German Railways in Crisis: Freight Division Loses Billions While Managers Reap Bonuses!

Deutsche Bahn recorded massive losses in 2023 when its freight division, DB Cargo, lost EUR 5.6 billion. The group's total loss amounted to EUR 2.4 billion. Yet, top executives split bonuses worth millions of euros.

Deutsche Bahn, like many other European freight carriers, saw a drop in traffic volumes and in the financial results of the rail freight business.

The entire group closed 2023 with a consolidated loss of EUR 2.4 billion on sales of EUR 45 billion, compared with a loss of EUR 227 million a year earlier. Freight transport developed negatively. According to DB, this was due to objective causes such as the geopolitical crisis, inflation, increased personnel costs, and a decline in freight volumes as a result of negative economic developments, particularly in the steel and chemical industries.

DB Cargo has estimated a loss for 2023 of EUR 5.6 billion and an operating loss (EBIT) of EUR 497 million. Three-quarters of this loss is attributable to the single-carload business. Another problem area was combined transport, where DB estimated a 13% drop in shipments compared to 2022. By comparison, according to the International Union for Combined Transport (UIRR), the Europe-wide loss in shipment volumes and tonne-kilometers was 10.57% and 9.39%, respectively, in 2023. DB Cargo increased its staff by 0.6%, mainly to serve markets that grew relatively year-on-year, especially in Southern and South-Eastern Europe.

In total, around 42,000 people work for DB. In Germany, however, redundancies started last year and will continue this year. A similarly negative development was recorded by the subsidiary DB Schenker, which, although it also recorded a decline in transport volumes, remains in profit at 1.1 billion. Together with passenger transport, which grew by 5.8% year-on-year, DB Schenker thus contributed to the partial elimination of losses.

We have been following the very cautious communication of the Group, which claimed that the increase in train delays and also the numerous strikes by employees, i.e., the investment and modernization activity itself, had an impact on the results.

DB Cargo has confirmed its commitment to complete the divestment of the company in 2024. Bidders are currently submitting indicative offers and DB will start the Due Diligence process with the selected bidders.

DB's comments on last year's results were also interesting. It stated that from a technical point of view, its investment arm DB Netze had done the preparation and made an investment of EUR 7.6 billion, which the federal government has yet to reimburse to the group. For this reason, the Group expects that the entire Group could be in profit as early as 2024.

The consistently poor performance of the individual carloads indirectly shows why DB is pushing so hard to introduce Digital Automatic Coupling (DAC). In the high-cost rail transport in Germany and Western Europe in particular, this technology can benefit the conglomerates relatively much more economically.

DB has carried out a remarkable operation in the remuneration of top managers. It first distributed to them in 2023 the unpaid bonuses for 2022 totaling EUR 5 million. The bonuses were not paid because the State intervened in the price of traction electricity. In fact, the law directly states that in the case of state aid of this type, bonuses may not be paid to senior managers and the supervisory board. Once the intervention fell away, the managers claimed the unpaid amounts.

According to the economic media Capital, DB CEO Lutz thus received bonuses of EUR 1.3 million on top of his contractual annual salary of EUR 4 million. The other members of the board of directors earned amounts ranging from EUR 200,000 to 736,000. The key performance indicators (KPIs) for which he received almost half of the rewards were successful: women in management positions, employee satisfaction, and a decrease in CO2 emissions. DB's remuneration system is decided by a supervisory board nominated by the government and trade unions. A change is being prepared for next year. A greater proportion of managers' salaries will be tariff-based, while bonuses will be reduced. In addition, managers are granted participation in a multi-year bonus program, the amount of which is determined by the achievement of long-term targets.