By Yuri Shchuklin, logistics market expert, member of the Logistcis Committee, European Business Association (EBA) 

 

The prime task for the new Head of the Board of “Ukrzaliznytsya,” Oleksandr Pertsovsky, has been set by the Ministry for Economic Development as restoring the infrastructure, developing the export potential with the EU, and maximum processes digitalization. The first decisions and statements of the new UZ head, along with his professional background, provide grounds to expect that the experience of reforming the passenger segment, where significant changes were achieved in processes’ automatization, can be spread to the cargo segment of the UZ, too. In contrast to the passenger segment customers, cargo owners cannot as freely and in advance buy “tickets” for their cargo, thus regularly overspending money as a result of unpredictability of the railway cargo logistics both in time terms and in the cost of shipping. I am sure that Oleksandr Pertsovsky does not need to be additionally told why the cargo segment needs digitalization, open data, and maximum removal of functionaries from the processes that an automated system is capable of performing, the same as this was done in the passenger segment where you don’t have to communicate to the ticket salesperson or a certain person after a meeting in order to “procure” a ticket or “find an exception to the rule.” It is necessary to cut on all operations and functions that do not add value to shipping but complicate and make it more expensive, and prolong interaction between the railway and its direct customers, goods manufacturers.  

However, this is what is important first of all: Taking as an example the modern Ukrainian school, where a newest Ukrainian program, when presented by teachers with Soviet mentality, becomes the same Sovietism, we see how mentality influences values. The same happens with the railway: It is a vain hope that changes will occur if you entrust designing of improvements and technical tasks for technology and software experts to the present UZ functionaries who gained their significance on the basis of the current outdated distorted logic and mechanics of processes. Why is it distorted? The answer is in the real financial situation of the UZ, the state and efficiency of its assets and resources. I am sure that the new UZ head is aware of this.  One of the reasons for this is that the logic of decisions and the strategy of the present-day cargo vertical of the UZ cargo structure has been for long not subordinated to the UZ interests. One of the manifestations of the practical realization of this logic is that today intermediaries are needed between a majority of customers of the cargo segment and “Ukrzaliznytsya.” 

It is not a huge secret for the logistics and agricultural market that the entire shipping sector exists, in fact, thanks to the shadow “hiring” of the UZ line staff and functionaries to perform their duties. It is these tasks that are primary for the functionaries (despite most often going counter to the interests of the railway company.)  yes, the state-owned infrastructure does exist, locomotives and railway cars are moving along this infrastructure, everything is being paid for according to state-regulated tariffs, but the first-come-first-served right to putting cars to loading, “accompanying” and “acceleration” are being bought additionally, for an additional budget. This has been so for more than 20 years, and the entire market knows about this. Every morning, UZ workers see empty or loaded cars where they work, they see who has which plans, and they see pieces of paper which tell them at which stations there are those who want to pay them for “speeding up” cars and trains.  So they perform their work according to functionality, they plan dispatchers’ work, they issue orders to locomotive teams, but their thoughts, actions, and decisions cannot be about anything else than this piece of paper which will bring them more money within a day than their official salary within a month. Not only agrarian and logistics businesses have grown on this mechanics. Not a single railway manager had ever tried to change this. The major damage from this logic and mechanics is that it is not subordinated to the goal of the service’s efficiency, or the efficiency of the use of resources, or decreasing the operational costs of the railway. The major moving force for the functionaries are those pieces of paper.  With rare exceptions, the entire cargo vertical, starting with cargo cashiers, is working not for salary but for additional incentives offered by “logistics people” and shippers.   

Regrettably, the former UZ managers had not tried to independently fathom the primary causes of this phenomenon. This is why their assessment of the logic of managerial decisions of the UZ cargo vertical was based on subjective (and manipulative, sometimes) data of their subordinates who, while working for “Ukrzaliznytsya”, are at the same time providing services to other parties.  If the new Head of the Board has enough strength and stamina to clarify, independently, what the logic of decisions is at all levels of the cargo vertical, this will be a very weighty victory. 

The commercial department of “Ukrzaliznytsya” (and there are huge questions as to whether it is feasible to retain it) does not have to produce fountains of records on records and mighty activity in the form of “improving settlements” and endless conferences, but answer specific questions first.  In particular, how the proportion of involvement of state-owned railway cars has changed, compared to privately owned stock? What are the times for UZ cargo cars return and what their speed is?  The UZ chief should raise the question: How the privately owned stock, without shippers of their own, without locomotives, manage to have cargo and carry it at such speed, while the UZ stock stands by the fence? This is the answer to the question whose interests are served by the UZ commercial department. What money the shipping companies are thriving at, what money they are buying railway cars for, what money the intermediaries emerge and flourish for?     Well, this is not for nothing: This money is being extracted from both a cargo owner, and from “Ukrzaliznytsya.” Because of the existence of intermediaries, the UZ does not receive the amount of money it could receive directly from cargo owners. If the UZ functionaries begin working not in the intermediaries’ interests but for the efficiency of the UZ and its operations, it will be possible to decrease the UZ spending and to find money to renovate its locomotives and infrastructure.   

In his actions and decisions, I would advise the new head of “Ukrzaliznytsya” to lean upon European partners and allies of Ukraine, first of all. If he leans upon today’s Ukrainian conglomerates, associations, composed of those who gain from this imperfect technology, he will soon become a pickled cucumber instead of a fresh one.   

Second, it would be not bad for him to lean upon scattered but numerous manufacturers of agrarian cargo, the only ones, really, who generate profit and subsidize transportation of all other cargo, as well as the passenger segment. It would be very good if the UZ head clarify this himself and find out who is it who is paying for everything. He would surely see that it is these 50 percent of agrarian manufacturers, medium-size and small-size farm owners, who keep up all the passenger flow, intermediaries, inefficient functionaries, and, on top of all that, subsidize shipping of the first-category cargo. Here again, you don’t have to go to associations because they represent the very category of people who earn money on these farmers and “Ukrzaliznytsya.”  The UZ head should have another group as his reference, the one that generates high-margin cargo for the railway.   He should meet these manufacturers and ask them why are they using intermediaries? What does not suit them in the mechanics?  Why don’t they buy tickets for their cargo directly, like passengers do, what is in the way?   

It is also important to understand which factors and trends helped digitalization and reform of passenger transportation, and which, conversely, may hinder this in the cargo segment.  For my generation, queues to railway ticket offices were a habitual phenomenon, while the mechanism of “procuring” much-wanted tickets from spivs looked unbreakable.  However, the time has come when applications like Uber, Booking, as well as penetration of technological progress into customers’ lives became so conspicuous that it was no longer possible not to notice it.  Thus, the technology of planning and selling passenger tickets through applications became unavoidable, and in the same way unavoidably the strata of ticket spivs died out. We had not heard the desperate voices of those who made money on re-selling tickets only due to the fact that the proportion of those who benefited from the outdated technology in relation to those who suffered from it was entirely not in favor of the former.   The advantage that millions of customers got has completely drowned the dissatisfaction of thousands of speculators who lost their incomes due to the new technology. The situation in cargo shipping is significantly different:   The proportion of those who found their profits in the current logics and mechanics and of those who suffer from them is 50/50. 

However, the soil is ripe for technological revolution in cargo shipping as well. One of the reasons for its acceleration is deficit of people at all stages of managing and performing processes.

Progressive business people realize that this trend will become deeper. This is why they make some business processes at their enterprises automated. Part of these processes is already happening within digital environments, with the help of automated systems and artificial intelligence, without human participation.  I am sure that owners of Ukrainian businesses and logistics assets have an understanding of the fact that a human person cannot immediately analyze gigantic masses of data and take into account innumerable quantities of dynamic circumstances that are changing in real time. Everything that can be given to machines without damage to humans, without taking away their jobs, should be given to machines.   

If we dissolve business processes to the level of atoms of consecutive actions, the picture will look like this: The logistics resources are busy with operational performance for 20 percent of the time, while they are idle for 80 percent of the time, waiting either for the next operation or for human decisions and orders. This is true both for the 60 percent of the time when railway cars and cargo are being transported within the zone of responsibility of “Ukrzaliznytsya”, and for the 40 percent of the time when they are within the adjacent infrastructures, within responsibility zones of cargo owners or their contractors.  As for the expenditures, the picture is the following: Two-thirds of the cost of logistics in Ukraine are not for the performance of the work but for providing for the assets and people who need time to arrive at (not always rational) decisions.  Being in the know of most business processes within “Ukrzaliznytsya”, trading and port companies, I understand the logic and sense the reasoning nature of such decisions: A human being would usually rather not accelerate but slow some processes down in order to add significance to them and gain personal profit. 

Thus, the spread of automation in cargo logistics confronts, first of all, the old-system people who are not interested to give away the distribution of limited transportation capacities to computers, as well as of moving stock, and interaction teams. However, as technological evolution is unavoidable, this will happen within a certain sector. As soon as this becomes known, the beneficiaries of the current system will put up resistance, like the Luddites, who were breaking lathes in the 18th century. They will, however, use modern methods: They will intentionally worsen indicators of this automated communication, engage in discrediting and sabotaging the digitalization of cargo logistics.   

This is precisely why it is very important for the new head of “Ukrzaliznytsya” to have support from our Western allies who are interested in reforming the system of railway transportation in Ukraine, as well as support from progressive owners, Ukrainian manufacturers who are interested in buying “tickets” for their cargo in as transparent and predictable way as this has become possible for passenger trains. I sincerely wish that the new “Ukrzaliznytsya” head enjoys success in everything!