Union’s platform for change fails to halt the flight of freight

Date: 21/09/00

By Bruce Barnard

PARIS is sure to use its Union presidency to throttle moves to deregulate Europe's rail industry for fear of sparking a revolt by French rail workers which would make the recent fuel tax protests by truckers and farmers appear exceedingly tame affairs.

Sweden, an enthusiastic convert to open rail markets, will probably accelerate the process of liberalisation when it takes over at the EU helm next January.

But the actions of individual governments in Brussels have largely ceased to matter as the rail industry continues to lose freight to rival forms of transport, notably trucking, at an alarming rate.

Its remaining 12% slice of the Union's freight market - down from 32% in 1970 - is largely made up of low-margin, often unprofitable, bulk-commodity cargoes.

The first market-opening measures were adopted in the early 1990s. But they have had a minimal impact on the industry, with state-owned companies maintaining their grip in most EU countries, with the notable exception of the UK and Sweden.

The rail industry's chronic lack of competitiveness is underlined by the fact that combined transport, where freight is carried by a mixture of truck and rail, declined across Europe last year despite rising fuel prices which raised the cost of all-truck journeys. The reason, as ever, was the rail industry's inability to deliver on its pledges on quality and punctuality, according to the Brussels-based International Union of Road-Rail Transport Companies.

There is little chance of improvement as no amount of legislative action in Brussels will change the ingrained monopolist mindset of the Union's state-owned railways. The only way to halt the decline in freight, say analysts, is to follow the UK's example by privatising the entire industry and splitting the operation of trains from the running of the track.

They argue that the 8.3% rise in the UK's rail freight traffic to 26.3 million tons in the first quarter of the year proves this is a winning formula.

But British-style reforms are unthinkable in France, Italy, Spain and Belgium because politically powerful labour unions would not stand for private competition, much less privatisation of the state-owned sector.

However, they are feasible in northern Europe where deregulation is seen as the best way to bolster the industry's ability to lure traffic from roads to environmentally-friendly railtracks.

As a result, the Union is drifting towards a north-south divide, with deregulation and privatisation opening up routes from Scandinavia down to Italy - where the first three licences have been awarded to private operators - while France remains dominated by a state-run system, cutting the Iberian peninsula from the mainstream markets.

There are signs that the rail industry is responding to the truckers' challenge. Germany's DB Cargo has improved its punctuality rate from 50%-60% to 90% this year, although its international freight operations are still hampered by a lack of locomotives and drivers at border crossings with France and the Brenner pass into Italy.

Meanwhile Railion, DB Cargo's groundbreaking crossborder merger with NS Cargo of the Netherlands, is starting to stem the loss of traffic to trucks and barges as it capitalises on its access to Rotterdam, the world's largest port.

The joint venture between the cargo wings of Switzerland's SBB and FS, Italy's state-owned railroad, is proceeding according to plan with the opening of the first office in Milan on 1 October.

Private operators also are making headway on the continent, although it is unlikely the industry will be completely privatised as in the UK, where the US-owned English, Welsh and Scottish Railways accounts for more than 90% of freight traffic.

In a significant breakthrough, ShortLines, a private Dutch operator modelled on US medium-haul railroad companies, recently won a daily shuttle contract from chemical giant DSM from under the nose of Railion. DSM's decision was partly swayed by its desire to stimulate competition and hasten improvement in the performance of the state-owned companies.

There is movement in the rail business but it may be too late, too slow and too patchy to have a significant impact on the Union's transport market.

Article forms part of a survey on transport. The rail industry in Europe continues to lose freight to rival forms of transport, notably trucking at an alarming rate.