Although the financial crisis in 2009 has made Slovakian operator ZSSK CARGO freeze investment projects, at present the operator tries to consolidate its position in the freight transport market by implementing projects aimed at attracting a larger volume of freight, increasing performance and developing the company. ZSSK CARGO’s vision is to become a dynamic operator with a stable share in the transport market, both nationally and internationally. The company’s development includes a long-term financial stability, maintaining its traffic share, as well as competitiveness and performance.
In order to meet the set objectives, ZSSK CARGO has initiated the process for internal restructuring and establishment of two subsidiaries: Cargo Wagon-for management of car fleet and ZSSK CARGO Intermodal – responsible with the supply of intermodal transport services. Towards the end of 2013, the company announced the sale of a 66% stake in each subsidiary. In the case of ZSSK CARGO Intermodal, the company currently works to complete the tender in September 2014 and the sum for this transaction would be EUR 20 Million. At the beginning of June, the company officially completed the tender for selling the majority package in Cargo Wagon. AAE Cargo AG, an AAE Group company, purchased the 66% stake in Cargo Wagon for EUR 7 Million (according to AAE notification), thus becoming majority stakeholder of the Slovakian freight car operator, while the remaining 34% of shares are owned by ZSSK Cargo, the railway freight transport operator.
As part of the transaction, ZSSK Cargo sells 12,344 cars and re-rents 8,218 cars for the next 8 years. The sale documents will be completed this summer, as well as the financing documents. The sale will be finalized in autumn and Cargo Wagon will operate under the set terms.
Almost a year after the application of the measure regarding ZSSK Cargo’s restructuring (by setting up three subsidiaries), the company estimates a positive effect of the implementation and the involvement of the authorities in the railway freight transport segment is one that would determine the development of the segment and the diversification of offers. Also, reducing track infrastructure charges (from EUR 3.5/train-km to EUR 1.75/train-km) is extremely favourable to railway operators. In the first month of this year, positive effects are visible for the company regarding both the carried volumes and traffic performance, where the annual surplus is 5% for all railway freight operators using the Slovakian network. Also, other positive effects noticed by the company’s representatives are the increasing competitiveness with road transport regarding prices and consolidation of transit on the east-west and north-south axes. Regarding the implementation of the development strategy for the next period and considering debts, there are no great development chances since creditors have not permitted it. But, by using the revenues resulting from the sale and re-rental of the car fleet (EUR 180 Million) and from the sale of both subsidiaries (around EUR 27 Million), the company estimates a significant reduction of debts, which would be acceptable for creditors and could help implement the projects included in the development strategy by 2020.
Regarding international traffic, Europe is a significant trade partner for Asia and “we estimate freight flows especially in sea transport”. Although the logistics of sea transport is more flexible than that of railway transport, the latter begins to consolidate its market position due to special projects to which ZSSK Cargo will pay special attention. The most important projects are those on China-Europe axis and the direct participation of ZSSK CARGO Intermodal will trigger benefits and opportunities.
In this interview, Mr. Vladimir Luptak, CEO and Chairman of ZSSK Cargo Board of Directors, help us better understand Slovakia’s policies of encouraging railway freight transport, the importance of the national operator in the transport system and the new challenges the segment is facing.
Railway PRO: The latest measure for the development and consolidation of railway freight transport in Slovakia was adopted by the Government in July 2013 and includes the change of ZSSK Cargo’s structure by establishing three subsidiaries. What are the results of the new organisation process almost a year after adopting the measure?
Vladimir Luptak: ZSSK CARGO started the process of internal restructuring and established two subsidiaries – Cargo Wagon for management of freight wagons/for wagon fleet management and ZSSK CARGO Intermodal for intermodal transport services. In the beginning of June 2014, ZSSK CARGO has officially finalized international tender for an investor to Cargo Wagon who will gain 66% shares in subsidiary and the sale and leaseback contract with ZSSK CARGO for its wagon fleet. ZSSK CARGO is selling 12 344 wagons and leasing back 8 218 wagons for the following 8 years with additional option for another 8 years. There is a fix lease rate for day and wagon which is 10,35 EUR with inflation clause. It was officially announced that the winning investor in Cargo Wagon is Swiss company AAE (Ahaus-Alstätter Eisenbahn Cargo AG). During summer we are finalizing transaction documentation as well as financing documentation. In autumn we expect closing and full operation of Cargo Wagon.
Presently we are finalizing second international tender for selling of 66% shares in ZSSK CARGO Intermodal which should be finalised in September 2014.
Third subsidiary for maintenance and repairs of rolling stock – we had intensive negotiation and analyses with passenger operator ZSSK to establish joint venture for these services. Finally we came to conclusion to proceed separately and ZSSK CARGO will start process of establishing the subsidiary most probably in the end of this year.
Railway PRO: How will the application of the measure influence the national freight transport system in the next years and what will be its implication in attracting new freight flows to railways?
Vladimir Luptak: We expect that realization of the measures for rail freight transport in Slovakia will positively effect whole rail freight sector. Decreasing of rail infrastructure charges from infrastructure manager ZSR from approx. 3,5 EUR/train km (on average) to 1,75 EUR train km is significant and favourable for rail freight users. First few months of this year we got clear evidence of positive effects of such measures notably in transported volume (tonnes) and transport performance (net tkm, train km, gross tkm) where surplus year to year is approx. 5% of all rail freight operators on the Slovak rail infrastructure. Another significant effect is the fact that rail is much more competitive to road transport in pricing which we have seen already in several tenders this year. The last but not least is strengthening of the Slovak rail transit especially in direction east – west as well as north – south.
Railway PRO: What can you tell us about ZSSK Cargo’s development strategy for increasing the company’s dynamics on both the domestic and the European market? Practically, what are the directions you focus on to increase the share of public transport and competitiveness?
Vladimir Luptak: Due to indebtedness we do not have a chance to develop the company since creditors (banks and ministry of finance) did not allow it. By using revenues from the transaction sale and lease back of wagon fleet (approx. 180 mil. EUR) and from the sell of shares in both subsidiaries (approximately 27 mil. EUR) we expect substantial decreasing of the company debt which could be acceptable for our creditors and we can start company development and implementation of the strategy of further company development till 2020. It is connected with our active and attractive commercial policy both in Slovakia and abroad. Since economic and financial crisis came into effect (2009) ZSSK CARGO has nearly frozen its investments into assets – rolling stock, transshipment technologies, energy systems, buildings, ICT and other maintenance and repairs technologies. The main direction of ZSSK CARGO is to be very active in Slovakia and with using our subsidiaries Cargo Intermodal and BTS for realization of transport within V4 countries. Main growing opportunities we identified in road transports as well as transits which we would like to gain with special pricing and transport conditions. We decided in company to keep and step by step to develop single wagon consignments and group of wagons.
Of course company has still reserves in operational costs connected with energy and material consumption, redundancies in operational processes and in costs of maintenance and repairs. We have still old ecological reserves and redundant assets (buildings and locomotives) which are burdening our financial results.
Railway PRO: How do the authorities encourage the development of railway freight transport? What are the methods adopted by the authorities?
Vladimir Luptak: The Slovak State through its Ministry of Transport is encouraging rail freight transport with incentives and measures stipulated in documents like The Principles of State Transport Policy, Strategy of transport development till 2020 and by the relevant legislation (railway acts and decrees).
There are key principles for harmonizing conditions between single modes of transport, support of ecological transport modes, internalisation of external costs in transport including implementing a toll system since 2010 on selected road network. There is also support by EU – key program is OPT (Operational Program Transport 2007 – 2013) and the new one for period 2014 – 2020 which is called Operational Program Transport II with state co-financing (3 main axis – modernization of corridors and other infrastructure, vehicles for public transport and public intermodal terminals).
Railway PRO: 3 years already passed since adopting the measures for reducing freight transport fees (from 10 euros/train-km to 3.5 euros/train-km). What was the impact of this measure on the activity of railway freight transport?
Vladimir Luptak: It is quite difficult to compare 10 euro/train-km vs 3,5 euro/train-km due to different structure of infrastructure charging system – shunting, marshalling and additional services are extra paid, they are not regulated by independent regulation office (NSA).
Since the new regulation framework on rail infrastructure in Slovakia came into effect (1.1.2011) we have to say that new level of infrastructure costs is comparable with neighbouring countries. Thanks to such level rail freight operators are able to shift cargo/goods from road to rail and as was mentioned in previous questions the Slovak rail transit is much more competitive than before. Also we have to say that rail freight operators are able to achieve profitability and to invest into new assets and to introduce better qualitatively services.
Railway PRO: In the context of the privatisation process for the two subsidiaries, what is the method considered by ZSSK Cargo for developing the companies’ activity, especially of ZSSK Cargo after investors take over the stakes?
Vladimir Luptak: ZSSK CARGO will take an active part on management of both subsidiaries in line with shareholder agreements. In Cargo Wagon we expect that AAE will use its international know how in the field of wagon lease and will be able to place spare wagons on European market. In intermodal business we expect that new partner in subsidiary will be able to bring additional volumes and revenues and to be active not just within the Slovak republic.
Railway PRO: Considering Slovakia’s geographical position, how do you approach the construction of railway trade offers between Europe and Asia, seeing as more and more railway operators are involved in projects for launching services which successfully compete maritime transport (e.g. the Viking project, Cargo 10)? What are the challenges faced by an operator in attracting a higher freight transit transport volume between the two continents? How do you see ZSSK Cargo’s role in the CEE region and in ensuring freight transit to countries in Central Asia?
Vladimir Luptak: Europe for Asia is significant trade partner and we see tremendous freight flows especially by the maritime transport. Logistics of maritime transport is much more flexible than transport by rail. It was showed during the crisis 2008 – 2009 when maritime transport was able to decrease transport prices and to maintain goods. Of course rail is starting to have its position with special projects and ZSSK CARGO would like to play an active role in this. The main projects are in container traffic China – Europe, automotive traffic (automotive components) from Europe to RF and bulk materials imported from CIS countries to Europe. Participation of strong international partner in ZSSK CARGO Intermodal will allow us directly participate and benefit ffom such opportunities.
Railway PRO: What are the projects to be initiated regarding the cooperation with the railway operators in Central and Eastern Europe?
Vladimir Luptak: Currently in V4 countries (SK, HUN, PL, CZ) are active more than 100 rail freight operators. It is approximately 10 times more than 10 years ago but we have less volume of transported goods by rail. There is very intensive competition especially on direction north – south. Crucial is minimizing costs and extra times on cross border points and minimizing empty runs of freight wagons i.e. looking for back loading. We have a few projects of cooperation to Polish ports, to Hungary, Balkan project, projects of block trains of bulk materials from Ukraine to Slovakia and to Czech republic. For the last few years we started with our clients single wagon load and group of wagons project including cooperation with foreign railway operators.
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