News / Estonian rail freight volumes collapse as state operator obeys sanctions

Photo: Operail

Sanctions against Russia have almost obliterated Estonia’s state-owned rail freight operation, with Operail reporting volumes for the first six months down by 83%.

The collapse to just 1.1m tonnes has led it to consider privatisation, ebitda for the period having dropped to just €200,000, amounting to a net loss of €3.1m.

CEO Raul Toomsalu said: “Operail does not support the aggressor nation [Russia] in any way. [But] the war inevitably grants a significant business advantage to competitors that persist in transporting Russian and Belarussian goods.

“Regrettably, we do not anticipate any positive change in revenue generated from transport within Estonia.”

The carrier took the decision to halt services to Belarus and Russia, regardless of whether they were sanctioned or not, to showcase its opposition to the invasion – a decision that now makes its results stark reading.

In 2021’s first six months, Operail carried 6.6m tonnes; last year, after Putin ordered the invasion of Ukraine on 24 February, volumes almost halved to 3.6m tonnes.

“We anticipated a loss in the first half, because rail transport is a volume-driven business that thrives on the ability to transport large quantities simultaneously,” said Mr Toomsalu.

“It is challenging to operate profitably with a reduced volume. Moreover, in the first half of the year, there were also extraordinary expenses, such as staff lay-offs,” he added, in reference to the “daunting” task of having to cut half the workforce.

Meanwhile, China has also felt the heat from western sanctions, the Russian invasion doomed its plan to run express trains on its China-Europe rail service through Russia.

Demand on the route had been growing by around 20% a year, but now, according to reports, this has plummeted to just 2.6%, and there are efforts under way to find new links between China and Europe, as governments opt for rail over air in green transport bids.

Resultantly, the Caucasus could become a major beneficiary, with Kazakhstan being eyed as an alternative southern loop into Europe to Russia. This has led Kazakhstan to team up with Azerbaijan and Georgia for a  joint rail venture to capitalise on the potential for mounting volumes.

But for Estonia, the loss of Russian/Belarussian traffic has left a massive dent in its finances.