Answered Essay: Improving performance for freight company which is making losses for 8 years. Assuming

Improving performance for freight company which is making losses for 8 years.
Assuming that this freight company is a state owned enterprise, where they operates railway service over a country, mainly concentraing on freight business.
Although their costs are covered by subsidies, they are in need to prevent making loss because it has been showing deficit balance for already 8 years.
Or, they are required to improve service which is worth money.
Company has been
-continued to cut down the railway service because they were making losses. instead of expanding services they decided to mininise the cost by cutting freight rail routes, minimise umber of trains and less labour costs.
-what do you think of this company?
comment the siuations bekow and state the recommendation to each problems with detailed reason.
problem 1:
Users of freight are limited because there are many places where railway service is not operated because of railroutes being cut down.
-is it good way to minimise the cost by cut down the service? state the reason.
-how to make more customers? particularly what kind of customers? dairy? animal? farmers?
-if advertisement is required, how to advertise it? explain the process in detail.
-Do you need any promotion?
Problem 2:
company has declined to use electric train and wanted to use diesel trains only because it is cheaper in cost. however diesel train is not efficient. on the other hand, electric train is expensive than diesel, but efficient and less labour costs(if you can evidently prove this part it will be wonderful). there are some stages where their voltage are differ, so right now company is using electric and diesel train as mix.
-do you recommend using electric train only? lor diesel train only? or mix them? please prove thi logically.
problem 3:
This company offers most cheapest choice for freight to several places. however they still are making loss.
-what could be the problem? how to solve it?
-Road freight is strong competitor. how to make more customers?
-is cheaper price bad? or good?
problem 4:
recent earthquake has destroyed one of the railroutes and business cannot run freight business around that particular area.
-what action should they do? assuming that company also do shipping through sea freight, express your opinion and recommendation.
all the problems should be described with the question “whether their services are worth money or not”.
This is on last section of my home work and im really stuck in recommendation. Economic terms, marketing terms are welcomed. please help me!!thank you.

Expert Answer

problem 1:
Users of freight are limited because there are many places where railway service is not operated because of railroutes being cut down.
-is it good way to minimise the cost by cut down the service? state the reason.
-how to make more customers? particularly what kind of customers? dairy? animal? farmers?

-if advertisement is required, how to advertise it? explain the process in detail.
-Do you need any promotion?

Solution 1- It is evident that the freight company is making losses for last 3 years, so it is evident that first step that will be taken to reduce cost will be reduce the service. The reasons for reduction is services can be as below,

  1. Decrease in capital requirement
  2. Reduction in manpower cower
  3. Less requirement of working capital
  4. Requirement of less manpower
  5. Reduced administrative burden

As the freight company main concentration is on freight business, they may go into some profitable venture which is not their core business like leisure travel, passenger travel etc. They can try to lease their vast rail lines and can also issue securitasation receipt against their railway land which can fetch them good revenue by utilizing their unused resources to raise money.

As being a state owned enterprise they have the privilege to have first preference in the govt orders, they can target govt agencies like Food Supply Department, security agencies, state owned oil companies etc which requires heavy transporation of their goods within the country.

On the advertisement front they try some innovative stuff. They can rebrand their rail bogies which is used for transport. A mass scale advertisement campaign can be started on print, electronic and digital media. This will help a lot.

Problem 2:
company has declined to use electric train and wanted to use diesel trains only because it is cheaper in cost. however diesel train is not efficient. on the other hand, electric train is expensive than diesel, but efficient and less labour costs(if you can evidently prove this part it will be wonderful). there are some stages where their voltage are differ, so right now company is using electric and diesel train as mix.
-do you recommend using electric train only? lor diesel train only? Or mix them? Please prove this logically.

Solution 2 – I will recommended to use mix of both, the procurement of electrical vehicle is costly and it’s mass scale implementation required electrification of all the rail routes and conversion of all the diesel locomotive to electrical bogies .Also it requires uninterrupted power supply which is very difficult to get. It is highly impossible as company is suffering huge losses they can’t borrow huge loans from market to revamp their fleet also govt will also hesitate to invest heavily in a loss making venture as end of the day tax payers money might got wasted.

So to cut cost it is recommended to continue to use diesel train, it is no doubt that electric train are the future so they the shift should be gradually and slowely keeping in view of the bad health of the company.

problem 3:
This company offers most cheapest choice for freight to several places. however they still are making loss.
-what could be the problem? how to solve it?
-Road freight is strong competitor. how to make more customers?
-is cheaper price bad? or good?

Solution 3

The problem here is completely mismanagement. As it’s govt entity bureaucracy has comes into picture which is responsible for the losses

The solution lies in giving more autonomy to the company management and not interference in the day to day work by the govt officials, it happens it will take little time for the company to again become profitable and competitive.

In my view rail and road complement each other and it can be used to the advantage. In some cases there may be competition from road freight, in that Cases Company can make their fare little cheaper than the road transport. Co should explore the opportunity where they can complement the road freight transport and also vice versa..

Cheaper price is no always bad, it can win the client. Also too much low pricing can bleed the co. So pricing need to be diplomatic as I had suggested earlier.

problem 4:
recent earthquake has destroyed one of the railroutes and business cannot run freight business around that particular area.
-what action should they do? assuming that company also do shipping through sea freight, express your opinion and recommendation.
all the problems should be described with the question “whether their services are worth money or not”.

Solution 4

Whether their services are worth money or not.

Earthquake is the peril which generally being covered under the insurance. If co has taken the insurance coverage they can protect themselves against the risk. So if any loss happened by Earthquake it can claims under the insurance policy and balance sheet of the state owned freight company can be protected.

In the current time transit risk can be covered by taking an Open Marine Insurance policy by paying a very little premium, it will end the worries and protect it from the sudden and catastrophic financial risk, it will cover the risk in the open sea and land.

I recommended to take the following action

  1. Take a tailor made property insurance and Marine Insurance policy.
  2. Reduce the administrative delay by removing the bureaucratic hurdles.
  3. Avoid capital intensive investment at present to reduce the fixed and short term cost
  4. Govt to give more autonomy to the management of Freight company to run the business more efficiently.
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