Boosting the Economic Performance of Railway Transport

By Krassimir ANGELOV, M. Eng. Sc.

The improvement of BDZ EAD competitiveness is an on-going strategic objective. The achievement of this objective is a process, including both the boosting up economic performance and the preservation and further increase of the market share. Factors such as the equal conditions for competition, autonomy, compensations for the Public Service Obligations, financial recovery, etc. are of strategic importance for the survival and development of BDZ.

Offer - demand and pricing

The key to market success is the close contact with customers. If hitherto the cargo searched for the least expensive route, now it searches for the most economic route. This is the reason why there will be changes in the prices for the separate links in the transport chain. The customer is looking not only for a railway transport, but for a complete door-to-door service.

Given the current structure of BDZ with centralised decision-making and lack of a marketing-commercial structure, it is impossible to elaborate a more flexible tariff and to consider it is a wholesale price, which is for company use only, while the commercial staff negotiates with the customers retail rates for particular transports. It is possible to increase revenue only by means of adequate response to customer requirements and improvement of mutual benefits.

BDZ need an actual marketing - commercial structure, which should conduct studies on market demand and offer.

Marginal costing and pricing is the core of proactive management and boosting up the economic efficiency of Bulgarian railways.

Budgets, structures and motivation

Planning can no longer be based on hierarchical summing up of natural indicators in the context of pre-determined norms for costs per production unit. A different approach to budgeting in BDZ is necessary: internal budgets can be formed on the basis of agreed revenue projections and their relevant unit costs per pre-determined natural indicators and the method and level of their distribution between the marketing-commercial structure and the operational-technical structures. The organizational structure, which will manage the economic efficiency of cargo services by rail should include:

- Establishment of marketing units by types of traffic - major types of cargo/customers and logistics (intermodal services and diversification);

- Establishment of operational units by type of service - block-trains; wagon consignments; small consignments and parcels; intermodal services, including shuttle trains, road services and terminal operations.

The need of simultaneous decentralization of marketing-commercial activity and centralization of operational activity outlines two appropriate hierarchical levels of management:

- As regards marketing - Head Office - regional offices for cargo services;

- As regards operations - Head Office - regional divisions for cargo services and "Operational traffic management" departments.

Choice, values and new markets

Naturally, the customer will choose road transport when the rail service is more expensive and more time-consuming. Could this choice be changed? The answer is yes if BDZ offer services, prices and delivery terms, which are competitive to those of road transport.

The capacity surplus, which came about in result of traffic decline, can be managed not only by termination of operations, closing down of activities and line, discarding of assets and downsizing of staff, but also by re-capturing of previous markets and penetration into new.

The boosting up of railway economic performance depends to a large extent on the implementation of large-scale and detailed marketing studies on the major market segments (logistical chains, types of cargo, groups of customers, etc.).

BDZ need autonomy and commercial approach. The railways should be managed in the way private commercial companies are managed, taking into consideration national economy interests as well in such a way as to balance revenue and expenditure. The key to BDZ survival and development is the boosting up of economic performance through marketing-oriented management of the balance between demand and offer.

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