CARGO BUSINESS 3-09.indd - ZSSK Cargo

The situation in transportation market is currently influenced and
will continue to be influenced by several adverse factors. We are
going to take a closer look at them in a few steps in this article and
at the same time, we will briefly introduce the framework parameters
of trade and tariff policy of ZSSK CARGO for 2010 - with news on
transportation and technical capacities.
Historical inter-annual slump in the entire sector
The year 2009 is almost over and it is necessary to mention that we
have not experienced such a tough year in transportation market and
in transport by rail for a long time. One may say that such a sharp
inter-annual decline in transportations by rail has never been observed,
neither in Slovakia nor in Czechoslovakia in the post-war period.
Inter-annual fall equal to more than 30% in transported tons and more
than 37% in net ton-kilometres means, not only for ZSSK CARGO, but
also for the entire railway sector serious if not existential problems. At
the same time, it should be mentioned that this slump continues also
in comparison with the last quarter of 2008, which was already fully
affected by the global financial and economic crisis.
When comparing the first nine months of this year and last year,
the volume of rail transportations of ZSSK CARGO and other
railway operators in Slovakia decreased by 32% in total and in net
ton-kilometres, this decrease was nearly 40%! When taking into
consideration the decline in performances in road transport by more
than 20% and decrease in price levels in international transport, with
inclusion of impacts of the Euro introduction in Slovakia at the rate
30.126 SKK / EUR, we are talking about almost 40 to 45-percent
decrease in income from transportations carried out by transport
companies. This fall in income must correspond with decrease in costs.
If it is not so, it is necessary to seek reserves in previously accumulated
profits, or in additional operating loans. However, the network operators
observed a decrease in costs by only about 20%. This creates enormous
pressure on cash positions to cover normal operating expenses. Despite
the slump in the last quarter of 2008, ZSSK CARGO managed to make
a profit amounting to 2.75 million Euros in 2008.
Period of significant growth period followed by period of noticeable
slump
The period from mid-2006 up to the first half of 2008 inclusive,
can be perceived as period when we observed a high demand
for transportations, which, in many cases, could not have been
carried out by ZSSK CARGO due to capacity reasons. Economic
growth accompanied by boom in construction industry, automobile
production and particularly steel production caused a growth in
demand for transportations. This is something we experienced mainly
in 2006, 2007 and in the first half of 2008.
The period of decline, which occurred particularly in the last quarter
of 2008 continues, although it should be mentioned that there was
a partial recovery in summer. Besides certain one-time unexpected
impacts, such as implementation of the Schengen agreement for
the eastern border in 2007 and gas shutdown earlier this year, the
rail transport market in Slovakia is fully dependent on development
of metallurgical, construction and petrochemical industries. The
graph No. 1 shows how the demand for transportations has varied in
individual months since 2003.
(graph No. 1)
ZSSK CARGO in 2009
Transportations carried out by ZSSK CARGO for eight months of 2009
indicated the following:
88 % of transportations is of international character (import, export,
transit),
72 % of transportations is made up of bulk substrates (63 % bulk,
9% liquid),
approximately 55 % of transportations is related to metallurgical
industry,
share of ZSSK CARGO in rail transportation market:
- 97,3 % in transportation performance in net ton-kilometres,
- 96,3 % in transport performance in train kilometres,
- 93,9 % in volume of transportations in tons.
The Graph No. 2 shows a comparison of volumes of transportations in
individual commodities this and last year.
In the first eight months of 2009, ZSSK CARGO was fulfilling its plan
of transportations volume in tons with 0.4% deviation. In the following
period, we anticipate that the plans will be fulfilled as well. This is
closely related to stabilization of transportations for metallurgy,
automobile and construction industries. The inter-annual comparison
shows a decline in all commodities. Similarly, at the end of previous
year, the biggest decrease was observed in commodities, which were
most affected by the world economic crisis, namely iron ore, coal,
metals and building materials.
In ZSSK CARGO, we immediately responded to this situation and
presented two alternative solutions to the shareholder at the end
of 2008. In the first alternative, we considered an intense costs
adaptation to a decline in performances and income, and the second
alternative took into consideration the request for assistance to
overcome this historic slump. The shareholder ultimately approved the
financial repayable loan.
In addition, we have launched a crisis regime within ZSSK CARGO. It
includes a rigorous limitation of operating and overhead expenses.
At the same time, the company implemented a 4-day working week
from May 1 to August 31. Since September 1, 20% of our employees
have been working under the flexi-account. We do believe that these
restrictions did not have any negative impact on quality of provided
services.
(graph No. 2)
Barriers to development of transport by rail
In recent years, the Slovak economy has been undergoing significant
changes and that from the economy dependent on heavy industry to
the economy producing sophisticated products with higher added
value. Therefore, a significant growth of the Slovak Republic does not,
at the same time, bring along the growth in demand for rail transport
(interdependence between GDP and volume of transportations by rail
is disappearing).
Growth in the number of towing vehicles in Slovakia over the past ten
years is more than 1000% (graph No. 3) and the starting conditions
of the road and rail carrier are not comparable. Another problem is
the gradual disappearance or non-creating/non-designing of rail
connections - the railway sidings for individual manufacturing plants
or logistic parks. This is due to minimal motivation and support of
siding owners and developers from the state. Despite this, the rail
transport in the Slovak Republic, with its share in tons and net tonkilometres,
has a relatively good starting position in comparison with
other EU Member States.
Another problem or one of the main barriers to doing business in
rail freight transport in the Slovak Republic is a low degree of state
intervention in relation to the external costs, which are caused by
one or the other mode of transport. The problem of internalisation of
external costs (simply “pay for what you have caused”) is the question
beyond the year´s horizon and daily business, but from the medium or
long-term viewpoint it will be a priority issue.
(graphs No. 3 and 4)
Toll system
In 2010, the long-anticipated toll system shall be implemented. It
must be mentioned that this will only result in partial equalization
of conditions between the road and rail carriers. After 1 January