Rail driven to move with times

Date: 29/10/1998

Bruce Barnard
SUDDENLY there seems to be movement in two of the Union's most immobile industries: railways and ports.

But the long-awaited changes in these key economic sectors owe little to the actions of EU governments or the effectiveness of the European Commission. Instead, market forces, customer power and privatisation are the main factors driving reform.

That too could change, however, with the arrival of the new red-green government in Germany whose members have a long history of supporting environmentally friendly transport - notably railways - coupled with an ambivalent attitude to road transport.

German truckers fear the Schröder administration will swiftly reverse the previous government's opposition to the sharp increases in lorry transit fees planned by Switzerland as part of an accord with the Union. The SPD is also proposing to base tolls for trucks using the country's own roads on the distance covered. Both measures would have an impact well beyond Germany's borders.

The next meeting of Union transport ministers on 30 November will show whether the Greens are prepared to translate their radicalism into reality.

The Union's liberalisation of the air transport sector has spawned a new breed of low-cost no-frills carriers which has directly benefited customers. But the rail and ports sectors involve bigger investments and longer pay-back periods and operate in a world of opaque accounting, government hand-outs and disgruntled labour unions.

It is also a world where initiatives remain just that. After much fanfare, rail freight freeways - hyped as the great hope of the industry - have yet to register in the Union's transport market.

The Commission's hopes of countering gridlock by transferring freight from clogged roads to under-utilised rail networks within a decade now rest on two planks. The agreement to open up one-quarter of domestic markets to outsiders will inject competition into one of Europe's most solid monopolies and Transport Commissioner Neil Kinnock's plans to rejig transport infrastructure taxes will hit the truck and favour the train.

The problem is time. The first initiative is phased over ten years and the second will only be fully implemented by 2005, assuming all goes according to plan.

Private industry cannot afford to wait that long and is scouring the markets for openings in the port and rail sectors.

Often, the key players are not European. Wisconsin Central Transportation, a US railroad company which already accounts for more than 90% of British rail freight, is waiting to pounce on mainland Europe. Hutchinson Port Holdings of Hong Kong is considering a 400-million-ecu-plus bid for a controlling stake in ECT of Rotterdam, Europe's biggest handler of containers.

The raft of Union initiatives is also finally having an impact, as the state monopolies prepare their defences against private upstarts.

Deutsche Bahn's announcement in the summer of a planned take-over of NS Cargo, the freight wing of the Dutch state railway Nederlandse Spoorwegen, was hailed as a major breakthrough. This 3.33-billion-ecu a year venture will be Europe's first cross-border railway and other state-owned companies will probably be added later.

But industry watchers fear this behemoth will simply put a halt to newcomers entering the business. True, the DB is being privatised in 2000, but critics warn that it could merely be transformed into a private monopoly.

The first casualty of the DB/NS deal was the departure from Europe of CSX, the biggest US railroad company, which sold its 25% stake in NDX - a pioneering 18-month-old cross-border container operation - to majority shareholder Deutsche Bahn.

The rise of private rail operators, mainly in the UK, Germany and the Netherlands, does not necessarily mean that rail is winning freight from the roads. In most cases, the private companies are merely luring traffic from the under-performing monopolies.

European Rail Shuttle (ERS), the privately owned company which Kinnock holds up as a role model, hauled around 117,000 containers last year on 20 different services from the port of Rotterdam.

But a large slice of this business has come from Intercontainer, the Swiss-based marketing arm of some 30 European state railways. NDX also poached business from the same company rather than pitching for traffic from the roads.

The rail industry is simply cannibalising its own business. There is also a danger that the private companies, which are basically carrying cargoes for their shareholders, will cosy up to the monopolies.

ERS itself launched a joint service last July with Transfracht, a unit of Deutsche Bahn Cargo, paving the way for further cooperation in place of competition.

However, Deutsche Bahn will face real competition, not in volume but in service, next year when US parcel carrier UPS launches a joint operation with Deutsche Post. Both are rail enthusiasts but were turned off by the indifferent service they got from Deutsche Bahn.

The gathering pace of reform in several northern countries threatens to divide the Union's rail industry into two opposing halves, with an open market stretching from Scandinavia through the Netherlands and Germany to northern Italy while protectionism blankets France and cuts off Spain and Portugal from the mainstream.

But the bottom line is that no matter how much Union governments and the Commission try to tilt the balance in rail's favour, the industry cannot make any impact unless it improves its dire performance.

A recent study of a 870-kilometre-long route between the Ruhr and the Rhone-Alpes regions revealed that rail cargo took 67 hours to travel from France to Germany and 143 hours in the opposite direction. A truck completed the journey in 13 hours.

The UK, however, provides a text-book example of how government actions can breathe life into seemingly hopeless industries like railways and ports.

British ports, once havens of inefficiency, labour unrest and state hand-outs, are now private and profitable. The rail freight sector, also under private ownership, is thriving and attracting outside investment.

The UK's partners have successfully followed its lead in liberalising other sectors, such as telecommunications and energy, and there is no reason why they cannot do the same for railways.

The rail industry has a lot to do, however, to convince potential customers that it can deliver a realistic alternative to roads. Even the politicians and Commission officials who have long supported its cause are beginning to lose heart.

The industry's plight was underlined recently by Dutch shippers' claims that there was no need for the government to proceed with the multi-billion-ecu Betuwe project, a dedicated rail freight corridor from the port of Rotterdam to the German border, because there was sufficient capacity already.

The Dutch government is proceeding with the project, which is billed as a showcase for the entire European rail freight industry. But cynics are asking how long it will take for this showcase to turn into a white elephant.

Major feature.