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Business

Europe Opens Freight Rail To Competition

Against a backdrop of calamitous highway congestion that is affecting the economy, the EU this week approved a string of regulations aimed at bringing companies back to the railways to transport their goods.

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The EU would like to see fewer cars and more trains.

Closed national systems and cumbersome networks have caused customers to abandon the rails for the past three decades in favor of trucking services. The results have been disastrous, with the European Commission predicting that if roadway traffic isn't reduced, it could cost the EU €80 billion a year, or roughly 1 percent of gross domestic product, by 2010. By liberalizing freight rail services and opening them to competition, the EU wants to cut greenhouse gas emissions and revitalize the ailing commercial rail market.

Under the rules, the cross-border freight market must be completely opened to competition by 2007. The deal came as part of a compromise reached this week by the conciliation committee of EU member states and the European Parliament. Though it must be approved by the Council of Ministers and parliament, observers consider it a mere formality.

European Transportation Commissioner Loyola de Palacio greeted the deal as an important step toward the creation of an integrated European railway network. Palacio said liberalization of the railways is needed to expand freight train services and make them more competitive with other forms of transport.

"This is a major step towards the constitution of an integrated European railway area," Palacio said. Her Irish colleague, Transport Minister Seamus Brennan, said the agreement was "critically important for the revitalization of the rail freight market in Europe. As we are all aware, rail freight has been steadily losing market share over the past decade or so, and a new dynamism in the market is urgently required."

Reducing congestion and pollution

European politicians are betting that the liberalization of freight rail will reduce traffic congestion and pollution. Currently, only 9 percent of the all of the goods transported in Europe are moved by rail, down from 21 percent in 1970. In the United States, where most rail networks are private and transcontinental transportation is open to competition, railways companies maintain a 40 percent share of the overall freight market.

There are a number of reasons cited for the diminishing attractiveness of rail. Historically, most freight rail companies in Europe are nationally held, which creates a host of problems. "This lack of integration reduces the railway companies' chances of offering fast, reliable and efficient international services," the Commission said.

The hurdles are numerous: Different countries have incompatible forms of train electrification or differing track gauges requiring costly and time-consuming locomotive changes at borders, and lengthy border checks can cost time and money. In a recent report, the European Commission found that the average speed of international freight services has fallen to 18 kilometers per hour -- "slower than an icebreaker opening up a shipping route through the Baltic Sea."

A railway agency for Europe

Parliament and the Council of Ministers hope to change all that by setting up a European Railway Agency, which will be responsible for developing and aiding with the EU-wide security standards and technical standards for national railways required to bring the whole system together.

The Community of European Railways, the industry association of EU rail companies, greeted the decision, praising it as a sign of determination to create a common European rail market.

Though the market on international goods services opened on the 50,000-kilometer long trans-European rail freight network in 2003, new entrants still only control a meager 3 to 4 percent of the market. Any company holding a license can use the trans-European network, which connects many of Europe's most densely populated regions and is expected to expand to 150,000 kilometers by 2008.

Ikea

Ikea uses its own train company to deliver goods to its European stores.

The companies that have so far jumped into the game include German chemicals manufacturer BASF, which launched a joint venture with several other companies to transport its products at more attractive prices than offered by national monopolies, and Swedish furniture retailer IKEA. Through its IKEA Rail subsidiary, the company now transports 18 percent of its goods to superstores across Europe. By 2006, IKEA hopes to transport 40 percent of its goods by rail.

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