But there remains a committed core of European operators which firmly believes single wagon traffic has a viable future. Indeed, Dr Alexander Hedderich, CEO of DB Schenker Rail, Europe's biggest railfreight operator, is a keen advocate of wagonload. "This is my favourite subject," he declared while visiting London to mark the successful operation of the first direct railfreight service linking Poland and Britain. "I can confirm there is a long-term future for single wagon freight on European tracks," he says. "I'm not sure you could have made such a statement eight to 10 years ago. This is the basis for growth."
It is not difficult to see why DB Schenker Rail is such a strong believer in wagonload freight. Germany is Europe's biggest railfreight market and around 40% of the traffic is wagonload. In 2010, DB and six other like-minded railfreight operators formed the Xrail alliance. The philosophy is to work as a team and only to go it alone when a partner is not available.
A two-pronged strategy has been developed by the Xrail members: defensive and offensive. "We have had decades of decline, so the first priority is to stop this, and all the partners in Xrail have a strong presence in wagonload freight," Hedderich explains. "As long as a client feels the railways have no commitment to wagonload freight they won't invest on their side. Customers need a long-term commitment from us for them to have the confidence to invest."
The offensive part of the initiative is winning new customers, and this is something which Hedderich admits they need to work on. "In the past, we never knew what happened to trains when they crossed the border," he says. "This is where IT comes in to provide us with tracking and tracing of freight, a stable service, and supply quotes quickly. The target in Xrail is to provide a quote in less than four days. It is around five days today, so we are not quite there yet."
Hedderich says they are starting to see progress year by year. "Trenitalia had around 400 locations where it could accept single wagon freight in 2007, but today it is down to 40," Hedderich explains. "So with our Italian subsidiary NordCargo, and in cooperation with Rail Cargo Austria, SBB Cargo, and Rail Traction Company, Italy, we have taken over some of these facilities."
Through a series of mergers and acquisitions during the last few years, DB Schenker Rail now operates in most European countries. "DB Schenker Rail is no longer a German operator, but a true European operator," says Hedderich. "But we are still a European patchwork and not a European network yet with seamless planning."
Nevertheless, he is happy with the set-up they have today. "If somebody knocks on our door we will consider it, but there is no merger and acquisition activity at present. It is a lot of work to acquire companies, and simply purchasing a company does not mean you will necessarily do better."
DB Schenker Rail's European network is enabling it to overcome the traditional way of running freight trains in Europe to good effect. "A domestic approach of handing over freight trains at the border doesn't work anymore," says Hedderich. "Rail has a 17.4% market share in Germany, but between Germany and France it is only 12%, whereas it should be the other way round as the distances are greater. A European network approach gives us another opportunity to grow traffic, and I can now say it works.
"The new service between Wroclaw in Poland and Barking near London is a good example of what we are trying to achieve. We started it in November as a weekly service and it has been very successful especially with the Polish clients. It is doing so well that we will add a second weekly service in September."
At the same time, DB Schenker Rail started a weekly service linking BMW's factories in Leipzig, Germany, and Shenyang, China. The service runs via the Trans-Siberian Railway and takes 23 days to complete the 11,000km trip.
Hedderich says these new services demonstrate that it is possible to develop the railfreight market. "In the past, there wasn't an owner for a project. Too many railways were involved to make it work and nobody would take responsibility for such a service, which is why there wasn't a direct railfreight link between Poland and Britain, let alone between China and Germany."
This is DB Schenker Rail's second attempt at a direct freight service from Germany to China. In October 2008 the first train from Xiantang to Hamburg was waved off with great fanfare. But this coincided with the collapse of Lehman Brothers in the United States which triggered a global financial crisis. Overnight, ocean freight rates plummeted by 90% and all of DB's traffic on the route evaporated, forcing it to withdraw the service after just a few weeks of operation. "Railfreight is very vulnerable to volatility among its competitors, it needs stability to succeed," Hedderich observes.
Hedderich also says it is very difficult for a railway which has to operate profitably to compete with a government-subsidised state-owned railway because they simply lower their rates to uneconomic levels in order to retain the traffic, which in the end they lose to road because they cannot sustain it. "I prefer to trust more in competitive forces to develop the business," Hedderich says.
DB Schenker Rail faces a number of challenges. Costs are rising particularly in certain areas. "In comparison with 2007, we have to spend around 22% more on energy and 20% more on staff," Hedderich says. "Even if we continually work to improve our efficiency, price rises are inevitable. Governments can upload costs to the railway which would damage us."
DB Schenker Rail also faces a demographic time bomb: half of its staff are more than 50 years old and will be retiring within the next decade. The problem is particularly acute in Britain, Germany and the Netherlands.
Despite the rapidly-developing Euro crisis, DB Schenker Rail had a good year in 2011. During the first half of 2011, traffic grew by 5.6% in central Europe, its core area, by 15.7% in eastern Europe, and an impressive 21.6% in western Europe.
However, Hedderich readily admits there is considerable uncertainty this year, with very mixed performance on the part of its freight customers. Some companies are doing the same as in 2011, while others are still growing and some are in decline. "The most critical thing is the uncertainty, nobody can provide an outlook for the next six to 12 months," Hedderich concludes.
