Understanding our key elements to become… A competitive industry player

Slovenske železnice have a long and respectable tradition. It has been more than 160 years since the first train arrived in Slovenia and since then our railway system has undergone many changes. Today we are proud to be a vital part of Slovenia’s freight transport system. We are the largest rail freight operator and exporter of services in Slovenia with a strong position on key markets in Central and Eastern European markets and West Balkans. At the same time, our networks – using the growing network of partner rail freight carriers on key markets – are expanding towards Ukraine, Russia and Turkey.

As far as passenger traffic is concerned, the Slovenian Railways are the backbone of the public passenger transport system, catering to the needs of commuters and also connecting Slovenia to European passenger networks.

Our constant striving for better-quality services and our emphasis on environmentalfriendliness is underlined by the ISO 9001 and ISO 14001 quality certificates for quality and environmental management.

The recession influence

As Slovenia lies on the crossroads of two important Pan-European corridors – Corridor V and Corridor X – this geographical position has for a long time been seen as our natural advantage. And for quite a long time, it has been so. But the world recession had a profound influence on the work of our company. Slovenia is a small country and is therefore highly dependant on the situation on international markets. The same also holds true for our company. More than 90% of all our freight transports are performed cross-border, only about 10% lies with internal traffic. That is why the world-wide recession had a profound impact on our business. The recession especially affected our freight traffic, which is closely connected to the European economy. The negative trends foremost affected the industry, which is among the most prominent users of freight transports. The same problems also affected other European rail carriers. The drop in freight volumes in 2009 caused our freight traffic to finish the year with a substantial loss of more than €40 million. After many years of growth, a slightly negative trend could also be observed in our passenger traffic.

Preventing bankruptcy

Before taking over the position of General Manager of the Slovenian Railways at the beginning of October 2009, I was advised by many not to take the post. Indeed I was met by a very challenging position in a company with increasing losses, on the brink of bankruptcy. By immediate actions in the areas of financial consolidation and rationalisation, we managed to prevent bankruptcy. An important share in stopping negative trends was contributed by the employees themselves. We signed a deal with our unions, cutting wages by up to 10%. The deal was in force in the second half of 2009 and in the first half of 2010. We also took advantage of the state subsidies which included a shortened working-time and temporary layoffs for a period of up to six months.

The listed strict measures were of course not enough. We focused on active marketing and expanding our cargo activities outside Slovenia’s borders. Helped by the gradual revitalisation of the European economy, 2010 meant a reversal of negative trends. Last year we transported 18% more cargo than in 2009 and our cargo transport revenues were 24% higher than the year before. I am proud to say that the highly positive trends also continue in the first months of 2011 and we are again reaching pre-crisis cargo levels of 2008. The same is true for our passenger division where, once again, more-and-more passengers travel by train. I can conclude that Slovenske železnice managed to survive the worst recession period and are on the way to recovery.

But surviving itself is never enough. In 21st century business the borders are disappearing and if you do make a step forward, you are already falling behind. This is also true for the rail freight market. Until relatively recently, the international railway market has been tightly controlled by national railways, each guarding its own territory. In a very short period, this has changed profoundly. The national borders have become mere memories from the past. The legislature and the technical innovations of the railway industry make the once cumbersome cross-border traffic, and the competition it brings, a reality.

The future looks bright…

Our aim in the cargo sector is developing high-quality, reliable, efficient and competitive regional services. By internationalising our activities and implementing new logistical services, we are gradually stepping onto the wider logistical markets. We are joined in this by our logistical partners, and we pursue the Ljubljana rail port as the central logistic platform for SE Europe.

By implementing the afore mentioned activities, our aim over the next five years is the growth of the physical and financial volumes of our cargo, the increase of the logistics share, the increase of added value by optimising our capacities and, of course, developing our presence on new markets, developing regional products and controlling whole transport routes.

Easier said than done, one might argue. But we at Slovenian Railways are already taking great steps towards achieving our goals. By opening our representative offices in Prague and Sofia we have reached further across our borders and come closer to our clients. One of the most important steps is the forming of the Cargo 10 alliance. The alliance was formed according to our suggestions between the railways of Serbia, Croatia and Slovenia. Our incentive for forming the new alliance was the need to revive Corridor X. The growth possibilities of our port transit, which runs mainly on the V Corridor, are namely very limited, so we decide to look for potential on other routes. Corridor X was the natural choice. In 1988, before the war in former Yugoslavia started, we transported close to 8 million tonnes of cargo through Dobova, which lies on this corridor. In 2009, the number was only 1.9 million. It should also be noted that only a tenth of Munich–Istanbul cargo is transported on Corridor X. Nine tenths of the cargo runs on Corridor IV, even though it is 900km longer. This proves that geographical position itself doesn’t mean anything unless the service is right.

Fulfilling customer needs

The Cargo 10 alliance is our answer to the need of our customers since it aims in providing one-stop shop services and drastically decreasing transport times through better cooperation of the railways on the corridor. The first results are already evident. The train from Serbia’s Paraćin to Slovenia and on to Udine in Italy usually needed more than 30 hours to arrive. Today the transport time is between 20 and 21 hours. We have achieved this without any infrastructure investments, solely by better cooperation. It should be noted that other steps are already following. We are already forming a new product between the Bulgarian Yana terminal and Lyon via Padova. That is why beside the Macedonian and Bosnian railways, other operators have already shown interest in joining the alliance, and it has also attracted significant attention across Europe. I am convinced that a close cooperation, such as has been formed by Cargo 10, is the right way forward towards fulfilling the needs of our costumers and increasing railway cargo shares.

Our expansion strategy

Our strategy of expansion, coupled with the gradual reviving of the European economy, has so far shown positive results. It is of course supplemented by stringent measures on the side of costs. A comprehensive restructuring is under way. By the end of 2010, we reduced the number of employees by 840, compared to the beginning of 2010. This process will continue in 2011. I am especially proud to say that we are managing to make a leaner, more effective company without open unemployment.

We are joined in our efforts by the new legislature which will bring about a new structure of our company. A more cost-efficient holding company will enable us to achieve important business synergies between our cargo, passenger and infrastructure sectors and, at the same time, enable us to be competitive on the open European market. We will thus be able to further achieve our goals – foremost the transformation into a market-oriented logistical company. In freight transport, this means shaping comprehensive international logistical services, tailor-made for each specific market and acquiring all the needed logistical functions.

In our passenger transport we strive to set up an integrated public passenger traffic system, by upgrading our railway stations and stops with new services and by offering passenger-friendly services. We are glad that the state of Slovenia also sees the Slovenian Railways as the backbone of an integrated passenger system across Slovenia. We therefore envisage a further strengthening of cooperation with bus carriers and local communities.

Understanding our key elements

Of course, the key elements of the transformation are the infrastructure and traffic management. They must serve as the means of providing high-quality infrastructure and increasing the capacity of rail traffic. The most important infrastructure project in the coming years remains the construction of the second track on the Koper–Divača line, which is a part of the fifth Pan-European traffic corridor. Construction work is to start in 2011.

As already mentioned, the rationalisation of our business will continue in the years to come. The optimisation of business processes, upgrading of our information systems, centralisation of purchasing functions and a gradual staff restructuring are already under way.

Becoming a competitive player

Our measures are to be supplemented by the measures of our owner – the state. Without them, the setting of a long-term financial basis will not be possible. The state’s role will also be vital in providing guarantees for the foreseen modernisation of our rolling stock in both passenger and cargo sectors and in funding the long overdue modernisation of infrastructure. So far, the state has shown great interest and support for our plans. Without it, especially in setting a firm financial foundation and modernising the public railway infrastructure, we will not be able to fully explore our potentials. I can conclude that the undertaken measures have so far shown many positive results. I am convinced that by implementing our strategy of expansion on one side, and rigid cost control on the other, we will be able to become a competitive player on the international railway market.

About the Author

Goran Brankovič graduated from the Faculty of Electrical Engineering at the University of Ljubljana. His previous professional experience includes many positions such as CEO in Intara brokerage, CEO in Terme Čatež spa, CEO in SET printing house, CEO in Krater media and printing group and many others. Mr. Brankovič has also been a member of various supervisory boards.