The structure of the global railfreight business continues to change, especially in diverse markets like North America and Europe. The landscape of freight operators in Europe is versatile and dynamic with more than 1000 private railfreight companies with varying portfolios in addition to the large state railways.
North America's railfreight transport market is privately run and profitable. In 2008 the average earnings before interest and tax (Ebit) margin for the Class I railways amounted to around 25%, and Berkshire Hathaway's massive investment in BNSF in 2009 backs profitability prospects.
Europe is an attractive operator market with an average income of around Euro 0.04 per tonne-km, but high fixed costs and competition from road transport put profit margins under constant pressure. However, in the face of falling freight rates, European operators are reacting with extensive restructuring programmes coupled with steps to expand their geographic market presence.
Fret SNCF, for instance, took over the international business of Veolia Cargo in 2009, despite announcing the phasing out of its loss-making wagonload service. DB Schenker Rail acquired two private railfreight operators in Poland and increased its holding in Nordcargo, Italy, to become the majority shareholder in 2009 despite restructuring and laying-off staff. A push into eastern Europe and towards the former Soviet Union is a major objective for German Rail (DB), the European market leader. However, DB lost some market share in 2009 to private operators at home in Germany.
Nevertheless, a lasting change to the competitive structure in favour of former state railways is becoming apparent as state railways increase their power in shaping Europe's railfreight market by promoting efficiency and expanding abroad.
Restructuring measures by European operators are aimed at stemming falling turnover today, but will these programmes turn structural changes to their benefit tomorrow?
The economic structure of an area plays a major role in the value placed on railfreight compared with other modes. On the one hand, the amount of traffic ideally suited to rail in Europe, such as coal and other bulk commodities, has reduced, while on the other hand a shift towards container transport is strengthening road's competitive advantage over rail. At the same time customers are calling for integrated logistics solutions for their increasingly internationalised businesses. Automotive clusters as well as steel production moving east must equally be served.
Of course internationalising one's business through acquisitions or cooperation is a step towards an international rail network. Nevertheless, in order to offer full logistics services to a broad range of industries, a regional presence with an effective wagonload service is equally essential.
In addition, hinterland container transport from ports towards eastern and southern Europe will gain further importance. As soon as the economy rebounds, efficient and flexible handling of that traffic will be a key asset.
The freight transport boom in 2007 and 2008 has already revealed capacity problems especially at major rail hubs. Rationalisation programmes by most European railways have gradually reduced capacity since the beginning of the 1990s. In Germany, for example, the number of sidings has been more than halved since the launch of the rail reform programme in 1993. As a consequence, railfreight operators were not able to provide sufficient capacity and flexibility when needed, and incurred extra costs through delays, rerouting and a lack of service quality which absorbed turnover gains.
To sum up, I believe there is a good chance that railfreight operators will catch up with economic recovery, and by 2015 traffic volume will be as high as in the boom year of 2008. There is also a good chance that restructuring programmes together with further internationalisation will improve efficiency and flexibility and expand market coverage.
But there are also dangers. What if the restructuring measures result in a further reduction in capacity which hampers rail's ability to handle future demand? What if integrated logistics solutions give way to cutbacks in a broad regional presence where large incumbents are dominant single wagon providers for any industry? What if it proves more difficult to improve flexibility and efficiency because the integration of newly-acquired companies takes too much effort?