DB Cargo is key test of bid to boost EU rail sector

Date: 21/01/1999

By Bruce Barnard

Germany's DB Cargo has the power to make or break Europe's attempt to create a viable rail-based transport system. The company has made most of the running in the rail industry over the past 12 months with its pioneering cross-border merger with the Dutch NS Cargo, its aggressive pricing policy and its readiness to abandon old-fashioned cooperation with other national railways to grow its business.

But the jury is still out on whether DB Cargo will cast off its deeply ingrained monopoly culture like other German state-owned businesses which have been privatized, notably Deutsche Telekom, and those which are facing the prospect of all-out competition like Deutsche Post, or will it simply stumble on, at best slowing the rate of decline in its market share.

The company's performance over the next two to three years will be closely followed by other rail administrations, truckers and shippers across Europe.

“DB Cargo has a pivotal role - it will impact not just on western Europe but eastern Europe too,” says Tim Harris, chief executive of P&O Nedlloyd, the container shipping line which is a shareholder in a private rail company, European Rail Shuttle, that is simultaneously a competitor to and a client of DB Cargo.

The real test for the company will come when it is transformed into a private firm, with profits - not crude market share - its main goal. There are signs that the group is changing its management culture, but German freight forwarders still complain its service performance is way below par.

DB Cargo's initiatives over the past year suggest it is serious about reform. The link up with NS Cargo gives the German company direct access to Rotterdam, the world's largest seaport, which has historically relied on trucking and has a massive pent-up demand for rail freight.

It will also be in pole position to exploit the freight-only Betuwe Line which will link the Dutch and German rail networks in the early years of the next century.

The planned new company, Rail Cargo Europe, will tower over rivals with yearly revenues of some €2 billion. That will put it in a strong position to achieve its aim of creating a seamless pan-European rail-based transport service.

DB Cargo is seeking to become a broad transport group, rather than a mere railway operator.

While Rail Cargo Europe is canvassing for other railways to eventually join it, it is also looking for partnerships with rival transport operators, including truckers and barge operators.

Separately, the company has created a joint venture with the ports of Hamburg, Bremen/Bremerhaven and Lubeck to handle container transport to the hinterland and the merger with NS Cargo will give it a stake in ECT of Rotterdam, Europe's biggest container handler.

DB Cargo is not the only weapon in Germany's rail freight armoury. A separate Deutsche Bahn subsidiary, Transfracht International, hauled around 700,000 containers in 1998.

It all adds up to a powerful presence, but that is no guarantee rail will restore some of its 19th century dominance in the 21st century.