How do you (other countries) deal with freight rail?

Posted on January 30, 2008 by Matthieu Desiderio

SNCF Fret loses money, though less and less…

A brief note to address an important issue in France: freight rail. SNCF, the French national railway operator, announced that 2007 would end on a €241 million loss and expects to lose €213 million in 2008. Even though losing money with its freight activities, the financial situation of SNCF Group will continue to improve.

The board will examine 2008 budget on February 13: gross turnover is expected to be €25.6 billion (up 7% from 2007) and net income, that will reach €930 million for the fiscal year 2007 ended December 31, is expected to grow 32% to €1.23 billion in 2008.

The main problem is still the situation of the freight subsidiary that SNCF tries to improve: new organization, new work-time rules, etc. However, the way is still long to turn up the results. November strikes spawned a €75 million loss that lowered the freight financial results by 4%.

Solutions to achieve a better financial situation

SNCF Fret expects the turnover to be €1.94 billion (+1.3% from 2007) and to improve its gross operating surplus rate (Marge d’Excédent Brut d’Exploitation in French, an indicator close to EBITDA) from -6.5% (2007) to -4.2%. To achieve these goals, SNCF relies upon an increasing traffic up 2.4% to 41.5 billion tons-kilometers.

A major reform is that SNCF Fret will not anymore handle separated railcars, close a lot of small freight rail yards and stations, and concentrate its activities in bigger hubs dedicated to intermodal transport. Intermodal traffic should rise 22% in 2008 and conventional transport will decrease 2.6% according to the article in Les Echos.

Another way for the freight operator to improve its results will be to drastically reduce its workforce: 2,000 jobs will be “lost”, which counts for 10% of the total employees at SNCF Fret.

If SNCF fret was a private company…

In the report that will be analyzed February 13 by the board, SNCF claims SNCF Fret does not operate in a fair competitive market. The national railway operator, considered as a whole, has to respect rules concerning the professional tax (a tax paid by employers in France) and the retirement fees that are different from fully private independent companies.

If the subsidiary SNCF Fret was considered as an independent company, its professional tax would be indexed on the added value generated only by freight activities and retirement fees would be considerably different… The company estimates that the €213 million could be “reduced” to €80 to €110 millions for 2008: not enough yet to be called benefits.