%
Transcontainer
30%
16%
Domestic
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Export
Transit
Sources:
RZD database; A.T. Kearney analysis
largest players had the following market share:
TransContainer (57 percent), Modul (6 percent),
Fesco (3 percent), DV Transport (2 percent),
DVTG (2 percent) and Sibur-Trans (1 percent).4
Still, the remaining 30 percent of the market
is fragmented with more than 1,000 small players
(see figure 8).
Liberalization of rail container transportation
means Tariff 10-01 no longer provides a benchmark
for container transportation prices. Therefore, for
the time being, rail container operators have more
flexibility in setting prices. The structure of the
tariff for rail container transportation is different
than other rail segments, with a lower share of
“fixed” charges for infrastructure and locomotive
use (see figure 9).
Figure 9
Tariff structure: container vs. non-container
rail transportation (%)1
20%
16%
41%
15%
64%
44%
Non-container
(box car)
Container
Flexible and
‘semi-flexible’ part
can be optimized
by operators
Infrastructure and
locomotive part
is set by RZD and
regulatory bodies
and cannot be
influenced by
operators
(market)2
Operator’s part (railcar charge, empty run)
Infrastructure and locomotive charge (empty run)
Infrastructure and locomotive charge (loaded run)
Box car is used for comparison as the potentially containerizable cargo
(3rd tariff class) is now transported in box cars
2
Empty run share is calculated based on tariff 10-01 provisions: e.g., full tariff is
36,858 RUB, out of which the tariff for private operators for the use of infrastructure
and traction is 19,326 RUB, discount for use of own containers and platforms (30%)
is 11,057; empty run is then 36,858-11,057 = 6,475. Market price is higher than tariff 10-01
and amounts to 43,604 RUB due to higher railcar and container charge
Sources: Tariff 10-01; A.T. Kearney analysis
1
This affects the development of the industry
in two ways. First, operators have more incentives
and opportunities to compete effectively with
each other and to optimize their transportation
routes, thus minimizing empty runs. Second,
operators have more flexibility and can adapt their
prices to market situations, thus strengthening
their positions in competing with other modes.
However, pricing alone will not be sufficient
to win a greater share of the business, and rail
operators will have to expand their value propositions to include value-added services (as discussed
in more detail later in this paper).
Significant potential to increase share of
containerized cargo, considering existing gap
with international benchmarks. In the past few
years, container transportation volumes grew
faster than overall rail transportation (13 percent
CAGR vs. 2 percent CAGR) as shown in figure
10 on page 10. In just four years, rail container
freight increased by 43 percent from 1.7 million
TEU lifted in 2005 to 2.5 million TEU in 2008
(including empty containers). This growth was
mainly driven by import and export flows, and
was supported by a booming Russian economy,
development of a container handling infrastructure, and growth of the third-party logistics provider (3PL) market.
Such significant growth notwithstanding,
share of containers in overall rail freight lifted
(excluding oil and coal) is still low compared to
other countries. Figure 11 on page 10 presents the
containerization levels in select countries.
It should be noted, that rail containerization
levels are lower than the containerization levels at
ports for all noted countries, as shown in figure 4.
There are two reasons for this, which are common
for all countries: high share of road in total
container freight lifted in ports (lower number of
In the first half of 2010, there was a change among the largest players. The top six companies were: TransContainer (53 percent), Modul (7 percent), Fesco
(3 percent), N-Trans (3 percent), DV Transport (2 percent), Fintrans (2 percent).
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9
Figure 10
Container transport market outgrew total rail transport
Rail and rail container (including empty containers) transportation volumes (MM tons and ‘000 TEUs)
MM tons
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
‘000 TEUs
+13%
2,451
+ 2%
2,121
2,000
1,842
1,713
1,510
1,463
1,387
2,500
1,484
Total rail
Rail container
transportation
1,500
1,000
500
2005
2006
0
2008
2007
Sources: RZD database;
A.T. Kearney analysis
Figure 11
Rail containerized cargo versus total rail cargo, excluding oil and coal (%)
40.6
37.5
United Kingdom
United States
India
18.1
17.9
14.2 13.7
4.7
4.7
16.0
Europe
14.0
China
4.8
2.2
2007
4.8
2.5
Brazil
Russia
2008
Sources: RZD database, Eurostat, National Statistics services, Ministry of Railways and Government of India, Concor, Department for Transport of the United Kingdom, MDS Transmodal,
Department for Transport of the United Kingdom, American trucking association, HIS, Association of American Railroads, BMI, Drewry Shipping Consultants; A.T. Kearney analysis
containers lifted by rail) and inclusion of lowcontainerized rail domestic transportation (higher
volumes of freight lifted in railcars versus containers). There are also some country-specific
explanations. For example, in China, transporting
containers to ports via rivers and locating many
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production centers next to container ports result
in rail containerization levels significantly lower
than at ports.
Interestingly, in the United Kingdom, the
large number of containers transported by rail is
mainly explained by the structure of freight flows
(large number of imported containerized goods)
and increasing road congestion.5
Clearly, Russia has significant growth potential
in rail containerization. The growing use of containers in export and import transportation will
drive their use in domestic transportation to utilize
capital-intensive assets better, including container
terminals, flatcars, and containers themselves, and
to balance container flows. We also expect, as previously mentioned, strong growth in imports of
high-value-added goods, which are usually brought
into the country in containers, and shipped out in
containers. In addition, the industries we expect to
grow fastest, such as automotive and chemical, are
also the industries that use the most containers.
Therefore, while it is feasible that Russia will
reach the current containerization levels of Brazil
and China, it is unlikely to happen within the
next five years.
Forecast for Rail Container Transport —
9 to 10 Percent Growth
Our forecast of future rail container transportation volumes is based on a bottom-up approach.
We selected nine industries where containers are
systematically used for transportation, and which
jointly accounted for approximately 90 percent of
total container transportation in TEUs. We then
forecasted the future development of these industries (output, consumption, import and export)
based on a number of macroeconomic indicators,
industry research and historical performance.
Based on the volumes of output, consumption,
import and export, we estimated resulting domestic, international and transit transportation flows.
We also interviewed executives from the selected
industries and several logistics companies.
Based on our understanding of these industries, feedback from the one-on-one interviews,
and historic trends, we concluded the potential
future split between rail and road transportation,
the growth of Russia’s rail containerization, and
the country’s total rail container transportation
volumes (see figure 12).
Rail container transportation was dramatically affected by the recent crisis, plunging by 21
percent from 2.5 million TEUs in 2008 to 1.9
million TEUs in 2009. However, due to the fast
recovery of the Russian economy (real GDP
growth is forecasted to be 4.8 percent, 4.0 percent
and 4.4 percent in 2010, 2011 and 2012 respectively) it is expected that container transportation
will reach pre-crisis levels as early as 2011.
Figure 12
Containerization level by industry
Containerization level1
Industry
2009
2015
Automotive parts and components
23.6%
37.7%
Chemicals
9.1%
10.6%
Construction materials
2.4%
3.9%
Ferrous metals
1.7%
1.9%
Food
7.6%
7.0%
Machinery and equipment
21.8%
25.3%
Non-ferrous metals
24.4%
27.5%
Non-food
35.4%
39.8%
Pulp and paper
40.5%
42.3%
Empty run and other
0.7%
0.7%
Overall
2.7%
3.1%
Based on freight lifted, all types of cargo, excluding coal and oil
Sources: Historical data from RZD and A.T. Kearney container rail transportation
forecast model; A.T. Kearney analysis
1
When comparing containerization levels, we adjusted volumes transported by rail to exclude oil, oil products and coal, which constitute the largest part of
bulk cargo transported by rail. This is done to avoid distortion due to the commodity-based industry focus of some countries. If rail containerization levels
were assessed on the basis of total cargo volumes, in 2008 they would be as low as 1.7 percent in Russia, 2.1 percent in China, 3.5 percent in Brazil and
8.2 percent in India.
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11
‘000 TEUs, loaded containers only
Figure 13
Rail container freight lifted forecast, monthly (2008-2010)
160
2008
20
150
2009
20
2010
20
140
2010 estimated
20
130
120
110
100
90
80
70
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
Sources: RZD database; A.T. Kearney analysis
Figure 14
Rail container forecast
Rail container freight lifted forecast, including empty containers
+9%
(’000 TEUs)
+15%
2,121
1,842
654
-21%
2,451
848
734
2,309
1,925
2,477
855
797
2,664
920
2,854
986
3,064
1,058
3,281
Empty
1,133
Loaded
716
1,188
1,387
1,602
2006
2007
2008
1,209
2009
1,622
1,744
1,868
2,006
2,148
1,512
2010
2011
2012
2013
2014
2015
Sources: RZD database, A.T. Kearney analysis, A.T. Kearney rail forecast model
Our expectation of improved rail container
traffic in Russia is further supported by the signs
of recovery within the industry during the first
and second quarters of 2010. Monthly container transportation volumes in 2010 gradually
approached those of 2008 and are expected to
12
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A.T. Kearney
exceed them in November 2010 (see figure 13).
From 2009 onward, we expect container transportation volumes to grow at 9 percent CAGR—
nearly double real GDP growth. In absolute
terms it means 3.28 million TEUs lifted in 2015
(see figure 14).
Figure 15
Growth in rail container transportation by type
Rail container transportation breakdown by type of transportation,
loaded containers, (’000 TEUs)
+10%
+16%
1,118
317
229
1,387
125
96
-25%
1,602
118
413
1,209
344
350
478
413
1,512
126
91 418
1,622
132
447
1,744
141
477
567
(41%)
594
(37%)
498
(41%)
2006
2007
2008
2009
541
526
17%
10%
814
(41%)
872
(41%)
2012
2013
2014
2015
2010
2011
Import
Domestic
756
(40%)
660
(41%)
Transit
Export
6%
705
(40%)
620
(41%)
12%
574
489
422
207
546
(46%)
508
2,148
176
455
383
347
1,868
149
2,006
163
CAGR
(
)
(2009-2015)
Sources: RZD database, A.T. Kearney analysis, A.T. Kearney rail forecast model
Domestic transportation constituted 41
percent of total transportation volumes in 2009
and its share is not expected to change significantly by 2015, while the fastest growth rates are
expected in import transportation (17 percent
CAGR in 2009-2015), as shown in figure 15.
This trend reflects the increase of import share in
Russia’s external trade forecast by the Economist
Intelligence Unit. We envision the slowest growth
rates in export container transportation (6 percent
CAGR in 2009-2015) due to the low share of
high-value-added products in export structure of
Russia, which is mostly represented by bulk and
liquid commodities.
The following discusses each area in more
detail.
Domestic transportation. Domestic transportation is mainly formed by the transportation
between European and Siberian parts and transportation within the European part of the country
(see figure 16 on page 14). In 2005-2008 domestic
freight grew at 5 percent, driven mainly by trans-
porting pulp and paper, chemicals, machinery
and equipment, and ferrous metals. By 2008,
food and non-food consumer goods were the
largest segments in domestic rail container transportation, collectively accounting for almost 40
percent of total container volumes (see figure 17 on
page 14).
Growth in container transportation (20092015) will be fueled by construction materials,
pulp and paper, chemicals and non-food consumer goods transportation, which will increase at
16 percent, 19 percent, 12 percent and 8 percent
per year respectively.
Construction materials. Demand for construction materials will mainly be driven by new
residential, industrial and commercial construction, and renovation of existing buildings.
Construction of new residential buildings is
expected to rebound after the crisis: 424 million
square meters of housing are expected to be built
in 2010-2015. Construction of new industrial,
commercial and office premises is forecast to be
RUSSIAN RAIL, CONTAINERS, AND GROWTH
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13
Figure 16
Major domestic rail container flows in 2009, including empty containers (‘000 TEUs)
Total = 1,016
91.1
192.6
The European
part of Russia
146.9
81.4
Urals and Siberia
172.9
13.2
55.4
7.3
South Russia
8.2
108.9
14.1
45.3
Far East and
Transbaikalia
8.5
Sources: RZD database; A.T. Kearney analysis
26.9
Figure 17
Rail container freight lifted by industry, domestic transportation (loaded containers)
’000 TEUs
872
814
+10%
594
118
53
50
110
77
28
23
36
28
69
498
68
37
53
108
57
14
16
21
30
47
41
72
705
660
620
69
23
25
33
52
52
756
72
24
26
36
40
59
59
75
25
26
83
77
112
67
90
111
26
27
49
78
77
97
110
28
29
55
87
87
Auto parts and components
Machinery and equipment
Pulp and paper
Food
Construction
87
99
112
125
78
120
95
116
122
129
136
143
150
2008
2009
2010
2011
2012
2013
2014
2015
A.T. Kearney
Non-ferrous metals
108
140
|
Ferrous metals
Chemicals
113
RUSSIAN RAIL, CONTAINERS, AND GROWTH
Other
30
30
105
115
Sources: RZD database, A.T. Kearney analysis, A.T. Kearney rail forecast model
14
44
68
79
82
Non-food consumer goods
built, along with 19.6 million square meters of
housing in the same period. The renovation
market is expected to be significantly fueled by
growth of GDP per capita, and the Olympic
Games in Sochi will make a further contribution to
construction materials transported in containers.
Pulp and paper. Pulp and paper transportation will be driven by the overall development of
this industry, both in terms of volume and product structure. The industry’s strategic intent is
in import substitution and the growth of
high-value-added goods production within the
country. Additionally, individual companies aim
to optimize fee logistics costs and use of existing
facilities (developed for largely containerized
exports) by transferring more railcar volumes
onto the container.
Chemicals. Unlike most of the industries in
our study, chemicals experienced only a moderate decline during the crisis and, supported by
a steady growth in coming years, will achieve
significant volume growth by 2015.
Food. Food freight is expected to increase in
2010 due to growth in containerization levels; however, it could gradually decline afterward as overall
rail transportation loses ground to road. This trend
is mainly due to the developing distribution network in Russia, which, while consolidating volumes, effectively reduces the average transportation
distance and makes roads more attractive than rail.
With no major changes in the size of the population and physical consumption of food per capita,
the decrease in the share of rail translates into a
decrease in container rail transportation.
Non-food consumer goods. We also expect a
shift from rail to road in non-food consumer
goods transportation. However, unlike food, the
demand for non-food consumer goods is expected
to grow significantly, fueled by per-capita GDP
growth. This will result in a stable increase of
non-food consumer goods transportation, which
will capture its largest share in total transportation
volumes in 2015.
Collectively, food and non-food consumer
goods, construction and chemicals are expected to
account for almost 60 percent of domestic rail
container transportation volumes.
Import transportation. Import transportation
is mainly formed by flows from the Far East and
Eastern Europe (see figure 18 on page 16). From
2005 to 2008, import transportation grew at
42 percent, driven mainly by automotive parts, ferrous metals and construction materials (see figure
19 on page 16). By 2008 automotive components
held a dominant share of almost 40 percent of total
container volumes followed by chemicals (16 percent) and non-food consumer goods (15 percent).
Import container transportation volumes suffered most during the economic crisis, plunging
more than twofold in 2009. The reason for this
was a significant decrease of overall Russian
imports caused by a fall in disposable income:
Imported goods tend to be more expensive and
were therefore substituted with local goods.
Although import volumes in these industries
fell drastically in 2009, they are expected to
regain ground in 2010. Throughout the aftercrisis years, all three industries will set on
a recovery path, with automotive components
being the most significant contributor to growth
in total rail container volumes.
Automotive parts and components. Products
in the automotive industry that can be transported in containers include CKDs (completely
knocked down) and spare parts. Car penetration
rates are highly correlated with GDP per capita
and are therefore expected to grow steadily in the
coming years. The growth of imported automotive parts will be further fueled by the increasing
share of foreign cars in the total fleet: The number
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15
Figure 18
Major import rail container flows in 2009, including empty containers (’000 TEUs)
Finland
Total = 320
Northwest Basin
Baltic countries
13.6
3.9
52.1
14.8
Urals and Siberia
65.2
Eastern Europe
15.0
11.2
11.5
Black Sea
8.5
49.0
30.2
7.6
7.5
4.4
South Russia
Far East Basin
5.2
China (through
Zabaikalsk)
Kazakhstan and
Central Asia
Sources: RZD database; A.T. Kearney analysis
1.5
Figure 19
Rail container freight lifted by industry (import transportation)
’000 TEUs
478
33
28
+17%
5
6
8
11
347
22
53
72
78
184
29
207
21
41
36
15
3
3
4
7
9
44
62
152
2
3
5
11
17
383
24
32
422
26
3
4
5
11
20
23
34
3
4
5
11
53
48
72
67
455
27
27
37
58
78
3
4
6
11
489
28
32
40
63
84
526
28
3
4
6
11
36
44
2009
2010
Non-ferrous metals
Pulp and paper
91
Food
Construction
Machinery and equipment
Non-food consumer goods
Chemicals
169
191
2011
2012
Sources: RZD database, A.T. Kearney analysis, A.T. Kearney rail forecast model
16
Other
Ferrous metals
69
203
217
233
2014
2015
69
2008
3
4
7
11
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2013
Auto parts and components
of foreign cars built in Russia is expected to double
in 2010-2015 (see sidebar: Russia Falls for Foreign
Cars). Combined with more imported readymade
cars this will lead to increased demand for
imported spare parts. Thus, imports of automotive parts and components are expected to
exceed pre-crisis levels in 2012 and grow in share
of total container imports to 44 percent.
Chemicals. Chemicals are used in a wide
range of industries, and the demand for imported
chemicals will follow the dynamics and development of the overall economy: Import transportation volumes will rebound in 2010 and set on
a stable growth path to retain its second largest
share in import container transportation in 2015.
Non-food consumer goods. The demand for
non-food consumer goods will be revived and
further fueled by the growth of GDP per capita.
Transportation of non-food consumer goods is
expected to account for 13 percent of total container transportation volumes in 2015.
Consequently, the structure of import transportation is forecast to remain stable and in 2015
will not change significantly from 2008.
Exports. Container rail exports in Russia are
mostly directed to the Northwest and Far East
ports and to Eastern Europe (see figure 20 on page
18). From 2005 to 2008, export transportation
grew at 14 percent, driven mainly by ferrous and
non-ferrous metals, construction materials and
food. Most of the export rail container transportation in 2008 was attributed to pulp and paper (35
percent), chemicals (17 percent) and non-ferrous
metals (19 percent):
Russia Falls for Foreign Cars
Overall containerization of automotive parts increased from 16 to
40 percent in 2005-2008, mostly
due to the large growth in import
containerization, which rose from
57 to 91 percent in the same
period.
Such growth is largely the result
of production of foreign cars in
Russia, which gave rise to producing
CKD (completely knocked down)
cars there. Between 2005 and 2008
Renault, Volkswagen and Fiat
opened plants in Moscow, Kaluga
and Naberezhnye Chelny with
combined capacity of 390,000 cars.
Not included in these estimates are
CKD cars produced at Ford, Toyota
and GM plants located near Saint
Petersburg and an Avtotor plant in
Kaliningrad. Foreign automakers
located inland plan to increase production of cars between now and
2015 (see figure).
As a result automotive parts are
expected to account for 15 percent
of all rail container transportation
in 2015—the second largest share
among all industries—with more
than 70 percent of automotive parts
attributed to imports.
Figure: Expected output of select foreign auto plants in Russia
Capacity
(millions units)
Capacity
(millions units)
Capacity
(millions units)
Renault, Nissan
0.160
0.190
0.190
Volkswagen
0.100
0.150
0.150
Hyundai, Kia
0.050
0.220
0.220
PSA, Mitsubishi
0.010
0.045
0.045
Fiat
0.016
0.080
0.080
Total
0.340
0.690
0.690
Automotive plant
2010
2012
2015
Sources: Datamonitor, Autoreview, manufacturers’ production plans; A.T. Kearney analysis
RUSSIAN RAIL, CONTAINERS, AND GROWTH
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17
Figure 20
Major export rail container flows in 2008, including empty containers (’000 TEUs)
Finland
Northwest Basin
Total = 469
75.2
16.1
Baltic countries
149.7
7.7
3.8
Eastern Europe
Urals and Siberia
62.1
15.1
Black Sea
22.5
7.2
77.4
2.3
South Russia
Far East Basin
4.9
Zabaikalsk
Kazakhstan and
Central Asia
Sources: RZD database; A.T. Kearney analysis
6.3
Figure 21
Rail container freight lifted by industry (export transportation)1
’000 TEUs
+6%
413
47
17
46
77
69
3
3
3
3
413
35
25
42
61
85
3
2
3
2
418
18
22
44
70
94
2
2
3
3
447
18
25
47
477
19
29
50
3
3
3
4
3
3
3
4
79
74
107
101
33
53
85
114
3
3
4
4
38
56
90
3
4
4
5
574
21
44
58
4
4
4
5
Other
Machinery and equipment
Auto parts and components
Non-food consumer goods
96
Food
Construction
121
127
Ferrous metals
Non-ferrous metals
Chemicals
146
153
160
170
180
190
200
2008
2009
2010
2011
2012
2013
2014
Leaded containers
Sources: RZD database, A.T. Kearney analysis, A.T. Kearney rail forecast model
1
18
508
19
541
20
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211
2015
Pulp and paper
Figure 22
Major transit rail container flows in 2008, including empty containers (’000 TEUs)
Total = 120
Northwest Basin
3.3
Baltic countries
20.0
Eastern Europe
7.5
42.8
18.7
Sources: RZD database; A.T. Kearney analysis
Far East Basin
Kazakhstan and
Central Asia
Pulp and paper and chemicals. As shown in
Figure 21, container transport of pulp and paper
and chemicals increased in 2009. Although there
was a decline in the overall export of these products, the loss was offset by a rise in container shipping, which resulted in an almost 11 percent
volume increase over 2008. Both industries—
pulp and paper, and chemicals—are expected to
export more products via containers due to an
improved container-handling infrastructure. Given
their overall export levels combined with their
increased containerization levels, this will result
in transportation volumes of 211,000 TEUs (pulp
and paper) and 127,000 TEUs (chemicals) in
2015. As a result, pulp and paper and chemicals
will increase their combined share in total export
transportation volumes to almost 60 percent.
Non-ferrous metals. Export transportation of
10.6
non-ferrous metals was more vulnerable to the
world economic downturn, falling by more than
20 percent in 2009. However, reviving world
demand for aluminum, supported by growth in
containerization levels, will bring export container
transportation volumes back to pre-crisis levels in
2012. We expect non-ferrous metals to continue
stable growth and arrive at a 17 percent share of
the rail container export market in 2015.
Transit transportation. Transit rail container
flows are mostly represented by transportation
from Eastern Europe and the Baltic States to
Kazakhstan and Central Asia (see figure 22). In
2005-2008, transit transportation volumes fluctuated due to changing tariffs. The split of rail container volumes by industry was rather even, with
automotive parts having slightly larger share than
other industries (see figure 23 on page 20).
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19
Figure 23
Rail container freight lifted by industry, transit transportation (loaded containers)
’000 TEUs
176
118
11
11
126
2
3
3
14
18
17
17
25
91
9
10
13
11
2
1
5
6
16
9
12
13
25
1
2
5
10
13
26
1
2
5
11
13
34
149
141
132
Other
163
+12%
26
2
3
6
12
31
2
3
6
14
15
13
15
16
2
3
7
14
16
17
13
14
15
17
18
18
19
20
22
23
25
19
21
23
Pulp and paper
2
4
7
Non-ferrous metals
Construction
Chemicals
Non-food consumer goods
Machinery and equipment
Ferrous metals
Food
23
19
25
26
28
30
32
34
2008
2009
2010
2011
2012
2013
2014
2015
Auto parts and components
Sources: RZD database, A.T. Kearney analysis, A.T. Kearney rail forecast model
Figure 24
Rail container transportation by industry (loaded containers)
’000 TEUs
2,148
+10%
1,602
161
99
106
141
127
125
209
182
1,622
137
1,512
134
1,209
127
133
95
151
70
81
74
99
147
122
175
205
88
90
105
147
100
137
1,744
142
98
111
148
111
156
93
198
186
226
244
1,868
148
104
118
148
123
178
212
157
111
125
149
137
201
225
263
283
165
117
132
150
151
227
238
304
262
281
326
235
302
212
208
238
256
274
294
315
337
2008
2009
2010
2011
2012
2013
2014
2015
Sources: RZD database, A.T. Kearney analysis, A.T. Kearney rail forecast model
RUSSIAN RAIL, CONTAINERS, AND GROWTH
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Other
Ferrous metals
Non-ferrous metals
Food
Machinery and equipment
Construction
Non-food consumer goods
Pulp and paper
Auto parts and components
188
110
180
245
20
2,006
Chemicals
The overall transit rail transportation market
is expected to rebound in 2010, driven by the
revival of trade between Central Asian and
Eastern European countries. Transit rail container transportation is expected to regain precrisis levels as early as this year, helped by the
growth in containerization. In the 2009-2015
time period, the transit rail container market is
expected to reach 12 percent CAGR, and a total
volume of 176,000 loaded TEUs in 2015. The
split of transit rail container transportation volumes by industry will remain relatively constant,
with minor changes due to the difference in containerization levels by industry. The increasing
competitiveness, both in terms of cost and speed
of delivery, of the TransSiberian transit route
compared to sea routes is another driver of rail
transit volumes.
Total container transportation. A major
factor in the growth of rail container transportation is the rise in containerization. Overall containerization levels in total cargo (excluding oil
and coal) is expected to increase with 2.4 percent
2009-2015 CAGR to reach 3.1 percent in 2015.
We anticipate significant growth in containerization in several industries, including automotive components, non-food consumer goods,
machinery and equipment, and non-ferrous
metals. Because production in these industries
can be expensive, security of delivery becomes
especially important and the shipper is often
ready to bear the additional cost of rail transportation. Apart from that, the industries in our
analysis demonstrate historically high levels of
containerization growth.
Containerization in automotive parts is
mostly driven by foreign carmakers deploying
their production facilities in Russia and by the
increasing share of foreign cars in the total car
fleet. This translates into additional flow of
imported parts and components transported via
containers. In non-food consumer goods, further
containerization will be primarily driven by
improvements in container transportation services, including the growing number of regular
block trains and cargo-tracking systems. Metal
companies, which already export goods in containers, will increase usage of their container handling infrastructure for domestic shipping to cut
costs and standardize their logistics processes.
In 2015, the largest shares of total rail container
transportation will be in chemicals (16 percent),
automotive parts (15 percent), pulp and paper (14
percent) and non-food consumer goods (11 percent). Growth in rail container transportation will
reach 10 percent 2009-2015 CAGR, reaching 2.1
million loaded TEUs in 2015 (see figure 24).
Rail container freight transported follows the
dynamics of total freight lifted with a slight adjustment on average distance. Thus, rail container
freight transported is forecast to grow at 10 percent CAGR 2009-2015 and to amount to 12.674
billion TEU-kms in 2015, including empty run
(see figure 25 on page 22).
Rail Container Operators Are Diversifying
To attract customers in the container rail
segment, operators are increasingly providing
reliable, regular and integrated services, especially in industries where cargo can be aggregated to form container block trains. Those that
offer an integrated, value-added logistics solutions with first- and last-mile connectivity are
finding this a key differentiator between rail and
road movement. Such solutions allow rail container operators to offer a seamless transportation service to their clients. For first- and
last-mile connectivity, operators either partner
with truck operators or operate their own trucks
for road haulage.
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21
Figure 25
Rail container transportation by type, including empty containers
MM TEU-kms
12,674
+10%
9,519
8,871
3,295
7,244
330
1,100
2,694
336
1,136
228
2,098
1,070
Transit
Tra
4,377
4,079
349
1,217
372
1,299
1,325
1,453
1,586
3,010
3,208
3,431
Import
Im
393
1,388
1,718
431
1,478
1,853
858
2,697
2,394
Export
Ex
3,791
3,527
3,284
3,063
10,978
10,215
9,512
Empty run
Em
11,814
3,688
3,973
467
Domestic
Do
Av
Average
A
dis
distance
1,573
1,996
4,262
2008
2009
2010
2011
2012
2013
2014
2015
3,885
3,762
3,842
3,839
3,835
3,846
3,856
3,863
Sources: RZD database, A.T. Kearney analysis, A.T. Kearney rail forecast model
Figure 26
Fleet ownership structure adjusted by TEUs (‘000 of TEUs)
+4%
+33%
112
20
5
3
1
1
2
5
5
6
3
1
4
3
5
5
5
64
(58%)
68
(59%)
73
(60%)
September 2008
June 2009
July 2010
Sources: RZD database; A.T. Kearney analysis
22
31
Russian Troyka
3
TransGarant
(including
TG Leasing)
Intergroup
Goldline
57
(68%)
October 2007
Others
28
34
84
122
116
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TransContainer
By combining the cost-effectiveness of rail
and the point-to-point delivery of road, customers
can outsource their logistics requirement to a container rail operator and drive the volume shift
from road to rail. Already, leading rail container
operators, such as TransContainer, Fesco, Modul
and Eurosib, have moved beyond offering pure
rail transportation services to also providing road
linkage and other value-added services that address
the growing demands from their customers (see
Appendix 1: The Russian Logistics and Value-Added
Services Market on page 27).
Investing in the Fleet
To avoid a future deficit of assets, operators are
assessing available fleet versus required fleet over
the next five years to identify possible gaps. The
gaps represent purchases required against projected capacity of flatcar manufacturers.
Available fleet. The “theoretical fleet” available on the market in 2015, not considering purchases of new flatcars, comprises currently existing
flatcars minus write-offs. A significant number of
flatcars are expected to be retired during 20102015 due to the age of the fleet and technical regulations. The current fleet comprises nearly 42,000
flatcars, which is equivalent to 122,000 TEUs.
Significant investments were made into
the fleet in 2007 following the spin-off of
TransContainer and the liberalization of rail container transportation in mid-2006. In September
2008, flatcars were equivalent to 112,000 TEUs,
rising to 116,000 TEUs by June 2009. And while
significant investments were made by private
operators and leasing companies, the incumbent
operator, TransContainer, remains the largest fleet
owner with 60 percent of the market, roughly
10 times more than its second-largest competitor
(see figure 26).
Investments into the fleet are determined by
the increase in transportation volumes and by the
need to replace old fleet about to be written off
due to age. In the future, write-off levels are
expected to reach an average of 1,300 cars per
year with figures fluctuating from as low as 900
in 2011 to 1,600 cars in 2015. We assume that
writeoffs are not dependent on supply-demand
balance but by technical regulations.
Required fleet. Fleet requirements are determined by the projected outlook for rail transportation container volumes—whereby total rail
container transportation volume will increase 1.5
times compared to current levels and 20 percent
compared to pre-crisis levels by 2015. Key parameters are container traffic projection and fleet
efficiency.
As container rail is highly capital- and timeintensive, asset efficiency levels (turnaround time
and utilization) are key. Factors driving asset turnaround time and utilization are:
Average transportation distance. Average transportation distance is dependent on the geographical blueprint of a particular industry and the
transportation flows (split between international
and domestic). Although we don’t expect significant changes in transportation distance within
each segment, the average distance will change
due to varying growth rates of different segments,
as noted earlier in figure 24.
Share of empty run. In rail container transportation an “empty run” can be treated in two
ways. In this specific context empty run refers to
the flatcar rather than the container. The container itself represents a cargo to be loaded on a
flatcar and, in order to balance container flows,
empty containers are transported to the point of
the next load. Hence, the “empty run of flatcars”
figures are relatively low (2 percent of total transportation distance in the previous period). This is
unlikely to increase in the future.
RUSSIAN RAIL, CONTAINERS, AND GROWTH
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A.T. Kearney
23
Also, transportation of empty containers represents a significant part of the container transportation market. In 2005-2006, empty containers
represented 36 percent of the market, subsequently falling to and remaining at 35 percent of
total containers transported by rail.
Time required to load, unload, sort and consolidate containers, and auxiliary operations.
These operations are largely dependent on access
to, and capacity of, rail container terminals and
their coverage of the rail network. In Russia, container handling at terminals is highly concentrated, with the top 10 terminals handling more
than 26 percent of containers (in 2008), six of
them belonging to TransContainer. Currently,
TransContainer is the largest operator of container terminals (see figure 27).6
To increase capacity and support growing
container traffic investments, many market play-
ers are allocating investments to the development
of existing terminals and construction of new
terminals, including “dry ports.”
The time required for operations, relating to
container handling at terminals, will have an
impact on the overall turnaround time of the fleet,
extending the duration by three days for each
journey. Based on our forecast for container volumes and fleet efficiency factors, we estimate the
overall required fleet to reach almost 57,000 flatcars by 2015 (see figure 28).
Manufacturing Capacity: Flatcars
Necessary purchases are determined by the required
fleet and expected write-offs based on the fleet age
structure. Our analysis finds that approximately 15
percent of the existing fleet will be written off by
2015 and total demand for flatcars by 2015 will
be approximately 57,000 (see figure 29).
Figure 27
Container handling at rail terminals (MM TEUs)
Millions of TEUs
5.3
5.2
30%
23%
Number of container
terminals owned
Other
~400
4.0
16%
17%
16%
28%
24%
14%
22%
37%
37%
2007
2008
36%
Ports
RZD
>10
TransContainer
~150
43
2009
Note: Data for terminals handling 20- and 40-foot containers
Source: RZD database; A.T. Kearney analysis
In the first half of 2010, there were only slight changes in players’ market share: TransContainer (34 percent), RZD (21 percent), ports (16 percent), others
(29 percent).
6
24
RUSSIAN RAIL, CONTAINERS, AND GROWTH
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A.T. Kearney
Figure 28
Required fleet, number of flatcars
Required fitting platforms fleet, units (2010-2015)
+7%
39,812
2010
42,692
2011
45,733
2012
49,260
2013
52,993
56,839
2014
2015
Sources: RZD database, A.T. Kearney analysis, A.T. Kearney fleet forecast model
Figure 29
Approximately 15% of the existing fleet will
be written off by 2015
Actual fleet without purchases and required fleet1
(units, 2010-2015)
Cumulative required purchases
Fleet without purchases
40,520
2010
45,733
49,260
52,933
53,839
11,948
16,744
21,787
7,358
39,366
38,375
37,311
36,250
35,052
2011
2012
2013
2014
2015
42,692
3,326
Year-end total fleet includes required fleet and 26,000 railcars used for internal RZD needs
Sources: RZD database, A.T. Kearney analysis, A.T. Kearney fleet forecast model
1
Will the manufacturing capacity of railcar
producers be sufficient to support the projected
growth? We have observed a significant shift
in manufacturing capacity from other nonspecialized railcars to support growth in rail
container traffic, with flatcar manufacturing
output steadily increasing over the past few years
(see figure 30 on page 26).
Current utilization levels of flatcar manufacturers averages less than 80 percent; at
Transmash, utilization levels are around 72
percent; Dneprovagonmash’s utilization is just
over 80 percent, with the ability to accommodate moderate increases in production. We estimate demand for new flatcars at approximately
5,500 units per year for the period of 20102015, which is well below the level of actual
production output reached by CIS railcar manufacturers in 2008.
Therefore, taking into account estimated
demand for new platforms, current capacity utilization, flexibility of production, and investment
and production plans of flatcar manufacturers,
overall manufacturing capacity appears to be sufficient to satisfy the growing demand in flatcars.
Conclusion
Containers as a means of transportation are
becoming more attractive to shippers of goods as
Russia’s container infrastructure becomes more
developed, the third-party logistics provider
market grows, container companies improve their
services, and tariffs become more competitive.
Growth was long supported by a favorable macroeconomic environment—at least until it faltered
following the world financial crisis. Nonetheless,
today the Russian economy and those of its trading counterparts are promising a rapid recovery
across the Russian rail container market. A full
recovery of rail container transportation volumes
RUSSIAN RAIL, CONTAINERS, AND GROWTH
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25
Figure 30
Manufacturing output has steadily increased over the past few years
Number of platforms
8,072
395
651
+46%
690
5,847
120
72
526
3,810
493
674
484
312
1,260
1,166
100
15
370
158
1,140
840
220
475
62
110
Stakhanovskiy vagonostroitelniy zavod
Abakanvagonmash
Altayvagon
Ruzkhimmash
Kryukovskiy vagonostroitelniy zavod
Poltavkhimmash and Azovmash
1,942
Dneprovagonmash
Zavod Metallokonstrukciy
86
1,488
1,758
2,122
2006
2007
2008
Transmash
Sources: Expert interviews, InfoLine, Metalinfo, RBC; A.T. Kearney analysis
is expected in 2011-2012. We expect a CAGR of
9.3 percent from 2009-2015, before settling in
at 7 percent growth as the industry matures.
Container transportation companies and rail-based
operators are already adapting to the changing
environment. Price was the most important factor
in the past, but it is gradually giving way to quality
of service and customer care. The industry is
moving beyond rail—creating value, developing
relationships and building partnerships.
Authors
Laurent Guerard is a partner and head of the North America transportation, travel and infrastructure practice.
Based in the Chicago office, he can be reached at [email protected].
Evgenij Bogdanov is a principal in the transportation, travel and infrastructure practice. Based in the Moscow office,
he can be reached at [email protected].
Alina Zambarakji is a consultant in the London office. She can be reached at [email protected].
Ekaterina Sheremet is a consultant in the Moscow office. She can be reached at [email protected].
Vladimir Kozlov is a consultant in the Moscow office. He can be reached at [email protected].
26
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A.T. Kearney
Appendix 1:
Russian Logistics and the Value-Added Services Market
Let us start by defining the logistics market. For
the purposes of this paper, we define logistics as
only those services provided on a commercial
basis, excluding all in-house operations.
Experts estimate the level of logistics outsourcing in Russia to be approximately 30 percent, compared to 47 percent in North America,
51 percent in Latin America, 66 percent in Europe
and 62 percent in Asia-Pacific. We believe that this
relatively low starting point certainly implies that
the future shift from in-house logistics and transportation services to logistics service providers
(LSPs) represents a significant potential for growth.
Supported by growing transportation volumes,
demand for better quality warehousing space and
increasing interest in value added services, the logistics market is expected to reach US$58 to US$63
billion (in real terms) by 2015 (see figure 31).
The value-added services segment currently
represents approximately 9 percent of the total
Figure 31
The growth of the logistics market compared with GDP
Bottom-up
Top-down
US$ billions, % (2009-2015)
US$ billions, % (2009-2015)
CAGR
CAGR
6%
41.4
3.6
47.0
4.1
1.2 6.8
6.0
3.5
3.3
27.3
2009
1.3
48.7
4.5
7.1
3.6
50.8
4.9
1.3
7.5
3.8
55.7
53.3
5.3
1.3
58.0
5.8
1.3
8.0
3.9
6.4
1.3
10%
1.3
2%
8.2
8.5
6%
4.1
4.3
4%
31.3
32.2
33.3
34.7
36.2
2010
2011
2012
2013
2014
37.5
2015
5%
7%
62.6
41.4
3.6
37.8
2009
46.3
4.3
42.0
2010
52.6
54.0
56.4
58.7
5.1
5.5
6.1
6.6
47.4
48.5
50.3
52.0
55.1
2011
2012
2013
2014
2015
7.5
13%
6%
Real
R GDP growth (per year), %
R
Real GDP growth, %
Logistics
growth (per year), %
Lo
Logistics growth, %
Lo
Freight
forwarding (per year) and value-added services growth, %
Fr
Freight forwarding and value-added services market growth
Fr
Freight forwarding and other value-added services
Freight forwarding and other value-added service
Non-value-added warehousing
Transportation, warehousing and distribution, cargo handling
Other transportation and cargo handling
Road transportation
Rail transportation
Sources: Economist Intelligence Unit, International Monetary Fund; A.T. Kearney analysis
RUSSIAN RAIL, CONTAINERS, AND GROWTH
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27
logistics market in Russia. At a high level this
includes all freight-forwarding, logistics management and value-added warehousing services,
which are outsourced to either second-party or
third-party logistics providers (2PL or 3PL) (see
figure 32).7
Due to the growing complexity of business
and supply chains, and the improved range and
level of services offered by the LSPs, we expect
growth in the freight-forwarding and value-added
services segment to be higher than the rest of the
logistics market. As shown in our top-down
(GDP based regression) and bottom-up (individual development of each market segment) forecasts, the value-added services market could reach
between US$6.4 and US$7.5 billion by 2015,
accounting for as much as 11 percent of the
overall logistics market.
Figure 32
Russia logistics market structure
% of logistics market (US$ billion)
8.6%
Freight forwarding and
value-added services ($27.3)
2.9%
Warehousing and
distribution ($1.2)
9.2%
Stevedoring
($3.8)
1.2%
Inland
water ($0.5)
1.9%
Sea ($0.8)
66.0%
Rail ($27.3)
8.0%
Road ($3.3)
2.3%
Air ($0.9)
Sources: RZD database;
A.T. Kearney analysis
Appendix 2:
Containerization level by industry (2009 and 2015)8
Containerization level (2009)
Industry
7
8
28
Domestic Imports
Containerization level (2015)
Exports
Transit
Total
Industry
Auto parts and components
Exports
Transit
Total
12.0%
92.1%
14.1%
74.3%
37.7%
Chemicals
6.0%
29.9%
14.4%
6.9%
10.6%
2.4%
Construction materials
4.5%
7.5%
2.0%
7.8%
3.9%
9.8%
1.7%
Ferrous metals
0.9%
1.7%
3.0%
10.5%
1.9%
13.0%
7.6%
Food
8.1%
2.8%
1.9%
13.6%
7.0%
Machinery and equipment
24.2%
33.2%
9.2%
31.8%
25.3%
24.4%
Non-ferrous metals
20.6%
33.7%
35.2%
5.2%
27.5%
29.6%
35.4%
Non-food consumer goods
41.1%
53.8%
8.7%
30.1%
39.8%
5.0%
40.5%
Pulp and paper
26.4%
7.2%
63.3%
4.8%
42.3%
0.2%
1.5%
0.3%
Other
0.3%
0.7%
0.2%
1.3%
0.3%
4.2%
4.3%
6.9%
2.4%
Total
1.8%
6.4%
4.7%
4.9%
2.8%
0.6%
1.1%
0.4%
3.1%
0.7%
Empty containers and other
0.6%
1.5%
0.4%
2.7%
0.7%
1.8%
4.5%
4.4%
7.6%
2.7%
Total (incl. empty containers)
2.0%
6.9%
4.8%
5.9%
3.1%
Auto parts and components
7.0%
86.2%
9.8%
67.3%
23.6%
Chemicals
4.9%
24.2%
15.2%
3.6%
9.1%
Construction materials
2.6%
4.6%
1.6%
7.5%
Ferrous metals
0.7%
1.6%
2.7%
Food
9.0%
2.2%
1.4%
Machinery and equipment
19.4%
28.8%
15.5%
31.7%
21.8%
Non-ferrous metals
19.7%
28.1%
28.4%
4.4%
Non-food consumer goods
36.8%
47.2%
9.0%
Pulp and paper
18.9%
6.0%
58.5%
Other
0.3%
0.5%
Total
1.6%
Empty containers and other
Total (incl. empty containers)
Domestic Imports
Freight-forwarding accounts for approximately 70 percent of the value-added segment, warehousing services for 19 percent and logistics management for 11percent.
Based on freight lifted, all types of cargo, excluding coal and oil.
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