Work with us to grow the market and not the market share — that is the message from Europe’s containerized rail freight industry for its road haulage counterparts, a transport sector that has been eating rail’s lunch for the past decade.
Rail freight’s share of the European cargo market has fallen over the last few years and currently hovers around 11 percent, with shippers preferring road that is more reliable, often cheaper, and better suited for smaller shipments requiring point-to-point transport. But any thought that the rail industry’s “let’s grow the market together” approach was coming from a position of weakness was quickly dispelled by speakers at the Global Rail Freight Conference in Genoa this week.
Roads alone can’t handle 30 percent cargo growth
“There will be a 30 percent growth in cargo being transported within the European Union by 2030 and that cannot rely on road transport alone,” said Clemens Först, CEO of Rail Cargo Group and chairman of the International Union of Railways (UIC) Rail Freight Forum that organised the conference.
The deputy mayor of Genova put it a different way. “No matter how many roads we build, they will not be enough to handle the freight of the future,” said Stefano Balleari. “Rail will play a larger role.”
According to IHS Markit, Asia-Europe container volume will grow more than 4 percent a year until 2020, while the volume entering Europe from China by rail is also predicted to rise sharply. Andre Wheeler, director of Wheeler Management Consulting, said China’s ambitious plan was to have 50,000 annual freight train journeys moving 2 million TEU of trade volume by rail in the next three years. The demand is also being seen in air cargo imports into Europe’s main hubs, which are growing so fast that gateways such as Amsterdam Schiphol have been forced to restrict freighter slots.
Apart from the physical impossibility of road maintaining its market share with cargo volume increasing so significantly, the sector is also facing growing pressure from regulators to shift cargo to rail that offers more environmentally friendly services and is better suited to transporting large volumes from point to point. Reducing road journeys will cut down thousands of road accidents and lower carbon emissions.
Giovanni Berrino, regional minister of transport for Liguria, the coastal region of western Italy, said rail had to start rethinking its business model and find ways to improve.
“There are opportunities for us to innovate and increase digitalization and the management of data, but one of the benefits of arriving late at innovation is that we are able to select the best options. We need to start making use of that,” he told delegates. “But we do need to move forward and reach a shared overall market, as well as doubling our market share as a minimum.”
Jean-Pierre Loubinoux, director general of the UIC, said road and rail were complimentary and the philosophy had to change from one of harsh competition.
“Each mode has its own benefit to bring to the market and rail is just one part of the chain of multimodality,” he told JOC.com. “To succeed, rail and road need to join forces and grow the market together rather than compete for market share. It is in both of our interests and each mode complements the other.”
Asked how the road transport sector regarded this olive branch from its rail counterparts, Marie-Helene Vanderpool, external relations for intermodal at the International Road Transport Union, said the future had to be about collaboration.
“We can get to places rail can’t. There is an amount of lip service given to cooperation but it is a fact. Trade is increasing and there will be enough cargo going around for all modes to carry,” she said.
Nicolas Czernecki, director of wagon management for French rail operator SNCF, said rail’s long-term outlook was largely positive because of the rising volume, but its low market share, cross-border regulations, and especially a lack of innovation was keeping the sector under pressure.
Truck platooning — a threat to railroads?
“Road as a competitor is highly innovative, and truck platooning is a huge threat to rail,” he said. “We have not yet entered the new age compared to other modes.”
Andreas Schwilling, a partner at Roland Berger’s Transportation Competence Center, said rail was right to be concerned about the threat posed by truck platooning.
“It will make road transport cheaper and we believe the cost of trucking could decrease by 30 percent in the next decade, because remember that a platoon of five to 10 trucks will only need one driver,” he said. “That is a major threat to rail.”
The outlook for rail is further clouded by a changing cargo mix and ordering patterns that favor road transport. Phenomenal growth in e-commerce is driving up less-than-containerload and parcel shipping that requires direct origin-destination transport, and transport by truck is far more competitive than rail for this type of cargo.
In a recent commentary on JOC.com, Pierre Liguori, director of supply chain consultancy Tokema International, said that 45 percent of inland transportation in the United States was done by rail in 2013, but rail freight accounted for just 17.8 percent of intra-European transport, a decline from the 19.7 percent share in 2000.
Liguori said the main structural weakness of the freight market in Europe came from the road transport supremacy for historical reasons. Despite significant funding for rail infrastructure development, €28 billion ($32.5 billion) provided by the European Union from 2007 to 2013, EU member governments mainly played a conservative approach in Western Europe when Eastern Europe countries used the EU development funds to develop their road networks, which accounted for 80 percent of investments in the 2000s. Countries such as France decided to put priority on passenger transport rather than rail freight, especially using European funds to develop high-speed train networks. France did not show any real political commitment to reduce the weight of road transport in the country.
The postmodern Europe's transportation system
Road transport continues to build its market share in Europe at the expense of rail freight. Liguori said national rules and regulations were not harmonized at the EU level, with a lack of cooperation between each member country's infrastructure management body creating service disruptions. Rail freight trains in Europe achieve an average speed of 18 to 30 kilometers per hour (11 to 18 miles per hour), due to administrative constraints, waiting times, lack of central management, etc., when the average truck speed on European roads is 60 kilometers per hour. Road freight transport in Europe is simply cheaper and faster.
“The biggest challenge regarding attracting more shippers to use rail freight is cost reduction,” Liguori wrote. “It cannot be achieved only with additional volumes, more competition, and less bureaucracy. As infrastructure costs are paid by train slot, the length of trains and the related number of coaches is critical to decrease operating costs. Here again harmonization would be welcome. The average train length in Spain is 450 meters (1,476 feet) compared with 740 meters in France and between 1,500 and 2,000 meters in the United States.”