Lesson 3 - Old freight out, new freight in

Rail has carved out a few niche markets in Europe. Trains are good at transporting heavy goods in large quantities, fragile goods in a more stable manner than road, and can offer long-distance transport at a cheaper rate. Still, rail must diversify its offer if more freight in the future is to be transported by train.

For example, trains hold 65% of the market for transporting coal, crude petroleum and natural gas, as well as 40% of the market for coke and refined petroleum. Coal alone accounts for 13% of rail tonne-km in Europe. But since these established markets will decrease in any transition from Europe towards cleaner energy, rail freight must start looking actively for new ones.

In 2008, the European Commission sent out a questionnaire to relevant rail freight stakeholders to assess the problems that prevent the growth of this sector. For the majority of respondents, rail inadequately responded to their logistical needs and was unreliable. Yet, although rail freight is burdened by infrastructure complexities, it can improve on its services in order to attract new sectors.

There are two schools of thought when it comes to the question of how we can shift more goods from road to rail. One is that road should be charged more for their use of infrastructure and then volumes will be shifted to rail. The classic example used is Switzerland where driving bans and heavy tolls are placed on trucks then the revenue from such tolls is used to subsidise rail operations and infrastructure. This enabled Switzerland to achieve 35% of freight on rail. The truth though is that charging road alone is not enough to get more companies to use rail to transport their goods, which leads us to the second school of thought. Services need to be more cost-competitive, reliable, and flexible to the customer’s demands. This holistic approach is what’s needed to create any modal shift.

Cost

To provide one example of the difference in cost between road and rail, the average cost of road transport in Italy is approximately €1 per km while the cost of rail transport is closer to €18 per train-km. This doesn’t include the costs of transhipment that are required when loading or unloading the train, which can be €60 per container.

Rail can be cheaper than road though. A train, which is to say one driver, can transport much more freight than a truck. This therefore lowers the operational cost. As a result, it is cheaper for a company to shift a large quantity of goods to a location far away by rail rather than road. This requires rail infrastructure being available close to both the origin and destination of the company’s required journey though.

Competition can also drive down prices for customers as rail freight companies invest in new means and technologies to cut costs. Safeguards need to be maintained though that such competition doesn’t come at the expense of worker’s rights.

Longer trains would reduce the cost of rail freight provided that savings are passed on to the customer. This is due to the fact that one train could carry more cargo and, therefore, generate more revenue per locomotive. Train length is restricted in Europe to around 1km while American trains can operate at lengths of 3 km. These longer trains could reduce the flexibility of rail freight though as more waiting time and guaranteed freight flows will be needed in order to fill the trains.

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Reliability

Rail can be subject to delays due to technical problems, as well as natural and human factors, which is understandable. Foreseeable delays like construction work on the tracks should be avoided as much as possible though. To provide an example of the gravity of this problem, 20% of freight trains are delayed in France. In any case infrastructure managers need to communicate better with each other when disruptions occur. The EU’s Rail Freight Corridors had such collaboration as one of their key objectives. Being able to cross borders seamlessly is crucial to the growth of rail freight.

What would help in terms of customer satisfaction is live updates of delays. Rail has a reputation of leaving customers in the dark with regard to the location of their freight and whether it will arrive on time. GPS systems (known as “track and trace”) must become standardised in all freight trains so that users can easily track their goods in real time. These seemingly small changes would have a large impact on the user’s experience.

Speed

50% of rail freight crosses borders in Europe. The speed of such border crossings ranges from 18-60 km/h for freight trains. Infrastructure plays a role. The Le Havre – Paris line is infamously slow as freight trains move at 6 km/h between the two cities. Money that Europe sets aside to spend on rail should prioritise the upgrading of existing infrastructure to allow for better rail services. Le Havre is a particularly good example of where money may be wisely spent as it is a large port in Northern France, which means that freight volumes are consistent. Updating the route would provide a much needed boost to rail freight. Smarter spending will be the topic of it’s own lesson on this website.

Speed is not only reliant on the technological abilities of the train and the tracks. In international journeys, it also depends on good communication between national infrastructure managers. Each EU country has its own, which means that control is passed from one to another when a border is crossed. Adequate communication of train location and delays would improve the speed at which freight travels. Furthermore, regulators should keep a keen eye on foreign trains as there may be discriminatory practices at delays to prioritise national trains. This hinders the achievement of a single European railway area.

Growing congestion on roads will lead to longer transport times for trucks. Rail could capitalise on this potential if they fix their communicative and infrastructure problems. Rail should be faster than road in many long-distance routes even when you factor in the time it takes to load and unload a train. Speed will only get you so far though as services must become more flexible.

Flexibility

In rail, advanced planning is required by infrastructure managers, meaning that trains need to be scheduled months in advance. If they’re not then they rely on ad hoc capacity, which means the train will move slower as it starts and stops to make way for preplanned trains. Trains also require large freight volumes. For example, a company with only three containers to move will need to rely on a train that has three containers to spare being planned on the route that they want to take. To a gambler, this may seem like the worst odds in the world but such freight flows exist in certain areas. Industrialised areas and ports have consistent freight flows, which is why this is where a lot of freight is moved from by rail. If rail wants to expand more beyond ports then they would still need to focus on areas where there’s foreseeable transport demand. Trucks can set up shop easily and close it just as fast. This is a far more costly matter for rail freight.

Open data could help rail in this regard. Sharing data between relevant actors in the supply chain about infrastructure availability, trains operating, and freight volumes may lead to increased awareness of freight volumes for train operators, as well as train operations for companies with freight to move. Logistic actors could become a network rather than separate actors in a “chain”. The Uberisation of transport has shifted expectations. We’ve seen this with passenger transport where the passenger is at the heart of the whole journey – the same is the case for freight where the customer expects the service to be tailored to their needs. Road is traditionally more flexible to the consumer’s needs and far more precise when it comes to origin and destination of journeys. Rail needs to embrace digitalisation in order to have a prosperous future.

The UK Department for Transport performed a study in 2016 that looked at potential areas of growth for rail freight. Although the study looked at the British market, the findings can be attributable to the entire European market. It identified no growth potential in many established markets for rail, such as coal and petrol. Instead, it sees opportunities in other parts of intermodal, long-distance and international traffic, such as transport of containers or fragile goods like cars.

But several aspects of rail freight will need to change if new companies are to be attracted onto rail. Prices will have to become more competitive with road. Services will need to become more flexible, reliable, and faster. There are ways to improve with regard to all of these but such improvements must also be marketed to prospective new clients. There is a lack of knowledge about how rail works due to the complexity of the sector. Some so-called “freight experts” still do not know how to move goods by rail, which means that companies continue to use road even when rail is a more attractive option. This practice is known as “ingrained patterns” whereby companies stick to what they know. Railway companies must get out and market their services to potential customers. The idea of relying on existing flows is redundant as we’re expected to see a drop in coal, petroleum and natural gas. If rail don’t diversify their customers then road’s share of the market will only increase.

On the other side of the pond, in the United States, rail holds 40% of the freight market. Does this show that the US rail freight companies are better serving their customers? This is the topic of next month’s lesson.