EUROPE VIEW BY BRUCE BARNARD: EUROPE'S FREIGHT RAILROADS NOT DEAD YET

EUROPE VIEW BY BRUCE BARNARD: EUROPE'S FREIGHT RAILROADS NOT DEAD YET

LONDON -Europe's railways are close to throwing in the towel in the fight to claw back freight from trucks. But truckers shouldn't declare victory. Far from it. Rail may be shunned by shippers but it still scores highly with politicians and electorates who regard it as a clean and efficient form of transport compared with the gas-guzzling, smoke-spewing trucks that are clogging Europe's highways.

And with freight traffic rising faster than spending on roads, politicians are sure to launch another raft of pro-rail initiatives, or worse, anti-truck measures.The past week has simultaneously highlighted the mounting political pressure to promote rail by non-market means, the accelerating decline of railways and the equally rapid advance of trucking. Loyola de Palacio, the European Union's transport commissioner, launched a broadside against governments for cutting fuel taxes following massive protests by truckers, farmers and fishermen in September. The worst thing, she said, would be to believe that tax cuts or tax compensation might solve the underlying problem simply because it cleared blockades of oil depots and ports. Then she got to her real point.' Europe has increasingly organized its economy around giving road transport an ever greater role. This has been a fundamental part of its strategy to secure the free movement of goods and people within a single market, supported by relatively cheap oil ... This cannot go on.'

The EU must strive to achieve a balance between different forms of transport and encourage greater use of the railways. How? Greater competition, the development of a safe rail network and specific infrastructure investments to avoid bottlenecks.

De Loyola isn't adding anything to what her predecessors have saying over the past 10 years. What has changed is that the roads are more clogged, the railways are even weaker, their share of the ECU's freight market down to 11%, trucking is stronger still with a market share nudging 75% and government spending on transport infrastructure as a percentage of GDP has fallen.

Even as EU officials call for a new rail crusade, outsiders are rooting for trucks. In the same week that EGL, the US forwarder, unveiled plans to launch a ground truck delivery network in Europe, Wisconsin Central, the Illinois railroad company, said it was mulling the sale of its overseas rail interests, including a 42.4take in English Welsh & Scottish Railways, the train company that hauls around 900f Britain's rail freight. Meanwhile, the German transport minister Reinhard Klimmt admits the privatization of Deutsche Bahn, the state railway, will be delayed beyond the 2004 target date because losses are exceeding budget, especially at DB Cargo, its freight unit.

To be sure, these are company-specific developments but they highlight the differences between Europe's truck and rail businesses. It can't be a coincidence that continental Europe's railways are all state-owned while the trucking industry is almost entirely private with most companies small, family-owned outfits. But that doesn't explain everything. Privately-owned EWS is struggling: its revenues were static in 1999 at pds520 million ($754 million), profits crashed from pds38.6 million to pds12.4 million and it faced a barrage of criticism from shippers about poor service. Freightliner, the privately-owned British rail container operator, plunged into the red last year despite an 13% jump in traffic and an 11% rise in revenues.

There's no doubt trucking has built-in advantages. It is less regulated than the railways, can break safety rules, benefits from an army of owner-drivers operating on the margin and driving down rates in a perpetually overcrowded market, and will never be beaten on cost on journeys under 200 miles.

Equally there's no doubt railways can compete. Passenger traffic has soared over 30ince Britain's rail system was privatized in the mid-1990s, a fact that has been overlooked during the current furor over safety standards. Rail is increasingly taking market share from airlines and not just on the channel tunnel routes linking London, Paris and Brussels. Air France is considering stopping flights between Paris Charles de Gaulle airport and Brussels and chartering high speed trains, and Lufthansa will end flights between Frankfurt, Cologne, Stuttgart and Nuremberg on the completion of high speed rail links between these cities ,cutting the number of flights at Frankfurt by about 20,000 a year, or 50f its current maximum capacity.

Why can't rail freight emulate these passenger successes? Well, trucks are a more formidable and flexible foe than tightly regulated, unionized airlines. Moreover, cargo has also been the poor cousin of the railway system, with freight services usually held up for passenger trains and given the worst paths on the timetable - that's partly why the

EU's much-hyped rail freight freeways never took off.

But the biggest reason for rail freight's near terminal decline is a deadly combination of poor management and recalcitrant labor unions, aided and abetted by governments intent on blocking competition, at worst, or apathetic at best.

The EU introduced rules to open up the market nearly 10 years

ago. Virtually nothing has happened. And at the first sign of a breakthrough, 30,000 railway workers took to the streets of Paris a couple of weeks ago to protest against outsiders rolling on their tracks.

Unless EU governments stand up to the forces of reaction and throw open the system to all comers, they will surely be throwing away the last chance for rail to reverse its decline on its own. And that will force them eventually to rein in the truckers to keep rail in the game .The outcome: a distorted market and higher transport costs.