In 2007, in order to create competition, the EU liberalised the rail freight market. The idea was that competition would stimulate more efficient and customer-friendly services, which would help shift more freight from road to rail.

It partly worked. Marketing of services and choice, for instance, improved. Prior to 2007, rail freight hada reputation for being a service provider rather than a proactive business. With the introduction of new entrants into the market, companies who had never considered rail in the past were now being sold the benefits of the mode.

However, 10 years after this market opening, the share of new competitors remains low: in France and Germany, they have about 35% market share.This figure goes down to about 26% for the whole EU. Meanwhile, rail’s overall share of the freight market has actually declined slightly since 2011 as traditional  rail users have reduced volumes. There are 2 main reasons why competition hasn’t taken off as expected.

New competitors in France & Germany since 2007

New competitors in the whole EU since 2017

Issue: rail is expensive, and privilege plays a role

The cost of entering the rail freight market is the first dissuasive element for new competitors. Locomotives and wagons entail substantial financial investment and yet can’t be used all over Europe due to technological differences and national requirements. A second hand market exists but is very small, partly due to incumbents being unwilling to sell to their competitors.

Track and other infrastructure access is also expensive: about €2 per track km in France and €3 in Germany. This means that the operational costs are also high in addition to the initial investment.

Apart from cost, the existence of monopolies is also a serious barrier to new competitors. In Europe, the same holding company can own both a train operations business and the infrastructure management company. As a result, national train operators have been known to receive privileged track access thanks to their sister company: meanwhile,  new entrants rely on their biggest competitors for something as essential to business as being able to use the infrastructure. The downside of this relationship was seen in its most outrageous form in a recent Lithuanian case where the main railway company ripped up 19 km of tracks, built with public money, to stop a competitor securing business.

The EU’s Fourth Railway Package helped ensure more impartiality – but a keen regulator is still needed as a watchdog. The very fact that combined  ownership (as described above)  still exists also dissuades new entrants from investing in the market as possible discrimination is implied.

Recommendation: independent infrastructure manager & fair competition

Clearly, track access decisions need to be made based on optimal use of capacity rather than allegiance to a sister company. It’s therefore key that infrastructure managers are different corporate entities to  train operators. This was guaranteed to some extent by rules on financial transparency in the recently completed 4th Railway Package, but the reform stopped short of unbundling such companies. Guaranteed independence now relies on good oversight from national and EU regulators; ensuring that infrastructure managers are focusing on rail’s performance above a single company’s market share.

Looking at the price of new rolling stock, the European Commission needs to study its purchase cost to ensure that prices are as cheap as possible from suppliers. Furthermore, incumbent railway companies should also be obliged at national level to resell unused rolling stock to new entrants. The state-owned operators have used public money to buy their locomotives and wagons; this investment should not be scrapped if a profit can be made by reselling it. This will most likely require acquisition on the basis of fair and reasonable pricing, overseen by the market regulator. Rail could grow its market share as a result. Given the high capital costs in rail, an obligation to resell is needed for competition to take effect and for truly new companies to emerge.

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However, opening national rail freight markets to more competition could lead to negative results such as reducing its own market share. For example, new entrants tend to rush to routes where profit is definitely available, which leaves the unprofitable services to the incumbents. Whereas in the past unprofitable services were cross-subsidised by profit making ones, competition leaves less revenue to cushion the blow. This means that services like single-wagonload, whereby several wagons are combined to create a train end-to-end, are dying out across Europe and rail freight  is becoming further confined to competition on a few routes where demand is certain. The preference of new entrants for lines where there’s the most freight is hard to change as you cannot oblige such companies to only search for modal shift freight volumes. Part of the picture is that new entrants tend to focus too much on poaching business from incumbents rather that shifting volume from road to rail. This issue requires further study by member states and the EU during 2017/8, with solutions proposed in a new legislative package early in the next Commission

Complicating the analysis, market opening enables the larger nationally dominant players to expand their business abroad often to the detriment of new competitors who might have less capital and experience. This means that monopolies may begin to become EU oligopolies. The German operator Deutsche Bahn is a clear example. It has bought the freight divisions of the Danish, Dutch, and English railways. According to the Commission, in 2010, Deutsche Bahn held a 75% share of the freight market in Germany and Denmark, as well as 60% in the Netherlands and about 50% in the UK. The expansion of national giants abroad is a sign that rail is a capital-intensive industry whereby access to significant financing is a prerequisite to market entry, which makes competition a very limited prospect in the current market.

In 2010, Deutsche Bahn held:

share of the freight market in Germany and Denmark

share of the freight market in the Netherlands

share of the freight market in the United Kingdom

Finally, politicians must not ignore the potential impacts of competition on labour conditions, which the unions are concerned about. Labour conditions must be protected in any transition to an open market.


If managed well and holistically with the other challenges that rail is facing, more competition in the freight market can help transport more goods by train. Imperfect competition, caused for example by the privileged position that incumbents are in due to their relationship with the infrastructure manager, can’t be underestimated and its negative effects must be avoided. Intense and dedicated oversight by national and EU regulators is therefore needed if fair competition is to exist in such a marketplace. The EU must also act more as the facilitator of communication between such regulators. The Independent Regulators Group should be resourced so that regulators can warn each other of suspect practices. And overall, a keen eye must be kept on the corporate separation issue to inform potential future reform.

What is already clear is that a transaction mechanism for unused rolling stock is long overdue. Informed by fair and reasonable pricing, this should be overseen by national regulators with the legal structure set down in future EU legislation.

Research is needed to identify how new entrants are not just attracted into the marketplace, but offer services that shift goods from road to rail (as distinct from taking current business flows from incumbents).

It is clear that customers prefer open markets as it means choice for them, and  more bargaining power. Furthermore, if a customer has one bad experience with an operator then they normally consider changing to another. If no other operator exists then they’re likely to use road to transport their goods instead. Competition is an essential part of attracting more companies onto rail but it needs to be well managed by EU member states so that rail freight increases its market share.

Whether incumbent or new entrant, rail will need to improve the service  it provides to attract more customers from road to rail. This is the topic of next month’s lesson.

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