Prospects of Forming a New Rail Freight Tariff System

The rail freight market is one of the most important sectors of the Russian economy. From year to year there has been evidence of inefficiency of rail freight regulation rules: shippers prefer to use alternative types of transport for goods with high added value, decreasing revenues of OAO “RZD” (Russian Railways) and limiting its investment program. To create conditions for development, there have been discussions about directions of reforms needed in the rail freight sector. Market players like OAO “RZD”, the government, and shippers have been putting forward their own optimal market schemes, but mainly they are controversial. In this paper, the authors propose a vector for further development of an optimal rail freight market model, which would take into account interests of all market players. At the first stage, we evaluated elasticities of demand for rail freight transportation for different types of goods. At the second stage, we measured levels of rail freight tariffs in Russia and compared them with the theoretical optimal level according to the Ramsey rule. With maximum public welfare taken as the optimal criteria, directions for further development of tariff s for the medium to long term have been identified. According to our estimates, the present tariff system leads to 0.2% of GDP welfare being lost annually. The new tariff system would ensure a 4–6% increase in freight volumes by decreasing the average level of tariffs. This tariff system can be applied as part of rail freight regulation improvements.