The wagons belong(ed) to Russian companies and individuals that are now sanctioned. These include VEB-Leasing, JSC State Transport Leasing Company, JSC Nord, as well as other Russian companies in the field of finance and logistics, the Ukrainian government specified.

The steel industry has also spoken out against UZ’s plans, warning of a modal shift to the road. Even the European Business Association stepped into the discussion – imploring UZ not to raise their freight charges and pointing to passenger services as the real financial “drain”. By contrast, UZ insists that a tariff increase is necessary. It refers to higher prices for electricity, diesel, spare parts and more.

The long and heated public discussion may now end in a new consensus. “We understand that the tariff increase is inevitable, it will happen”, said Deputy Chairman of the All-Ukrainian Agrarian Council Mykhailo Sokolov recently. Rather than slapping an additional 37% on existing rates, UZ is floating another model that is being met with cautious optimism by the agricultural sector.

Cautiously positive

“We are open to dialogue on the model”, commented UZ CEO Oleksandr Pertsovsky during the ‘Doing Agribusiness in Ukraine 2025’ event according to publication Latifundist. “But strategically we seek to move to unified tariffs that depend exclusively on transportation technology, not on the class of cargo, to introduce a transparent formulaic mechanism of annual indexation to ensure predictability for the market.” In other words, UZ no longer wants to differentiate between freight types and charge a single tariff across the board.

“The agricultural community understands that the tariff revision is expected, but the market needs clear rules of the game”, reacts Oleg Khomenko, general director of the Ukrainian Club of Agricultural Business. “It is necessary to transform the tariff formation system into a transparent and productive model, where the cost of services will be based on real cost, and disparities between industries and cross-subsidisation will be eliminated.”

Cross-subsidisation here refers to UZ’s practice of transporting some freight below the cost price. According to Mykhailo Sokolov, the company moves construction materials while making a loss on it, which is then compensated for by profits in other areas, such as agricultural transports. A unified tariff for all freight types would eliminate that disparity.

A careful positive change of tone among the agriculture representatives could signal that there could be a breakthrough in the near future. Deputy Minister of Economy, Environment and Agriculture Taras Vysotsky has also expressed his support for the unified tariff system: “It seems to us that an approach to, albeit gradual, convergence of tariffs and indexation according to the cost structure, rather than proportionally, is a logically correct long-term solution.”

Nevertheless, prices will go up

That is all when it comes to the pricing model – generally met with positivity, at least by UZ, agriculture and the government. However, Reuters reports that UZ is planning to increase the overall freight rate by 27% starting 1 January. It seems that this is not yet set in stone, but a significant increase seems inevitable as the operator’s budget gap would grow to some 728 million US dollars without pricing changes.

In other words, the company desperately needs new locomotives. It has found those in France, where a deal on the delivery of 55 new electric vehicles was signed in the presence of both French President Macron and his Ukrainian counterpart Zelensky.

UZ points out that the price of Alstom’s high-power dual-system electric locomotives per axle and per kW of power is “competitive and advantageous”. The total value of the deal is 473 million euros, but the financial support from the World Bank and EBRD reduces the cost for the rail operator by 37%.

Operational improvements

The Alstom locomotives should help reduce operating costs by more than 30% and replace 80 old locomotives. UZ is expecting the first delivery in Q1 2027. The entire process should be completed by 2029.

“The new dual-system electric locomotives will be able to cover the distance from the main regions of cargo origin to the ports, while most routes currently have to change traction, which significantly delays traffic”, explains UZ.

Alstom’s locomotives deliver significant performance and maintenance improvements over the current UZ fleet. With a power output of 9,000 kW and a starting traction force of 800 kN, they can reach speeds of up to 120 kilometres per hour. Moreover, 26% greater power enables them to pull trains that are 30% heavier than those pulled by existing electric locomotives.

Another important advantage is the drastically reduced maintenance schedule: the new locomotives require servicing only once every 37 days, compared to the current models’ need for maintenance every three days. That will likely double the operational readiness rate of the older fleet, reaching a projected 95%.

Opportunities for Ukrainian companies

Whereas the locomotives will be manufactured in France, the deal also creates opportunities for Ukrainian manufacturers, says UZ. “A preliminary agreement has been reached with Alstom on the possibilities of including Ukrainian manufacturers of various components in the supply during the service cycle, including safety systems, communication equipment, brake pads, wheelsets, cable and wire products, cooling systems, etc. An expanded meeting of the teams of Alstom, UZ and a wide range of domestic manufacturers of railway products is planned for the start of cooperation in the first quarter of 2026.”

The CINEA grant will be made available to Ukraine in the 2025-2027 period, Shemayev added. “UZ has an ambitious plan to complete the construction works by 2028 and connect Lviv to Europe via the standard rail gauge”, he added. Other than the standard gauge line to Poland, Ukraine recently opened one between Chop and Uzhhorod, connecting to the Hungarian rail network.

Ukraine lost 122 mines in the first two years of the war, meaning that there is simply less coal to transport. The result of the losses is a best-case scenario of 162 tonnes in 2025. UZ transported around 315 million tonnes before the war.

Ore transportation in Ukraine has also decreased by 4%, and grain transportation is decreasing as well. In 2025, UZ expects to transport around 35 million tonnes of grain, down from last year’s 40 million tonnes.

Traditional freight in decline

The conclusion is that UZ’s freight business is in decline, and that is primarily due to its traditional freight base. The company is losing volumes in ores, coal, mining and construction materials, Tkachev explained at an expert discussion.

To address the situation, an active search for new freight is underway. The search specifically focuses on retail and SMEs, including forest products, industrial goods, and various other segments.

Ukrainian Railways has also increased its foreign economic activity, Tkachev pointed out. Its subsidiary UZ Cargo Poland is significantly boosting cross-border freight transportation. The company also prioritises the development of trans-European and cross-border transports.

The company is implementing various initiatives, including optimising internal processes, reducing unproductive infrastructure, and streamlining personnel, especially within the central management office. Additionally, it is selling scrap metal and crushed stone products and transitioning to direct electricity purchases from Energoatom.

“For the first time in modern history, we built a 22-kilometre long section of the 1435-millimetre European standard [gauge] from scratch between Chop and Uzhhorod”, explained the Deputy Prime Minister for the Reconstruction of Ukraine and Minister of Community and Territorial Development Oleksiy Kuleba. “Thanks to this, Uzhhorod became the first regional center to receive a direct rail connection with the European Union.”

UZ sees the project as an important step in the development of the standard gauge railway network in Ukraine. The company aims to speed up that development in the future. “Already in 2026 we plan to electrify this section and begin construction of the Eurotrack in the direction of Lviv, which we intend to complete within 2–3 years”, Oleksandr Pertsovsky, UZ’s board chairman said.

Vital artery for the economy

“Ukrainian railway workers impressed European partners with this project – despite the war, we managed to implement it ahead of schedule. With such work, Ukrainians have proven that they are ready to implement even more ambitious European integration projects, and the invested funds are quickly converted into tangible results for people”, Pertsovsky added.

The Chop – Uzhhorod railway was co-financed by the EU through the Connecting Europe Facility and the European Investment Bank (EIB), both providing half of the funds. “This is a historic step on the path to integration with the EU. Especially in wartime, when the railway is a vital artery for the economy and for Ukrainians, strengthening these transport links is more important than ever”, EIB Vice-President Tereza Czerwinska commented on the project.

The project amounted to 28,6 million euros, covering the construction of the tracks from Chop station to Uzhhorod station, as well as the modernisation of the signalling, communication, radio, and microprocessor-based centralised control system, with the aim to increase capacity and improve the safety of rail operators.

The company also pointed out that its rail tariffs had not been changed since the summer of 2022, when they rose by 70%. Yet, businesses are not convinced of the need for another increase, and are publicly pushing back. For example, the Ukrainian Agricultural Confederation warned of bankruptcies in case of higher tariffs, and called for a breaking up of the rail monopolist. The European Business Association also warned of negative economic consequences in case the higher tariffs make it through.

Metallurgists also speak out

Now, the Ukrainian Metallurgical Industry Association has also released the brakes. “The attempt by the management of UZ to once again increase freight rates is a direct path to economic collapse. This is not a reform or a rescue of the railway – it is shifting responsibility to business, which is already holding the economy together in wartime conditions”, a representative of the organisation told Ukrainian publication Glavkom.

UZ reportedly expects a 365 million euro loss in 2025 and a nearly 600 million euros loss next year. Passenger transportation causes most of those losses. “UZ continues to cover these losses by increasing freight tariffs. As a result, Ukrainian exports are losing competitiveness”, the metallurgical association claims.

Industry calculations indicate that a tariff increase could lead to a 15% drop in the freight base, giving UZ only 250 million euros in additional revenues. The Ukrainian economy is said to lose the equivalent of 2 billion euros in that scenario. It is unclear which hypothetical tariff increase those calculations are based on. UZ proposed a 37% tariff hike in 2024.

UZ pushed back

Despite all the criticism, UZ has not backed down from its plans. UZ’s supervisory board chairman Gebhard Hafer singled out international parties as blocking tariff hikes: “Maersk, CMA CGM, MSC, American Chamber of Commerce in Ukraine! Stop blocking the current request of JSC Ukrainian Railways on indexation of cargo tariffs!”, Hafer wrote on LinkedIn in May.

“Ukrainian Railways hasn’t indexed the cargo tariffs for more than two years already”, Hafer continued. “The request is justified by the current industrial inflation rate in Ukraine, measured by the Producer Price Index (PPI), and by investment needs into infrastructure and rolling stocks. By blocking the indexation of cargo tariffs, the safety of railway transportation in Ukraine is affected!”

The largest decline took place in the grain and processed products category, which saw a drop of 32.5%. “Farmers cite a late season start – we hope for a rebound (July saw more movement)”, Pertsovskyi explained.

Coal, construction, cement

The second worst result took place in the coal category, with a 27.5% drop. However, Pertsovkyi remains positive about that number. “Despite the drop, this is an effort we’re proud of! Brave railway workers build new lines under drone attacks to bypass enemy-held routes. Drivers go to mines and enrichment plants knowing they’re targets. But each lost mine further reduces volume, likely irreversibly.”

Construction materials and cement performed better, at +4% and +10% respectively. Nevertheless, current tariff levels are not high enough for UZ to turn a profit, even with such growth.

Ukraine’s tariff indexations have been frozen since mid-2022, to UZ’s dismay. “While we understand the need to support industry, we see those sectors (metallurgy, coal, agriculture) raising wages and investing”, writes the UZ CEO. “We’re making the case that railway workers enabling these sectors deserve fair treatment too.”

For someone who came to improve the repair and production capacity of Ukrainian Railways, the first days of the war were a big setback. “Supply chains were severely damaged”, the Ukrainian Railways Repair & Production (UZRP) head reflects. “During the first three months of the war, it was all hands on deck. We were doing manual decision-making.” It was not quite the start anyone in a new job would hope for.

With the beginning of the war, UZ stopped operations with Russia and Belarus. A turn to Ukrainian suppliers became a priority, but that was not always a straightforward solution. Some components were not produced domestically, and many suppliers struggled with delays due to disrupted supply chains.

The biggest setback came with Russia’s occupation of Mariupol and the destruction of its landmark Azovstal factory. For Ukrainian Railways, it was the only source of three unique components: rails, baseplates and overlays, which the company uses for Ukraine’s 1,520-millimetre gauge tracks. No Azovstal, no production.

Business was looking very bleak. But as of 2025, a clear shift is visible in the performance and direction of UZRP. Changes in approach also brought changes in outcome: The joint stock companies have become profitable, production is back on track, and other parts of Ukraine see the Repair & Production unit as a role model for business management.

The business has come a long way, starting with production. With no steady supply of vital materials, UZRP’s stock of spare parts drained rapidly. A race against time began: The company had to act swiftly to identify and secure alternative sources of supply.

Restart of production

Although in-house production existed earlier, it was not as structured or prioritised. A year into the war, the department began to systematically expand and strengthen its capacities. By 2024, it had launched the production of over 100 components and spare parts.

That brought one major benefit: UZRP’s focus on domestic manufacturing helped save more than 170 million Ukrainian hryvnia (around four million euros), the equivalent of around 60 new freight wagons.

More generally, investments in domestic component production and cost optimisations resulted in record savings of over 400 million hryvnia in 2023 and 2024 (around ten million euros, equivalent to a new locomotive or 140 freight wagons).

By early 2025, the company achieved perhaps its biggest victory: it launched its own railway overlay production to replace the loss of Azovstal. Ukraine can build its own tracks once more. UZRP has already provided more than 60 tonnes of rail, the majority of which is currently being used for the Chop – Uzhhorod railway line.

Centralisation and integration

While UZRP worked to get its own in-house production up and running, Yevgen Shramko turned to the department’s organisation. The goal: efficiency and profitability. The method: centralisation and vertical integration. And that has worked out, even if the process has not yet concluded.

“This transformation has been a real-world demonstration of effective change management in a high-pressure environment”, representatives of UZRP tell RailFreight.com. “Under Shramko’s leadership, UZRP introduced clearer structures, streamlined internal processes, and implemented unified operational standards, all while navigating wartime disruption. His ability to lead complex organisational changes without compromising team cohesion has become a defining feature of his management style.”

Before, UZRP had many sub-units with various production methods that were operating at a loss. At present, large-scale mergers have already bore fruit. In the case of the joint stock companies, those have now been profitable two years in a row thanks to efficient operations, earning 234 million hryvnia (approximately 5 million euros) in total in 2023 and 2024.

Successful organisational changes

To illustrate, the 51 wagon repair units at UZRP merged into a single wagon department in 2024. They all offered the same services, but used different standards, service models and procurement systems.

Changing that setup has been a great success, and now Shramko is looking to turn not only the joint stock companies profitable, but the UZRP-owned facilities (the unit’s branches) as well. What’s more, the locomotive repair sector will undergo the same changes as wagon repair in the future.

In-house production and the centralisation of repair facilities have been positive changes for Ukrainian Railways Repair & Production. Yet, that is not necessarily always the case, explains Shramko. “We have to be very big to do everything on our own, but giants are not very effective”, he knows from experience in the private sector.

Specialisation, digitalisation

For that reason, UZRP has embarked on a path of greater flexibility, actively partnering with private businesses where it creates value. “Companies specialise, and so in 2025, we are fully committed to that course,” says Shramko. He aims to optimise yards and industrial spaces. “At least half of the available workspaces can be leased out to reduce costs. Other parts of UZ are also considering this business approach,” he adds.

Digitalisation is also a key priority for the Repair and Production unit, which plans to launch an Electronic Queue for wagon repair operations in 2025 to enhance transparency, automate planning, and eliminate inefficiencies. For Shramko, the initiative reflects personal commitment to addressing past challenges of opacity and corruption, with the goal of transforming the unit into a model of transparency, efficiency, and profitability, he explains.

Servicing Europe in Ukraine?

Other parts of UZ have taken note of the success of Repair & Production. Its effort to become profitable is now spreading to other parts of Ukrainian Railways, which look to Shramko’s business unit as a role model. “But none of these changes would have been possible without the support of the Chairman of the Board, Oleksandr Pertsovsky, for which I am truly grateful”, Shramko emphasised.

Аn energy audit, a lean approach and a strive to energy efficiency have played a role in the turnaround too, as well as procurement rules that have shrunk material expenses by 40% in some cases, despite rampant inflation in recent years.

What does the future look like for UZ Repair & Production? The future could be international. “We have the capabilities, labour, knowledge and low prices to service European rolling stock in Ukraine”, says Shramko. But if anything, long-term strategic planning is not leaving the department. “It was the answer to help the joint stock companies reach profitability in the last two years. You always need to make business-oriented decisions.”

The shipping companies have not spoken out publicly against the desired tariff increase. However, Hafer’s comments on LinkedIn suggest that they may have done so behind the scenes. By contrast, AmCham has openly criticised UZ’s proposal, saying that it may affect the country’s competitiveness and economy. UZ should directly involve the business community in making tariff-related decisions, the American organisation argued.

Counterarguments

In order to counteract the international pressure on UZ, Gebhard Hafer justifies the company’s tariff plans in his LinkedIn post. “Ukrainian Railways hasn’t indexed the cargo tariffs for more than two years already. The request is justified by the current industrial inflation rate in Ukraine, measured by the Producer Price Index (PPI), and by investment needs into infrastructure and rolling stocks. By blocking the indexation of cargo tariffs, the safety of railway transportation in Ukraine is affected!”

Ukrainian Railways proposed an across the board 37% tariff hike in December 2024. Nearly half a year has passed since then without an implementation of the plan. The latest update was that the country’s government looked to approve a tariff hike anywhere between 20% and 40%.

Now, the UZ supervisory board president seems to clarify on LinkedIn why the tariff hike is taking a while to get approval: Namely, businesses are blocking it. “The request for indexation of cargo tariffs was formulated and carefully justified by UZ in 2024 already. Since then it has been blocked by container lines, business associations and a couple of industries”, Hafer stated.

Rate change for containers?

Another tariff hike may also be coming to Ukraine, in addition to the proposed 37% increase. Hafer mentioned a specific outstanding request to increase the transportation rate for containers exceeding a weight of 26 tonnes and 30 tonnes. That idea “follows complaints from grain hopper wagon operators about cheaper container rates for transportation of grain and other bulk commodities.”