Cargo giants

A handful of big operators will eventually dominate Europe's vast market for rail freight services.

The need for deep pockets to buy or lease equipment and weather tough economic times continues to drive consolidation in the market, industry experts say.

"The days of buying up a loc and hauling freight from A to B are over – that business is too risky," said Maria Leenen, managing director of rail consultancy firm SCI Verkehr. "Operators need a certain critical mass to compete."

Capital intensive operations

And that critical mass comes at a price only a few players are able to afford, according to Leenen. "The rail freight business is driven by assets; it's very capital intensive," she told Deutsche Welle. "There will be room for only a few big players in Europe. These don't necessarily have to be the state-owned rail companies, even if this is the case today."

Since the deregulation of European rail freight services in 2007, numerous start-up rail operators have emerged and scrambled to carve out a profitable niche in the region's huge rail freight market. Among them: TX Logistik and Rail4Chem in Germany, EWS in the United Kingdom and NordCargo in Italy.

Meanwhile, several large state-owned rail operators, including Germany's Deutsche Bahn, France's SNCF and Italy's Ferrovie dello Stato, have moved to expand their European footprint, mostly by acquiring market newcomers.

Deutsche Bahn's rail freight arm, DB Schenker Rail, is at the front of the pack. The unit has acquired, among others, NordCargo and EWS together with its French subsidiary, EuroCargo Rail. The company is also a founding member of Xrail, a cooperative alliance with six other rail freight operators in Europe, including CFL Cargo in Luxemburg, CD Cargo in the Czech Republic and Rail Cargo Austria.

Size matters

TX Logistik is now owned by Trenitalia, the freight subsidiary of the Italy's state-owned rail operator. In March, the Italian company acquired the remaining 49 percent of the German rail freight operator it didn't own.

As for SNCF, its Transport Ferroviaire Holding has acquired Veolia Cargo's operations in Germany, Italy and the Netherlands.

"The state-run rail companies are clearly positioning themselves today as European players," Raimund Stüer, a founder of TX Logistik, told German business newspaper Handelsblatt. "They are the only ones in a position to buy up European networks."

Their dominance is "inevitable," according to Richard Talbot, an analyst with The Railway Consultancy in London. "The rail freight business can be quite cyclical and seasonal, and is affected by the wide economy as all distribution and logistics operations are," he told Deutsche Welle. "This business is about liquidity and viability and about enduring peaks and troughs. Bigger players have a clear advantage."

The early euphoria in Europe's liberalized rail freight market "has given way to economic pragmatism, which is logical in such an asset-heavy, capital-intensive business as rail freight," said Leenen.

And for those that establish a healthy market presence, opportunity abounds. Leenen argues that the global trend toward centralized manufacturing centers such as those in China and India and distribution hubs spread abound the globe will increase demand for rail service providers capable of transporting goods from ports to inland distribution points.

Author: John Blau
Editor: Sam Edmonds