AS the source of the coronavirus pandemic, China was also the first country to begin the economic recovery. Factories and businesses began reopening in February, and many enterprises have since turned to trans-Eurasian rail freight services to speed up the shipment of products and to receive essential components and goods.
China National Railway reports that 2920 trains carrying 262,000 TEU ran between China and Europe from January to April, a 24% increase year-on-year. In April alone westbound volumes were up 58% and eastbound 29% for a total of 88,000 TEU.
In Europe, rail freight loadings at the port of Duisburg, Europe’s largest inland port, increased from the usual 35-40 trains per week to 50 in April. The Polish border has similarly witnessed extensive congestion as freight waits to transfer to the 1435mm-gauge network before heading to destinations across the continent.
The scene is in stark contrast with the Covid-19 shutdowns, which have ground much of the continent to a halt in recent months and are set to plunge Europe’s economy into one of the deepest recessions ever known. Indeed, for Polish rail freight operator PKP Cargo, while the increase in demand for east-west intermodal rail freight is welcome, it does not mask the reality of losses elsewhere.
PKP Cargo serves Poland’s three seaports, which have experienced a 50% decline in shipments from China since the start of the pandemic. While rail freight from China is reaching the continent within 12-14 days, the two to three-month journey for ships, which carry the majority of Europe’s goods, means the recovery will be much slower. The situation is compounded by many of the ships now passing around the Cape of Good Hope rather than via the Suez Canal, adding weeks to the journey.
“Obviously we are in a difficult time,” says Mr Czeslaw Warsewicz, PKP Cargo president. “For the whole time we have been operating as normal both domestically and internationally, but demand from the economy was lower, especially for power. Our economy and electricity is based on coal, and 50% of our turnover is based on the transport of coal. General power production in Poland dropped by 10% and this has slowed demand for transport of coal.
A Crisis Management Team was established in the early days of the crisis to develop and implement the necessary safety procedures.
“There was also a fall in intermodal transport, especially between seaports and destinations in Poland and elsewhere in Europe. The number of ships from China fell by 50% and the traffic for transfers from ports was much lower as a result.”
The situation might have been much worse for PKP Cargo if the operator did not act to keep its business operational. A Crisis Management Team was established in the early days of the crisis to develop and implement the necessary safety procedures for dispatch employees, traction teams and other people directly responsible for handling trains and loads. The operator also benefitted from the European Union’s Green Lanes policy, which maintained seamless border crossings on TEN-T corridors for all freight.
Like many businesses, PKP Cargo has received state support to cover key costs during the crisis. In Poland the government is reimbursing the salary costs of employees at firms which have reported a 15% or more reduction in activity as a result of Covid-19. PKP Cargo employee working hours have been cut by 10% overall as a cost saving measure and Warsewicz says this move has stabilised the business and will mostly compensate the anticipated 20-25% reduction in turnover. He says volumes are expected to begin a slow recovery from this month.
The Covid-19 downturn comes off the back of a successful 2019 for PKP Cargo. Despite difficult economic conditions and an overall decrease in the transport of goods, which the company says is consistent with rail freight operators across Europe, the operator reported revenues of Zlotys 4.87bn ($US 1.18bn), its second best annual result since listing on the Warsaw Stock Exchange in 2013.
However, this was down 7.1% from the Zlotys 5.24bn reported in 2018, the company’s best ever result. Ebidta was also down 5.2% year-on-year to Zlotys 860m.
In total, the group transported 108.6 million tonnes of goods in 2019, a 10.9% decrease year-on-year. Coal accounted for 47.9 million of this figure, a reduction of 6.3% compared with 2018. Aggregates accounted for 20.4 million tonnes (-21.6%), and metals and ores 9.3 million tonnes (-26.2%).
Intermodal was the only segment where volumes increased - from 9.2 million to 9.5 million tonnes, or 2.7%. Intermodal is also where PKP Cargo is pinning its future hopes.
As Poland begins to move away from fossil fuels to cleaner sources of energy, coal shipments are expected to decrease in the medium-term. Equally, a boom in infrastructure development and upgrades across the country fuelled by EU funds helped to establish PKP Cargo as the country’s leading shipper of aggregates. Yet this segment is not likely to sustain growth in the long-term.
“We have no choice but to take into consideration the changes that will take place in Poland and in Europe, which will demand greater specialisation,” Warsewicz says. “Increasingly logistics will become a factor in every success of the business, and this is why in the long-term we will focus more and more on this element.”
Warsewicz recognises that this transfer process will not happen rapidly and says that in the more immediate term the emphasis is on improving service efficiency and reliability. He says the three-month window offered by the state’s support package is providing the company with time to reflect on what its longer-term objectives are, and how it can achieve them while remaining relevant in the short-term.
“No-one knows what will happen in the next two, three or four months,” Warsewicz says. “My feeling is that the situation will return to something resembling normal, but you don’t know for certain. We don’t want to make any impulsive decisions to fire employees or to decrease the scale of the business. For these three months we have the opportunity to update the strategy for a changing situation and the possible impact on the economy of Covid-19.”
As part of this process, Warsewicz says PKP Cargo will engage with clients to try and estimate how the business will develop for the remainder of the year and for the next two or three years so it might respond accordingly.
“Our main ambition is to balance cost with turnover in this short period so we can prepare ourselves to make a net profit in the near future,” he says.
Warsewicz adds that he is heartened by the importance of the railway to keep the economy moving during the pandemic. This along with strong environmental credentials should hold the sector in good stead for the future.
Yet rail freight’s Achilles heel - predictability and reliability of delivery - remains. For Warsewicz, if PKP Cargo is to deliver on its ambitions and become a complete logistics provider, it must increase the attractiveness of intermodal rail services, which are the backbone of its offer.
To address these fundamental flaws, improvements to Poland’s railway infrastructure are essential. Warsewicz says he is encouraged by progress with the National Railway Programme, the largest infrastructure investment in the history of Poland’s railway. Infrastructure manager PKP PLP is investing Zlotys 70bn up to 2023 on upgrades across 9000km of track as well as improving passenger infrastructure and signalling and telecommunications systems.
“If we can get this to 45-50km/h after modernisation, we can double the speed of our service, which is very important when competing with road transport.”Czeslaw Warsewicz, CEO PKP Cargo
The importance of these investments is emphasised by the fact that rail freight only accounts for 20-25% of all transport from Poland’s ports, compared with 40-45% elsewhere in Europe. Improving access to terminals and rail infrastructure capacity so there are more freight paths will help to increase this figure. Equally it will help to increase the average speed from 20km/h for freight services at present.
“If we can get this to 45-50km/h after modernisation, we can double the speed of our service, which is very important when competing with road transport,” Warsewicz says.
“To truly be a logistics operator we must have a door-to-door service,” Warsewicz continues. “We need a network of terminals. We already have some, but the state is investing in more. Compared with the EU average, we have two to three times fewer per 100 network-km, and that is why we have a big gap between us and the rest of Europe. The state is investing a huge amount in infrastructure and this is critical to help us to become more competitive and efficient compared with other modes of transport.”
With PKP Cargo transitioning from a railway operator to a logistics company, and an infrastructure owner to a service provider, a major restructuring of the business is necessary.
This process will involve combining existing domestic subsidiaries as well as its international arm, PKP International, which the company bought outright from Czech operator Advanced World Cargo (AWT) in 2017, into a single logistics company.
Warsewicz does not rule out acquisitions if, following a review of internal processes, the company is found to be lacking in a specific area. He is also quick to emphasise that the company is ready and willing to use services offered by others - such as planes, ships or specific logistics processes - if it improves the offer to the customer.
“We want to maximise our efforts for the client and to do this we want to be a logistics partner that will deliver at the right time, at the right place, and at the right price,” Warsewicz says. “Different clients have different priorities; for some it is all about price, and for others it is all about time of delivery. This is why we need to prepare individual offers for each client.”
Harnessing new digital technologies is considered crucial to improving the reliability of this tailored service. Warsewicz says PKP Cargo is close to agreeing a contract to install a Transport Management System, which he says will track all of the company’s assets in real-time, improving the visibility of goods and assets moving throughout the network and aiding service reliability. Clients will have access to an application which enables them to track their service. Equally the application will improve monitoring of PKP Cargo’s own activities and assets, enhancing operational efficiency and informing maintenance activities.
“We want to maximise our efforts for the client and to do this we want to be a logistics partner that will deliver at the right time, at the right place, and at the right price.”Czeslaw Warsewicz
“This is a critical process that we will finalise this year,” Warsewicz says.
One service that will ultimately harness this tracking capability is subsidiary PKP Cargo Connect’s Connect Operator intermodal service, which was due to launch as IRJ went to press.
These trains will operate several times per week from the port at Gdansk to Warsaw Praga and Poznan Franowo, offering a transit time of eight hours, and to Gliwice B Kontenerowa for a 15-hour journey. Crucially, they will run to fixed timetables and will offer customers a complete picture of where shipments are and when they are due to arrive at their destination. PKP Cargo Connect will also offer an onward road transhipment service to support last mile operation.
Another step to improve cross-border intermodal capability was emphasised in the operation of a pilot intermodal train between Germany and Lithuania in partnership with Lithuanian Railways’ subsidiary LG Cargo and German intermodal technology provider CargoBeamer last month.
The train was the first such service to reach the Baltic States. The 22-wagon train arrived at the Sestokai terminal in southwest Lithuania following a two-day 1500km journey from Kaldenkirchen intermodal terminal close to the Dutch border in Germany via Poland and the standard gauge line to Sestokai. The outbound train was loaded with trailers from eight transport and logistics companies. It carried 23 trailers on the return leg.
The companies touted the environmental friendliness of the service - it was estimated to reduce CO₂ consumption by 100 tonnes compared with an equivalent journey by road. Warsewicz says that the partners are working on developing a competitive transport offer for the route in the future. Indeed, as PKP Cargo embraces intermodal, further innovations are expected as the company seeks to grow and enhance this area of the business as others begin to decline.
Rather than using the Covid-19 epidemic to firefight, the company is embracing the breathing space offered by the government funds to reassess and improve its offer. Whatever happens in the next few months, PKP Cargo seems well placed to respond accordingly and strengthen its position in the market.