RUSSIA's freight market is changing. The sale last year of a 75% minus-two-share stake in First Freight Company (Freight One) by Russian Railways (RZD) to Independent Transport Company appears to have opened up a wave of consolidation as private freight companies position themselves to compete in an evolving market.
Globaltrans is no exception. The company reported what it describes as outstanding financial results in 2011, growing freight turnover 14% year-on-year to 110.6 billion tonne-km which was more than double the overall Russian market growth of 6%.
Globaltrans also increased its Russian freight market volume share from 5.3% to 5.6% during the year. However, the company now expects this to grow further following the
$US 540m 100% acquisition of Metalloinvesttrans (MIT), the freight operating division of Metalloinvest, a Russian global iron-ore and hot-briquetted iron producer, which was confirmed as IRJ went to press.
Globaltrans chairman Mr Alexander Eliseev says that having conducted around 19% of Metalloinvest's freight transport and having worked for the company over the past four to five years, Globaltrans is familiar with the logistics of its operations and is ready to offer "a one-stop shop" for railfreight transport to the iron-ore and metallurgy company.
Globaltrans subsidiary OJSC New Forwarding Company was the official acquirer of MIT with the deal financed through Globaltrans' own funds and credit facilities. Eliseev says that the purchase is expected to boost the company's market share in Russia to around 7% based on pro-forma figures for 2011 and is likely to be the first of several large acquisitions by private operators as the Russian freight market goes through substantial changes in the next few years.
"Following the privatisation of Freight One by RZD last year, the consolidation trend is gaining momentum," Eliseev says. "We believe that the purchase of MIT is the first big deal with a private railfreight operator and may be followed by others in the market. We understand that Globaltrans is viewed favourably in the market as a company looking to purchase operating assets in Russia."
As part of the deal, Globaltrans will acquire MIT's rolling stock. As of December 31 2011, MIT operated 9202 wagons, 8256 of which it owned and which had an average age of 8.7 years. MIT carried 44.2 million tonnes of freight in 2011, primarily metallurgical cargoes, using its own and leased wagons as well as some from third-party operators, including Globaltrans.
Globaltrans has also agreed a three-year service contract with Metalloinvest under which the operator will conduct 100% of its rail freight transport in the first year, and have the right of first refusal on the price offered for 60% of its transport in years two and three.
In addition to the acquisition of MIT, Globaltrans has also boosted its operations with the addition of around 10,000 wagons to its fleet after the company revived its rolling stock investment programme in the final months of 2011 following reductions in the price of wagons in the Russian market. Locomotives used to haul wagons are currently predominately operated by RZD with only a handful of private operators, including Globaltrans, owning and operating their own small fleets. However, Eliseev says that this could soon change.
"In 2011 the Russian government took a further important step towards introducing competition to the locomotive traction segment by establishing an infrastructure tariff for private carriers operating their own locomotives," Eliseev says. "The next steps include the development of access regulations as well as the development of a technical and operational framework. We hope to further invest in locomotives when this opportunity arises."
As a global iron-ore producer, Metalloinvest is typical of the Russian blue chip companies served by Globaltrans which are predominately in metals and mining, oil products, and construction industries and are located across the entire country. And while Globaltrans does have international subsidiaries in Ukraine and Estonia, the company remains firmly focused on future opportunities in its primary market.
"Last year was really strong for the Russian freight rail market which showed robust demand for our services and we were able to increase our market share," Eliseev says. "And following our purchase of MIT, we are confident about our future and the future of the market."