EARLIER this year, the European Commission (EC) instituted an investigation into the finances of Fret SNCF, France’s incumbent rail freight operator, after suspicions were raised that the write-off of €5.3bn of debt held by the French National Railways (SNCF) subsidiary constituted illegal state aid.

To avoid paying back this enormous sum, SNCF has put forward a plan to break up Fret SNCF into separate operations and traction companies. It will also concede around a third of its current traffic flows or 23 routes, most of which account for 95% of Fret SNCF’s intermodal traffic, to competitors.

This is just the latest episode in the freight operator’s troubled recent history.

Previously known as SNCF Marchandises, the company was rebranded as Fret SNCF in 1989 when it was carrying 140 million tonnes of freight a year. Despite regular cuts to the network, the company made an annual loss between 1998 and 2003, by which time traffic had fallen to 125 million tonnes, or 46.8 billion tonne-km.

In 2004, Fret SNCF made a loss of €400m and proposed a €1.5bn capital injection over three years, mainly to buy new locomotives. This plan was accepted by the EC on the condition that France opened its rail freight market to competition by March 31 2005, earlier than the original deadline of January 1 2007.

In the end, market opening became effective on April 1 2006. The first private freight train, operated by CFTA Cargo, later Veolia Cargo, ran in July 2006, rapidly followed by other new operators including Euro Cargo Rail, now DB Cargo France.

The arrival of competition did not, however, stem the loss of traffic from rail.

Between 2007 and 2012, total freight traffic across all operators dropped from 42.6 billion tonne-km to 32.6 billion, a figure which then stabilised. Around this time, Fret SNCF’s traffic halved in just eight years, from 40.5 billion tonne-km to 20.3 billion, while the share carried by private operators grew to 11.9 billion tonne-km.

The most significant loss of traffic followed SNCF’s 2009 austerity plan, which involved a radical reduction of its wagonload network, as it shifted focus towards the launch of new Autoroute Ferroviaire (AF) piggyback services and recovering other intermodal traffic.

Fret SNCF transports barely half of all rail freight in France.

SNCF ironically portrayed the wagonload plan as “good for the environment” as short train movements of only a few wagons would be eliminated. The cutbacks in this plan were carried out but the launch of AF services has been painfully slow, with only eight routes launched so far. Despite the network cuts, Fret SNCF continued to lose money - an average of €300m a year until the “reset” in 2019.

Today, Fret SNCF transports barely half of all rail freight in France.

Its strengths include hauling almost all of ArcelorMittal’s steel and associated products in France, much of which travels via the wagonload network. The operator also transports cereals for Roquette and other customers and has won all but one of the contracts tendered by the government to operate AF services. The other was won by SNCF’s low-cost subsidiary Captrain France.

However, Fret SNCF operates very few conventional intermodal services, with maritime traffic allocated to fellow SNCF intermodal subsidiary Naviland Cargo, whilst most trains are moved by Captrain France and DB Cargo France. These are now Fret SNCF’s two biggest competitors, followed by Lineas France, which dominates services to and from Belgium, and Europorte France, which has its own less-than-trainload network based on the Lorraine - Burgundy - Marseille corridor, while also being strong in chemicals and cereals.

Millet Rail, owned by the Millet family which has been traditionally involved in wagon building, repair and hire, dominates cereals traffic in northwest France, and also hauls aggregates. Smaller players include RegioRail, part owned by Railroad Development Corporation; CFL Cargo France; Combirail; RDT13; Logi-Railway and Aproport.

All these operators have had difficulty turning a profit - Europorte France boasts that it is the only company currently in such a position. DB Cargo France found that it expanded too quickly in its initial decade and has since shed traffic and concentrated on its core routes and activities. Most of Fret SNCF’s competitors have accused the incumbent of driving down rates by selling at a loss which is illegal under French law. These claims clearly have some merit given the chronic losses posted by Fret SNCF.

Services divested

The 23 services that Fret SNCF will transfer include all seven AF services, including Aiton - Turin, the first AF service launched on an experimental basis in 2003. It also includes the Perpignan - Rungis train, which carries fruit and vegetables to the Paris wholesale market, and which will be replaced by an AF service in future.

There has been some scepticism from other operators over the way AF contracts are allocated. It is not clear at present whether Captrain France or SNCF Naviland Cargo will be allowed to take over services from Fret SNCF, thus keeping them in-house. In the case of the Aiton - Turin service, Mercitalia Rail is already SNCF’s partner and could easily assume full responsibility.

Also on the list are 10 international and four domestic intermodal services where Fret SNCF provides traction for Novatrans, Hupac, Kombiverkehr and Lineas. It would seem natural that DB Cargo would provide traction for the Kombiverkehr services, as DB Mobility Logistics is a 50% shareholder, while Lineas France might take over the Lineas trains. Lineas might also be interested in the two Kombiverkehr services from Antwerp to Barcelona and Aarau.

The only non-intermodal flow up for grabs is the twice-daily service of heavy trains of limestone and quicklime weighing up to 3600 tonnes, moving from quarries near Calais to the ArcelorMittal steelworks in Dunkirk.

The major uncertainty concerning the proposal is whether the 500 staff that Fret SNCF will lose will transfer directly to other operators. Almost all the services to be retendered operate over long distances, often cross-border, and mainly run five times a week. It would be impossible to recruit and train sufficient new drivers in less than a year. It will also take a significant period of time for the smaller freight operators to adapt to meet a major increase in business.

The French government has said that Fret SNCF can continue to operate these services until this can take place. What this means for Fret SNCF is an almost total concentration on less-than-trainload business, of which it currently holds 85% of the market, and block trains.

The 10-year ban on bidding for the flows which are transferred may mean Fret SNCF will be excluded from a segment of the rail freight market that is expected to grow the most in the years to come. Whilst the French government has set a target of doubling rail’s market share in the 10 years to 2030, it is expected that intermodal traffic will triple over that period.

On the other hand, intermodal traffic, although high-profile, often returns thin margins, which can disappear if road transport becomes cheaper. Wagonload may be unfashionable, but rates are much higher and it can turn a good profit if costs are kept in check.

However, all of this is dependent on whether the EU accepts SNCF’s proposal. Things could be even worse for SNCF if the EC decides that the plan does not go far enough.