April 20, 2012

DB faces tough challenges to achieve its 2020 goals

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THIS month we report on German Rail's (DB) bold initiative to lift capital investment by almost a third during the next nine years with a view to doubling turnover by 2020.

DB is to be congratulated for taking the decision now to ramp up capital spending, which reflects its confidence in the future despite continuing economic and financial uncertainty in Europe.

DB is in a good position to gauge the economic climate. Through its Schenker logistics arm, DB is now a global freight and logistics operator and says it is number two in air freight, number three in deep-sea freight, and number six in contract logistics worldwide. A combination of takeovers and expansion has enabled DB to extend its railfreight operations across most of Europe. With its acquisition of Arriva, DB also operates passenger trains outside Germany. This steady expansion enables DB to claim that it is now the market leader in European railfreight and local passenger transport.

The ability to operate freight trains virtually Europe-wide is already paying dividends as it allows DB to offer seamless transport across the continent overcoming rail's Achilles heel. This should put DB in a very strong competitive position while at the same attracting traffic which has hitherto been the preserve of road transport.

On the passenger side, the acquisition of Arriva has provided DB with access to Britain both as a franchisee and an open-access operator, as well as entry into smaller markets such as the Netherlands and Scandinavia. However, DB was forced to sell the German part of Arriva to comply with competition legislation, and this went to Italian State Railways. In the current climate, it is vital for major railways in countries where local and regional passenger services are subject to concessioning to have a foothold abroad as the incumbent railway is bound to lose market share to competitors in its own country.

DB has already lost several concessions in Germany to other operators, and is now likely to forfeit part of the Berlin S-Bahn. But, in this case, DB only has itself to blame as it did a really bad job of running this vital service in the German capital during the last couple of years, with trains being cancelled or having fewer cars than scheduled as a result of its unwise decision to close two maintenance workshops coupled with a shortage of drivers.

CEO Rüdiger Grube says he wants DB to be a "likeable railway" in the future, but he and his management team need to learn from the mistakes made in Berlin and Stuttgart, where DB totally misjudged the opposition of local citizens to its project to rebuild the city's main station and construct new rail links. Although DB did win a local referendum with 59% in favour of the project, it suffered a huge amount of negative publicity in the process. Alienating your customers and the population at large is not a good recipe for commercial success, let alone becoming likeable.

Another important aspect of becoming likeable is to provide reliable services which customers can depend upon. But last year, around 20% of long-distance trains

in Germany were more than 5 minutes late. DB has pledged to publish punctuality statistics on its website, but Mr Ulrich Homburg, DB's management board member for passenger traffic, says that he does not believe it is realistic for DB to achieve 90% punctuality for long-distance services. The danger is if targets are set too low, there is less incentive to do better, and quality deteriorates still further.

Grube sets great store by the fact that DB is one of the last remaining fully-integrated railways in Europe. Indeed, he was invited earlier this year by Mr Guillaume Pepy, president of French National Railways (SNCF), to address the French parliament on the virtues of integrated railways as part of Pepy's bid to secure greater control over infrastructure. "SNCF has realised that the German model is best," says Grube. Referring to the separation of operations from infrastructure, he continues: "Europe needs to realise that it shouldn't focus on an inferior solution, something which the airlines have been doing for years."

But the debate in Europe over the pros and cons of separation versus integration is far from over, and DB has attracted considerable criticism for its alleged unfair treatment of open-access freight and passenger operators.

Another challenge facing DB is the recruitment of sufficient skilled staff in a country which has a population which is both shrinking and getting older. It has set itself the objective of getting into the top 10 of German employers so that it can attract the best candidates, but many will still remember the 2009 spying scandal when DB was found to have a deep distrust of its own staff. Railways often enjoy excellent loyalty from their staff with generations of people from the same family working on the railway, but DB's behaviour severely damaged morale. Again, DB must demonstrate that it has leant from this otherwise it will fail in its quest to become a top employer.

Running a national railway is not an easy job, being under constant scrutiny from customers, the general public, and politicians, so DB should be commended for its courage in setting itself some tough challenges to be achieved by the end of the decade. However, it will only succeed if it addresses some of its past failures as well.

David Briginshaw

David Briginshaw joined IRJ in 1982 as associate editor, and was appointed editor-in-chief in 2001. He has travelled the world extensively interviewing many of the CEOs and senior managers of the world's railways and transit systems which has given him an in-depth knowledge of the global railway industry.

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