Logistics supporting the Refining & Marketing segment

The LOTOS Group consistently adapts its logistics operations to the requirements of its trading operations and builds an efficient distribution system meeting the expectations of its customers, while being continually optimised. The purpose of those measures is to build an optimum logistics chain that would function efficiently in the constantly changing external and internal environments.

Grupa LOTOS enjoys considerable cost advantages because of its direct access to product and feedstock pipelines linking the refinery in Gdańsk to the liquid fuel handling facilities at Port Północny. Maritime transport plays the key role in the Company’s export of oil products, while accounting for a significant portion of feedstock deliveries and components used in production processes. Approximately 5.7 million tonnes of crude oil, petroleum products, and fuel components were loaded and unloaded by the Company at sea ports in 2020. During the year, 234 tankers were received or dispatched, including 60 transporting crude oil.

Logistics infrastructure of the LOTOS Group

Source: the Company.

In 2020, the Company secured additional storage capacities for fuels and crude oil, increasing its feedstock security and operational capabilities. The structure of stocks was enhanced to minimise related costs, while ensuring sufficient stocks were held to meet the LOTOS Group’s trading requirements.

As part of its efforts to optimise operating expenses, work related to rolling stock deployment was continued by the Company, resulting in numerous benefits in terms of costs and the number of rail tank cars used. At the same time, some of the railway infrastructure was upgraded to accommodate tank cars with a payload capacity of up to 22.5 tonnes per axle, which significantly increased daily shipments of oil products and eliminated the need to load and dispatch about 2,800 rail tank cars per year while keeping the volume unchanged.

In secondary logistics of fuels, the Company adopted a model of cooperation with transport companies that guaranteed appropriate flexibility in customer service with fixed costs curbed to the minimum.

In 2020, the Company continued to develop small marine cargo handling. Its transhipment terminal on the Martwa Wisła river is planned to be launched in 2024.

Seeking to expand its capacity to dispatch refinery products and to adapt its infrastructure to conditions prevailing on the domestic fuel market, the Group was engaged in a project to construct a railway loading facility, scheduled to be placed in service in the second quarter of 2021.

In 2020, the Company deployed B2B interfaces for electronic data exchange with AmeriGas’s LPG depot network. Grupa LOTOS expanded its interfaces with PERN’s depots and Batchem’s fuel depot in Szczecin with an online mechanism for B7 fuels blending and dosing of customer additives. Following the introduction of changes to the SENT system, the Company implemented a function in SAP to support fuel oil sales in compliance with the amended Act on the Monitoring System for the Carriage of Goods by Road and Rail and on Fuel Oil Trading. The Company also deployed a mechanism for automatic filling out of reports to SENT on behalf of the carrier.

LOTOS Terminale S.A. is the business centre responsible for professional fuel storage and distribution operations throughout Poland.

The company operates four fuel depots in Czechowice-Dziedzice, Poznań, Piotrków Trybunalski and Rypin, where it handles more than 2 mcm of fuels annually. LOTOS Terminale has a subsidiary LOTOS Biopaliwa, which produces 100 thousand tonnes of biofuel components per year.

Rail transport of products from the refinery in Gdańsk is a mainstay of the Group’s production security. Comprehensive rail logistics services are provided to the entire Group by LOTOS Kolej, a rail operator.

In 2020, LOTOS Kolej provided the following railway services:

• rail freight transport in Poland,
• independent freight transport services in Germany and the Czech Republic,
• traction services,
• trainload and non-trainload services,
• maintenance of rolling stock,
• eco-friendly cleaning of rail tank cars,

• international rail freight,
• railway siding services for the LOTOS Group,
• lease of rail cars,
• train driver training services.

2020 saw a downward trend in the Polish rail freight market. As at the end of December 2020, 84 carriers provided freight transport services under licences issued by the President of the Office of Rail Transport. Between January and December 2020, they transported 223.22 million tonnes of cargo, 5.57% less than the year before. Concurrently, the average rail freight distance declined, leading to a 6.62% decrease in tonne-kilometres in 2020.

Changes in the Polish rail freight market

Source: LOTOS Kolej’s in-house analysis based on the Office of Rail Transport data.

Despite the overall downward trend seen in 2020, LOTOS Kolej maintained its second position among Polish rail carriers in terms of tonne-kilometres. In 2020, the company increased its share of the Polish rail freight market (in terms of tonne-kilometres) from 9.79% as at the end of December 2019 to 10.36% a year later Despite a drop in traffic volumes, from 5,474 million ntkm (net tonne-kilometres) in 2019 to 5,407 million ntkm in 2020 (down by 1.2%) and a 2% decrease in the total tonnage carried (from 12,803 thousand tonnes in 2019 to 12,552 thousand tonnes in 2020), of which 8.4 million tonnes were hazardous materials – the company has been the market leader in the transport of such materials for years.

Rail transport services performed by LOTOS Kolej in 2020 (thousand tonnes)

Source: LOTOS Kolej’s in-house analysis.

Share in domestic rail freight transport in January–December 2020 (tonne-kilometres)

Source: in-house analysis based on the Office of Rail Transport data.

The company continues to develop its business relations with customers from outside the LOTOS Group in both domestic and international freight transport.

Due to the COVID-19 pandemic and its economic impact, in 2020 the Company implemented the Anti-Crisis Shield Programme in place at the LOTOS Group. Thanks to the programme, the Company achieved considerable savings, especially by reducing fixed costs, optimising margins, reducing capex, optimising the use of rail cars and lowering lease payments for locomotives.

Under its contracts with NEWAG S.A. and Millenium Leasing Sp. z o.o., in 2020 the Company added four new E6ACTab Dragon 2 locomotives to its fleet. In 2019–2020, the Company operated six new locomotives of this type under those contracts.

In 2020, LOTOS Kolej continued its project to purchase modern intermodal rolling stock, co-financed with approximately PLN 74 million under the Infrastructure and Environment Operational Programme for 2014–2020. The project was designed to increase LOTOS Kolej’s share in the intermodal transport market starting from 2020. Under the project, suppliers were selected and contracts were signed for the purchase of 324 specialised flat wagons and one electric locomotive.

On January 10th 2020, LOTOS Kolej obtained a Safety Certificate, enabling the company to independently carry out rail freight operations over Czech rail infrastructure.

In 2020, the company continued its contract with the Polish Armed Forces for the transport of F-34 aviation fuel and entered into another such four-year framework contract. The contract was signed after a successful tender procedure.

In 2020, the company continued to provide its freight transport services in Germany. Using its own and German train drivers, it transported more than 527 thousand tonnes of goods, but it plans to consistently increase that volume. By expanding the operations in Germany, LOTOS Kolej broadened its offering, while providing its customers with fast and reliable transport services between Poland and Western Europe.