Test 1 Tariff blow to the mining and metals sector: Ukrzaliznytsia again wants to raise freight rates

After seaborne exports through the Black Sea ports were blocked, rail became the main delivery route for Ukraine’s mining and metals sector. In 2026, the sector’s export capacity is coming under simultaneous pressure from two factors: a domestic increase in freight tariffs by JSC “Ukrzaliznytsia” (UZ) and a sharp rise in the cost of routes through European Union countries, a forced response to the port blockade.

Tariff blow to the mining and metals sector

From August 1, 2026, “Ukrzaliznytsia” indexed freight tariffs by 30%, and from January 1, 2027, it plans to raise them by another 15%. The carrier’s arguments are understandable – rising operating costs because of high industrial inflation and, in particular, a substantial increase in energy prices, as well as the need to raise employee wages amid staff outflows and loss-making operations. UZ’s net loss stood at UAH 7.6 billion in 2025 and reached UAH 9.3 billion in the first four months of 2026.

Key shippers stress that the rapid rise in freight tariffs will have negative consequences both for the entire Ukrainian economy and for the carrier itself:

1. A new cycle of transport declines. In 2025, Ukrzaliznytsia’s transport volumes fell by 7.8% (to 161.3 million tonnes), while revenue from this segment dropped by 19%. In the first half of 2026, the decline continued (-6.2%). A further contraction of the freight base will lead to the loss of millions of tonnes of cargo. Against the backdrop of all metallurgical enterprises shutting down, this will hit UZ’s financial position by the end of 2026.
2. Production cuts and plant shutdowns. Mining companies have no ability to shift their volumes to road transport. For them, higher tariffs would mean a critical increase in costs and a loss of competitiveness. For example, Ingulets Mining and Processing Plant has been idle since 2024 because of high electricity and logistics costs.
3. Undermining export competitiveness. In the first eight months of 2026, imports into Ukraine rose by 26%, while exports increased by only 1%. Expensive rail logistics will further weaken the position of Ukrainian goods in foreign markets, especially amid the introduction of the European carbon border adjustment mechanism (CBAM) and new EU steel quotas.
4. Intensifying inflationary pressure. Industrial inflation reached 47.3% year on year in August 2026. Higher rail tariffs are directly built into product costs and passed on to end consumers.
5. Redirecting cargo to roads. Shifting part of the cargo base (construction materials, grain) to road transport will accelerate road surface wear, increasing the burden on the budget. At the same time, for Ukrzaliznytsia, the loss of cargo flows means idle capacity while retaining about 80% of quasi-fixed costs, which will only raise the cost of transporting each tonne.

Under an ideal scenario, the sector proposes introducing a moratorium on UZ tariff increases until the end of martial law, fully compensating losses from passenger transportation from the state budget, and attracting international financing for infrastructure reconstruction.

«If the ports are not operating, the cost of logistics for domestic transportation cannot be increased. UZ is effectively shooting itself in the foot: the more it raises tariffs, the less efficient it becomes,» notes Metinvest Chief Operating Officer Oleksandr Myronenko.

Shortage of traction rolling stock

Systematic shelling of railway infrastructure has caused an acute locomotive shortage: Ukraine has almost exhausted its reserve of machines to replace damaged equipment. Since the start of Russia’s full-scale war, more than 500 locomotives have been damaged or destroyed, of which around 310 were hit in 2026. Since 2022, Ukrzaliznytsia has received no new freight locomotives and has been unable to repair its damaged fleet quickly enough (for comparison, in 2019 UZ’s diesel and electric locomotive fleet totalled 3.6 thousand units).

The first of the 55 electric locomotives ordered from Alstom is expected only in the first quarter of 2027, with deliveries to be completed by the end of 2029.

Ukraine is looking for available locomotives in neighbouring countries, but the main barrier is the difference in track gauge: 1,520 mm in Ukraine versus the European standard of 1,435 mm. As building new equipment takes a long time, the country has to rely on countries with the same gauge. Foreign partners (including Slovakia and Lithuania) can transfer only three locomotives each, which does not solve the shortage problem.

Further aggravation of this problem will hamper both passenger traffic and domestic and export freight transportation at a time when the country is critically dependent on rail.

«International grant financing is needed to purchase new locomotives under a kind of ‘rail Ramstein’ principle – analogous to the way military aid is consolidated,» believes Oleksandr Myronenko.

He also stresses the acute problem of securing locomotive traction for stable freight transportation in the frontline zone (within 150 km of the front line).

Coordinated tariff policy: the industry’s proposals

In recent years, in dialogue with the authorities and Ukrzaliznytsia, industry associations have insisted that attempts to solve the state carrier’s financial problems solely by raising freight tariffs are a dead end that sets a destructive spiral in motion for the entire economy.

Business proposes building the following basic principles into relations with the carrier:

1. Transparent cost calculation by cargo type and route. This would help clearly distinguish between the portion of the tariff that covers the actual cost of transportation and the portion that is used to cross-subsidise the loss-making passenger segment. Market prices for bulk commodities (including iron ore) must also be taken into account.
2. Complete abandonment of cross-subsidising passenger transportation with freight revenue. Although in 2026 the state allocated UAH 16 billion under the PSO (Public Service Obligation) mechanism to cover losses from long-distance passenger services, around UAH 10 billion in losses from suburban services remains uncovered. This segment should also be compensated from the state budget. Overall, in 2026 Ukrzaliznytsia is to receive UAH 28.5 billion from the budget (versus UAH 17.2 billion in 2025).

Shippers are demanding a public calculation methodology, open dialogue and tariff policy tied to the real state of export markets. The 30% tariff increase in August came at a time when maritime exports had almost completely stopped, making the rise in logistics costs critical for the industry.

Mechanisms to reduce the logistics burden

In the current environment, only a limited number of tools are available to stabilise mining and metals exports, and all of them require systemic steps at the intergovernmental level:

1. Negotiations on transit terms.

An example of an effective solution is the introduction by Ukraine and Moldova of a 50% discount on rail transit of Ukrainian freight (including to the Romanian port of Constanta) from August 10 until the end of 2026. Similar arrangements (preferential rates, priority passage, through tariffs) should be initiated with the railways of Poland, Romania and Hungary. However, it will be difficult to agree on lower costs: the base freight rates of private and state carriers in the EU are 2–3 times higher than in Ukraine.

In addition, Poland and Romania have already refused Ukraine a further increase in transit of Ukrainian agricultural products. The reason is that their transport infrastructure capacity is limited, and the interests of local producers remain the priority. The refusal is likely to also affect an increase in exports of other bulk cargoes, such as iron ore.

On the other hand, the key problem remains — export profitability, and without solving it, iron ore exports will not increase. According to Ukrmetalurgprom, delivery of pellets to the port of Gdansk will cost $50–60 per tonne, making their export through northern European ports economically unviable.

2. The European «Solidarity Lanes» initiative.

The instrument envisages mobilising EU grant and loan funds to develop border infrastructure, increase the number of facilities where wagons can be fitted with European-gauge bogies, and automate customs procedures. At present, transshipment or bogie-changing services add $5–12 to each tonne of cargo, while waiting times at the border range from several days to weeks, leading to demurrage penalties. In other words, this is a long-term investment in reducing transshipment costs.

3. Special terms at European ports.

This can be achieved by signing long-term framework agreements with port operators in neighboring countries and Baltic ports on fixed preferential transshipment rates for cargoes from Ukraine’s mining and metals sector.

A separate area of work for the Ukrainian authorities and business is negotiations with the EU on excluding Ukraine’s steel sector from import quotas and postponing CBAM requirements.

Conclusions

The mining and metals sector accounted for 35–40% of freight traffic and revenues in Ukrzaliznytsia’s freight segment. Currently, output and exports by steel and mining companies are declining. GMK Center estimates that steel output in Ukraine will total about 4.3 million tonnes in 2026 (down 39% compared with the same period). Output of iron ore products in 2026 could decline by 37%, and by a further 55% in 2027.

This leads to a proportional reduction in physical rail freight volumes, depriving Ukrzaliznytsia of the expected financial benefit from tariff increases.

It is impossible to preserve exports from Ukraine’s mining and metals sector solely through piecemeal restraint of domestic tariffs or isolated concessions by European carriers. A comprehensive package of measures is needed:

1. Transparent, long-term tariff policy by Ukrzaliznytsia with a phased end to cross-subsidization.
2. Intergovernmental transit agreements with EU countries (preferential through rates, priority at border crossings).
3. Maximum assurance of security and expansion of the capacity of maritime and Danube export corridors.

Only such an approach will make it possible to preserve the domestic steel industry as a foundation of Ukraine’s economic resilience and ensure stable cargo flows and revenues for Ukrzaliznytsia.

Restoring the full operation of Ukraine’s seaports is the single most important issue for exports from the mining and metals sector, and within that framework Ukrzaliznytsia’s strategic development priorities should be:

1. Increasing transportation volumes. Focus the company’s operations on building the freight base up to 200 million tonnes.
2. Support for frontline enterprises. Introduce preferential tariffs and discount systems for rail freight transportation for companies located in high-risk zones (within 150 km of the front line).
3. State funding and EU standards. Ensure full state-budget funding for passenger transportation, followed by a transition to the PSO model, in line with EU practice.
4. Optimization of Ukrzaliznytsia’s infrastructure and costs.
5. Operational efficiency and stability. Restore the operational locomotive fleet and fully staff locomotive crews to ensure an uninterrupted and stable transportation process.