AFTER a long period of sustained growth in many European countries,
plummeting volumes witnessed in recent months have sent shockwaves
through the railfreight industry. According to the Community of
European Railway and Infrastructure Companies (CER), year-on-year
volumes dived 36% in the first quarter. In Germany, the largest
national market, tonnages fell by 26% in January and February.

annual European Rail Freight Survey published by Booz & Co in May
graphically illustrates how the economic crisis is impacting on
European railfreight, and charts a significant shift in customer

More than 250 railfreight customers including industrial
shippers, freight forwarders and intermodal companies took part in the
survey between mid-February and late April. Of those who answered the
questionnaire, 20% were CEO or board level executives, 30% were
transport managers and 20% were transport or logistics planners.

& Co found that 60% of respondents expect to see a continued
decline in demand over the next year, and half of those anticipate
their rail shipment volumes will fall by more than 10% during this
period. However, 15% said they expect to see volumes remain stable, and
21% predict growth of 1-10%.

Naturally the impact of the economic
downturn varies widely between different industry sectors. The chart
shows that logistics providers take a more positive view of the
prospects for short-term growth, and 28% expect an increase in volumes
over the next year compared with 19% of industrial shippers.

As the
demand for railfreight services falls, prices are broadly expected to
decline. Around half of railfreight customers expect prices to stagnate
in the next 12 months, while 40% anticipate prices will fall 5% or

The survey notes that wagonload traffic is particularly
vulnerable to the recession, and raises the prospect of significant
losses for the few operators still providing such services. Most
wagonload networks were already making a loss when the economic
downturn began to impact on volumes, and the remainder were only
marginally profitable.

Wagonload is susceptible to fluctuating demand
because the cost base of these operations is largely fixed and
opportunities to make efficiencies on shunting and local distribution
of wagons are very limited. Competitive pressure from road hauliers
looking for work in a declining and volatile market will also hit
wagonload volumes, particularly as rail-on-rail competition for this
type of traffic is virtually non-existent.

In addition to the immediate
problems posed by declining volumes, many respondents felt that
capacity constraints pose a serious long-term threat to the viability
of railfreight in Europe, and its ability to compete effectively with
other modes. 52% of those surveyed expect to see a significant shortage
of railfreight capacity over the next five years, and 75% anticipate
this will result in a shift of volumes from rail to other modes.

In the
previous survey conducted a year ago, on-time delivery was found to be
the most important selection criterion for customers choosing a
railfreight operator. This year has brought a distinct shift in
attitudes and 78% of those surveyed now value price competitiveness
above all other factors, compared with just 55% in 2008.

Booz & Co
found that customer service in general and the reputation of
railfreight has improved in the last year. The survey suggests there
has been no significant change in service levels over the last year,
and 56% of respondents said service levels remain the same as they were
at the time of the previous survey.

However, customer satisfaction has
declined from an average grade of 2.8 last year to 3.6 this year (with
1 being the highest score and 6 the lowest). The analysis notes that
customers have recently begun to notice a loss of price competitiveness
and suggests that this could be the key driver behind the fall in
satisfaction, particularly in a market that is increasingly sensitive
to pricing. Furthermore, the significant fall in fuel prices since
mid-2008, a price war between hauliers competing for scarce volumes,
and increasing railway infrastructure and energy charges are cited as
contributing factors to declining satisfaction with the cost of sending
freight by rail.

Some governments are now taking action to ensure that
the recession does not result in a long-term reduction in rail's share
of the inland freight market. Last month the Swiss federal government
announced a SFr 50 million ($US 46 million) support package for
railfreight operators designed to ensure they maintain their
competitive position. Increasing rail's market share is a central
element of Swiss transport policy, and the Federal Transport Office
(BAV) is keen to ensure that lower road prices do not impact
significantly on railfreight volumes.

While Switzerland is offering
support to public and private railfreight companies, concern is growing
elsewhere in Europe that the economic downturn will fuel a return to
protectionist policies favouring state-owned operators. Last month
European transport commissioner Mr Antonio Tajani told European Union
(EU) transport ministers at a meeting in Luxembourg that some member
states were moving towards protectionism by demanding derogations from
existing law and proposed legislation. He also warned that state aid
risks distorting the market and creates barriers for new entrants.

joint statement by eight European freight and logistics associations,
including the European Rail Freight Association (ERFA) called on
transport ministers and the European Commission (EC) to tackle three
key issues which it believes are impeding the development of the
industry at a time of economic crisis. These comprise:
  • . approval of
    the draft Regulation on the European rail network for competitive
  • . requiring the Commission to proceed with infraction
    proceedings against 23 member states which have failed to fully
    implement the First Railway Package, and
  • . requiring the Commission to
    publish its proposed recast of the First Railway Package by September.
The response from transport ministers was lukewarm. Following the
meeting, the Association of European Rail Infrastructure Managers (EIM)
and the European Rail Industry Association (Unife) condemned ministers
for their lack of ambition in granting priority to freight trains.
"Unfortunately for the freight corridors political rather than business
conditions prevailed," says Unife director general Michael Clausecker.

Railfreight operators in many European countries have long complained
of the high level of infrastructure charges and many see this as an
area where governments have the power to offer the industry greater
protection against the worst effects of recession. At a meeting in
Vienna in April, CER and the International Union of Railways (UIC)
signed a joint declaration calling for traction current and track
access charges to be frozen at 2008 levels.

CER and UIC also want a
moratorium of at least one year on forthcoming EU legislation which
they believe would increase capital costs for freight operators. These
include the implementation of the European Rail Traffic Management
System (ERTMS) and Technical Specifications for Interoperability (TAF
TSI), together with new laws on rail noise emissions, which would
require the modification of existing wagons.

Operators also voiced
their concerns on a proposal by the European Railway Agency (ERA) to
begin implementing a new wagon numbering system from next year,
suggesting this should not begin until the economic climate improves.

At a time of such uncertainty, customers and operators are eager to see
consensus among policy makers at both national and European levels. The
concerns raised in the Booz & Co study suggest significant
questions about capacity remain unanswered, and there are fears that
railfreight may lose market share, contrary to commitments by national
governments to encourage modal shift in an effort to cut carbon
emissions. Assertive application of cohesive policies will be essential
if railfreight is to achieve its potential as Europe's economy gets
back on track.