Rail Freight in Europe: different perspectives on achieving higher service levels.

In 1991 the European Commission (EC), the legislative body in the European Union, initiated the liberalization process of the European railways (EC 2001). Its aim was to promote and develop rail freight and intermodal services as an alternative for and in addition to road transport, to cope with growing environmental and congestion problems (Wiegmans and Donders 2007). One of the EU Council Directives (91/440) requires separate accounting systems for the fixed infrastructure and rail operating equipment. In the years following, many European railways were split into track operating companies (e.g., NetRail in the U.K., ProRail in the Netherlands, and DBNetz in Germany), and separate passenger and rail freight transport companies (Haywood 2003). With liberalization, new rail-based transportation companies could enter the European rail freight market and start competing with incumbent RFTCs and other modes of transport, allowing in higher rail freight volumes and decreasing costs (EC 2001, Holvad et al. 2003).

However, in spite of EC policies and directives, the share of rail freight in the total volume of goods transported seems to have deteriorated. In 2002, nearly 44 percent of the freight flows in Europe were transported over road, 41 percent over sea, 8 percent over rail, and 4 percent over inland water. Road carriers transported over 80 percent of the total volume of goods over land, while rail carried 13 percent, versus 18 percent in 1999. In 2003, the share of rail cargo had further diminished to 8 percent. Although the absolute rail freight volume is increasing slightly, the modal share is still declining (EC 2001, EC 2006). The EC has since stressed the urgency to alleviate national impediments to ensure uninterrupted cross-border trade movements (EC 2005).

Recent studies about European rail freight transport addressed efficiency, productivity, and benchmarking (e.g., Hilmola 2006, Wiegmans and Donders 2007), and intermodal opportunities (e.g., Tsamboulas et al. 2006). Our study includes perceptions of different stakeholders on European rail freight transport services and also the challenges faced by new operators. These services include not only transporting goods from point A to B by employing shuttle trains, mixed and unit trains (Wiegmans and Donders 2007), but also the handling and storage of rail freight and various value-added distribution services (Hesse 2006).

RAIL FREIGHT TRANSPORT IN EUROPE

The Role of Incumbents

Trains must run on a variety of infrastructures in Europe. In port zones, industrial zones, or around bigger cities, spatial planning is not in line with the efficiency of terminals (Ballis and Golias 2004). Insufficient availability of assets impedes the efficient running of freight trains. Train operations require assets such as locomotives, freight cars, and loading/ unloading facilities. The availability of locomotives is considered particularly problematic. Traditionally, incumbent RFTCs have been the owners of rolling stock and are considered the specialists in the areas of production, operations, and maintenance (Rosen 2004). The liberalization process urged incumbents to adapt to a new role, competing with new entrants including foreign incumbents. In that new role, the incumbents have been reluctant to lease, rent, or sell their country-specific assets to new entrants (Debrie and Gouvernal 2006). New entrants face a situation where the availability of rolling stock is scarce due to country-specific requirements, thus hindering the efficient operations of freight trains. Operating trains in different countries also requires the modification of rolling stock; locomotives for domestic traffic are not automatically suitable for cross-border traffic. Until recently, only a few diesel or electric locomotive types have been available for purchase or lease, and few entrants had the financial strength to invest in new rolling stock.

The Role of Manufacturers

Rolling stock manufacturers face difficulties in adapting to their new role as asset suppliers in a liberalized rail freight market (Rosen 2004). Manufacturers were used to dealing with only a few European incumbent national rail companies, often from the same cultural background (Holvard et al. 2004). National rail companies placed large orders. Designs were made in close cooperation with incumbents. These incumbent-specific assets were employed mainly in domestic traffic. The new situation required doing business with more and different players: new entrants, leasing companies, or incumbents, requiring that the assets could operate under at least one but preferably under four different systems (Cantos 2002). The assets should be delivered faster than the customary twelve to eighteen months, and maintenance packages and other relevant services were expected to be included in the purchase. These changes in demand, with the requirement of cross-border operations, have put considerable strain on manufacturers (Stehmann and Zellhofer 2006).

Availability of Resources

New entrants typically lack a number of rail-freight-specific attributes (e.g., maintenance facilities, experience, assets, and specialized personnel). A critical issue has been the availability of specialized personnel such as loc-drivers, operators, and maintenance people who were required to operate trains efficiently. Initially, new entrants found it difficult to attract qualified personnel since people working for incumbents were reluctant to leave their secure jobs (often for the national rail systems, with many benefits). Another example of insufficient resources are rolling stock manufacturers that failed to deliver the rail wagons at the agreed date and DB Netz, the German infrastructure manager, repeatedly failed to upgrade the track on time (Schnell 2002). Few RFTCs had received capital guarantees from their parent companies, which would prefer to let the RFTCs go bankrupt rather than "throw good money after bad" into rail freight (Casson 2004).

Influence of Government Policies

Elements impeding the efficient operation of freight trains include the priority of passenger trains over freight trains on existing corridors and the lack of dedicated rail freight corridors. There are also government imposed limits to the length of freight trains as to pulling a maximum number of freight cars. Different track charges exist and there are different regulations between domestic and international networks (Rosen 2004). Carriers' legal liability for accidents or noncompliance with national regulations or standards are still in need of clarification (Stehmann and Zellhofer 2004).

The government itself needs to adapt to the changing circumstances. An illustrative example is the German regional rail passenger market after regionalization. Authorities on different levels are without experience and need to acquire knowledge about these new entrants. New entrants require formerly government-regulated resources and capabilities such as rolling stock and trained staff (Schnell 2002).

Marketing Strategies

Customers appear unconvinced about the advantages of rail for their transport requirements (Ribbink et al. 2005). Also, rail freight carriers are still in the process of becoming viable transportation partners. RFTCs appear to have difficulties in all matters involving relationships with customers and competing modes. Demand for and the supply of rail freight is in the hands of a limited number of dominant companies, resulting in a high potential for conflict (Taylor and Jackson 2000).

New entrants into the rail freight market, while contributing to increased competition, may have negatively affected the marketing of rail freight services with an emphasis on freight rates instead of improved service levels. In their start-up phase, entrants rely on freight from shareholders or from unique market niches, while incumbents that have already obtained economies of scale carry freight that has always been transported by rail (Harris 1999).

RESEARCH OBJECTIVES

The following problem statement is formulated:

How can European RFTCs improve rail service levels and ensure their long-term viability?

Based on a review of literature and supported by insights of recent European conferences on the topic, i.e., DBLogistics/Railion Germany (2006) and Mercer Management Consulting (2005), four areas of improving rail service levels have been identified: the rail freight technical, the road dominance, the role of governments, and the customer orientation.

The first area is technical. Rail freight is technology-driven, capital-intensive, and dependent on a rail infrastructure, which makes its use complex and the barrier to entry high (Casson 2004). The second area relates to the dominant position of road transport, as its flexibility (e.g., door-to-door transport) usually attracts larger freight volumes, except for specific cargos (Arnold et al. 2004: Nijkamp 1994). The third area relates to the priority of rail freight in local, regional, national, or European governmental policy. More commitment or understanding from governments for rail freight may have a positive effect on public opinion that will help to better represent the interests of rail freight (Arnold et al. 2004). The fourth area involves the customer orientation of RFTCs and customer willingness to see rail as a viable partner in freight transport.

APPROACH