Rail Garant publications

According to Deputy General Director for Operations and Technology Policy at RailGarant Igor Tyagunov, the current situation in the railcar repair segment has become much more complicated, and in order to not lose market share, companies need to make some large-scale adjustments to their existing strategies.

- From July to August this year, the supply and demand ratio in the market changed dramatically: now supply exceeds demand, as a result of which depots are not loaded to full capacity, and some car repair depots have even shut down. This is due to two factors; the increase in the time between repairs and the emergence of new private depots. And it is now difficult to identify the factors that distinguish private depots from the depots of Russian Railways (RZD) car repair subsidiary companies. The level of service is practically the same.

- Regarding scheduled repair work, then in the falling market competition has increased, especially among private car repair companies. As a consequence, RZD and private depots are now offering a variety of programs to appeal to railcar owners in need of scheduled repair work, with discounts of up to 15%, service rates depending on the number of railcars, price calculations based on a fixed cost rather than the cost of actual work performed, service programs and so on. In the event of the sale of car repair companies belonging to Russian Railways, competition may tighten further. Now the MRC has large overheads, which makes it difficult for them to compete in the market pricewise, but with the transfer of depots to private ownership this may change. The new owners are likely to take measures to optimize costs, which in the future will allow these depots to offer services at more attractive terms for owners of rolling stock. The current situation on the market has reduced the level of interest among new players in this segment, which is not very appealing to investors at the present time.

With routine maintenance the situation is quite the opposite. The market is a monopoly, with Russian Railways having a virtual 95% market share. The lack of competition means that in respect to routine maintenance RZD can as of today dictate its terms, and these are not always favorable to railcar owners. The emergence of two or three new players in this market would increase competition and, as practice shows, the quality of services, and also make pricing more flexible. The example of scheduled repair work has demonstrated this: with the emergence of private car repair companies MRC policy has changed, as have its operating principles; the depots have become customer-oriented and now have a more flexible approach.

- Routine maintenance in the absence of your own car fleet is a supporting activity that brings certain revenue to RZD. As a consequence, there is growing interest in railcar uncoupling and repair work. By including the cost of this work in the rate, the interest in uncoupling on the part of RZD will drop, there will be a reduction in unwarranted uncoupling, and routine maintenance work will be done on cars that genuinely require repair work and which could be a safety hazard on the railway line. So uncoupling repair work would become an expenditure for RZD instead of an income. Here it is important to correctly calculate everything and include routine maintenance in the price in order for this measure to bring economic benefits to all parties involved in the process.

- Yes, the situation is very different now. The problems with the availability of spare parts have been overcome. Today we have Translom, which is a large-scale legal supplier of spare parts and equipment on the market. The company dismantles railcars and sells spare parts of rolling stock for further operation. It also offers its services to private operators. As its client, this set up is just right for us: firstly, Translom operates across the whole country, and secondly, the quality of the reconditioned parts is totally acceptable. An additional advantage that the company has a market-based approach and now works more efficiently and is more customer-centric.

- The freight car parts market is changing rapidly, and is dependent on the fluctuations of supply and demand. Car repair companies are slow to respond to market conditions, while we are able to do it faster (quickly and efficiently purchase from the manufacturer and deliver to the customer), and even now, in a falling market, we can offer lower prices than routine maintenance and repair depots. So, given the need to repair our own railcars, it is expedient for us to independently purchase and deliver the spare parts needed to repair our rolling stock.

Now we are making use of this opportunity not only for our own needs, but also we are offering this service to third parties: railcar owners and car repair companies. We can see for ourselves the opportunity to compete successfully in this line of business, so we will continue to develop it. We have drawn up and are now implementing an action plan, under which we will open warehouses for the storage and sale of spare parts across the country. The presence of such warehouses near car repair depots will allow us to ensure the prompt delivery of spare parts for the repair of both our own railcars and cars owned by third parties. This in turn will enable us to reduce the downtime of rolling stock under repair.

- This unfortunately is a genuine problem. Counterfeit parts are defective items that should not be on the market, since they are a direct threat to safety. As railcar owners involved in the transportation process we are seriously concerned about this issue and are taking every possible measure to reduce the likelihood of counterfeit parts being sold on the market. In particular, we have entered into agreements with depots under which all defective parts from our railcars that are not repairable should be disposed of in such a way so that their subsequent use would not be possible. To further protect ourselves from the unpleasant consequences of installing counterfeit parts, we prefer to deal with new parts, or work with Translom or the MRC, since it is highly unlikely that they will get counterfeit parts.

- It is of vital importance that we set up tank container repair sites. This is not new, but today in Russia there are still very few companies that repair and wash such equipment. Given the fact that today the RailGarant group (Spectransgarant) is the largest owner of tank containers in Russia, this is of great importance for us. We planned and are still considering the feasibility of building our own repair facilities and a washing station for the tank containers owned by our company, as well as other companies in the market.

- With regards to the repair of rolling stock we provide services through an agency agreement at both private depots and the MRC. The benefit of working through an agency scheme is the client can take railcars in for repair anywhere in Russia, as opposed to in one specific place. In addition, the presence of our own parts in the region where the repair work is carried out allows us to reduce delivery time and offer a better price.

- As I said, we plan to set up warehouses for the storage of spare parts in Russia, which will allow us to optimize costs and reduce the downtime of railcars. Today we already have several such warehouses in operation. Being well aware of the need to deliver spare parts to the repair sites in good time, we will also continue to work to reduce delivery times through the use of motor vehicles. All this will increase the efficiency of the repair work on our railcars and will give our customers an additional competitive advantage.

Thank you to Rail Garant technical director Nikolay Dedaev and rolling stock repair deputy technical director Alexander Gordienko for their help in preparing this interview.