Israel Railways Freight: More Tons, Less Value
In 2025 Israel Railways carried 6.6 million tons, 8% more than in 2024, yet freight-segment revenue fell to ILS 323.9 million and the segment loss widened to ILS 62.6 million. The problem is not collapsing demand, but a lost fixed subsidy component, a still-heavy cost burden and unusual dependence on ICL.
The main 2025 article argued that Israel Railways' real bottleneck had shifted from demand to execution and cost. Freight is the cleanest place to test that argument. The company carried about 6.6 million tons in 2025, up 8%, yet segment revenue fell to ILS 323.9 million and the segment loss widened to ILS 62.6 million. When more activity creates less value, the economics need to be unpacked rather than admired from a distance.
The key point is that the commercial side did not break. External freight revenue rose to ILS 174.6 million from ILS 161.7 million, almost one for one with the increase in tonnage. What actually fell was operating-fee income, which dropped to ILS 149.3 million from ILS 168.1 million after the cancellation of a fixed ILS 24 million annual component. Freight did not lose volume. It lost a fixed layer of support.
And that still does not tell the whole story. Even if that ILS 24 million is mechanically added back, the segment would still have posted a loss of about ILS 38.6 million. So this is not just one regulatory line item. Freight remains a business with limited pricing power, costly complementary trucking, insufficient terminal spread and one anchor customer that still carries unusual weight.
Where the value actually broke
The table below shows why the intuitive read on freight is misleading. From the outside the segment looks like it grew: more tons, more external revenue. Inside the segment, operating-fee income shrank faster than the commercial side improved.
| Year | Tons carried (m tons) | External revenue (ILS m) | Recurring operating fees (ILS m) | Total segment revenue (ILS m) | Segment profit / loss (ILS m) |
|---|---|---|---|---|---|
| 2023 | 6.0 | 149.4 | 230.2 | 379.6 | 46.4 |
| 2024 | 6.1 | 161.7 | 168.1 | 329.8 | (23.2) |
| 2025 | 6.6 | 174.6 | 149.3 | 323.9 | (62.6) |
Between 2024 and 2025, external freight revenue increased by about ILS 12.9 million. Recurring operating-fee income fell by about ILS 18.8 million. The net result was a revenue decline of ILS 5.8 million even though the segment carried roughly half a million additional tons. That is why the right question is not whether there was demand, but who captured the benefit of that demand.
A per-ton view says the same thing. Total revenue per ton fell from about ILS 54.1 in 2024 to about ILS 49.1 in 2025, while tons carried rose to 6.6 million. By contrast, external revenue per ton stayed almost flat at about ILS 26.5. That is the core signal: the erosion did not come from the end customer, but from the layer underneath the commercial price.
The cancellation of the fixed component exposed the real economics
At the annual level, the company explicitly says the decline in freight revenue came from lower subsidy support after the cancellation of a fixed ILS 24 million component. That number matters because it is larger than the entire year-on-year decline in freight-segment revenue.
Mechanically, without the cancelled fixed component, freight revenue would have been about ILS 347.9 million, above the 2024 level. That does not mean the segment would suddenly have been healthy, but it does mean the deterioration in 2025 began with a change in the compensation mechanism rather than with a commercial collapse.
The same pattern showed up in the fourth quarter. The company carried 1.6 million tons, 7% more than in the comparable quarter, yet freight revenue fell to ILS 82.2 million from ILS 86.0 million. Management attributes most of that decline to the cancellation of a fixed ILS 6 million quarterly component. Add that back mechanically and fourth-quarter freight revenue would have been about ILS 88.2 million, above the prior-year quarter. The last quarter of the year therefore reinforces the same reading: the central freight problem is compensation economics, not weakness in actual haulage activity.
Even on management's own lens, freight stayed deeply in the red
The segment note makes the problem even sharper. Segment performance is measured before depreciation and amortization, excluding lease depreciation. On top of that, the company changed the allocation of indirect costs retroactively, and some costs are allocated using an avoidable-cost principle, meaning freight bears only costs that could theoretically be saved if the segment stopped operating. That is a relatively forgiving management lens, not a fully loaded corporate P&L.
Even so, the segment loss jumped from ILS 23.2 million in 2024 to ILS 62.6 million in 2025. Even after mechanically adding back the lost ILS 24 million, the segment would still be left with a loss of about ILS 38.6 million. That is already more than a one-line explanation.
In terms of the burden carried by the segment, the gap between freight revenue and segment result widened to about ILS 386.5 million, up from about ILS 352.9 million in 2024. This is the point that matters most. Freight is not just suffering from one vanished subsidy line. It is taking on more activity with an operating burden that is still rising too fast relative to the revenue it can generate.
ICL is both anchor and constraint
In minerals, ICL is the company's main customer. The flow is primarily from ICL sites in southern Israel to Ashdod port, with imported products also moving between Ashdod port and the production sites. The June 2022 addendum extended the agreement through December 31, 2026, with an option for another five years by mutual agreement, and also raised the freight tariff. As of the report date, the two sides were already in discussions over a new agreement.
In 2025, revenue from ICL was about ILS 96 million. That equaled about 55% of external freight revenue, about 2.6% of total company revenue, and the ICL agreement also represented about 40% of the freight activity handled by the division. The identity of the customer matters here not only because of size, but because the segment is already exposed to the state's compensation mechanism. Dependence on both the state and one anchor customer creates another layer of fragility.
Why the railway cannot simply reprice the gap away
This is also why Israel Railways cannot simply close the gap through pricing. The company itself describes strong competition from trucking and coastal shipping, including meaningful price pressure. In containers especially, loading and unloading points are fixed, the service usually does not reach the customer's door, the spread of strategically located freight terminals is still limited, and complementary trucking is needed both from the customer to the rail terminal and from the terminal to the final destination. All of that raises cost and reduces flexibility.
So new terminals, port connections and higher container volume can certainly raise tonnage. They do not guarantee an ability to charge enough to offset the loss of the fixed component. 2025 shows that freight has a network and infrastructure advantage, but not yet an automatic margin advantage.
What matters next
The first test is commercial. If the next ICL agreement preserves volume and supports better economics, it can ease some of the segment pressure. If it only prevents a bigger decline, concentration will remain high and margins will remain weak.
The second test is structural. More terminals, better port connectivity and container growth need to lift not just total tonnage, but also external revenue per ton. In 2025 that metric stayed around ILS 26.5 per ton, almost unchanged from 2024. That shows movement, but not yet enough economic power.
The third test is operational. In 2024 the freight segment lost about ILS 3.8 per ton carried. In 2025 that loss rose to about ILS 9.5 per ton. The next proof point is not another tonnage record. It is a smaller loss per ton.
Conclusion
If the goal is to understand why 2025 was a year of more activity but lower economic quality at Israel Railways, freight is the clearest case study. The commercial side held up, volume grew, but fixed support weakened, the burden carried by the segment increased, and the loss deepened even on a relatively forgiving management view. Freight remains operationally important, but it still does not prove stable economics without two support wheels, the state and ICL.
The current thesis: in Israel Railways freight, the 2025 problem was not demand. It was an economic model still too dependent on the compensation mechanism and on one anchor customer, while the operating structure is not yet flexible enough to absorb the change.
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