The long haul

PKP Cargo looks to international market to break out of domestic haulage straitjacket

PKP Cargo, the newly formed offshoot of Polish State Railways (PKP), is looking to fresh areas of rail transport to survive flagging orders from its traditional base of customers - the ailing domestic coal and steel industries.

The company, which started operating Oct. 1 following the restructuring of state-owned railway monopolist PKP, aims to fulfill two missions if it's to survive in the transport business. "We need to win back some of the market from road transport firms and to expand our international traffic," said PKP Cargo's president, Józef Marek Kowalczyk.

But while Kowalczyk has his sights set on the container cargo market, industry sources are wary about the rail firm's chances for competing with road transport companies, which are cheaper. On the other hand, they see plenty of opportunity for PKP Cargo in the international mass cargo sector, shipping materials such as steel, coal, ore and sand. "I don't believe in the growth of container transport by rail in Poland," said Henryk Klimkiewicz, president of transport consultancy TOR. "The chance for PKP Cargo is rather in Poland's integration within the production and transport structure of a converging Europe."

PKP Cargo already commands more than 50% of domestic cargo transport. But as receipts from steel mills and coal mines (60% of PKP Cargo's revenue) continue to taper off, the state-owned company could soon find itself in a tight spot. "We're facing a threat of further loss of traffic volume," Kowalczyk said. "To avoid that, we have to win over part of the road transport volume. In the place of steel and coal, we have to attract small, container-packed cargo orders."

And for PKP Cargo to stand a chance of luring customers away from road haulage firms, it will first have to invest millions of złotys into modern rolling stock. "To attract customers for container transport, we need new rail cars," said Janusz Mincewicz, PKP Cargo's spokesman. "In 2000 and 2001, we've acquired some 2,500 of them."

Even so, PKP Cargo has little chance of competing with road operators in the short term. For many in the industry, it's a simple case of economics. "In container transport, road operators can offer more flexibility and more attractive prices than PKP (Cargo)," said Grzegorz Kaczor, transport specialist at the Warsaw School of Economics (SGH). Also, road transport can often guarantee faster delivery and railways are less cost effective over shorter distances. "Consequently, PKP has little chance of increasing its traffic on the domestic container transport market because the distances in Poland are small," TOR's Klimkiewicz said.

There's also the question of outsourcing with more big road haulage companies now outsourcing logistics (such as warehousing). It's a service that PKP Cargo has yet to offer customers.

The road less traveled

PKP Cargo, which employs almost 53,000, launched with initial capital of zł. 2.26 billion ($552 million) and has assets of zł. 2.5 billion ($610 million). It operates some 5,000 locomotives and more than 90,000 rail cars, most of which are old and need replacing.

This year, the company plans to ship 172.5 million metric tons of goods, down from 206.3 million metric tons in 1998. According to the Central Statistical Office (GUS), PKP Cargo has steadily lost market share to road operators since the early 1990s. While it commanded 23% of the domestic cargo transport market in 1995, its share eroded to 19.3% last year.

In 2001, the company is targeting zł. 5.5 billion ($1.34 billion) in revenue, following first-half receipts of zł. 2.55 billion ($622 million), PKP's Mincewicz said.

"After three quarters of 2001, the revenue is slightly under the forecast, but the last quarter is always the best so we should reach the planned zł. 5.5 billion in revenue this year," he said.

But now that the state-owned transporter no longer receives government subsidies, it will have to stay in the black to survive. Many in the industry are saying that the company will only show a profit in 2002 if PKP Cargo pushes through a new business strategy, focusing on opportunities in mass cargo shipment and exploiting them on the converging European market.

"We are cheaper in the mass cargo transport," Mincewicz said. "In this market, we have a competitive edge over road operators."

Aleksander Morozowski, general director of freight forwarder Servisco, said PKP Cargo could also succeed by fulfilling a niche in big-load transport and in deliveries where time is not an issue. He said international deliveries are a haven for railways, particularly in light of Poland's European Union (EU) aspirations. This international expansion is probably the key to PKP Cargo's future

Since the collapse of communism, Poland's overseas transports have grown steadily. Last year, 19.9 million metric tons of Polish goods were exported by train and 16 millions metric tons via road, a healthy increase from 16.7 million metric tons and 14.5 million metric tons respectively in 1999, according to GUS figures

But for the company to survive in the long term, international transport is the key to success. "Especially after the opening of the markets with Poland's accession to the European Union," Mincewicz said. "We will be able to carry more volume to the EU."

Robert Wylot