Tariff node: how much and why businesses will have to pay for rail freight transportation
9 January 15:54
Ukrainian manufacturers, who are already suffering from high electricity prices, are facing an increasingly acute reality associated with the introduction of higher tariffs for rail freight transportation. Meanwhile, Ukrzaliznytsia, which is mired in debt and losses, is looking for ways to alleviate its financial problems. Komersant investigated whether it is possible to fairly reconcile all these risks and needs.
The situation surrounding the increase in rail freight tariffs is increasingly resembling a kind of “tariff knot” where the interests of many participants are intertwined. On the one hand, cargo owners, who may incur additional costs, are demanding that the specific nature of the cargo be taken into account and are threatening to refuse the services of the railway. On the other hand, Ukrzaliznytsia itself is suffering from debts, unprofitable passenger transportation, rising electricity prices, and a decline in freight volumes.
Government representatives also have a special interest in this issue, declaring their intention to fairly reconcile the interests of all parties — at least so that both those who use the railway services and Ukrzaliznytsia itself can continue to operate. This is especially true given that it is government officials who must approve the relevant proposals from the railway workers. The fact that the discussion about the indexation of Ukrzaliznytsia’s tariffs has been going on for over a year can be seen as evidence that it is very difficult to find an acceptable solution.
The price of the increase for business
The previous increase in freight tariffs dates back to June 2022. It was justified by the need to compensate for the losses caused by the war. At that time, the Ministry of Infrastructure approved Ukrzaliznytsia’s proposal to increase rail freight tariffs by 70% by its order. In mid-2024, there was an attempt to increase tariffs by unifying tariff classes. However, protests from business representatives at the time prevented this idea from being implemented.
The current attempt involves a two-stage increase in tariffs: first by 27% and then by another 11% six months later. Businesses are not enthusiastic about such a tariff increase.
The arguments against it are obvious: increased logistics costs, general inflation, increased production costs, loss of competitiveness, and, as a result, a reduction in production and export volumes. In addition, there is a possibility of a shift to road transport, which would accelerate the deterioration of roads.
But these general arguments against the increase also have more specific dimensions and manifestations. As Irina Kosse, a leading researcher at the Institute for Economic Research, points out, the impact of the tariff increase depends on the share of logistics in the cost price, the availability of alternatives, and the current state of the market in each industry. According to her, agricultural cargo is more sensitive to seasonality and routes, while metallurgists, for example, depend on export logistics chains and port and border configurations.
“Representatives of both industries claim that the tariff increase takes away working capital in a situation where logistics are already expensive due to military risks and attacks on ports. The Ingulets Mining and Processing Plant has already been completely shut down, and ArcelorMittal Kryvyi Rih is operating on one of its three blast furnaces. According to a study by GMK Center, the metallurgical (down 6.9%) and mining (down 5.3%) industries will be the most affected. The cost of a ton of ore may increase by at least $2-3, and a ton of coal by $5-7, depending on the distance of transportation. The agricultural sector expects logistics costs to increase by $3-6 per ton of product, depending on the location of the enterprise. And, for example, a $5 per ton increase in costs, taking Kernel as an example, makes road transport more profitable for distances of 400-500 kilometers,” notes Iryna Kosse.
According to estimates by Ukrpromzovnishchexpertiza, cited in the GMK Center article, a 37% indexation of freight tariffs alone will lead to a reduction in GDP of almost UAH 100 billion, a loss of foreign exchange earnings of UAH 98 billion, annual budget revenue losses of over UAH 36 billion, and the elimination of at least 76,000 jobs. If they are increased by more than 40%, the effect will be even more negative for the entire economy. But Ukrzaliznytsia representatives have their own figures and arguments.
The price of the increase for Ukrzaliznytsia
2025 is already being called the worst year for Ukrzaliznytsia since the start of the full-scale war. 2026 is unlikely to be any better. This year, Ukrzaliznytsia’s budget deficit could exceed UAH 40 billion.
The company also expects significant payments of financial obligations from previous years, amounting to almost €800 million, which is almost a third of Ukrzaliznytsia’s total revenue.
These figures were cited at the end of last year during Infrastructure Day, organized by the European Business Association, by Oleksiy Balesta, Deputy Minister of Community and Territorial Development of Ukraine.
They were presented as an argument in favor of raising freight transportation tariffs. In particular, because freight transportation is the main source of income for servicing Ukrzaliznytsia’s loan portfolio and investments. But will the increase in freight transportation costs be a lifeline, considering that Ukrzaliznytsia reports a significant decrease in transportation volumes compared to 2024?
“In the 12 months of 2025, the volume of grain cargo transportation amounted to 25,856.4 thousand tons (compared to 2024, the volume of transportation decreased by 27.3% or 10,847.8 thousand tons),” Valery Tkachov, deputy director of the Department of Transportation Technology and Commercial Operations at Ukrzaliznytsia JSC, shared this data on Facebook recently.
Of course, among the reasons for the decrease in grain transportation by rail, the inflated comparative base is also mentioned, since in 2024 a record volume of grain cargo transportation was recorded due to the opening of the grain corridor, as well as negative price dynamics for Ukrainian grain at the end of 2025 and logistical complications in November-December 2025 due to attacks on railway and port infrastructure. But the fact is that the volume of freight transport by rail is decreasing. And this applies not only to grain.
Iryna Kosse, a leading researcher at the Institute for Economic Research, continues.
“Ukrzaliznytsia shows that the profitability of the freight segment has fallen sharply: profits from freight transport in 2025 amount to UAH 4-5 billion, compared to UAH 20.4 billion a year earlier. The largest decline in 2025 was recorded in coal transportation — minus 15% due to the destruction of thermal power plants and the proximity of the front line, as well as grain — due to stabilization after peak volumes in 2024. The reduction in production across the country will lead to an even smaller freight base. At the same time, freight transportation is the main source of income for servicing Ukrzaliznytsia’s loan portfolio and investments. Passenger transportation in 2025 generated more than UAH 18.6 billion in losses. The profit from freight transportation is physically insufficient to cover passenger losses,” the expert notes.
Moreover, an increase in tariffs does not necessarily mean an increase in revenue, as rising costs may prompt users to abandon rail services and switch to road transport.
For example, Anatoliy Amelin, a member of the Supervisory Board of JSC Ukrzaliznytsia, recently said:
“We conducted an internal study which showed that a 20% increase in tariffs would lead to a 19% drop in freight traffic.”
According to the expert, raising fares without solving Ukrzaliznytsia’s other problems could make things worse, because some customers would just stop using the railway.
In search of a fair solution
Debts, unprofitable passenger transportation, rising salary and electricity costs, and falling freight volumes all indicate that an increase in freight tariffs and state support for Ukrzaliznytsia’s passenger transportation in 2026 are inevitable. This is the conclusion reached by Iryna Kosse, a leading researcher at the Institute for Economic Research.
If so, what should such a decision be? According to Iryna Kosse, the increase in freight rail tariffs should be sufficient to eliminate the risk of transport stoppages in 2026, and this should be done in a predictable and differentiated manner.
“If we keep postponing the indexation of tariffs, we will either get a big one-off shock, as was the case in 2022, or even greater losses for Ukrzaliznytsia. According to the company itself, the planned indexation — initially 27% and then another 11% — will only partially offset accumulated inflation and producer price growth, as the producer price index has already risen by 79% since the last tariff review. Accordingly, the indexation should at least catch up with the accumulated costs and inflation. Or the difference should be covered by the state. And Ukrzaliznytsia is hoping for state funding for passenger transport,” the expert notes.
As for the differentiated approach, it is primarily about taking into account the specifics of the industries when determining tariffs. For many, this is synonymous with fairness.
During a recent discussion on the LB.talks platform, Ukraine’s Minister of Economy, Environment, and Agriculture Oleksiy Sobolev supported this approach, stressing that Ukrzaliznytsia’s tariff changes should be approached in a balanced and careful manner, because for some industries, the burden of the tariff increase — due to the current tariff system — is almost twice as high as for others.
“For ore and agriculture, the tariff increase will add 600 hryvnia per ton. For crushed stone, it will be, I don’t know, 300 hryvnia. Based on the idea of fairness, why should agriculture and the mining and metallurgical complex subsidize builders?” the head of the Ministry of Economy said at the time.
In his opinion, the costs of Ukrzaliznytsia should be distributed fairly among the industries. And those same farmers are in favor of fairly set tariffs. Says Denys Marchuk, deputy head of the All-Ukrainian Agrarian Council.
“There are different classes, but the agricultural class of transportation is already very expensive. They now want to raise it by 27%, then by 11% in six months, for a total of 38%. And this is despite the fact that farmers pay the most. We say: if you want to level the financial capacity and efficiency of Ukrzaliznytsia, then raise the classes that pay significantly less than the market price. All this needs to be addressed,” the expert notes.
Ukrzaliznytsia has expressed its willingness to discuss how to redistribute the planned tariff increase among tariff classes or to unify them. However, there are nuances in terms of unification: according to Ukrzaliznytsia, unification should not mean a reduction in tariffs, but rather an increase to the highest class.
The company’s CEO, Oleksandr Pertsovskyi, explained it this way:
“There is the highest class — fuel transporters, the middle class — mainly agriculture, and the lowest class — metallurgy and coal, etc. When it comes to unification, no one is going to lower prices, because then various authorities will come after us. Therefore, we can only raise prices to the highest class.”
Judging by the fact that there is no confirmation of the new tariffs at the ministerial level, an agreement has not yet been reached. Both Ukrzaliznytsia and businesses are looking for a fair compromise. They are also awaiting a systemic reform of tariff setting, which is to be developed by the Ministry of Community and Territorial Development with the involvement of relevant associations.
Author: Serhiy Vasilevych
