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Railway freight prices raised by 9.5 percent to offset rise in costs

By Chen Dujuan (Global Times)

08:15, May 23, 2012

Daqin Railway Co, a Shanxi-based provider of railway transportation services, predicted that its revenue would increase by about 800 million yuan ($126.8 million) in 2012 due to a rise in nationwide railway freight prices, the company said yesterday in a statement filed to the Shanghai Stock Exchange.

As of Sunday, the national average rail freight prices have been raised by 0.01 yuan per ton per kilometer, up by 9.5 percent from the previous 0.1051 yuan, to cover increased transportation costs, according to a notice jointly issued by the National Development and Reform Commission and the Ministry of Railways (MOR).

Rail freight prices, which are controlled by the National Development and Reform Commission, are always lower than transportation costs, and the sector has been suffering from low earnings or even losses, a transportation analyst surnamed Huang with Shanghai-based Sinolink Securities told the Global Times yesterday.

"The rail freight price per ton per kilometer is only one-fourth to one-third of that of highway transportation," Huang said.

Costs of electricity and labor have risen, as the MOR has substantially increased salaries for railway workers since last year and there was a 7 percent rise in electricity costs last November, Shenyin Wanguo Securities wrote in a report yesterday.

The labor costs for the sector are expected to increase more than 15 percent in 2012, and profitability has also been hurt by the rise in prices of electricity, which accounts for 15 percent of railway costs, the report said.

The freight price increase will surely result in rising prices of coal, steel and cement, which will also put pressure on prices of downstream products, Zhao Jian, a professor specializing in railway economics at Beijing Jiaotong University, told the Global Times yesterday.

However, few companies will transfer their rail freight business to other transportation means, because rail transportation is still much cheaper, Zhao noted.

Huang agreed, saying that air freight prices are much higher, as are prices for highway transportation, even after the rail freight price rise.

China has increased the rail freight price seven times since 2003. The most recent price adjustment came in April, with an increase of 0.002 yuan per ton per kilometer.

The MOR announced Friday that it will encourage private capital to enter the railway sector, as part of an effort to make the competition structure more efficient.

"Railway reform is needed to solve problems in the sector," said Huang.

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