Russian Rail, Road Shippers to Adopt New Contract System

Russian auto and railway carriers will soon adopt a new contracting system,  the Journal of Commerce reports.

The “take-or-pay” system is based on shippers buying space well ahead of time and making binding minimum quantity commitments that if broken could cause shippers to incur penalties of 15 percent to 20 percent of their contract with the carrier. The exact penalty has not been determined, and the system is expected to take effect next year. Money from take-or-pay contracts will be spent on infrastructure expansion and improvements.

The new system is meant to provide shippers with long-term pricing certainty and increase infrastructure investment, as well guarantee shippers space on trucks and trains if they sign such contracts, but shippers worry they will not be able to get space if they do not.

As Russia’s economy has struggled, auto and rail operators have had to look elsewhere for infrastructure funding, and this new contracting system provides an alternative to reliance upon the government, which has tightened its purse strings.

The take-or-pay system is already used in the Russian energy sector, providing the funding for new investments in gas fields and pipelines.

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