The revival of the domestic economy in the last two years has led to a growth in demand for transportation services. All types of Russian transportation options handle about 10 billion tons of various cargos annually, including 5.3 billion tons by autos, 2.2 billion by industrial transportation, more than 1 billion tons by railway and 800 million tons through pipelines. The railway transportation option is leading, covering 80 percent of the cargo turnover.

Raw materials and fuel make up the majority of transported cargo. Thus, the Russian railways transport 20 million tons of coal, 13 million tons of oil products, 10 million tons of various ore, 15 million tons of building materials and 4 million tons of wood per month. In Russia, transportation from east to west prevails. However, a portion of transported raw materials comes to the central region from the northern parts of the country (the Republic of Komi, Arkhangelsk and Murmansk Regions).

Seasonal grain and vegetables are transported mainly from the south and southeast (Saratov, Volgograd, Samara, Rostov and Astrakhan Regions, Stavropol and Krasnodar Districts) to the central regions.

As a whole, transportation volumes worldwide are on the increase due to an growth in export supplies and a decrease in import supplies. Within the export supplies, oil products dominate, accounting for 30-33 percent, while ferrous metals, ore and mineral fuel make up 10-15 percent. Such an export structure poses a threat to the national economy if the world oil market changes course.

In 2001, the total amount of export-import transportation along Russian railways was nearly 260 million tons. The largest export supplies were to non-C.I.S. countries, accounting for 162 million tons. Belarus and Ukraine led the way in import supplies, which made up a total of 27 million tons.

Taking into account the Russian economic-development programs up to 2010 developed by German Gref, Russia's minister of economic development and trade, it is possible to expect a gradual increase of import supplies from developed European countries where transportation volume has increased two-fold over the past 25 years. Annual business volume in the EU is $1 billion, which comes to one fourth of the world trade. And Russia's turnover from foreign trade is only $100 billion.

Therefore, many European countries searching for a market to sell their products are ready to increase their deliveries to Russia, since transport corridors already exist, and only new tariffs and customs duties policies are needed.

The fact that tariffs influence transportation volumes is obvious. Here is just one recent example: Before 2001, Oskolsky Metkombinat exported 67,000 tons of steel products per month via Ukrainian ports and only 13,000 tons via the Novorossisk port. This discrepancy was basically due to lower railroad rates and lower port costs in Ukraine.

After introducing a discount tariff in December 1999 to Oskolsky Metkombinat's transport steel products, the monthly average loading volume in Russian ports increased up to 52,000 tons in 2001. Because the transport volume was switched from Ukrainian to Russian railways, additional income of domestic transportation companies increased by $4.5 million annually.

Development of market relations in the sector will involve flexible pricing, while the system of linking tariff rates to the rate of inflation will be preserved. This is especially true with routes and certain types of transportation where the railways really compete with other transportation options. In particular, it is possible to expect a growth in cargo transportation from Baltic and Ukrainian ports to Russian ports, including St. Petersburg and Novorossiisk.

This may be profitable both to consignors having a tariff discount and to the railways, which would have an income increase due to a rise of the distance. Cargo transportation discounts will be used for empty car routes, often from west to east. If the cars are united into the closed ring route fixed by the Ministry of Railways, the ratio for cargo transportation cost will be lower, and the payment for empty runs will not be levied.

Therefore, circulation of cars owned by consignors, consignees and operating companies will be reduced significantly. This will result in reducing time of car detention spent waiting for loading and unloading and eventually in the increase of cargo transportation volumes.

The growth of transportation volumes may be boosted by an increase of industrial production in the country. For example, the price growth indicator in the timber industry in 2001 was 115 percent, in the woodworking industry 119 percent and the in pulp-and-paper industry 120 percent.

The oil sector, automobile building, the steel industry and mining are developing rapidly. All of them are the largest consumers of cargo-transportation services. And if the Russian economy develops according to the optimistic forecasts with the growth rate of 7 percent annually and the total production volumes of 10-12 percent annually in individual branches of processing industry, the cargo transportation along the domestic railways will keep growing every year.

In 2000 the total volume handled by railways increased by 11 percent, while cargo turnover grew by 14 percent; the trend was the same in 2001 (3 and 6 percent, respectively). The domestic railway reform is also designed to increase its performance.

(The author is an associate professor at the Moscow State University of Railway Transport)