Rail Garant publications

Rail Garant (RG) is a transport holding which unites owners and operators of rolling stock. According to experts, the orientation of the company for comprehensive services rendition to the partners in the rail freight industry is one of the key factors that allowed the company to become a leader. Roman Kotenko, General Director, told us about company's development strategy and the new challenges facing RG.

PRIORITY FOR GENERAL-PURPOSE FLEET

- Roman Alekseyevich, Rail Garant is a major player in the rail market and it is not limited to some certain kinds of cargo, types of rolling stock or region of transportation. By what such “stratification” is dictated and which of the activities are priorities at the moment or will become so in the near future?

Specialized companies have one or two types of rolling stock or which are limited in the geography of transportation are generally quite vulnerable, especially when it comes to specialized railcars. In other words, they are less adapted to survival in a changing market environment than companies with a differentiated fleet of cars and activities.

Until 2010, the RG group was more focused on a specialized rolling stock. In this regard, Pipe Transport Company (PTC) is an illustrative example, the main activity of which was originally the carriage of large diameter pipes. Of course, the focus on any particular segment given a competent strategy allows to achieve a leading position as is the case with PTC. However, operation of specialized rolling stock carries certain risks. Minimization of such risks is possible through increasing the share of general-purpose cars - more sought after fleet with positive dynamics of growth of profitability and value as an asset.

Therefore, taking into account market conditions and the trend of increasing freight, it was decided to diversify the fleet of cars and to shift the focus of Rail Garant towards versatility. Now out of a total fleet of 20,000 units, more than half accounts for general-purpose ones, in particular open wagons (about 8 thousand units). Considering this fact, we can say that the priority now for us is, first, the cargo carried by means of general-purpose fleet - coal, iron ore, other bulk commodities of mining and metallurgical and other industries. Secondly, liquid cargo carried in special tank containers and tank wagons.

- You came to the RG from another large holding; in connection with this, should any changes be expected in the company’s policy?

My primary task in Rail Garant is to build a business system, streamline business processes. The Group is under active development. Therefore, it is now more important than ever to build a system that will become solid foundation for the further implementation of existing projects and to develop new business directions. In this respect, a good school for me was SIBUR. I am convinced that the practical experience to effectively manage an organization, which I’ve acquired in this company, will help me in achieving the goals.

- Should there be expected a change in the structure of RG or new business units emergence connected with the implementation of new projects and new business directions development in the near future?

Significant changes will not happen, but some innovations are inevitable. The main change was the creation of the management company RAIL GUARANT FINANCE which outsourced finance, accounting, personnel and other functions. Thus the Group’s companies retained productive functions. At present, a technical directorate of Rail Garant is being formed. Also, the Group plans to create a separate entity whose main task will be development of container shipping and terminal in Muuga. Other structural transformations are not expected in the near future.

On the other hand, we understand that innovation is the key to successful development of the company. And so we constantly strive to introduce innovations that improve competitive advantage and effective development of the Group as a whole and each company separately. This is reflected in the use of advanced models of high volume tank-wagons, covered wagons with higher payload and adopting modern software, development of new logistics schemes, in particular for the project for development of a container terminal in Estonia. This approach to do business allows us to be in the vanguard of the Russian railway market.

CLIENT DICTATES CONDITIONS

- What goals has RG to achieve at the moment and where does that choice come from?

During the next two-three years Rail Garant plans to consolidate the position of one of the leaders in Russia's railway market in terms of traffic and the number of rolling stock. Turning from the aggressive increase of fleet in 2010 to more quiet now, the development strategy of the Group envisages increasing of operational fleet to 25,000 cars by the end of 2013. Also by the end of 2013 in case of a successful project on developing a container terminal, Rail Garant will come to a new stage of development, becoming a full participant in the international transportation market.

- It is believed that in the near future, the success of the company will determine its ability to carry out multimodal transport operations. It is believed that clients are primarily interested in “door-to-door” services. Do you think that RG should provide a full range of services, or success is determined primarily by the focus on some key areas where the company must be truly the best of the best?

Multimodal transportation without a doubt is a promising area of activity. But I want to note that the company's ability to provide service to such a level is not always a decisive competitive advantage, simply because the customer is not always needed for the “door-to-door” transportation system. Indeed, it is the consumers who form a range of services offered by the company. If the customer needs such service, the company should be able to provide a service of this kind.

Rail Garant Group provides multimodal transportation as well. Moreover, we have all the opportunities to further develop this line of work. I mean the existence of container platforms, which are used for temporary storage of goods, and for transshipment to other means of transport. We are planning to increase the number of such sites in different regions of Russia to ten. As for the second part of your question, trying to be really the best of the best is necessary in any kind of activity. This is the key to success of every company that is planning to take their rightful place in the industry. Speaking specifically about Rail Garant, we will be among the best, because that is our motto (“Rail Garant Group – created to be the best!”, Ed.). We realize the ambition of this statement and therefore we will endeavor to do everything possible to prove it in practice.

READY TO INTENSIFIED COMPETITION

- How do you see the future of the railroad market? Do you think the projections, according to which the steel pipeline will lose competition to other transport modes, are justified?

Talking about inadequacy of rail transport and predicting the shift towards road transport in Russia is not quite right even with all the existing problems of the railway industry.

If we look at the history, railroads have always been occupying a leading place in the transport system of Russia. According to statistics, it accounts for about half of the turnover of all kinds of public transport. Even during the economic crisis the fall of freight by rail was minimal - about 15% in comparison for example to the automobile - 24%. This is an obvious indicator of its high resistance to various kinds of economic fluctuations in the country and the world in general.

Road transport is preferred for transportation over short distances - up to 1000 km. The average distance of transportations in Russia by rail is more than 1600 km. This is related to remoteness of the sites of production of raw materials from the points of consumption and seaports. In such circumstances, the benefits of rail are beyond any doubt.

Moreover, do not forget that the road infrastructure is also quite limited in its capabilities. Therefore, the probability of significant vehicles share increase is small. The efficiency of the rail transportation in Russia must undoubtedly be increased. This requires solving a number of important issues related to the increased empty runs, lack of locomotives, high tariffs on transportation.

- According to your opinion, how will transform the operator services market in the future?

Probably in the next few years it will tend to the enlargement of operating companies, through mergers and acquisitions of small operators of large holdings. As a result, the number of major operators may be reduced to 20-30. We are also willing to consider the possibility of acquiring smaller operators.

- Rail Garant Group joined the Council of Members of Railway Rolling Stock Operators Services Market NPP this year. You are a member of the Presidium of the organization. In your opinion, does the Council contribute to addressing problems in the rail industry or not?

Absolutely. The Partnership is an original platform for the interaction of operators of railway rolling stock with state bodies, such as Russian Railways, Ministry of Transport, Federal Tariffs Service of the Russian Federation, on further development and improvement of the efficiency of railway transport. The entry of Rail Garant to the Partnership allows the Group to take an active part in improving legislation and regulation of interaction between operators and major market participants of rail transportation. Using our knowledge and experience, we are trying to make a contribution to the development of the railway industry in Russia.

RZD-Partner Magazine, No. 10