Changing Trains

Making rail freight more competitive is an intrinsic element of the European Commission’s transport strategy, as most recently outlined in its official Communication on Greening Transport which was adopted on July 8. This sets out initiatives to 'make transport greener and more sustainable’, including measures to internalise external costs and changes to the Eurovignette lorry-charging rules – although ironically these do not address the crucial issues of road accidents and greenhouse gas emissions.

Boosting the market share of 'less congested’ modes like rail is seen as crucial if Europe is not to grind to a halt. According to EC figures, the demand for freight transport rose by 31·5% over the decade from 1995, and further growth is predicted. The Commission says it will 'come forward with actions that will have positive effects’ including legislative proposals on rail freight and revisions to the directive on infrastructure charging. Later this year we can expect legislation on reducing rail noise.

A belief in the efficacy of competition has underpinned European transport policy, with the presumption that this will provide better customer service. And it must be admitted that many of the former state railway monopolies do not score highly in this respect. Liberalisation saw small open access operators target specific niches, notably block trains of containers and chemicals. But three years after the EU rail freight sector was opened up to full competition, market forces are coming into play, and we are starting to see signs of consolidation.

This reflects experience in North America, and more recently Australia. Deregulation in the USA triggered a spate of mergers and spin-offs, leading to a marked polarisation between the seven big Class I railroads and a multitude of short lines providing local feeder services. In Australia, Pacific National is now effectively competing head-to-head with QR and there are few other major players in the general freight market.

Deutsche Bahn was early into the game with Railion’s takeover of NS Cargo and DSB Gods, followed by strategic expansion into the logistics and shipping industries that has made DB Schenker a global player. Having acquired EWS and Transfesa, DB is now increasing its stake in BLS Cargo to strengthen its place in the transalpine market. DB is also reported to be in talks with ÖBB to create a joint venture subsidiary known as RailSelect. Meanwhile, Rail Cargo Austria expects to receive approval from the competition authorities this month for its takeover of MÁV Cargo which RCA says would make it the third biggest rail freight operator in Europe handling almost 150 million tonnes a year.

DB’s purchase of EWS was driven by the desire to break into France through Euro Cargo Rail. SNCF is now starting to fight back, with President Guillaume Pepy putting freight at the heart of his 'Destination 2012’ vision unveiled last month. Fret SNCF is now expected to become profitable by 2010, with a 20% increase in traffic and a 15% to 20% improvement in productivity, raising its annual turnover to €10bn. Pepy wants to give Fret SNCF 'an international dimension’, with the re-purchase of logistics group Geodis and the acquisition of open access operator ITL 'just the start’.

Pepy would also like to see SNCF buying a US logistics group, and there are suggestions that he is courting Ferrovie Nord Cargo to expand in the Italian market. With Transport Minister Dominique Bussereau backing the creation of 'proximité’ operators to take on the local feeder business, Fret SNCF will be able to focus on more profitable long-haul flows.

Spain too wants a piece of the action, with RENFE’s freight business set to become a stand-alone company later this year. CD Cargo in the Czech Republic and ZSSK Cargo in Slovakia have also started merger talks, with the aim of forming a bigger and more competitive operation.

But without strong regulatory protection it is difficult to see some of the smaller national oper­ators surviving in an increasingly cut-throat market. If US experience is anything to go by, another decade could see European rail freight dominated by a handful of multinational operators, either state-owned or perhaps strong enough to break away from their national origins.

# posted by Chris Jackson @ 11:07 am