Moreover, the measure is said to be particularly important for infrastructure sections where there is a deficit in throughput capacity.

Still controversial

“‘Ship or pay’ is one possible form of interaction between the infrastructure owner and the freight owner”, commented Pavel Ivankin, President of the National Research Center for Transportation and Infrastructure and Member of the State Council Commission on Transport, to Russian media.

“The infrastructure owner is interested in ensuring that the infrastructure volumes planned for use within the planning period are fully utilised. Freight owners, likewise, are interested in seeing the adopted plans translated into actual shipments.”

Not everyone is convinced of the effectiveness of the ‘ship or pay’ measure. The Russian Ministry of Energy and Federal Antimonopoly Service have spoken out against it. They reason that the changes will complicate shippers’ access to scarce infrastructure. Businesses are also said to oppose this mechanism.

Moreover, the costs associated with transportation on other corridors is 20-30% higher. Lead times to India and Iran could be twice as long, up to 60 days. This hurts the profitability of grain, metals and chemical exports, according to Russian media. The total financial damage of a pause in INSTC operations could be around 40-60 million US dollars monthly for Russian logistics companies.

The total turnover of freight on the Russia-INSTC route could fall by as much as 25% this year, a Russian analyst claims, depending on the length of the conflict.

The INSTC

The INSTC connects Russia to the Indian Ocean via three branches: a western branch through Azerbaijan, a central route across the Caspian Sea, and an eastern one through Kazakhstan and Turkmenistan. All three branches cross Iran before reaching Indian Ocean ports.

The western part of the route is most popular with Russian exporters of timber and grain, while the eastern part is most popular with paper, pulp, construction materials, and food products. Oil and vegetable oil are primarily shipped through the Caspian ports.

Shipments along the INSTC declined in 2025 to 9.9 million tonnes. By comparison, 12.9 million tonnes moved along the route in 2024.

Despite the launch of this regional test, semi-trailer transport on rail is not an entirely new concept in Russia. The first trial operations took place in 2019, and serial production of 4-axle platforms for piggyback transportation has been ongoing since 2020. The first Russian fully-loaded semi-trailer train ran in 2022.

Russian piggyback operations are on the rise. In 2025, its volume across the country grew by 22%. The routes Moscow-Ussuriysk and Moscow-Vladivostok (Far East) saw the number of wagons transported grow to 886, an increase of 28%.

Sanctions drive piggyback transportation

One of the factors supporting the growth of intermodal rail is the continuing pressure of Western-imposed sanctions. “The use of piggyback transportation reduces wear and tear on [trucks and semi-trailers] and cuts repair and maintenance costs”, the Federal Freight Company told Russian media. This RZD subsidiary is primarily a wagon owner, with over 160,000 units in its fleet. “Given the sanctions, solutions aimed at conserving vehicle resources are needed, and piggyback transportation is one such solution”, it says.

However, the reduction of wear and tear through the use of intermodal is not without its obstacles. A structural challenge will sound familiar to European companies: the road remains cheaper than rail. Attracting customers therefore remains difficult, despite the fact that intermodal rail is faster than the road.

“The technology hasn’t yet proven itself for one reason: transporting cargo by road is cheaper than using containerised freight”, commented Pavel Ivankin, President of the Russian National Research Center for Transportation and Infrastructure.

“Russian Railways has a mandatory infrastructure payment for everyone.” Road transport does not pay a comparable compensation. “If road transport will get a different level of transparency in the future, it’s entirely possible that containerised freight will increase demand, at least on long-haul routes. Until then, we can only talk about the implementation of a pilot project, which isn’t even reflected in the [financial statements].”

China Railway Express trains are growing

Amid this decline, the total number of freight trains under the China Railway Express (CRE) in 2025 was over 20,000 units for the first time, showing a 3.2% increase. However, this growth is no longer tied to Europe. A radical redistribution has occurred, as European destinations now account for only 15.1% of cargo, while the lion’s share – 85%, goes to Russia, Central Asia, and other non-European regions. Asia was the main growth driver, as traffic in this direction grew by 27.7% to 1,13 million TEUs, which is 3.6 times higher than the volume of shipments within the EU.

No competition with the sea

The 7:1 imbalance poses a challenge for carriers, as the return of empty containers leads to serious losses, associated with shipments from China. According to analysts, one of the reasons for such a critical imbalance is the current problems in the German industrial sector. The decline of rail cargo transportations on the China-EU route is also related with general stabilisation of sea transportations (although the current chaos in the Middle East may lead to the future change of the current situation).

While sea freight rates soared in 2024 amid the attacks in the Red Sea, and rail transportations became a temporary solution, the situation normalised in 2025. The sea route became significantly cheaper again and shippers, no longer constrained by tight deadlines, returned to ports.

The situation is also complicated by technical carrying limits of the existing routes on China-EU direction, as approximately 94% of all traffic on this direction traditionally passes through Poland. The two-week blockade on the Polish-Belarusian border in September 2025 demonstrated how vulnerable this route is to any border incidents. In fact, even short stops in such corridors critically undermine customer confidence and force them to build in additional logistics reserves. Weak imports from the EU to China are also adding pressure. European exports are stagnating, and return shipments are declining, significantly worsening the economics of rail routes as a whole.

EU problems

In addition, the decline in exports from the EU, particularly from Germany, indicates that the European economy is finding it increasingly difficult to compete in Asian markets. This is also reflected by the fact that shipments of German engineering and automotive products to China by rail are declining sharply.

Most analysts do not expect a rapid recovery in EU-China transit in 2026. The most likely scenario is stagnation or a moderate decline in volumes. Growth is possible only in certain niches: e-commerce, urgent mid-price cargo, furniture, home decor, and DIY. However, even in these segments, rail transport will not regain its mass character and will remain a niche logistics solution between sea and air.

Alternative routes rising

Analysts also expect the establishment of a new logistics route: China-Central Asia-Russia-Middle East-India, as well as routes to Turkey, Iran, and the Caucasus countries. As for Russia, it is shifting from its role as a transit bridge between China and Europe to that of a major Eurasian distribution hub servicing trade within Greater Eurasia.

The most promising routes are the North-South international transport corridor, the China-Central Asia-Russia-Turkey routes, intra-Eurasian trade, and e-commerce flows. Key risks for the EU-China corridor include ongoing geopolitical instability in Eastern Europe, the possibility of new restrictions on the Polish-Belarusian border, weak economic growth in the EU, and the active development of alternative routes bypassing Russia and Belarus.

In addition, the current war in the Middle East also poses serious threats. This makes the EU-China corridor through Russia politically sensitive and strategically unstable. That also means under the current circumstances, the EU-China corridor is ceasing to be a mass transport route and is increasingly becoming a niche route for specific categories of cargo.

“Russian Railways is effectively bankrupt and has no chance of getting out of the hole on its own”, The Moscow Times cites Sergey Aleksashenko, a senior research fellow at the NEST Centre in London. Therefore, the government has decided to bail out the monopoly “by all means.”

Reuters calculated that the tariff increase will add 22.3 billion rubles (around 250 million euros) to RZD’s budget. The measure is applicable for all shippers.

It is all going downhill

Russian Railways has already lost 14% of its rail freight business since the start of Russia’s invasion in Ukraine, says The Moscow Times. RZD has accrued a debt of four trillion rubles (44 billion euros). Between 2022 and 2025, RZD has also lost 12.5% of its loading volume, a figure that the rail operator publishes each month.

The financial problems at RZD are having a far-reaching impact on the company. It has had to send employees on unpaid leave and reduce its workforce. The company has also significantly reduced its investment programme for 2026 and it is considering the sale of its 49% stake in Federal Freight Company for the equivalent of around 500 million euros. Moreover, RZD may abandon the construction of the Northern Siberian Railway due to financing challenges.

As a result, the Kremlin is preparing a financial aid package of 1.3 trillion rubles (14 billion euros). This includes a debt restructuring and assets sales, such as the company’s skyscraper in the Moscow business district.

That year, 13,5 million tons of goods worth 8,7 billion euros were moved between Russia and the EU, while in 2023 they dropped to 5,4 million tons (-60%) worth 3,5 billion euros (-59.8%). A sharp decline was also observed in 2024, when the overall deliveries dropped to about 4 million tonnes. A similar negative dynamics is also expected for 2025. In comparison, in the pre-war 2021 deliveries amounted to about 22 million tonnes.

Mainly used for China-Europe traffic

Instead of the EU, Russia has re-oriented most of its rail cargo supplies to the East. The loss of the European market led to the catastrophic losses for most Russian shippers and carriers operating in this direction, even forcing some of them to declare bankruptcy. According to analysts and some representatives of Russian shippers, most traffic on the Russia-EU axis is currently transit and specialised shipments.

In the case of transit shipments, their annual volume ranges between 300,000-400,000 TEUs, mostly accounting for Chinese consumer goods delivered to the EU. European customers are interested in these routes due to its relatively short transit times, compared to those by sea transport. Furthermore, given the established position of this corridor, it is technologically the most advanced, with a transit time of five to seven days to cross Russia.

Alternative routes are not ready

Still, most analysts predict a further deterioration of the situation. The 20th package of sanctions, which might be approved already by 24 February, will affect mineral fertilizers, resulting in a further steep decline of rail freight traffic between the EU and Russia. On the other hand, the forecasts for transit deliveries are much better. Especially because trade volumes between China and the EU are growing and alternative routes such as the Middle Corridor are not (yet) ready to pick up large volumes and offer competitive prices.

RZD’s current financial situation remains complex, as its net profit during the first three quarters of 2025 has plummeted by more than four times and freight volumes continue to decline. Under these circumstances, Federal Freight Company could be considered as an additional opportunity to attract additional funds.

Further updates in Q2

The stake in Federal Freight Company is planned to be sold through an open auction, with RZD to develop the eligibility criteria, according to the Russian Kommersant. The company’s board is expected to analyse the situation further in Q2 2026. After this, the deal should be approved by the Russian Federal Property Management Agency and the Russian government.

In fact, RZD plans to sell the Federal Freight Company despite the fact that it remains one of the main sources of dividend income. In addition, some experts say that the price of the stake put up for sale is seriously underestimated. For example, analysts from the Russian research agency Infoline-Analytics believe that the FFC stake is valued at 2-2.5 times less than the value of its rolling stock fleet. On the other hand, given the current environment, the price seems to be reasonable.

The impact on the market

According to experts, under favorable conditions, FFC demonstrated one of the highest EBITDA margins in the market. In 2024, it exceeded even Freight One, another major Russian rail operator in terms of net profit, in terms of profitability. However, given the currently shrinking freight base in the Russian rail freight sector and a rolling stock surplus, the situation around FFC and its services remains complex. The high share of gondola cars in FFC’s fleet, led to its profitability to seriously decline in recent years.

In the meantime, Russian analysts believe the planned deal will be potentially of interest to some large financial companies and investors. At the same time, an interest from FFC’s major rivals in the market is expected to be low, since the stake for sale is non-controlling. Analysts also believe that the sale of FFC will be associated with serious negative consequences for RZD itself, as the competition with independent operators will significantly rise. This may result in a further decline of its profitability and will require additional subsidies from the state for its support.

A hit for military mobility?

Moreover, according to experts of the Russian Vgudok railway paper, given that FFC has historically carried out some non-commercial functions, its transfer to private ownership would create a vacuum in the state-related transportation segment. That may result in a shortage of wagons for social or military cargo transportations in the Russian market, as most independent operators will continue to focus on transportations of high-margin cargo.

Representatives of RZD already said that they had submitted their position on the project to the Ministry of Transport, whose representatives were not available for comments. Moreover, analysts think that suspending the project for a couple of years would be a better solution than completely discarding it. They believe that the cost estimate is reasonable given the permafrost conditions in this region. Moreover, it could even increase based on the results of design and survey work for the project.

A weak project from the beginning

Initially, the construction of a new line with an overall length of roughly 2,000 kilometres was supposed to be included in the Strategy for the Development of Russian Railway Transport until 2023, approved in 2008. In addition, it became a part of the Strategy for the Socioeconomic Development of the Russian Far East and the Baikal Region until 2025. Design work for the project was supposed to begin in 2016, but its actual implementation was postponed until the 2020s.

As part of the project, one of the sections of NSR was supposed to create a new gateway to China through the 55-kilometre western section of the Russian-Chinese border in the Altai Mountains, between Kazakhstan and Mongolia. Due to the difficult terrain, the construction of two tunnels under the Altai Mountains, one on the Russian and one Chinese side, was initially considered but never took place. In 2021, then-Deputy CEO of RZD, Alexey Shilo, explained that the tunnel would be too expensive

Still, most analysts believe that building of NSR will be strategically important for Russia. According to an earlier study, prepared by experts of the Russian Council for the Development of Siberia, the NSR would allow for redistribution of traffic on the Baikal-Amur (BAM) and Trans-Siberian lines. This would create an additional transport corridor for coal exports, especially from the Kemerovo Region and other Siberian regions to China and other Asian nations. Both the Trans-Siberian and BAM remain the most popular arteries for shipping Russian raw materials and minerals to Asian markets, but their expansion has been stalled due to the cuts of RZD’s investment program amid Moscow’s current economic recession.

Other projects might be frozen too

In the meantime, the NSR is not the only railway project related to the Northern route whose implementation has been called into question due to a lack of funds in recent years. For example, in 2023, the Ministry of Transport reported to the president on the need to postpone the construction of the Northern Latitudinal Passage (NLP) until the 2027–2031 period. The NLP would be a 707-kilometre railway line in the Yamalo-Nenets Autonomous District.

This line should connect the western and eastern parts of the autonomous region and would be able to handle 23,9 million tons of cargo per year. If postponed, the cost of the NLP project was estimated at 730 billion rubles (8,08 billion euros). In October 2025, Alexey Chekunkov, head of the Ministry for the Development of the Russian Far East, said there were no funds in the budget for the NLP project for the next three years. A decision on construction, he said, could be made within a year.

The -5.6% is a sizable downturn, but it is certainly not as bad as it could have been, when looking at various moments in 2025. Especially in the spring months, the year-on-year loading decline approached -10% (see the last graph).

In terms of the company’s transport performance, the decline amounted to -1.8%. With the inclusion of empty wagons, performance worsened by 1.2%. This could be explained by Russia transporting more goods to the Far East (China). That has grown the need for long-haul operations, boosting transport performance in tonne-kilometres relative to the weight of freight transported. RZD specifies that the demand for exports in the eastern direction grew by 6.5% to 163.5 million tonnes.

“External factors” to blame

Russian Railways cites “a host of external negative factors”, which led to the decline in the loading of various types of bulk freight. One can only guess which negative factors led to those losses. RZD is more transparent about the cause for the oil loading decline and identifies reparation downtime on oil refineries as one.

As a result of the business hiccups at Russian Railways, the company was forced to reduce its investment programme by around 20% for 2026. That means less spending on railway projects that are supposed to maintain and boost transportation capacity across the country.

The government has also taken note of the situation, and is looking to help RZD in attracting more freight to the railways. Rather than citing the growing economic problems in the country, Transport Minister Andrei Nikitin argues that the road sector is out-competing Russian Railways.

Nikitin indicated that measures would be taken to address the “certain imbalance between road and rail transport” in freight handling. Additionally, Nikitin confirmed that Russian Railways would receive support for its freight attraction initiatives.

Reason for Russian optimism?

Russia remains optimistic that freight volumes will grow in the coming years. According to the current baseline scenario, freight loading by rail is projected to reach 1.504 billion tonnes by 2028, marking a 15.1% increase from 2024. Over the same period, freight turnover is expected to climb to 3 trillion tonne-kilometres, which would be a 21% rise compared to 2024.

Is there some merit to those expectations? After all, in October 2025, loading even grew slightly compared to October 2024. Moreover, the most serious monthly setbacks in the spring of 2025 seem to have passed their peak.

Despite that, it is unlikely that Russia will return to growth. Earlier in 2025, the president of Russia’s central bank warned that all of Russia’s economic resources are being used. Moreover, she said that there was no prospect for further growth. Any gains for Russian Railways will therefore indeed have to come from a modal shift, but adding 400 million tonnes in two years time seems like a very steep hill to climb.

Of the approved program for 2026, 531,4 billion rubles (5,67 billion euros) are allocated for maintaining the company’s fixed assets and ensuring transportation safety, including 288 billion rubles (3,13 billion euros) for major repairs of infrastructure and rolling stock. Up to 161,7 billion rubles (1,75 billion euros) will be allocated for the purchase of rolling stock, including up to 400 locomotives. Finally, 62,2 billion rubles (675,1 million euros) will be allocated for trunk infrastructure development projects.

Sky-high debt

As the current debts of the company remain high, the national government recently discussed the option to ban additional loans to RZD and ensure its development with the use of budgetary sources. According to the company’s financial statements, RZD’s debt for the first 9 months of 2025 amounted to almost 3,5 trillion rubles (38,06 billion euros). It was assumed that a balance between these parameters would be achieved by not paying dividends on the company’s preferred shares for 2025.

In addition, part of the debts was supposed to be compensated by a subsidy scheme from the Ministry of Industry and Trade. The amount of the subsidy is 20 billion rubles (217,21 million euros), which should be provided during the period of 2026-2028. In accordance with the boards’ decision, the company also plans to optimise its management team and office real estate personnel, particularly by transferring central office employees to the regions.

Moscow Towers for sale

Successful implementation of these plans should help RZD reduce operating expenses by at least 73,6 billion rubles (799,3 million euros). A subsidy from the Moscow city budget will also be allocated to offset 15 billion rubles (162,9 million euros) in operating expenses of RZD. Moreover, it was also decided to sell non-core real estate of RZD for at least 8,5 billion rubles (92,33 million euros), including the recently acquired premises in Moscow Towers skyscraper.

Russian analysts believe that the planned cuts of almost all expenditure items for the company will create the necessary safety reserve, which will help it to avoid potential cash flow shortfalls in 2026. Still, it will also jeopardise dividend payments, which will inevitably lead to discontent among minority shareholders. However, as most analysts believe, the planned sale of non-core assets is considered a good decision by RZD.

Fleet reduction

As for further cuts, analysts also expect the number of freight wagons on the RZD’s network to decline in 2026 and not exceed 1,3 million units, compared to 1,4 million as of December 2025. According to a recent study of the Russian Neft Research consulting agency, RZD’s freight wagon fleet remained stable throughout 2025, despite the continued decline in freight traffic and record-low rolling stock rental rates, which in some cases do not cover the cost of transportation.

Help from Moscow

In the meantime, the Russian government is aware of RZD’s current problems and is considering the provision of supportive measures. For example, the Kremlin is discussing a large-scale programme to improve the financial situation of the company which includes debt restructuring, cost reduction, and asset sales. Furthermore, the government will provide deferment for payment taxes and fees for the company until the end of December 2026. The total amount of potential support measures is estimated at 1,3 trillion rubles (14,12 billion euros), although no final decisions have been taken.

Prior to 2024, RZD actively borrowed funds for its large-scale investment programs. However, further borrowing of funds was sharply reduced in 2024, although it was impossible for the company to immediately suspend many of its projects (given that implementation of many of them is already underway). According to some Russian media, RZD initially requested 200 billion rubles in budget support, but the Ministry of Finance refused.

Selling assets amid falling profit

The company has also not ruled out the possibility of selling its subsidiary Federal Freight, which manages 134,300 rolling stock units and ranks second among Russian rail freight operators. The last such deal was the sale of Freight One in 2024 for 220 billion rubles (2,39 billion euros). RZD’s net profit fell sharply between 2023 and 2024, continuing to decline in the first half of 2025 when it reached 4,4 billion rubles (47,69 million euros), a 26-fold decrease from the same period in 2024.