An operating deficit at Iarnr≤d ╔ireann's freight division could be turned into a surplus by 2003 if the board adopts a radical plan proposed by division management.

The plan involves exiting unviable business, turning around existing business that is unprofitable, increasing the profitability of existing profitable business and sourcing new business.

Under the plan, to be discussed at the next board meeting, about 225 of the existing 570 freight division staff would be "surplus to requirements" in the short-term and 340 in the longer term. Some surplus staff could be redeployed to other departments, the report states.

Figures presented in the report show the division will produce revenue of £44.4 million (€56.4 million) this year but with costs of £48.4 million will generate a loss of £4 million before any contribution to group central costs is taken into accounts. After a contribution to "central and group costs" the division is expected to report a deficit for the year of £6.7 million.

If the proposals are adopted the division could be turned around to produce an operating profit of £4.8 million in 2003 before any contribution to central costs, according to the report. While revenue would drop by £11.6 million to £32.8 million for 2003, costs would fall by £20.4 million to £28 million, according to the report. After a contribution of £2.75 million to central costs the division could report a surplus of £1.78 million for the year. By 2006 the division could produce a surplus of just over £5 million after a contribution of £3.3 million to central costs, with projected revenue of £39.2 million against costs of £30.7 million. The figures do not include any provision for redundancy payments or other disengagement costs .

"For the plan to be implemented effectively it is imperative that service level agreements (SLAs) are agreed with the InterCity manager for all traction costs, and the chief mechanical engineer for provision and maintenace of wagons," the report states, referring to internal service level agreements between Iarnr≤d ╔reann divisions under discussion

Freight business that is profitable for Iarnr≤d ╔ireann includes transporting ammonia, beet, ore concentrates, express parcels and shale. In a briefing to staff last week freight management said discussions were under way with Irish Cement to improve the profitability of transporting bulk cement. It warned it could withdraw from the business if the negotiations did not succeed.

Rail transport of palletised cement, palletised fertiliser and pulpwood was "totally unviable" and the group would withdraw from these areas by the middle of 2002, staff were told.

"A high level campaign to obtain increased volumes and economic rail rates from the customers concerned has been unsuccessful due mainly to the uncompetitiveness of rail with road. As a result the very difficult decision to withdraw from their traffics is being forced on the Company and the customers are complying with a plan which will see an orderly withdrawal from the traffics concerned between now and the middle of 2002", it warned.

The report states that railways are very vulnerable to economic recession or other relatively short-term fluctuations in markets because with a high proportion of fixed costs they cannot reduce costs to meet falls in volumes. The Iarnr≤d ╔ireann freight division is hampered by relatively short and therefore uneconomic transport distances in the Irish market, a restricted network which necessitates the addition of road haulage to give a door-to-door service and the absence of large-scale heavy industry, it says.

It says just three customers account for 50 per cent of existing rail freight revenue.