Globaltrans is a leading private freight rail transportation group with operations in Russia, the CIS and the Baltics. We focus on the transportation of key industrial freight including metallurgical cargoes, oil products and oil, coal and various construction materials. Globaltrans is a pure play freight rail operator with advanced logistics, high fleet utilisation and low Empty Runs.
Freight rail transportation
The core freight rail transportation business contributed 87% of Globaltrans’ Adjusted Revenue in the first six months of 2013. The Group’s Freight Rail Turnover amounted to 78.7 billion tonnes-km with 51.2 million tonnes transported in the first six months of 2013. Globaltrans’ extensive transportation network covers all major industrial regions in Russia, part of Ukraine and Kazakhstan. The Group’s Market Share of the overall volume of freight transported in Russia by rail amounted to 8.5% in the fist six months of 2013 with the strongest share gains in metallurgical cargoes (23.4%).
The Total Fleet of Globaltrans consisted of 64,945 units as of 30 June 2013, 95% of which was owned by the Group. The Group’s business model is based on striking the appropriate commercial balance between universal gondola cars and rail tank cars. In general, universal gondola cars are the backbone of the fleet, constituting 62% of the Total Fleet as at 30 June 2013. Having a significant proportion of the fleet made up of universal gondola cars enables the Group to react rapidly to changes in transport requirements for different types of bulk cargoes. Rail tank cars employed in the stable market for rail transportation of oil products and oil make up the balance, accounting for 35% of the Total Fleet at 30 June 2013.
The scale of the Group’s fleet and quality of service offering enables Globaltrans to provide services to some of the largest Russian rail transportation customers and offer a “one-stop-shop” to our key customers that have production facilities, suppliers and cargo destinations in multiple locations. The Group currently works with over 650 customers across Russia and the CIS region. The backbone of the Group’s customer base includes blue-chip companies in the metals and mining industry such as Evraz, Mechel, Metalloinvest, MMK, Severstal and TMK as well as Gazpromneft, LUKOIL, Rosneft and RN-Holding (former TNK-BP) in the oil products and oil industry.
Metallurgical cargoes (including ferrous metals, scrap metal and iron ore) are the largest operating segment for Globaltrans. Historically the Group has focused on the transport of metallurgical cargoes as the specific logistics and production cycles of metallurgical and steel producers makes for efficient fleet management and strong asset utilisation. In the first six months of 2013 the segment contributed 33% of the Group’s Freight Rail Turnover, giving Globaltrans a Market Share of 23.4%.
Oil products and oil is another large freight segment for Globaltrans and contributed 50% of the Group’s Freight Rail Turnover in the first six months of 2013. Historically this sector has proved to be the least volatile, most consistent performer of all rail cargo segments in Russia.
The Group is also active in the segments for freight rail transportation of coal and construction materials which contributed 9% and 5% of its Freight Rail Turnover in the first six months of 2013 respectively.
Globaltrans manages the dispatching and routing of its rolling stock to make its utilisation commercially efficient on outbound as well as on return journeys. The Group’s control centre has access to the IT systems of OJSC Russian Railways and direct communications with railway centres throughout Russia. The centralised IT systems’ management of rolling stock, modern tracking technologies and permanent data exchange all make it possible to monitor and optimise movement of cargo on a real-time basis.
The second major service offered by the Group is railcar leasing which contributed to 9% of Group’s Adjusted Revenue in the first six months of 2013. Railcar leasing is an important part of the Group’s service offering to customers, with key markets being in Belarus, Kazakhstan and Russia. The Leased-out Fleet is comprised primarily of rail tank cars and amounted to 10,254 units as at 30 June of 2013. The majority of leasing business operations is concentrated in the Group’s Estonian subsidiaries, AS Spacecom and AS Spacecom Trans.
Rail freight transportation market in Russia
The Russian Federation is the largest country in the world by territory and is characterised by significant distances both between population centres and between suppliers of raw materials and their intermediate or end customers. The railway system is the key mode of transportation in Russia with an operational length of over 85 thousand kilometres as at the end of 2011, making it the third largest rail network in the world in terms of track length.
Rail plays an integral part in the freight transportation market in Russia, comprising approximately 44% of the country’s overall freight turnover in 2012 and 85% if pipeline traffic is excluded, according to Rosstat. The high share of rail in the Russian freight transportation market is driven by the country’s geography, the economic importance of commodity production and heavy industry in Russia as well as by the limitations of other transportation networks.
Reform of Russian rail freight transportation market
A significant factor in both the recent growth and the future prospects of the Russian freight rail industry is the ongoing programme of structural reform of rail transportation in Russia (the Reform). The Reform was initiated by the Russian government in 2001 with the goal, among others, of satisfying the growing demand of the Russian economy for transportation services by increasing the efficiency and stability of the existing rail infrastructure. In particular, the Reform was designed to attract investment, including private investment, to the sector, which is burdened with an ageing fleet of railcars and locomotives and an infrastructure that requires substantial investment.
While Russian Railways retains a monopoly in the provision of rail infrastructure and is by far the major player in the provision of locomotive traction services, the regulatory framework provides third-party operators with a legal right to access such infrastructure on a non-discriminatory basis alongside Russian Railways and its subsidiaries. The competitive landscape in the Russian freight rail transportation market has changed significantly since commencement of the Reform in 2001. Private operators have been expanding their fleets through the acquisition of new railcars, increasing their share of all Russian railcars from 31% as at the end of 2005, to approximately 75% as at the end of 2011, according to Russian Railways.
The fleet of rolling stock in Russia consists predominantly of general purpose rolling stock such asgondola (open top) cars, and specialised rolling stock. The overall Russian railcar fleet amounted to approximately 1.1 million units as of the end of 2011 according to Russian Railways.
The most common type of railcar in Russia is the gondola (open top) car (c.43% of the overall Russian railcar fleet as of the end of 2011). Gondola (open top) cars can be used to carry a wide variety of cargoes, including ferrous metals, scrap metals, ores, crushed stone, coal, timber and even containers. Rail tank cars, the second most common type of railcar in Russia (c.24% of the overall Russian railcar fleet as of the end of 2011), are designed to transport liquid and gaseous commodities and are used mostly for the transportation of oil products and oil.
Pricing in the Russian railcar sector
Pricing for railcar services in Russia is unregulated except for services provided by Russian Railways which operates some of its own railcars (predominantly non-commercial fleet) and railcars leased in from its subsidiary, Federal Freight (former Freight Two). Prior to the creation of Freight One and Federal Freight and the subsequent privatization of Freight One by Russian Railways, the regulated railcar tariff charged by Russian Railways was an effective benchmark for the market. However, since the majority of the Russian commercial railcar fleet is no longer owned by Russian Railways, the significance of the regulated railcar tariff as a market benchmark has reduced significantly.
Freight rail transportation volumes
Freight rail volumes in Russia are largely comprised of commodities such as coal, oil products and oil, metals and ores, and construction materials. Russia has historically witnessed high levels of correlation between growth in GDP, industrial production and in freight rail turnover. In 2012 the overall Russia freight rail turnover amounted to 2,222 billion tonnes-km with 1,272 million tonnes transported.