Eurasian transport market promises to stay very high

United Transport and Logistics Company (JSC UTLC) was established in November 2014. The operator’s shareholders are Russian Railways, the National Union Belarusian Railway and the National Company Kazakhstan Temir Zholy. All three state-owned companies, part of the Eurasian Economic Union, decided to establish the new freight transport operator to optimize railway activity on the Eurasian transit corridor ensuring traffic between Europe, China and South Asia.

Pamela Luica is talking with… Alexey Grom, United Transport and Logistics Company (UTLC) – President

The tariff policy, speed, rhythm, regularity of services and simplification of documentation are among UTLC’s advantages when it comes to shifting freight volumes to railways and reinforcing its market position as main source of ensuring freight transport on the East-West axis.
On a distance of 5,430 km, UTLC ships goods in 5 days at an average of 1,075 km/day. The company’s priorities for this year include increasing the distance covered per day (to 1,150 km/day), thus reducing the transport time to 4, 5 days. And UTLC’s ambitions don’t stop here: for 2025, they plan to reduce the goods delivery time to 3, 5 days (with 1500 km/day).
In 2016, the traffic volume of Asia-Europe route exceeded 100,000 TEUs, two times more than in the previous year, the total number of trains amounting to 1,177. These are only few figures that clearly prove the company’s evolution from one year to another.
UTLC’s services focus on two axes: U West, that leaves from different Chinese locations, through Kazakhstan, Russia and Belarus. From here on, the goods are delivered to various European destinations; the U East service ensures the transport of freight from Western Europe to Brest (Belarus) and from here the goods use the railway network from Russia and Kazakhstan, Dostyk / Altynkol Station being the central point from where freight is shipped to China.

Some projects:
• Last year, UTLC launched the operation of the first container train from Altynkol (Kazakhstan) to Brest, as part of the transport services on Europe-China corridor, on a distance of 5,466 km;
• DB Cargo Russija and UTLC signed the Transport and Forwarding Services Contract, through which Germany’s network, and implicitly that of Europe, is directly connected to that of Russia, Kazakhstan and Belarus;
• In 2017, UTLC accepted a container group from London to Yiwu (China) in order to establish a container transport service within U East (Brest-Dostyk);
• As part of a cooperation agreement signed with Lithuanian Railways, UTLC will ensure the transport of freight from China, via Lithuania, while the pilot project on the transcontinental route will be launched this summer.
UTLC is an example of regional cooperation between seve-ral companies leading to the provision of transcontinental freight transport services, a boost in rail transport competitiveness, the efficient use of rolling stock, and last but not least, to meeting the international objectives, such as China’s ”One Belt, One Road” initiative.
In the interview below, Alexey Grom, UTLC President, kindly explains for our readers the company’s operation mode, why it is important to focus on the customers’ demands and to meet the objectives created for developing the company and attracting freight flows to railways, as well as the main steps an operator has to take to implement its development strategy and consolidate market position

Russian Railways, Belarusian Railway and Kazakhstan Temir Zholy are the shareholders of United Transport and Logistics Company (UTLC). What is the contribution of each national company to the good operation of UTLC and use of rolling stock and fixed assets?
Alexey Grom: The main contribution from our shareholders is the confidence given to UTLC for the development of the most important Eurasian corridors going through 3 countries. By signing the company’s new operational model in May 2016, JSC Russian Railways, the National Union Belarusian Railway and JSC National Company Kazakhstan Temir Zholy gave us the right to choose ourselves all necessary assets, marketing and technological tools to be more competitive and effective on the market. And if we see the necessity and advantage to use shareholder’s assets – we take it. If not – we take assets from “third party”. Important point in the relations “shareholders-management” – rights without obligations can bring chaos. Together with rights we’ve got obligations in terms of corresponding volumes and responsibility for a complete technology at our basic corridor. And now, as you can see, we must be very positive about each other’s contribution in 2016 results. Although, I haven’t seen in my life an absolutely happy shareholder. After   2016 gone – we’ve got new targets from them and that always positively affected on our intention “to win again”.
After more than two years since its establishment, UTLC’s traffic volumes are constantly increasing. The company’s development strategy stipulates an increase of 1 million TEUs by 2025 compared to 100 thousand TEU (in 2016).

What are the steps to take to meet this objective?
Alexey Grom: The main steps are quite simple – we must save and develop our competitive advantages in cost saving leadership, in service quality and in following our business model principles. Key business model factors – open doors, transparent cooperation with clients and partners, competitive tariff policy. In terms of technological KPI – speed, regularity, safe and security of all our services.
I don’t want you to overload with the figures, just stress some points which are very important for us and might be interesting for you:
– The volume of transit traffic from Asia to Europe by container trains of JSC UTLC in 2016 amounted to 101 thousand TEU and more than 2 times exceeded the indicator of 2015, when 47 thousand TEU was transported.
– We had no cargo losses or damages during 2016 in our services;
– We have reached the speed exceeding 1,000 km per day during 2016;
– Our trains are passing the distance of 5,5 thousand km in 5,5 days and we have plans how to make it shorter in 2017;
– Our operational efforts and regular work for cost cutting allowed us to decrease the complete rate for 25% since 2015;
– We have from 6 to 8 trains in both directions today on daily bases and we still have more capacity to organize more trains for your company.
1 million TEUs in our services is a complicated, but very attractive target. We will do our best to make it in close and mutually beneficial cooperation with our clients, partners and shareholders.

How do you see the competitiveness level of railway transport and of the logistics sector in the Eurasian area? How would you characterise competitiveness in Europe and Asia?
Alexey Grom: Across Europe we are seeing structural change in the markets for rail freight.  More generally, freight and logistics is changing in response to the demands of e-commerce and online shopping.  So, the most pressing issue for operators is how to respond to this change, to meet the demands of customers in new sectors, and how to innovate to deliver better services.
We are very happy that the geography of our customers is developing in China and in EU as well.  The recently launched container trains from China to France and even to London were done in UTLC services.
New shipment points, new destinations and new routes are making us more concentrated on how to make this service more attractive for the clients.
If we talk about real programs aimed at supporting the railway sector, the Government in the UK is supporting rail freight and has a recently published strategy on how it can best do this.
More than three years ago, Chinese President Xi Jinping proposed to build the Silk Road Economic Belt and the 21st-Century Maritime Silk Road.
In May 2015, top leaders of China and Russia agreed in Moscow to integrate the Silk Road Economic Belt with the framework of EAEU. In 2017, a Belt and Road summit will be held to further map out the blueprint of the initiative, explore business opportunities and deepen alignment of development strategies between China and the relevant parties.

Although maritime transport is still the mode of choice in the transport of goods on Europe-Asia route, railway transport services, which are increasing in numbers, prove the efficiency of railway transport, in terms of both time, but also costs. Keeping in mind the advantages and disadvantages of the two transport modes, how could railways attract a higher volume of goods?
Alexey Grom: Annual volume of Eurasian shipments today exceeds about 22 million TEUs. More than 90% is transported by deep sea routes.
In the same time, significant growth in rail transport make us believe that demand will be rising up and more and more companies will join sooner or later the benefits of our common Eurasian rail system.
The train will never replace shipping but offers a much quicker transit time which is important for some higher value goods.
Our marketing target is to convince customers that there is a competitive rail alternative to deep sea route by rail which is fast, safe and might be interesting for those who want to have three times shorter arrival time for the products designated to European or Chinese markets than by sea, and ten times cheaper than by air.
We understand that we cannot satisfy all Eurasian market with rail as the market is very big. We cannot make a train with 15 thousand TEUs, but we can ship 150 TEUs from one border to another every 4 hours today. And it’s going to be safe, fast and competitive. The tariff level is an important issue. As I said – we pay a lot of attention to cost cutting programmes so to provide customers with better figures. Some tariff actions have been done already in 2017. Some of them will be announced soon.

UTLC is an example of cooperation with three national companies in its structure. What are the opportunities of such a cooperation? What are the advantages of choosing freight transport by transiting the railway networks of Russia, Kazakhstan and Belarus, on Europe-China axis?
Alexey Grom: We are the freight forwarder, created by 3 infrastructural state own companies. So, our competitive advantages are very much corresponding with a strong and reliable position of our shareholders. On the other hand – UTLC is providing additional benefits in terms of technological and technical cooperation between carriers, wagon and terminal operators, and forwarders. Focusing on above mentioned cooperation – our customer-oriented strategy is to be the most cost effective and high standard service provider on the main Eurasian railway transit routes.
We do our service on “all included” basis at 1520 railway gauge. Our clients only need to bring container at the border terminal. We don’t expect these boxes only by rail to our dry terminals. You can bring it by track or even by horse. And in 5 days it will be at another side of the Eurasia.
It’s very similar to sea shipping company’s business model. But instead of a ship we have organized trains which are delivered to dry ports in EU.

In December 2016, UTLC launched the 30th regular service on China-Europe-China axis by increasing transport volumes. What projects do you have in plan for the next period and how will they meet the customers’ demands?
Alexey Grom: The number of regular routes in the services of JSC UTLC at the end of the year reached 33, compared with 19 directions at the beginning of 2016.
We have a business plan for other services to be started in 2017. As to the shareholder’s agreement – these services should be approved by the Board of Directors. The management has sent the proposals and hopefully new UTLC service notices will come soon.
We are very delighted that the list of cargoes transported in UTLC services is growing up.  Mostly it is electronics, auto components, industry equipment, clothes and food products. Recently we have developed the new service proposal for specialized containers. Hopefully that will increase the interest to our services from chemical and food industry companies.

What can you tell us about UTLC’s rolling stock fleet? What about future vehicle procurements (locomotives, cars) and what is the financing method of these projects?
Alexey Grom: UTLC business model’s configuration enables us not to be pressed with any heavy assets. We enjoy the full freedom of the best market offers concerning wagons that finally lead to the best rates for our clients. In case of necessity – we can make a fleet of own cars but there’s no need for this yet. We are quite packed from wagon operator’s proposals.
Concerning locomotives – they are provided by our shareholders, their usage cost is included into railway infrastructure tariffs.

As UTLC also activates in the Eurasian Economic Union, an important region for China’s “One Belt, One Road” initiative, what is the company’s contribution and how does it align to the concept of developing this global initiative?
Alexey Grom: Of course, we support it and a big part of our company’s strategy is along to «One belt – One road» philosophy. Some people see this «one road» going through main ocean deep sea routes, some – through the blue skies by air. We are the railway company focusing on providing the high standard service on rail infrastructure. For us OBOR initiative is like a big doping to be more competitive and customer-oriented, and latest growth in rail transport makes us believe that the demand will be rising up and more and more companies will join sooner or later the benefits of our common Eurasian rail system.

In your opinion, what are the traffic estimates in the EAEU area, but also on China-Europe route?
Alexey Grom: Despite the crisis in world economy the dynamic of trade between two world major economies – China and Europe is showing stability and even gives growth in 2016 compared to 2015.
So, the potential of the Eurasian transport market size promises to stay very high. The key role of China in cargo flows and the orientation towards land corridors make the forecasts of volumes very optimistic for all corridors and players.

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