Global and regional changes in the transport and logistics sector are a major challenge for companies operating in the sector – they need to be flexible and able to adapt to new conditions, while remaining competitive, keeping their financial performance up, and considering new growth opportunities. The Latvian railway system’s freight throughput is up to 73 million tons, however, as the situation changes, the demand for such high capacity indicators has decreased and the industry had to revise the current operations and develop a new business model according to customer needs and railway infrastructure utilization.
During the first six months of this year, Latvijas Dzelzceļš Board and management team were actively working on solving the current financial situation, optimizing costs and enhancing the overall efficiency of the company, as well as paying special attention to matters related to the future development of LDz – development of a new business model and planning further development of rail passenger infrastructure.
Need for a new business model
Although the amount of freight transportation through LDz infrastructure has been fluctuating every year, in 2019 it dropped to the lowest level during the past decades, substantially reducing the company’s income, affecting the company’s financial situation and posing a significant threat to the company’s overall stability. These same freight transport trends continued in the first half of 2020 and, given the current geopolitical trends and the declining demand of fossil fuels in Europe, the volumes of the most frequently shipped goods – coal and oil products – are not likely to recover in the coming years.
Māris Kleinbergs, Chairman of the Board at SJSC Latvijas Dzelzceļš, explains: “Taking into consideration the current freight transportation volumes and future projections, it was clear that, in order to ensure the company’s operations and stabilize the financial situation, it is necessary to make important decisions related to changes in technological processes and cost reduction, while paying special attention to developing a new business model.”
“The new business model was developed based on the idea that, by expanding into new markets and developing new, competitive services with high added value, it is possible to partly and gradually replace the declining transit flows of fossil fuels through Latvia with other types of freight, even though we are aware that the new types of freight will not restore freight transport volumes to the former amounts. That is why, when the new LDz business model was being developed, both the constant cost optimization and the ability to flexibly adapt to the changing transportation market conditions, as well as providing new added value to the existing and prospective LDz customers were always kept in mind,” Māris Kleinbergs points out.
The new business model of Latvijas Dzelzceļš has:
- a wide range of logistics services and high added value for LDz customers
- a new step promoting passenger transport by rail – 48 modernized stations and stops
- for the first time in the history of Latvijas Dzelzceļš – guidelines on unified visual identity of passenger infrastructure