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Moody’s: Russian rail freight operators under pressure in 2015-2016

Russian rail freight operators’ margins will come under pressure in 2015-2016 as a decline in cargo volumes becomes more pronounced as demand is falling and railcar surplus is driving freight rates down, international rating agency Moody’s Investors Service informs.

“Russian freight rates are unlikely to improve in the next two years as oversupply problems persist, which will place pressure on all freight rail operators’ margins with pure spot market operators facing the greatest pressure,” Moody’s quoted its Vice President Julia Pribytkova as saying.

Operators with business models based on long-term contracts, such as Globaltrans, or in niche segments, such as TransContainer, will experience less pressure as they are able to maintain comparatively higher capacity utilization rates. However, their profitability will still suffer because prices in these agreements can be renegotiated by shippers on a quarterly or even monthly basis.

Companies with high debt service requirements and exposure to foreign currency risk, such as Brunswick Rail, will face severe liquidity challenges over the coming 24 months.

Moody’s believes that a weakening market and constrained access to funding for private rail freight operators will squeeze out smaller and less resilient operators and leasing companies. The remaining players will need to assume a more disciplined approach to fleet management, with a view to eliminating the surplus of railcars and reducing dumping so that freight rates can rise to economically viable levels.

Source: 1prime.biz

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