THE rail freight market is tough to operate in, with low margins, strong customer demands and massive external pressures on operation.

“We only know tough years in rail freight, they just don’t get less tough,” jokes the CEO of Rail Cargo Group (RCG), Mr Clemens Först, when asked about his outlook for the coming year. “2023 will be another quite challenging year for the global economy and for European rail freight especially.”

Inevitably the biggest current challenge for the freight subsidiary of Austrian Federal Railways (ÖBB) is the energy crises in Europe, driven by Russia’s invasion of Ukraine. Först says that around 15% of RCG’s costs are related to energy.

“It’s an order of magnitude,” he says. “If you have energy price increases of factors of three, four, or five plus, in essentially every market, it’s pretty easy to calculate how this affects the cost structure. At the same time diesel is not much above the levels it was a year ago.”

A new entrant to the French freight market, Logi-Railway, announced last month that it was using diesel traction to haul trains on electrified routes as the use of electric locomotives is too expensive. Logi-Railway managing director, Mr Vincent Chansel, said that there was no question of using electric traction after infrastructure manager SNCF Network increased the charge for traction current by more than four times from €111.95/MWh in 2022 to €473.51/MWh in 2023.

Först says this is only a remedy in niche situations due to the availability of diesel locomotives.

“The only real solution that we have, aside from obviously cost management levers, is to pass these costs on to our clients,” he says. “Given the amount of cost increases and because we are a low margin industry, there’s just no other viable alternative.”

The energy crisis has made rail’s task of challenging road haulage even more difficult. Another challenge is the health of the wider economy amid widespread expectations that key markets could soon enter a short recession.

“We are undergoing a strategic shift towards multimodal transport, we are approaching customers which have not traditionally relied on rail freight transport and offering multimodal solutions.”

Clemens Först, Rail Cargo Group CEO

“That will obviously affect our volumes,” Först says. “Since we are, to a large extent, a network industry with a high amount of fixed costs, this translates into economic hardship.”

One of the biggest challenges of 2022, but also one of the major success stories for rail, was the need to rearrange supply chains in response to the war in Ukraine.

This included the introduction of new freight routes to move grain from Ukraine to Europe by rail, which were virtually non-existent before the war. RCG carried around 1.2 million tonnes of export grain from Ukraine in 2022, equal to around 100 trains a month, and Först says these flows are expected to remain in place in 2023 as the war continues.

He says the initial challenge was identifying buyers and sellers as these relationships were non-existent prior to the war. Working with the ÖBB Open Innovation Team and external partner V_labs, RCG developed the GrainLane online marketplace to connect Ukrainian farmers with retailers, consumers and logistics providers. The tool provides detailed grain offers and requests, and creates profiles of protein contents, and conventional cultivation or organic. After a successful match, contact information can be exchanged and transport requests can be made through the platform, which is free of charge, and has been used by more than 1000 users.

ÖBB is developing multimodal solutions to attract customers which have not traditionally relied on rail freight transport. Photo: David Gubler

“The first step is obviously to establish the business relationship,” Först says. “The second step is to get the transport flow going, which had challenges from transshipment to paperwork, and last but not least, and very importantly, organising and gathering enough wagons because the European grain wagon fleet was positioned for pre-war flows.

“I think we’re doing a really good job in focusing our efforts on these exports, and also employing innovative solutions such as using containers or big bags.”

Heading into 2023, another continuing concern for RCG and the wider rail sector is the impact of infrastructure maintenance works, especially in Germany and across central and south-eastern Europe.

Först says this makes it difficult to offer a reliable rail freight services. However, there is optimism for rapid growth in the medium to long-term due to expected high demand for sustainable transport solutions.

For example, RCG is focusing on continuing to develop its intermodal offer to support its aim of becoming the “sustainable logistical backbone for the European economy.”

“We are undergoing a strategic shift towards multimodal transport,” Först says. “We are approaching customers which have not traditionally relied on rail freight transport and offering multimodal solutions, meaning we pick it up by truck to bring it to the next terminal, then transport it long distance sustainably by rail and then potentially over the last mile by truck or ship.”

This type of service reflects the need for rail to be more flexible to counter the steady decline of freight volumes from heavy industries and raw materials over the last few decades. The transport of finished and semi-finished goods has gained in importance, increasing the need to compete with road. But due to the geopolitical situation, Först says rail could benefit from a trend towards slowing globalisation and a potential reindustrialisation of Europe.

“The client needs to trust that you can deliver and that you won’t disrupt his supply chain. That’s the basic requirement to get the foot in the door.”

Clemens Först

“Raw materials are more or less captive volumes for rail freight and barges while finished and semi-finished goods are something that can easily be transported by road,” Först says. “Given the war in Ukraine and the geopolitical situation with China, we are seeing nearshoring. There are ongoing discussions about the reindustrialisation [in Europe] and that would definitely benefit rail freight.”

Ultimately the decision of whether to send a freight load by road or rail still comes down to cost, Först says.

“First of all the client needs to trust that you can deliver and that you won’t disrupt his supply chain,” he says. “That’s the basic requirement to get the foot in the door, but after that it is 90%-plus cost for an average client. The remaining 10% is based on sustainability considerations and other things.”

Yet rail’s competitiveness needs to improve if Europe is to meet its ambitious goals to mitigate climate change. Growing rail freight has rightly been targeted to reduce emissions from European land freight transport, which currently produces 275 million tonnes of CO2 emissions and leads to 50,000 premature fatalities each year. Overall volumes are expected to grow by 30% by 2030 with road likely to absorb most of this increase.

The Rail Freight Forward (RFF) coalition of 23 rail freight industry operators, industry associations and logistics companies was founded in 2018 with the goal of increasing the share of freight carried by rail from 18% in 2018 to 30% in 2030. Först is the co-founder and head of RFF and says the goal of achieving a 30% modal share has three components.

First is ensuring operators are providing a quality product that is customer centric while continuing to innovate. Först says he feels the sector, driven by economic pressures and competition, is delivering on this. The second factor is providing sufficient network capacity to support the necessary freight traffic volume increase while also meeting growing demand for regional, long distance and open-access passenger services.

“The infrastructure capacity has to keep up with that,” Först says.

Austria has already committed to doubling rail network capacity by 2040 through a mixture of improving physical infrastructure and digitalisation, and Först says this is a key development.

The third requirement is a level playing field, that is fair economic boundary conditions taking into account sustainability aspects such as significantly lower CO2 emissions of rail freight. “There is interest from all sides for sustainable rail freight transport,” Först says. “However, it’s a competitive industry and so somehow the playing field between rail and road needs to be levelled.”

Measures are being introduced across Europe, including a subsidy scheme for single wagon load and intermodal transport introduced since 2021 in Austria which has been replicated in Hungary, while similar schemes are in implementation in France and Germany. Track access charges have also been reduced in Germany and Austria.

Först says there are steps in the right direction, but more support is required to create a level playing field.

“If these three prerequisites are met, and they are not that difficult to meet, then I’m very positive that a 30% and even 40% rail freight modal share is achievable in Europe,” he says.


Steady digitalisation is prompting a major transformation in how the rail freight sector works and operates. This includes changes to internal processes, and new interfaces for customers like the ordering of wagons, capacity planning and tracking services, which RCG is offering as standard.

Först says the deployment of more game-changing technologies such as the Digital Automatic Coupler (DAC), automated driving and ERTMS, which would provide an interoperable train control system in Europe, are more likely to provide results in the second half of the decade.

Most prominent is the DAC. As well as the obvious benefits of removing the need to manually couple and un-couple every wagon, Först says introduction will allow the transport of heavier loads, and the possibility to further digitalise operations. Sensors currently being installed have a limited battery life, but the installation of DAC will introduce direct power and data connections along the length of the train.

There are still major questions to be answered about how DAC will be rolled out across Europe, and who will fund it, but Först is confident an agreement will be reached based on the success of DAC development so far.

“The European DAC Delivery Programme for me is really a benchmark for how a European rail project can run,” he says. “There have been some failures in the past - ERTMS so far, I think, is not a success story and we hope this is changing now. But the European DAC Delivery Programme, from starting off with a discussion between Shift2Rail and RFF in 2019 to now being a European wide project with industries having established a standard, I think really constitutes a benchmark. I think that’s something Europe and all the stakeholders can be proud of.”

The rollout of DAC is estimated to cost at least €10bn, and Först says this will have to be shared between the parties that will benefit from the rollout.

“We come back to a [rail freight] sector that is traditionally low margin,” he says. “That’s money that will have to come to a large extent from public sources, or from infrastructure managers, which are also huge beneficiaries of DAC. The second big hurdle for me is then migration, because at some point you will have mixed fleets in the European single wagon load system and that obviously creates lots of operational challenges.”

Eurasian freight

Despite the difficulties with Russia and China, RCG is still operating Asian-European freight flows, with a renewed emphasis on the Middle Corridor trade route that runs from China via Kazakhstan, Azerbaijan, Georgia and the Black Sea to Romania and central Europe.

“The route has experienced a boost due to the war, but it’s also a route which needs time to develop,” Först says. “It has more borders, more partners and thus more interfaces where things can go wrong. So that’s definitely still pioneering work, but a route that we believe will gain importance over the coming years.”

Last month RCG opened a freight forwarding subsidiary in Shanghai to further strengthen its position in Eurasian land transport. RCG says having employees on site will provide a boost to serving local customers and the management of the entire logistics value chain, including introducing additional freight forwarding services.

RCG also established Rail Cargo Carrier-Southeast in Serbia, the company’s 13th operating unit. The subsidiary will primarily carry transit freight from Turkey and Greece through to central and southeast Europe, as well as serving the local market.

RCG established a route to Turkey via Romania in 2014, and is currently market leader for rail exports to Turkey. But Först says infrastructure works on the route have prompted RCG to open up Serbia as an alternative route to increase the resilience of its transport network.

Even as RCG faces the upcoming challenges of 2023, the overall trajectory appears positive. Först firmly believes that RCG and the wider European rail freight sector has a fighting chance of meeting the ambitious market share targets for the end of the decade. The light at the end of the tunnel remains in their sights.