Freight Shipments May Fall 12% in November

Freight shipments will decline 10 percent to 12 percent in November because of the financial crisis as metals firms slash exports by up to 60 percent, the head of major freight operator Globaltrans said.

"For the whole railroad system, the decline in freight shipments will be serious," Sergei Maltsev, chief executive of the country's largest private freight operator, said in an interview.

After a decline of 3 percent to 4 percent in October, demand for rail transport will fall by up to 12 percent in November as Russian companies cut production and sales, Maltsev said.

Much of the downturn will come from falling metals exports, which will see a month-on-month drop of 50 percent to 60 percent in November, he said late Wednesday.

One metals giant, which Maltsev declined to name, has already cut production from an average of 1 million tons per month to 520,000 tons.

Metals firms that are situated closer to the center of Russia and further from European export markets are having to make sharper export cuts in order to lower their shipping costs, Maltsev said.

Domestic metals consumption is holding steady, however, and is only expected to decline 3 percent to 4 percent in November, he added.

The volume of oil shipments will remain steady, he said.

By March, Maltsev expects economic volatility to ease at least enough for company valuations to become clear. This will allow Globaltrans to move forward with acquisitions it had been negotiating before the crisis hit.

Maltsev said $99 million of the $449 million raised in its London initial public offering in April had not yet been spent.

"In February or March, we will be able to start acquiring a lot of assets quite cheaply, because there are companies having serious problems right now," he said.

Globaltrans, which owns 7 percent of Russia's total freight stock, is hardly leveraged at all and has not yet experienced any shortage of liquidity, Maltsev said.

The main risk Globaltrans is preparing for is nonpayment from its customers, which Maltsev said is probably on the horizon.

"It has not hit us yet, but I am already seeing requests to delay payments in metals deals. The companies ask each other for 45 or 60 days of slack," he said.

"Since it is already happening in the trades, we see it as a risk, and our management is preparing to deal with it."