State-owned Estonian freight rail carrier Operail reports an 83 percent contraction in cargo volumes since Russia's invasion of Ukraine began in February 2022. The company recently issued its financials for the first half of this year.
The company says the current situation is mostly the result of the curtailing of freight rail transport to and from the Russian Federation and Belarus, adding that potential privatization of the firm would be a matter for the Estonian state to decide on.
Operail's earnings before interest, taxes, depreciation and amortization (EBITDA) for the first six months of 2023 came to €0.2 million, with a net loss of €3.1 million.
The contraction is the result of both direct and indirect effects of the war in Ukraine, the company says, adding its financial position remains robust thanks to income earned from the sale of non-strategic assets.
Operail CEO Raul Toomsalu said: "We anticipated a loss in the first half of the year because railway transport is a volume-driven business that thrives on the ability to transport large quantities simultaneously."
"It's challenging to operate profitably with a reduced volume and to cut costs at the same rate. Moreover, in the first half of the year, there were also extraordinary expenses, such as layoffs," Toomsalu went on, via a company press release.
Operail attributes the drastic decline in cargo volume to sanctions imposed on Russia and Belarus in 2022, and the owner's decision to halt all transportation of goods, regardless of whether subject to sanctions or not, from Russia and Belarus, starting from this year.
"While such a decision sends a powerful message that Operail does not support the aggressor nation in any way, it inevitably grants a significant business advantage to competitors who persist in transporting Russian and Belarusian goods," Toomsalu went on.
"Regrettably, we don't anticipate any positive change in revenue generated from transport within Estonia this year."
At the same time, "despite the nearly negligible cash flow due to lost volumes, the group remains financially strong. The sale of assets has provided a significant financial cushion," Toomsalu added.
The last pre-war year of 2021 saw Operail's cargo volume in Estonia reported at 6.6 million tons for the first six months of that year.
Over the same period in, 2022 this figure was 3.6 million tonnes, while for January to June 2023, the total stands at just 1.1 million tonnes, compared with a forecast exactly double that, ie. 2.2 million tonnes.
The company has taken mitigating steps such as cutting its workforce by half.
However, these layoffs are not directly proportional to the decline in transportation volume, the company says.
"Carrying out layoffs on such a large scale has been a daunting task, because we are dealing with specialists with expertise in rail operations. It is crucial to retain the expertise to potentially restore volumes in the future," Toomsalu went on.
Small Estonian businesses, whose freight volumes are not large enough to fill an entire freight train on their own, have also been affected by the decline.
Operail says it recently introduced a new service tailored for small clients, whereby weekly scheduled trains will allow even a single wagon ro be reserved, as a way of addressing this issue.
The company exited the cargo transport business in Finland, as well as its rolling stock rental business, earlier this year; the revenue from these sales will enable Operail to navigate the current challenges and focus on finding new solutions, the company says.
The Finnish transport aspects were not deemed strategically essential activities for the state, the company says.
Operail management is now proactively seeking new profitable opportunities, while a comprehensive strategy to restore the group's profitability through new avenues is currently at development stage, and is expected to be finalized by autumn.
There is also, once the company's economic position improves, potential for privatizing Operail, at the owner's (ie. the state-ed.) discretion, the company says.
Operail is owned by the Estonian state and currently employs around 250 people.
Editor: Andrew Whyte