Unpredictable and non-transparent pricing in the railway logistics market puts Ukrainian agricultural producers in front of a difficult choice: either buy their own vehicles or stop economic activity.
Grain truck rental is too expensive.
A business model where an agricultural producer could rely on the services and resources of logistics operators (state-owned Ukrzaliznytsia or private railcar fleets) to access markets loses its predictable economic meaning. Reasons: conditions in foreign markets and pricing principles for domestic railway logistics. After all, the price of grain group products fell on world markets to the level of production costs, while there was a sharp unjustified increase in the cost of logistics, namely: the carriage component (rental of grain cars).
Consequently, it was the presence or absence of own means of transportation that began to significantly influence the market position of the agricultural producer and his production plans. After all, the cost of growing grain in 2023 was $150–175. /ton, and at the port it could be sold for $170–195. /ton. You can now transport grain using your own wagons for $20. /ton plus real costs for your car. And for transportation in rented wagons of Ukrzaliznytsia or private fleets, the manufacturer must spend the same $20. tariff + the same real costs (but for someone else’s car) + the sky-high profit of the car owner of 100–200%.
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The result will be plus 30–80 dollars. /ton for transportation in rented cars, so the manufacturer will be left with 100–130 dollars. per ton (despite the fact that he spent $150–175 on production. /ton). This disadvantage from logistics against the backdrop of world prices makes it impossible to grow a number of grain crops that make up the portfolio of most medium and small agricultural producers.
Farmers covered the unprofitability of the first military harvest of 2022 with old stocks. But, faced with the same problems already during the second war harvest, agricultural producers were faced with a dilemma: either look for credit or donor funds to purchase their own transportation means, or stop cultivating the land.
Billions of overspending.
Although there are enough grain wagons in Ukraine and there is even a surplus of them, agricultural producers have rational arguments in favor of purchasing their own. The feasibility study for investing in their own railcar fleets and grain trucks is the cost of renting Ukrzaliznytsia railcars and private fleets, which farmers faced during 2022–2023. According to my careful calculations, farmers are overspending on the transportation element, which is surplus (! ) grain car, reached UAH 11.24 billion. Actually, it is these costs that stimulate investments by agricultural producers in the purchase of their own wagons or cars, because at this price level they will pay for themselves in two to three years.
Another incentive is the example of agricultural producers who have their own working logistics model, which provides transportation services at market prices. This category of agricultural producers (accounting for 47% of the market) did not suffer from the decline in domestic grain prices due to unpredictable and expensive logistics: the zero profitability of growing grain was compensated by the huge profits of the logistics business.
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Why did farmers previously have the opportunity to operate without their own logistics, and what exactly has changed
Until the fall of 2021, rental of transportation vehicles fit well into the business model of agricultural production. For small and medium-sized farmers, it was more profitable to hire a carrier or forwarder than to seek significant funds for the purchase and maintenance of their own transport and wait many years for its payback.
An agricultural producer could order grain wagons from Ukrzaliznytsia through the Mesplan system for any day, and only its instant offer amounted to 12 thousand. potential free cars for a calendar month, not counting the offers of its competitors. “Ukrzaliznytsia” has always satisfied and confirmed at least 12 thousand. wagon shipments/month.
But in October 2021, under the pretext of preventing corruption (which was allegedly present here), the state carrier closed this “free cash desk” and began auctioning only a limited supply of wagon shipments. In October 2023, there were only 500 wagon shipments for the next two months. That is, one fine day instead of 12 thousand. Only 500 carriages became available, and all of them were put up for auction in England. It is easy to predict that the result of such auctions was an increase in prices.
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Instead of competition - heating up prices.
Medium and small farmers who do not have their own means of transportation and who have relied for years on the state transport operator Ukrzaliznytsia, expected that state and private railcar fleets would compete with each other for their cargo, offering better conditions and lower prices.. Obviously, they were not prepared for the fact that private park operators would not compete with Ukrzaliznytsia, but would use its auctions to fuel and support their ultra-high prices.
For example, here is the direct relationship between the Ukrzaliznytsia auction on June 24, 2022 and the economics of agricultural production that year, because it is on July 1 that the entire Ukrainian commercial railcar fleet is fixed in the price of annual railcar rental, and the “ceiling” of UZ auctions serves as a price indicator for it. There are not isolated cases when the owners of private fleets themselves come to the auctions of Ukrzaliznytsia and buy up the limited supply of displayed cars, so that the surplus of cars does not act as in a normal healthy economy, when the excess works to reduce.
There are also egregious cases when, in December 2023, an intermediary comes to the Ukrzaliznytsia auction, who has neither cargo nor an export contract, and immediately sets a starting price of 2,700 UAH/day for the entire small supply of UZ cars.. And during the bidding process, the auction is inferior to the bidder with an offer that is higher than anything by a penny - 2700.01 UAH. Confirming by this the purpose of their participation in the auction is to artificially increase the rental price for the entire Ukrzaliznytsia fleet as a marker for the entire commercial fleet of Ukraine.
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This symbiosis of private business with the state railway monopoly has become a decisive factor in pricing in logistics.. In 2022–2023, it became clear that to support the vital activity of agricultural business in Ukraine, it is no longer enough to engage in production alone. The cost of transportation is supposedly regulated by the state. But the pricing mechanism is distorted by Ukrzaliznytsia functionaries due to additional unlimited opportunities to increase the cost of using cars as an integral component of transportation.
***.
It must be admitted that the attempt to gain independence from the logistics pricing formula, where the monopoly on information and auctions of Ukrzaliznytsia for car rentals serve as a factor and marker of an unreasonable rise in prices, is a story mainly about medium-sized, rather than small, agricultural producers. All assistance from allies, donors, banks requires a professional approach. A farmer who does not have professional lawyers and financiers on staff will not prepare a legal justification for receiving grants or donor assistance for the purchase of his own transport and will have to spend unnecessarily on rent until the end..
This is the same story as in towns where people were disconnected from centralized heating, and then for those subscribers who could not disconnect, tariffs skyrocketed.
Therefore, the attention of politicians, donors and national authorities is needed to change outdated transport technology and principles of interaction, to change policies and regulations, without waiting for the adoption and implementation of transport legislation. Since some of the farmers and even Ukrzaliznytsia itself will not live to see it.
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