Business submitted proposals for an updated procedure for decommissioning of cars

17/ 11/ 2021

Last week, November 8, was the deadline for the public discussion of the draft order of the Ministry of Infrastructure of Ukraine on the approval of the procedure for gradual reduction of the service life of freight cars. It should be recalled that this is the fifth edition of the document. The previous four editions contained contradictory provisions which have been repeatedly pointed out by the EBA Logistics Committee experts. Unfortunately, in the latest version, the key shortcomings have not been eliminated, so the EBA once again asked the Ministry of Infrastructure to revise the draft order with the consideration of the following three proposals from the business. 1. Reject the cascade method of decommissioning and set the coefficient for cars service life extension According to the draft in its current version, 75 thousand cars are expected to be decommissioned by 2028. This amounts to 43% of the working freight fleet. The remaining fleet will not be enough to provide rail transportation - the shortage of cars will increase to 48 thousand units. At the same time, the car will be written off without the evaluation of the technical state which does not necessarily depend on the service life. This, in turn, is not in line with established international practice, according to which the age of cars is of secondary importance and their service life can be extended if they are in an acceptable technical state. Therefore, the EBA proposes to reject the cascade method of decommissioning cars and set limitations on the service life extension only for universal gondola cars and hoppers at a factor of 1.5 from the standard service life, and for tanks – at a factor of 2.5 from the standard service life. 2. Not impose restrictions on the service life limit for specialized cars The shortage of cars with all the collateral consequences will affect every shipper. But the most affected will be the ones for whom the transportation of goods is possible only with specialized rolling stock. These are cement, pellet, and coke cars which are already in short supply on the market. They can become even less accessible for shippers if the service life of covered cars for cement transportation is limited to 39 years. In this case, most of the fleet will be written off. Besides, the renewal of this type of rolling stock is extremely problematic due to the long payback period and the limited market segment where such cars can be used. Therefore, in order to avoid the greater deficit, the EBA experts propose to exclude specialized cars from the list of rolling stock subjected to service life limitations. 3. Allow the use of cars with the service life extended before the entry into force of the draft order Besides, the deficit artificially caused by the draft order will lead to higher prices for cars, and thus increase transport costs for companies and reduce their competitiveness. As estimated by the EBA Logistics Committee experts, the business has to spend more than 107 billion hryvnias to replace the decommissioned cars. For companies that have not yet fully recovered from the pandemic, this will be an additional financial burden. At the same time, this burden is not legitimate as the Ministry of Infrastructure has not provided sufficient justification that the properly repaired old cars fail faster than new ones. And if the draft is adopted in the current edition, then most technically serviceable and suitable cars will be cut for scrap. Therefore, the EBA considers it more appropriate not to restrict the use of cars with the service life extended before the entry into force of the draft order. It should be noted that the European Business Association supports the need to modernize the fleet of freight cars. But at the same time, we believe that the steps towards modernization should be balanced and agreed with all the freight market participants and not pose a threat to entire sectors of Ukraine’s economy. That is why the EBA hopes that our proposals will be taken into account in the course of revision of the draft order! Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

1. Reject the cascade method of decommissioning and set the coefficient for cars service life extension

According to the draft in its current version, 75 thousand cars are expected to be decommissioned by 2028. This amounts to 43% of the working freight fleet. The remaining fleet will not be enough to provide rail transportation – the shortage of cars will increase to 48 thousand units. At the same time, the car will be written off without the evaluation of the technical state which does not necessarily depend on the service life. This, in turn, is not in line with established international practice, according to which the age of cars is of secondary importance and their service life can be extended if they are in an acceptable technical state. Therefore, the EBA proposes to reject the cascade method of decommissioning cars and set limitations on the service life extension only for universal gondola cars and hoppers at a factor of 1.5 from the standard service life, and for tanks – at a factor of 2.5 from the standard service life.

2. Not impose restrictions on the service life limit for specialized cars

The shortage of cars with all the collateral consequences will affect every shipper. But the most affected will be the ones for whom the transportation of goods is possible only with specialized rolling stock. These are cement, pellet, and coke cars which are already in short supply on the market. They can become even less accessible for shippers if the service life of covered cars for cement transportation is limited to 39 years. In this case, most of the fleet will be written off. Besides, the renewal of this type of rolling stock is extremely problematic due to the long payback period and the limited market segment where such cars can be used. Therefore, in order to avoid the greater deficit, the EBA experts propose to exclude specialized cars from the list of rolling stock subjected to service life limitations.

3. Allow the use of cars with the service life extended before the entry into force of the draft order

Besides, the deficit artificially caused by the draft order will lead to higher prices for cars, and thus increase transport costs for companies and reduce their competitiveness. As estimated by the EBA Logistics Committee experts, the business has to spend more than 107 billion hryvnias to replace the decommissioned cars. For companies that have not yet fully recovered from the pandemic, this will be an additional financial burden. At the same time, this burden is not legitimate as the Ministry of Infrastructure has not provided sufficient justification that the properly repaired old cars fail faster than new ones. And if the draft is adopted in the current edition, then most technically serviceable and suitable cars will be cut for scrap. Therefore, the EBA considers it more appropriate not to restrict the use of cars with the service life extended before the entry into force of the draft order.

It should be noted that the European Business Association supports the need to modernize the fleet of freight cars. But at the same time, we believe that the steps towards modernization should be balanced and agreed with all the freight market participants and not pose a threat to entire sectors of Ukraine’s economy. That is why the EBA hopes that our proposals will be taken into account in the course of revision of the draft order!

Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.