Problems with Russia’s rail system stymie fish transportation

Russia’s wild-catch fisheries are in line to set another record in 2018, with estimates pointing to a total of more than five million metric tons (MT) of catch. Much of this year’s success can be attributed to the country’s salmon season, which has surpassed even the most optimistic of expectations. 

Yet, in the first seven months of 2018, transportation of fish by rail fell by 7.1 percent compared to the corresponding period of last year, according to data from the Russian Railways company, the monopoly operating all railways and most locomotives in Russia. 

The challenges facing rail companies – and the seafood firms that use Russia’s railways to transport their catch – have been compounding over the years. Insufficient railway infrastructure, lack of rolling stock, flaws in regulation, and market price distortions, have together resulted in a situation now deemed untenable by many operating in both the rail and seafood industries.

The origins of the problem lie with Russia’s own geography. Nearly 75 percent of Russia’s catch is harvested in the country’s Far East region, which lies several thousand kilometers away from Russia’s most populated areas in the country’s west. A railway between capital Moscow and the city of Vladivostok, a major fishery hub in the Far East, is more than 9,000 kilometers long. 

Further compounding the issue is the fact that fishing in Russia is highly seasonal, with the country’s salmon season lasting through the mid- to late-summer and ending in early fall. A lack of cold storage and shipping capacity has impeded fishing companies’ ability to get fish delivered to end consumers in a fast and inexpensive way.  

The unstable demand also results in wild swings in pricing for rail transportation. In the low season, the average rate for transporting a kilo of fish from the Far East to the central regions sits at around RUB 10.5 (USD 0.15, EUR 0.13). But during this year’s peak salmon season, the average rate for the same route shot up to between RUB 13.5 and 15.5 (USD 0.19 and 0.22, EUR 0.16 and 0.19) per kilogram. The result has been bitter fighting between railway companies and fishing companies, each accusing the other of unfair business dealings.

The battle has been brewing ever since the Russian government-initiated reforms of the country’s railway system in the early 2000s, allowing for the establishment of private companies in the industry. The typical private rail operator in Russia possesses its own rolling stock, serves ship owners, and pays Russian Railways for having rolling stock pulled from station to station. But the prices it pays to Russian Railways are still set by the government. Squeezed between Russian Railways’ fixed pricing and what its clients can pay for rail services, private operators often operate on tight margins.

“To avoid the seasonality, we proposed fisheries to establish reasonable prices for transportation and sign a contract for year,” Anton Sukhorukhih, the business director of Dalreftrans, one of the biggest owners of refrigerated rolling stock, said in an interview with Fishnews agency. 

Sukhorukhih claimed this approach would make it possible to get rid of the price volatility and create the stability. But, he said, his company managed to find only two seafood firms willing to agree to such cooperation. 

“Everybody likes when our rates are very low because of weak demand, but everybody somehow doesn’t like when we try to compensate our losses when demand is high,” he said. 

Mikhail Sinev, the head of the Association of Owners of Refrigerated Rolling Stock (AORRS), said that railway operators have no room for lowering their rates. Much of year, they are forced to work with negative profitability, and their pricing in the high season is their attempt to try to make up for lost income.

As to complaints that the rail companies lack adequate infrastructure to cope with the amount of seafood traveling by rail, Sinev said operators in his organization are unable to invest in the renovation and expansion of their fleets due to market price distortions that leave them constantly on the verge of bankruptcy. In addition, some kinds of rolling stock have not been manufactured for 25 years, so the fleet is set to start decreasing in size in the near future. Up to 80 percent of rail operators may cease their business in the seafood sector, Sinev said. 

The issue was the topic of an August meeting between rolling stock operators, Russian Railways, Russia’s fisheries agency Rosrybolovstvo, and the All-Russian Association of Fishing Industry (VARPE), Russia’s largest fish industry association. At the meeting, Russian Railways official Alexei Shilo said the group would push for government help to smooth out the pricing discrepancies faced by the rail and seafood industries.

“We will work on subsidizing fees for the transportation of fish products on the same principle as the transportation of grain,” Shilo said, according to PrimaMedia.

At a follow-up meeting in Vladivostock,  Rosrybolovstvo deputy head Petr Savchok said his agency is looking into a plan to create five large wholesale and logistics centers specifically designed to handle products from the Far East. Savchok said the agency is considering placing the terminals in Novosibirsk, Yekaterinburg, Rostov-on-don, Saint Petersburg, and Moscow, Dalrybholod reported.

The meeting concluded with calls for rail carriers and seafood companies to continue talks on the signing of long-term contracts for the transportation of fish products on Russian rail lines that would ensure both a fair price and sufficient capacity.