Further cost reduction for Operail would jeopardise rail transport capacity in Estonia

The railway company Operail has reduced operating costs as much as possible, but continued to operate at a loss in the third quarter. To turn the company profitable, the management board is looking for ways to expand the business into foreign markets. However, to ensure the sustainability of rail transport in Estonia, cross-sectoral cooperation and political guidance are needed.

In the first nine months of 2023, Operail transported 1.5 million tonnes of goods in Estonia, which is 68% less than in the same period last year. The operating income of Operail from freight transport was 16.9 million euros in the first 9 months – 43% less than in the same period last year. “Freight volumes in tonnes have decreased more than revenues – we have done our best to maximise revenues in difficult circumstances,” said Raul Toomsalu, Chairman of the Management Board of the group.

While the decline in volumes has been caused by sanctions against Russia and the end of non-sanctioned Russian freight, the problem now is the high cost price of rail transport in Estonia compared to both domestic road transport and rail transport in neighbouring countries. “For example, there was no multimodal transport of Estonian grain this autumn because the harvest was small and it was transported by trucks,” Toomsalu explained.

Operail's consolidated nine-month EBITDA was 0.2 million euros and its net loss 3.3 million euros, which was in line with the forecast.

Operail has significantly reduced its cost base to adapt to difficult circumstances. The group has laid off half of its workforce. “We have abolished night shifts at stations, stopped servicing smaller stations, closed down local maintenance stations and replaced them with mobile repair and maintenance teams, retrained staff to perform the tasks of several existing positions – for example, merging the roles of wagon inspector and locomotive driver’s assistant,” Toomsalu gave examples.

“Considering the owner’s expectations for Operail, which include maintaining the transport capacity on the Estonian railway infrastructure, it is no longer possible to significantly reduce the company’s cost base,” Raul Toomsalu stated. “We have reached the point where further cuts would jeopardise safety and Estonia’s ability to respond quickly in emergencies.”

To turn the company profitable again, it is therefore necessary to increase the revenue base. Operail plans to invest the proceeds from the sale of assets at the beginning of the year in strategic expansion. “We are looking beyond Estonia,” Toomsalu assured.

However, in order to establish economic sustainability for Estonian rail freight transport, the most environmentally friendly and safest form of land transport, cross-sectoral cooperation is needed to make rail transport processes more efficient, and political pressure is needed to shift freight from road to rail.

Operail is an Estonian state-owned railway company that specialises in freight transport, as well as the maintenance, repair and construction of rolling stock in Estonia. The company employs around 250 people. Until the beginning of 2023, Operail also provided international wagon rental and freight transport services in Finland. Following the owner’s directive, Operail exited these business directions.