Optimisation of Business Processes and Services in the Rail Transport Market from Two Points of View: Economic Efficiency and Management

Abstract

The competitiveness of rail transport depends on many factors. This chapter describes the supply and demand patterns in the rail market and discusses the factors that influence them. It deals with the optimisation of business processes and services in the rail transport market from the viewpoints of management and economic efficiency. The chapter also analyses the influence of train performance parameters on the costs of traction fuel, energy and railway infrastructure.

3.1 Introduction

Transport is an important factor in the development of society. Effective systems for passenger and freight transport are one of the important factors affecting a country’s economy, the quality of life of its citizens and the development of society, and an improvement in the living standards of the population increases the demand for transport.

The Fourth Railway Package states: “An important aspect of the transport policy is to enhance the role of rail, given the difficulty of reducing oil dependence in other sectors. But this can only be achieved if rail provides efficient and attractive services, and if we eliminate regulatory and market failures, barriers to entry and burdensome administrative procedures which hamper efficiency and competitiveness” (European Commission 2013).

Accordingly, it is important to search for external as well as internal possibilities to increase the competitiveness of rail passenger and freight transport in the transport market.

3.2 Rail Transport Markets

The rail transport market is the place where the supply (companies providing rail freight or passenger services) and the demand (transporters, passengers) meet. It includes the size of the service lot––passenger transport in the different train categories and the transporting of many commodities by different train categories. In the rail market, a specific relationship exists between the infrastructure manager and the rail operators.

The diversity of rail services can be described as follows:

• the nature of the activities, processes and services––the final result is a product that is not of a material nature but the effect of the transport of goods and people, resulting in the impossibility of storing the product;

• the specificity of the transport infrastructure and vehicles—special vehicles (e.g. tank wagons) are often used;

• continual operation––especially in providing rail infrastructure services;

• the provision of transport service territory in passenger transport––the state must, through transport companies, ensure transport services for all citizens at affordable prices (these are constitutional rights of inhabitants in SR);

• special knowledge––the provision of transport services is a specific activity that requires special knowledge and skills, thereby necessitating interdependence between employees and companies;

• high capital for investments––external sources must be used for investments and in the Slovak Republic EU funding too;

• spatial distribution––services are provided in the global continental area;

• a large number of transport workers––the infrastructure manager (IM) is a natural monopoly in many countries; it follows that IM may not be implemented effectively.

3.2.1 Quantification of the Supply and Demand in the Rail Transport Market

The quantification of the supply in the rail market can be expressed using different indicators. Seat-kilometres are one of the indicators that allow the realisation of a comparative analysis among transport modes in passenger transport. In rail passenger transport, seat-kilometres may be defined according to Eq. (1):

$$\sum {{\text{skm}}_{p} } = \sum\limits_{i = 1}^{n} {D_{i} .C_{i} }$$

(1)

where:

skm _p :

seat-kilometres (supply in sets-km);

D _i :

the distance travelled of i.th connection;

C _i :

the capacity of the i.th connection expressed in the number of seats per train on average;

n :

the number of connections.

In view of the fact that a large part of rail passenger services is realised as “service in the public interest” (e.g. in the SR it is more than 95%), the supply is provided by state order (Dolinayova et al. 2016).

The quantification of the supply in rail freight transport is more complex than that in rail passenger transport, because the supply is influenced by other factors besides price, such as the infrastructure of manufacturing companies, the state of the rail infrastructure and so on. The quantification of the supply in rail freight transport can be expressed in the number of trains, train kilometres or gross tonnage kilometres in the track section or the entire rail network.

Knowing the prior and future rail demand is a priority for all rail companies. Their overall economic situation is based on a correct estimate of the demand for rail services. The total previous demand can be determined easily from the business economic information system of the rail companies.

The demand is expressed in rail passenger transport as:

• the number of passengers;

• the transport performance in passenger kilometres.

The operational management company providing the rail passenger services would not be able to function correctly without knowing the demand for individual train connections. If the company uses modern information technologies (e.g. QR codes on tickets), determining that demand is relatively simple (Zitrický et al. 2015).

Estimating the future rail passenger demand is significantly more difficult than estimating the previous demand. It is necessary to take into account possible changes in passenger behaviour. Marketing surveys are the method that is most often used for the estimation of the future rail passenger demand.

The demand for services of the infrastructure manager is the derived demand for rail passenger and freight transport. It is expressed as the sum of the number of implemented planned train paths (according to the timetable) on individual track sections and routes these ad hoc. It is most frequently expressed as the number of trains and respectively train kilometres (Mašek et al. 2015).

3.2.2 Factors that Influence the Demand for Rail Transport Services

“The neoclassical demand curve entails focusing on the implication of price changes on demand, holding the other factors constant, that is” (Button 2010: p. 80):

$$D = f\left\{ {P_{a} ,P_{1} \ldots P_{n} ,T,Y,\varepsilon } \right\}$$

(2)

where:

D :

the demand for rail transport services;

P _a :

the price of rail transport services;

P ₁ … P _n :

the price of other transport services;

T:

tastes;

Y :

the level of income;

ε :

the residual component.

Passengers choose their means of transport in accordance with their own criteria, whereby they attach different levels of importance to different kinds of transport. The factors that influence this decision as well as the demand for concrete services are the following:

• the purpose of travel––the demand is different for business trips, travelling to work and school and other trips;

• transport availability––the transport infrastructure does not allow the use of some transport modes (e.g. absence of a rail line);

• frequency––this markedly influences the demand for urban and regional transport;

• travel time––the demand is influenced by the total travel time, that is, moving to and from the place from where the means of transport leaves, the time spent in the vehicle, the time to change vehicles and the waiting time;

• distance––the demand function is different for long and short distances;

• price––this is a relative factor; for example, passengers who use individual cars make their own decisions only according to the price of fuel and do not take into account other costs, such as the price of the car, maintenance, insurance and so on;

• level of income––in Eastern European countries an increase in the level of income increases the transport demand as a whole but decreases the demand for public transport and increases the demand for individual transport;

• personal preferences––lifestyle, relationship to environment-friendly modes of transport and so on (Dolinayova et al. 2016).

The order of these factors and their importance in the choice of transport means are individual and often vary in different regions, reflecting regional disparities. In regions with a lower standard of living, the most important criterion is cost, while, in regions with a higher standard of living, the most important criteria are the travel time and the quality of the rail passenger service.

The factors that influence the demand for rail freight transport may be classified into three sets (Nedeliaková et al. 2014):

• natural;

• financial;

• qualitative.

The choice of vehicle depends on technical parameters (gross tonnes, loading capacity), the method of loading and unloading, kinds of commodity and so on.

The result of the supply and demand for transport is a modal split. Figure 3.1 shows the modal split in the passenger transport in the Slovak Republic (Statistic of Transport in Slovak Republic 2015).

Fig. 3.1

Modal split in rail passenger transport in the Slovak Republic

As can be seen in Fig. 3.1, the modal split in the Slovak Republic is characterised by a large proportion of individual road transport. The decrease in the proportion of rail passenger transport was influenced by free tickets for domestic rail transport for students and pensioners. Compared with 2014, the proportion of rail passenger transport was only 7%.

The situation in freight transport is similar to that in passenger transport. Figure 3.2 shows the modal split in 2005 compared with 2015 (Statistic of Transport in Slovak Republic 2015).

Fig. 3.2

Modal split in rail freight transport in the Slovak Republic

The modal split in freight transport is somewhat simplified by the fact that some transport may take place only for certain types of traffic due to the characteristics of goods and the operational and technical characteristics of the department of transport. However, it is currently dominated by the production of products of which the specific characteristics allow transport by various modes of transport, and the carrier has a choice by comparing the price and quality. The modal split in the Slovak Republic is characterised by a high proportion of road freight transport and an ever-decreasing share of rail freight transport.

The important question is: How to change? Activities are needed in two areas:

• policy instruments:

  • European policy;

  • national legal framework for transport;

  • transport authority, etc.

• economic instruments:

  • economic efficiency of the infrastructure manager;

  • economic efficiency of rail passenger services;

  • economic efficiency of rail freight services.

3.3 Economic Efficiency of Rail Services

Every railway undertaking that provides services on the rail market should change the input factors into output factors to ensure economic efficiency in the production activities. In the short term, it should achieve a profit, and, in the long term, the value of the company should grow.

Economic efficiency is influenced by external market factors (international trade, GDP, inflation, competition, legislation, etc.) and internal factors (management of technological processes, technical equipment, etc.).

3.3.1 Economic Efficiency of Rail Freight Transport

Rail freight operators cannot increase their price in the short term (with respect to the prices of freight transport competition). Economic efficiency can be achieved by the optimization of activities and processes with the aim of reducing costs. Measurements with the basic goal of reducing costs can be classified into:

• operational character––increasing the train capacity utilisation, optimising the wagon type by commodity, decreasing the running of empty wagons, etc.;

• investment character––new wagons, new locomotives, information systems, etc.

To increase the train capacity utilisation, three basic premises must exist:

• the existence of sufficient demand;

• some consumers who do not require just-in-time suppliers;

• sufficient norms of weight and length.

Every change in technology or management of operation causes a change in the natural indicators and thus the value indicators. These measures have an operational character, which means that their implementation does not need fixed capital.

The most common measures in freight transport are:

• an increase in train capacity utilisation;

• optimization of wagon type by commodity;

• a decrease in empty wagon runs.

An increase in the train capacity utilisation (e.g. an increase in the net tonnes of products or number of containers) can be achieved only if sufficient rail infrastructure capacity exists (norms of length and weight).

A change in operating performance due to the increase in the train capacity utilisation is inversely proportional to the train weight. If the weight of the train increases by about Δ, the number of train kilometres is reduced. We can define this according to Eq. (3):

$$\sum {\text{trkm}^{1} } = \frac{{\sum {\text{grtkm}_{{z \acute{a} t^{{\prime }} }} } }}{{Q_{vl}^{1} }} = \frac{{\sum {\text{grtkm}_{{z \acute{a} t^{{\prime }} }} } }}{{Q_{vl}^{0} \cdot \left( {1 + \Delta } \right)}} = \sum {\text{trkm}^{0} } \cdot \frac{1}{1 + \Delta }$$

(3)

where

∑trkm¹ :

train kilometres after the increase;

∑trkm⁰ :

train kilometres before the increase;

∑grtkm _záť :

gross tonnage kilometres (beside the locomotive);

$Q^{0} vl$ :

weight of the train before the increase;

$Q^{1} vl$ :

weight of the train after the increase.

Economic indicators change through lower fees for the railway infrastructure (in the EU countries, train kilometres are the basic parameter by which the fees for the railway infrastructure are calculated), increased labour productivity and thus lower labour costs. Some costs can be higher, such as the energy cost (problems with accelerating resistance).

Choosing the right wagon for the commodity (utilisation of the loading capacity or loading volume) entails lower costs for energy, rail infrastructure fees (the part that is dependent on gross tonnes km) and wagons (to transport the same amount of goods requires fewer cars).

Decreasing empty wagon runs is the main factor that can reduce costs. The main reason for runs of empty wagons is inequable distribution of transportation requirements. For this reason runs of empty wagons cannot be excluded from the railway, but rail freight operators should aim to reduce them to the minimum.

The decrease in empty wagon runs is reflected in reduced gross tonnage kilometres, reducing the number of trains and train kilometres. Economic indicators vary significantly as natural indicators. Wagon costs occur throughout the period of circulation of the wagon, but the carrier receives revenue only for running loaded wagons.

New wagons have a better ratio between the deadweight and the wagon length through bumpers and loading length than older wagons. These invoke the possibility to include more wagons in the train, transport more tonnes in one train or transport more shipments (for example containers). New wagons decrease the following costs:

• repair and maintenance of wagons;

• maintenance of locomotives (calculated in net tonnes);

• labour costs (locomotive crew);

• energy (calculated in net tonnes)

• rail infrastructure fees.

New locomotives require high investment, but the direct costs are lower than those for outdated locomotives. Using new locomotives can achieve reduced costs for:

• energy (compared with older locomotives––approximately half the energy consumption);

• repair and maintenance––the possibility of fewer locomotives (new locomotives have greater efficiency and many times banking is not needed);

• rail infrastructure fees (some countries use ecological benefits).

New information systems allow an increase in the effectiveness of managing and controlling processes, an increase in labour productivity, better availability of relevant information and a decrease in employment and can be connected with other information systems (for example the informative system of the infrastructure manager, thus shortening the technological processes).

Using a new information system can reduce:

• labour costs (wages and other labour costs);

• costs of evidence, actualization and information exchange among companies.

Beside the financial effect, a rail company that uses a new information system can achieve other benefits, such as increased service quality (online information about consignments) and the possibility to acquire new customers.

3.3.2 Economic Efficiency of Rail Passenger Transport

Due to the character of rail passenger transport, the possibility of reducing the costs by measures in technology or management is bounded (assuming that the companies have optimised the number of employees). Cost reduction can be achieved, for example by:

• optimization of the cycle of locomotive and train crews:

  • decrease the labour costs (whole costs as wages, benefits for working overtime, night work, social levies, expenditure on staff training, etc.);

• formation of trains in accordance with the real demand:

  • decrease the part of rail infrastructure fees (the part dependent on gross tonnage km);

  • decrease the energy costs (lower specific energy consumption).

In rail passenger transport higher cost savings can be achieved with investment in measures like freight. The most common investments are:

• investments in rolling stock, electric multiple units (EMUs) and diesel multiple units (DMUs);

• modernization of ticket sales.

Investments in rolling stock reduce the cost by the same principle as in rail freight transport (excluding the effects of the loading capacity). A significant cost saving arises if the classical train set (locomotives and wagons) is changed to EMUs or DMUs. Cost savings arise mainly due to the change in the gross tonnage of the train, which may be defined according to Eq. (4):

$$\Delta \,{\text{grtkm}} = \left( {Q_{L} + \sum\limits_{i = 1}^{n} {w_{i} .\left( {t_{i}^{w} + 0,08.c_{i}^{w} } \right)} } \right) - \left( {Q_{MU} + 0,08.c_{MU} } \right)$$

(4)

where

Δhrt :

change in the total gross tonnage kilometres;

Q _L :

locomotive weight;

w _i :

i.th wagon in the train;

$t_{i}^{w}$ :

i.th wagon weight;

$c_{i}^{vz}$ :

capacity of the wagon in number of seats;

Q _MU :

weight of the DMU or EMU;

c _MU :

capacity of the DMU or EMU in number of seats.

Given the change in the gross tonnage of the train, some of the costs for the use of the railway infrastructure can be saved. The other effects that are manifested in the value indicators include:

• a reduction in the traction energy consumption and therefore a reduction in the traction energy cost;

• a reduction in the cost of operation and maintenance of rolling stock;

• the possibility of reducing labour costs (assuming that in multiple units there are fewer members of the train crew).

All these effects need to be evaluated under comparable conditions; that is, the train capacity in seats should be approximately the same in a classical train (locomotives and wagons) and in multiple units. These measures reduce the cost of providing these services on the one hand; on the other hand, they improve the quality of services, which could increase the demand for these services and thus the revenues.

The modernization of ticket sales may be realised as:

• sales via the Internet;

• stationary machines;

• on the train (by train crews).

Using modern ticket sales reduces the labour costs. If the carrier has a leased space for ticket sales, it should reduce the rental cost. When we quantify the financial effects, we should take into account the cost of the purchase not only of the necessary equipment (e.g. stationary machines), but of all the operating expenses incurred during their use (e.g. the cost of repairs and maintenance of such equipment, software updates, etc.).

3.4 Modelling the Influence of Train Parameters on the Cost of the Railway Infrastructure and Energy in Rail Passenger Transport in the Conditions of the Slovak Republic

Passenger trains may be composed of different locomotive types and different numbers and types of wagons. The modelling was carried out for a classical train (locomotives and wagons) and an EMU or DMU.

The fee for the use of the railway infrastructure is described in the Network Statement, and it must be published on the website of the infrastructure manager in every European country. In the Slovak Republic, these fees depend on train kilometres and gross tonnage kilometres. The fee for the minimum access package includes the fee for ordering and allocating capacity, the fee for managing and organising transport and the fee for ensuring the operability of the railway infrastructure. The railway network in Slovakia is divided into six categories (Decree No. 3/ 2010). Beside the fee for the minimum access package, the railway operator must pay for track access to the service facilities (for using electric power equipment for the supply of traction voltage and for the use of passenger stations, their buildings and their facilities).

The selected wagons, locomotives and EMUs and their technical characteristics are listed in Table 3.1.

Table 3.1 Technical parameters of wagons, locomotives, EMU and DMU

Figures 3.3 and 3.4 show the comparisons of the cost of the railway infrastructure in the Slovak Republic by type of passenger train according to the distance and on electrified and non-electrified tracks.

Fig. 3.3

Cost of the railway infrastructure for electrified tracks

Fig. 3.4

Cost of the railway infrastructure for non-electrified tracks

We calculated the costs for the first track category. The costs on electrified tracks were calculated for express trains and the costs on non-electrified track for regional trains. As can be seen in Figs. 3.3 and 3.4, the costs of the railway infrastructure are affected by the train parameters. The costs for non-electrified tracks are higher than those for electrified track because regional trains stop at more stations.

Figures 3.5 and 3.6 show the comparisons of the costs of traction fuel and energy in the Slovak Republic by type of passenger train according to the distance and on electrified and non-electrified tracks.

Fig. 3.5

Cost of energy consumption for electrified tracks

Fig. 3.6

Cost of traction fuel for non-electrified tracks

As can be seen in Figs. 3.5 and 3.6, the costs of traction fuel and energy consumption depend on the train parameters. The differences between electrified and non-electrified tracks are large, because the electric traction system has lower specific energy consumption.

3.5 Conclusion

Currently, the competitiveness of railway transport is one of the most important European policy themes. The EU’s interest in increasing the share of railway transport in the market has led to the development of reforms in the form of railway packages. The implementation of these reforms will not be effective if the companies do not use the production factors effectively, meaning that companies will have to increase their economic efficiency.

The economic efficiency of rail companies is affected by external and internal factors. Companies cannot influence the external factors, but it is very important to know them and adapt a strategic and operational plan to these factors. Internal factors are the basis of economic efficiency from the point of view of cost optimization as well as profit optimization. Our research has shown that the optimization of the business processes in rail freight transport (such as increasing the train capacity utilisation and decreasing the runs of empty wagons) has a significant effect on the costs and thus on the economic efficiency. In the case of rail passenger transport, it is recommended the use of EMU or DMU trains instead of classical trains.