Rail transport is naturally geared towards the transport of low value-added cargo, for concentrated flows (in terms of origins and destinations) and for long distances. This vocation can be perceived in the representativeness, measured in useful ton kilometers, of this modal in the transport matrix of several countries of continental dimensions (eg China, 37%, USA 44%, Russia 60% ), as well as in the types of products typically transported this modal: iron ore, steel products, agricultural products, coal and fertilizers, among others.
In Brazil, this mode of transport has never reached the representativeness obtained in other countries with a large territorial extension. Its participation in the production of transport in the country, measured by the useful ton kilometer, varied, in the 80's and 90's, between approximately 20% and 23%. This degree of use for cargo transport puts Brazil in the company of several European countries, such as France and Germany, which have a significantly smaller territorial extension than ours. Additionally, the participation of rail freight transport in Brazil has been restricted to the short distance segment, where the advantages of rail costs and services are not significant. It is interesting to point out that for long distances the participation of the railway modal is the lowest among all modes of transport in Brazil.
The main objective of this article is to evaluate what has been happening in this subsector of cargo transport in Brazil, starting from the privatization process of the Brazilian railway network, which took place between 1996 and 1999. Some questions to be answered: 1) customers (shippers) have reason to consider that the option for rail freight transport has become more attractive over the last few years? 2) Have the companies that obtained concessions in the privatization process achieved improvements in their financial and operating results over the last few years? 3) Has the privatization process been successful in what is believed to be its main objective: improving the efficiency of the rail transport system, making it possible to change the distortions in the Brazilian transport matrix?
This article initially presents a brief history of the operation of railroads in Brazil, followed by the characteristics of the system before privatization. Subsequently, the privatization process is presented and analyzes are made of the evolution of the privatized railroads' performance, according to the perspective of users, service providers and government. Finally, the analyzes carried out in the previous stage are summarized and the main obstacles to growth and trends for the sector are pointed out.
BRIEF HISTORY OF CARGO RAILWAYS IN BRAZIL
Rail freight transport activities in Brazil can be historically divided into three main phases. The first phase was the installation of the first railroads in the national territory, which took place in the middle of the XNUMXth century. This phase was characterized by a high degree of investment by international companies – with guarantees of attractive rates of return by the Brazilian government. In this same phase, the installation of the São Paulo railway network took place, financed by the coffee growers of this state.
The second historical phase can be understood as the phase of gradual nationalization of the Brazilian railways, a process that began in the last century and whose landmarks were the constitution of Rede Ferroviária Federal SA (RFFSA) by law no. 3.115 of 1957 and the creation of Ferrovia Paulista SA (FEPASA) by state law no. 10.410 of 1971.
Finally, the third phase is the one in which, through a 30-year leasing process, the network and railway operation are “returned” to private investors. This phase was heralded by the inclusion, in 1992, of RFFSA in the national privatization program and had the 1995 Concessions Law (8.987/95) as a fundamental milestone.
Parallel to the privatized railway structure, Ferronorte was born, a 90-year concession granted in 1989 and starting operations in 1999. The statistics regarding Ferronorte's performance are still very recent and will not, because of this, be analyzed in this study. .
For a deeper understanding of the history of railroads in Brazil, reading the articles by Castro and Esposito (1998), Marques and Robles (1998), Velasco, Lima and Souza (1999) and Lima and Pasin (1999) is recommended. These references are listed in the bibliography of this article.
THE CHARACTERISTICS OF THE SYSTEM BEFORE PRIVATIZATION
The Brazilian railway system before privatization was composed of four railway networks, controlled and operated by three companies:
- Rede Ferroviária Federal SA (RFFSA), which operated the largest network in the country (approximately 77% of the total) and was controlled by the federal government;
- the Estrada de Ferro Vitória Minas (EFVM) controlled and operated by a state company – Vale do Rio Doce – and responsible for approximately 38% of the total transport production of this sector in 1995;
- the Estrada de Ferro Carajás (EFC), also controlled and operated by Vale do Rio Doce – and responsible for approximately 30% of the total transport production of this sector in 1995;
- Ferrovia Paulista SA (FEPASA) controlled by the government of the state of São Paulo, with a medium-length network and small transport production (4,5% in 1995), but located in the state of greatest economic importance in the country – São Paulo.
It is interesting to point out that the EFVM and EFC railroads were, and continue to be, railroads mainly dedicated to the Cia. Rio Doce Valley.
The level of federal investment in the conservation, maintenance and expansion of the railway system declined significantly throughout the 80s, resulting in a sharp degradation of operational efficiency and the quality of services offered in the pre-privatization phase.
The legacy left to private companies after the privatization process was, therefore, a network with low intramodal and intermodal integration, small geographic extension, low productivity (with the exception of EFVM and EFC) and small average distances traveled – evaluated in about 590 km on average.
THE PRIVATIZATION PROCESS
The privatization process of the main network owned by the government, RFFSA, was carried out through an auction process with the leasing of operating assets and a concession contract signed with the Brazilian government. In the adopted model, the winning company is responsible for the infrastructure, operation, traffic control, marketing and finances of the network. The federal network was subdivided into 6 networks – MRS, CFN, FSA, FCA, Novoeste and Tereza Cristina.
The privatization of FEPASA followed the same model, with control of operating assets and the operation being offered to a single company. The other railway networks – EFVM and EFC – were always controlled by Cia. Vale do Rio Doce, and passed into the hands of the private sector after the privatization of this company.
It is interesting to point out that the option adopted to segment the railway network into several regional networks implies the need to properly regulate the rights of way and mutual traffic between the concessionaires, aiming, in this way, to achieve the desired efficiency for the railway system as a a whole and not of its sub-parts.
PERFORMANCE EVOLUTION AFTER PRIVATIZATION
The performance evolution of the privatized railroads can be analyzed, in a simplified way, from three different points of view: 1) that of the user, who seeks to reduce prices and improve the level of service offered; 2) that of the service provider, which seeks the financial health of the company and the remuneration of its shareholders and 3) that of the government, which aims at social and economic improvements to the country based on greater efficiency in its transport system.
It is interesting to note that the objectives indicated above should, in an optimal scenario, occur simultaneously, which in this case could be understood as the success of the privatization process.
ANALYSIS FROM THE PERSPECTIVE OF SERVICE USERS
The performance evaluation of users of a given service can be measured through generic indicators such as price, quality, speed, consistency and performance.
For the purpose of this study, the perspective of users of the rail transport service will be analyzed in a simplified way, based on the following indicators made available by the Ministry of Transport: average product, average commercial speed and accident rate.
- Average Product (Reais/thousands of useful ton-kilometers): is the result of the ratio between total net transport operating revenue and transport production. The average product is an indicator of the average price charged by concessionaires, per transport production unit (measured in thousands of TKU).
In figure 2 below, we see the evolution in percentage of the average product of the concessionaires between the years 1997 and 2000.
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Considering that accumulated inflation, measured by the TR, was 27,7% over this period, a reduction in average revenue per transport production is observed in six of the eight concessions analyzed (75%). This reduction may indicate both a possible reduction in the average freight of most concessionary companies, as well as a greater share of lower value-added products in the mix of products transported by these companies.
Additionally, the average revenue per thousand of RTK of Brazilian companies – US$10,4 – is at a slightly lower level than that of the US market (US$14,1). In this market, however, a significant percentage of products with higher added value are transported – for example: 70% of the cars produced in the US are transported by train – justifying a higher average revenue per TKU.
- Commercial Average Speed (km/h): measures the ratio between the monthly or annual journey of the trains and the sum of the total times spent between the formation and the closure of trains on the network. Commercial average speed is an indicator of the lead time of the transport service offered to users.
Based on the statistics available between 1998 and 2000, an increase in average commercial speed can be seen among concessionaires, from 12,03 km/h to 12,67 2 km/h. This 5,31% growth indicates a still small reduction in the average lead time for rail transport. It is interesting to note that in the US the average commercial speed of the top 5 companies is 36,8 km per hour.
- Accident Rate (Accidents/million trains x km): ratio between the total number of accidents and the sum of the monthly or annual journey of the trains. The accident rate is a measure of the operational safety of rail transport, being an indication of the quality of the service offered.
There is a great discrepancy in the accident rates of the various concessionaires. The accident rate varied, in 2000, from 23,5 accidents per million kilometers traveled (Tereza Cristina Railway) to 150,8 for Novoeste and 283,5 for Companhia Ferroviária do Nordeste.
We present below the evolution, in percentage, in the accident rate of companies monitored by the government from 1997 onwards.
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Figure 3 shows a clear downward trend in the number of accidents in all evaluated companies. The indication of a drop in these indices is undoubtedly positive data for the sector. It is interesting to point out that the sector's accident rate is still far from the US benchmark, where an average of 2,5 accidents per million trains x km occur.
ANALYSIS FROM THE PERSPECTIVE OF SERVICE PROVIDERS
The performance evaluation of service provider companies can be analyzed mainly by their main financial indicators such as return on assets (ROA), return on equity (ROE) or economic value added (EVA).
For the purpose of this study, only the operational performance of the railways will be analyzed. This indicator will be measured through the gross margin of the concessionaires, calculated by the following formula:
Gross Margin = (net operating revenue – operating expense) / net operating revenue.
The gross margins of the concessionaires in the year 2000 are presented in the figure below:
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As can be seen in Figure 4 above, nine of the ten companies assessed had positive gross margins in 2000.
It is also interesting to point out that in 1997, 50% of the companies had operating expenses greater than revenues. In the year 2000 this index dropped to 10% (only one company – CFN).
Since the gross margin is, theoretically, a function of the company's operational efficiency, an analysis was carried out to verify the correlation between these two indices. For simplification purposes, the measure adopted as representative of operational efficiency was revenue per employee. The result for the year 1999 is shown below:
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It can be seen in Figure 5 a strong tendency to increase the gross margin of companies, as the billing per employee increases. This finding underscores the results obtained from management geared towards increasing operational efficiency. The company with the highest gross margin – Vitória-Minas with 64% in 1999 – is also the one with the highest revenue per employee: R$250.000 per year.
ANALYSIS UNDER THE GOVERNMENT'S PERSPECTIVE
For the purpose of this study, the government's mission will be considered as being to promote the efficiency of the transport sector, aiming at positive impacts on issues such as safety, environment and energy, movement and economic growth.
In this item, issues of handling (based on the transport production indicator), operational safety and the environment (based on the accident indicator) will be addressed. For evaluation purposes from the government's perspective, the results obtained in these two indicators are compared with the targets set by the government.
In a context of promoting efficiency, the issue of imbalance in the transport matrix, mentioned earlier in this article, must necessarily be addressed. The total production of rail transport in Brazil is still very low when compared to its potential, verified from the large volumes of cargo transported, the low value / freight quotients of goods, as well as the great distances transported.
Aiming at increasing the participation of this modal in the transport for which it is designed, the government defined transport production targets for the companies that won the concession auction.
The fulfillment of these targets has still been restricted to less than half of the seven concessionaires with monitoring of this item. In 2000, only 3 of them met the target (ALL, Ferroban and MRS). The other four were below it (CFN, Ferroeste, Novoeste and FCA).
The evolution of rail transport production in millions of RTK, as of 1996, is shown in the graph below:
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The 20,63% growth between 1996 and 2000 is slightly higher than the growth in the country's transport production in this period, which was 19,96%. Therefore, one can see a growth, still timid, in the relative share of rail transport in the Brazilian transport matrix.
Two other equally important issues, from the government's perspective, are those of operational safety and the environment. A good way to measure these issues is through the achievement of targets for reducing accident rates set by the government.
With regard to the year 2000, these goals were achieved by only four of the seven monitored concessionaires (57%), indicating that there is still a need for improvement in this matter for 43% of the companies.
SUMMARY AND ANALYSIS OF THE CONCESSIONAIRES' PERFORMANCE EVOLUTION
Based on the numbers presented in this article, a series of observations can be made about the evolution of the sector after four years of the privatization process:
- The evolution of the average product indicates a small trend of reduction in the remuneration of transport production, which can be attributed to a decrease in the freight practiced and/or a greater participation of the transport of low value-added products in the mix of these companies;
- The evolution of commercial speed over the last few years indicates a trend, albeit small, in the reduction of travel times based on the increase in average commercial speed;
- Over the past few years, there has been a significant proportional reduction in the number of accidents in most companies. Despite the evolution in this regard, three concessionaires have faced recurrent difficulties in achieving their contractual targets for the maximum number of accidents;
- There is a general trend of increasing revenue and reducing operating expenses by almost all companies in the sector. It is also interesting to note that the increase in revenue per employee is an indicator with a high correlation index with the increase in the company's gross margin (R2 = 0,783);
- A very small advance can be seen in terms of increasing the participation of railroads in the Brazilian transport matrix. One of the main obstacles to greater efficiency in railway operations continues to be the low average distances covered, the result of a low level of inter-company cooperation;
- With regard to the fulfillment of the government's goals, related to the minimum transport production and the maximum number of accidents, it is clearly verified the existence of two distinct groups. One of them has been very efficient in meeting these targets and the other has had considerable gaps below the established targets.
CONCLUSION
The numbers presented in this document indicate, albeit timidly, a general improvement in the performance of the post-privatization railway sector. Regarding the questions that sought to be answered, the following can be concluded:
- Shippers have reason to believe that rail transport options are more attractive than they were before privatization. The overall advance is, however, still small;
- Service provider companies have achieved significant improvements in their operational performance over the last few years (1998 to 2000). Four of the 36,4 privatized companies (16%) had gross margins above the average US ratio of approximately XNUMX%. The profitability of these companies is still, however, affected by the high cost of capital in Brazil.
- The reduction of distortions in the Brazilian transport matrix based on the increase in the share of rail transport for long-distance cargo has not yet taken place. The current share of this modal (20,86%) is still very close to that of 1996 (20,74%). The average transport distance remains below 600 km for all but one of the analyzed companies (EFC). In the USA this figure is 1350 km.
- It is interesting to point out that in the financial aspect the privatization of the railroads generated a great return for the government: the last three years of operation of the RFFSA and the last three years of the operation of Fepasa generated a loss of R$2,2 billion and R$4,2 billion respectively. The value obtained in the privatization process of these companies was R$1,5 billion (RFFSA) and R$245 million (Fepasa) to be received by the government in 30 years.
There are some recent events that indicate a trend towards an improvement in the general picture, based on better intramodal and intermodal connectivity. Among these events, the following are worth mentioning:
- ALL and MRS companies have been using vehicles called “roadrailers” or “transtrailers” that travel both on asphalt and on rails, as a way to improve their intermodal operations;
- The creation of the Brasil Ferrovias holding promoting the integration of three important railways – Ferronorte, Ferroban and Novoeste – promises a significant improvement in connectivity between these companies, thus increasing both the volume transported and the average distance traveled;
- ALL's leasing of the road transport company Delara, as well as its initiative to operate port terminals, reinforce this company's option for investing in multimodal transport.
- The new initiative for the multimodal transport of cargo in containers by FCA, connecting the state of São Paulo with the Midwest, was made possible by this company's agreement with Ferroban, to manage a stretch of its network in São Paulo.
BIBLIOGRAPHY
CASTRO, N.; EPOSITO, JR Infrastructure: Reorganization Perspectives – railway infrastructure subsector. IPEA / BNDES, 1998.
LIMA, ET; PASIN, JAB Regulation in Brazil: Putting Competitiveness on Track. BNDES Magazine, Rio de Janeiro, v.6, n.12, p.169-194, Dec 1999.
MARQUES, SA; Robles LT Financial and Institutional Restructuring of the Railway Subsector. IPEA, 1998.
MINISTRY OF TRANSPORT. Quarterly Rail Concessions Monitoring Report. 3rd quarter 1998, April to June 2000, April to June 2001.
www.aar.org; Association of American Railroads. Statistics captured on 12/04/2002.
VELASCO, LO M; LIMA, OT; SOUZA, RMAT Ferrovias: Privatization and Regulation. BNDES infrastructure report, 1998.
