Competitive environment

Despite the leading position in the country, railways face competition from road and sea transport. Responses, which allow revealing the competition aspects between different modes of transport, are presented in Table 9.

Choice on mode of transport for other than bulk commodities is more and more dependent on cost, convenience and effectiveness of cargo delivery, and downsides of railway transport can cause shift of cargo flows to another transport mode. Being free from the monopolistic power of one company operating in the sector, sea and road modes of transport have more opportunities to improve their performance due to tougher competition inside the sector, while railways lose this chance.

Table 9. Competition between railways, trucking and sea transportation.

Bulk cargo is more suitable for railway transportation because of the price and volumes, but it is easier to transport other types of cargo by road.

For example, railway transportation from Asian-Pacific Region to Europe by block trains from Russian ports of Far East (Vostochnyi and Vladivostok) to Moscow, other regions of the Russian Federation and Kazakhstan, became more attractive comparing to sea transportation in terms of increasing of sea freight rate.

Rail transport is not able to quickly react to changes in the market, if compared to road transport mode.

Quality level of services offered by trucks is higher than by railways, i.e., time of delivery is shorter.

Container truck can be driven by road directly to the customs, where the customer wants to make the customs clearance. Rail transport is not as flexible in this manner. Containers have to be transshipped from rail to road to make the customs clearance, which increases costs.

There are some cases when it seems that railway transportation is to be more logical, but in fact after checking all the factors and details, it appears that truck delivery is more effective.

There are difficulties in serving the cargo, which should be picked up or delivered to the port of Saint-Petersburg, because there is only one road connection for trucks to the port, which is situated in the city. Difficult traffic situation in the city makes usage of the port inconvenient.

The recent development has been the fact that road transport distances have increased (i.e. the average distance per single transport has increased). Road transport is more flexible than rail transport.

Russian ports are still in less competitive position and lose part of cargo flows.

The Sulphur Directive is not applied to Russia, i.e., the Russian ports will actually benefit from the Directive. This will affect the flow of goods, as well as the routes.

In case of cargo transportation for long distances competition may be observed between railways and sea transport. Respondents agree that today transportation in block trains by rail helps to make freight carriage less costly comparing to the deep sea route, where growth of freight rate is observed, otherwise the choice could be done in favor of marine transport. Additionally, despite Russian ports are actively developing at the moment, they still do not provide the level of services required. For example, infrastructure of some ports and their connections to other parts of transport network in the region does not meet requirements of customers.

Interviewees mentioned that railways and roads have different significance for the country, and there always will be cargo, which is suitable to be transported by only one mode of transportation (either railway or road). Considering short and medium distanced transportation, motor transport has such advantages as flexibility of routes and ability to carry out door-to-door delivery, possibility to form dispatches of different sizes, avoiding unnecessary transshipments of cargo etc., which all combined can positively influence decision-making towards trucks. Benton et al. (1994) argue that the competitive distance for motor transport is up to 320 km, while interviews revealed that in Russia truck transportation is more efficient in terms of price and time of delivery on distances up to 3500 km (i.e., Moscow - Novosibirsk). Thus, talking about smaller volumes of transportation (less than train size), respondents outlined that there is high possibility these volumes could be picked out by trucks.

It was recognized by interviewees that Finland with its well developed port infrastructure has enough transport capacities to handle existing cargo flows to/from Russia or further and is able to provide more competitive transport services of higher quality regarding ports operations. However, price competitiveness of this route can be harmed by introduction of the IMO Sulphur oxide regulation, which provides strict oil sulphur limits for every vessel operating in the Sulphur Emission Control Areas (SECA), including the Baltic Sea. To achieve the limits established by the regulation, vessels should use either fuel of better quality or be reequipped with better engines (having scrubbers in use), which in any case will be reflected on the final price of transportation. Yet, Russia does not necessarily come under the influence of the Regulation, which may bring additional cargo flows to Russian ports.

In such situation, to support Russian ports, provide them with sufficient cargo volumes and strengthen domestic transport system, well-developed transport links to ports should be built. Thus, according to interviewees, roads should be constructed in the first instance and railways, on a second-priority basis. The background for this sequence is

predetermined by the fact that road infrastructure develops faster comparing to the railway one. It requires fewer investments, which can be returned within shorter terms.

“It is not reasonable and unprofitable to construct railways until the construction of the port is done, because it will stand without use.”

In case of railways, bigger investments are required, and their payoff period is longer.

Moreover, it is not feasible to construct railway line before the completion of port’s construction, because in the event of absence of volumes it won’t stand without use and railway infrastructure will just outwear, while roads are more flexible and can be used, for example, for civil traffic.