In the name of wagon

April 1, 2020 · Publications

What risks the new edition of carriage of goods by rail agreement contains for business.

COVID-19 outbreak seriously affected the global economy, having paralyzed the particular industries. Ukraine is no exception.

Unfortunately, not everyone realizes that the state and business are all in the same boat. The new edition of carriage of goods by rail agreement with Ukrzaliznytsia, which should have entered into force on April 1, is the clear evidence of the aforementioned statement.

Since the document has been prepared well before the outbreak of COVID-19, it drops out the current situation at all. Therefore, Antimonopoly Committee of Ukraine (AMCU) recommendations to Ukrzaliznytsia regarding refraining from implementation of the new agreement and revision of its terms with consideration of the interests of all interested parties, seem to be absolutely logical.

On March 30, Zhelko Marchek, acting Chairman of the Board of Ukrzaliznytsia, announced on the decision to postpone the implementation of the new agreement until June 1, referring to "current conditions for business, the need to support Ukrainian companies and manufacturers, social responsibility before the state". Nevertheless, the discussion on the new rules, which the monopolist insists on, holds sway.

Here is why.

To begin with, the document by its nature is an accession agreement, thus is being signed by the counter parties with no amendmends. It follows that there is absolutely no possibility for the consignors to amend the terms of the agreement, since they are settled unilaterally by Ukrzaliznytsya. The business is forced to agree with the offered terms due to the absence of the alternatives.

There is no balance of interests in this case at all: when the obligations of the customer are listed in 30 articles then the carrier’s liability is stipulated only by 10. Moreover, the agreement does not stipulate liability of Ukrzaliznytsia for failure or improper performance of its obligations.

For example, the new agreement obliges shipper to pay for detention of wagons. That makes sense when the rolling-stock is being delayed due to Customer's fault. At the same time, the detention is due to the Customer even in case the delay occurs as a result of customs or other control of the cargo. Considering the workload of border entry points during quarantine, such terms cause significant losses for the shippers.

At the same time, agreement doesn`t stipulate any liability for the carrier in case of late spotting of rolling stock. However, any such delays may cause increasing of Customers’ expenses, in particular, for storage of goods. There is only one single clause in the agreement which provides that Ukrzaliznytsia takes responsibility for damage of goods "in accordance with the current legislation”.

Same deal with other terms. For example, the penalties should be paid by Customer in case of returning of the uncleaned wagon. However, if Ukrzaliznytsia delivers uncleaned wagons, it would hold no liability. Although article 123 of the Railway Charter provides that the delivery of uncleaned rolling stock is allowed only after authorization with the shipper or port, and the 50% daily rate shall apply in such cases.

It should be also noted that the carrier pays close attention to the financial discipline of the counterparty. If the shipper has a debt before the carrier (nowadays the probability of such cases is rather high), then Ukrzaliznytsia reserves the right to withdraw the cargo and sell it to cover its expenses. Such a strict condition is imposed on customers unilaterally and reduces their ability to fulfill obligations before their business partners, earn money and pay off debts to Ukrzaliznytsya.

Further on, Ukrzaliznytsya settles in the agreement the terms that stipulate for financial responsibility in case of damage to their rolling stock. However, the agreement provides no sanctions in case the private wagons are damaged due to the fault of the carrier. There are also no penalties for the delivery of defective rolling stocks. Obviously, there is imbalance between the rights of carrier and customer.

The right of Ukrzaliznytsia to refuse in agreeing of the delivery schedule due to the lack of technical or technological possibility is worth separate attention. This provision contradicts the Statute of the railways which obliges the carrier to provide the rolling stock in order to recover the unfulfilled monthly plan in case the wagons have not been delivered due to the fault of the carrier.

In addition, the financial component of the agreement may also have a significant effect on the logistics chain and the final value of goods. The fee for the use of wagons increases 13 times in some cases and is not supported by the economic justification.

Other things being equal, such an agreement could have become the subject of heated discussions, legal disputes, exchange of claims with the Antimonopoly Committee. But in the precarious situation that the country's economy is in now, the predominance of interests of the transport company over shippers one may lead to irreversible consequences. The lack of safety margin may strike the Ukrainian economy, and it won’t be able to recover in nearest future. Therefore, AMCU's recommendations are given well-timed. I hope that the new version of the document will be as balanced as possible and will allow our country to pass the crisis period suffering minimal losses.