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European rail freight getting back on track, boosting economy and environment alike

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While nearly every European industry took a hit in 2020 due to the coronavirus pandemic, some sectors were particularly hard hit, including rail transport. While freight rail revenues did not collapse as catastrophically as passenger rail rents, European freight rail still registered a €2 billion loss in 2020, a 12% decline in turnover. This strain on rail freight has been particularly concerning given the sector’s vital role to play in ensuring that the EU hits its emissions targets—an environmental imperative which underpinned EU transport ministers’ agreement at their June meeting that a modal shift is in order so that the rail sector is able to recover even faster than the broader economy, all while curbing emissions, writes Graham Paul.

While the European transport sector accounts for more than 25% of the European bloc’s greenhouse gas emissions, rail is responsible for a mere 0.4% and is the only mode of transport to have reduced its emissions and energy consumption since 1990. It’s not surprising, then, that the EU is determined to shift much of the existing freight road transport to rail. EU plans to celebrate the “Year of Rail” were somewhat put on ice during the most acute phases of the public health crisis, but—in a promising sign for the economy and the environment alike—renewed attention and investment is now flooding into European rail freight.

Public sector: Spain sees pandemic recovery money as chance to boost rail freight

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This renewed confidence in rail freight is coming from European governments and private firms alike. In June, Spain’s transport ministry announced that it plans to dedicate €1.5 billion of its pandemic recovery funds to improving the country’s freight movements, with much of the spending focused on shifting freight traffic from road to rail. Madrid is hoping that the influx of cash will help achieve its ambitious goal of increasing rail’s market share from its current 4% of net tonne-km (a figure which lags substantially behind the European average of 18%) to 10% by 2030.

Roughly €1bn of the funding will be devoted to modernizing Spain’s freight distribution network with an emphasis on its railways, including through the development of four new rail freight terminals in Madrid, Barcelona, Valencia and the Basque province of Álava and the improvement of Spain’s rail freight links with other European countries. Another €365 million is slated to help promote sustainable rail transport, including through offering eco-incentives and purchasing dual voltage and variable gauge rolling stock. The funding comes at a vital time, since as Spanish infrastructure secretary Sergio Vásquez Torrón noted, Spain has already seen its freight traffic, particularly on the road, rebound to pre-pandemic levels.

Private sector: Leading Belgian operator Lineas finding funds to accelerate growth

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This rebound in freight traffic which Spain and other European countries are experiencing is also spurring private companies to seek new sources of financing in order to take advantage of investment opportunities. Belgian market leader Lineas, the largest private rail freight firm in Europe, secured €60 million in additional financing in January. The deal, which saw Belgium’s national railway company (SNCB) relinquish its final 10% of what was once its subsidiary, is intended to bolster Lineas’s international expansion plans.

While Lineas is already present in Belgium, France, Germany, the Netherlands, Italy and Spain, its network remains quite centralized. As CEO Geert Pauwels explained: "Until now, each of the routes was linked directly or indirectly to Belgium.” With the assistance of the new influx of capital, “the idea will now be to create new hubs, from which [Lineas] will leave to connect other destinations". Lineas has already embarked on its first international investments after the capital injection; in April, the Belgian freight firm acquired the Netherlands’ International Rail Partner (IRP) in order to reinforce its access to the port of Rotterdam and pick up IRP’s 12 locomotives.

More substantial acquisitions may be on the way, in particular given reports from industry sources that Lineas is in the process of finalizing a sale and leaseback operation which could see the Belgian firm net several hundreds of millions of euro for its roughly 250 locomotives and 7000 wagons. Such an operation, if confirmed, would likely raise renewed questions about the fact that the SNCB sold nearly 70% of its stake in those same assets for a mere €20m back in 2015, particularly given that the company which became Lineas was valued at €510m in 2011. Lineas did not respond to a request for comment on the reported sale and leaseback scheme, but such a substantial deal would greatly increase the private company’s financial flexibility and allow it to make sizeable acquisitions in order to compete with state-owned rivals DB Cargo and SNCF Logistique.

Reason for optimism, but further support likely needed

The fact that both public and private actors in Europe are making substantial moves to shore up their rail freight networks is an encouraging sign that the darkest days of the pandemic-induced recession may be over for the transport sector. It’s also a promising sign for European emissions goals which can likely only be achieved by shifting a substantial portion of road-carried freight onto the rails.

Even so, the coronavirus crisis is still weighing heavily on the European rail sector—despite the positive developments in the sector, rail freight revenues are still substantially lower than in 2019. What’s more, operators have voiced their concern over what will happen if pandemic-era support measures such as track access waivers lapse before the market recovers fully. Under the circumstances, it’s not surprising that rail associations have called on the EU to extend the 'Year of Rail' to 2022 as well—more time is clearly needed to build on the current positive market signals.

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EU railways

European Year of Rail: Connecting Europe Express now leaving the station

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The ‘Connecting Europe Express', a special train put together as part of the European Year of Rail 2021, will pull out of Lisbon train station today (2 September). It will stop in more than 100 towns and cities during its five-week journey, before arriving in Paris on 7 October. Departing from Lisbon and ending its trip in Paris, the train will make a notable stop in Ljubljana, connecting the Portuguese, Slovenian and French Presidencies of the Council of the EU.

Transport Commissioner Adina Vălean said: “Rail has shaped our rich, common history. But, rail is also Europe's future, our route to mitigating climate change and powering economic recovery from the pandemic, as we build a carbon-neutral transport sector. Over the coming weeks, the Connecting Europe Express will become a rolling conference, laboratory and forum for public debate on how to make rail the transport mode of choice for passengers and businesses alike. Please give us a warm welcome when we stop at a railway station near you.”

Along the route, various events are planned to welcome the train at railway stations across Europe. Rail enthusiasts can also follow debates happening on board as well as conferences on EU infrastructure policy and the role of the Trans-European Transport Network (TEN-T), that will be livestreamed via the event website from Lisbon, Bucharest, Berlin and Bettembourg. The Connecting Europe Express is the result of unique cooperation between the European Commission and the Community of European Railway and Infrastructure Companies (CER), European rail operators, infrastructure managers and numerous other partners at EU and local level. A press release is available online.

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EU railways

German train driver strike strands passengers and freight

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General view of the main station during a railway drivers' strike of the German Train Drivers' Union (GDL) in Hamburg, Germany August 11, 2021. REUTERS/Fabian Bimmer
Claus Weselsky, chairman of the train drivers' union GDL, attends an interview with Reuters, in Berlin, Germany, August 11, 2021. REUTERS/Hannibal Hanschke

A strike by train drivers over pay severely disrupted services across Germany on Wednesday (11 August), adding to pressure on European supply chains and frustrating passengers at a time of high demand during the summer holiday season, write Christian Ruettger, Markus Wacket, Michael Nienaber, Reuters TV and Riham Alkousaa, Reuters.

With around 190 freight trains standing idle, Deutsche Bahn (DBN.UL) said in a statement the strike could have a major impact on industrial supply chains in Germany and across Europe, which have already suffered bottlenecks because of COVID-19.

Passenger demand is also high as many people are on the move during summer holidays following an easing of coronavirus restrictions.

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Deutsche Bahn spokesperson Achim Stauss said the company was trying to keep one in four long-distance trains running and to have at least a trip every two hours between large cities.

"We are doing our best to get people to their destination today," Stauss said, urging travellers to postpone unnecessary trips.

The strike is due to run until the early hours of Friday (13 August).

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A survey by Forsa for television broadcasters RTL and n-tv showed that 50% of respondents were opposed to the strike, while 42% viewed it as reasonable.

Stranded travellers stood waiting for their delayed trains at stations across Germany.

"The strike is understandable. I support it, but the problem is that there is hardly any information on the internet about it," said David Jungck, a traveller stranded at Berlin's main railway station.

Germany's VDA car industry association said the strike could add to problems in the logistics industry as it struggles to recover from the impact of the pandemic.

"If the strikes last longer, considerable costs can arise for companies because interrupted supply chains quickly lead to production stoppages," VDA president Hildegard Mueller told Reuters.

The GDL union, which represents some train drivers, will decide next week whether to continue the strike, its chief Claus Weselsky told broadcaster ZDF on Wednesday.

Weselsky said the strike, which started at 2h local time (0000 GMT) for passenger services on Wednesday, had been successful so far, bringing around 700 trains to a standstill.

"Our colleagues went on strike in a very disciplined manner," Weselsky told Reuters, adding the union would only return to the negotiating table if Deutsche Bahn made an improved pay offer.

GDL is demanding wage increases of around 3.2% and a one-time coronavirus allowance of €600 ($700). Deutsche Bahn had offered wage increases in two steps for the next two years, but the union wants the raise to take effect earlier.

After reporting a loss of €5.7 billion in 2020, the state-owned railway said business had recovered since April, as COVID-19 travel restrictions eased and cargo traffic improved.

The firm said it expected to edge back to profit in 2022, but floods that hit western Germany last month had caused around €1.3bn ($1.53bn) in damage.

The last railway strike was called by the EVG workers union in December 2018 and lasted only four hours.

($1 = €0.8540)

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Commission approves German measures worth over €2.5 billion to support rail freight and passenger operators affected by the coronavirus outbreak

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The European Commission has approved, under EU state aid rules, two German schemes supporting the rail freight sector and the long-distance rail passenger sector in the context of the coronavirus outbreak.

Executive Vice President Margrethe Vestager, in charge of competition policy, said: “The measures approved today will help rail freight and passenger operators in Germany weather the difficult situation caused by the coronavirus outbreak. The measures will contribute to maintaining the competitiveness of rail compared to other modes of transport, in line with the objectives of the European Green Deal. We continue working with all member states to ensure that national support measures can be put in place as quickly and effectively as possible, in line with EU rules.”

The two schemes will ensure increased public support to further encourage the shift of freight and passenger traffic from road to rail.

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Support under the schemes will take the form of a reduction of the charges paid by railway companies to access rail infrastructure in both the rail freight and the long-distance rail passenger sectors. The measures will thereby help prevent the loss of market shares of rail transport vis-à-vis competing modes of transport.   

The first measure, which has an estimated budget of €2.1 billion, will relieve long-distance rail passenger operators of approximately 98% of the infrastructure charges paid during the period from 1 March 2020 to 31 May 2022.

The second measure amends an existing aid scheme of 2018 supporting rail freight operators in Germany. With an estimated budget of €410 million, the amendment increases the support approximately 98% of the infrastructure charges paid by rail freight operators during the period from 1 March 2020 to 31 May 2021. The measure follows a similar budget increase for the period from 1 June to 31 December 2021, approved by the Commission last May.  

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The Commission found that the measures are beneficial for the environment and for mobility as they support rail transport, which is less polluting than road transport, while also decreasing road congestion. The Commission also found that the measures are proportionate and necessary to achieve the objective pursued, namely to support the modal shift from road to rail whilst not leading to undue competition distortions.

Finally, the reduction of infrastructure charges is in line with Regulation (EU) 2020/1429. This Regulation allows and encourages member states to temporarily authorise the reduction, waiver or deferral of charges for accessing rail infrastructure below direct costs.

As a result, the Commission concluded that the measures comply with EU State aid rules, in particular the 2008 Commission Guidelines on State aid for railway undertakings (“the Railway Guidelines”).

Background

The Railway Guidelines clarify the rules set out in EU treaties for the public funding of railway companies and provide guidance on the compatibility of State aid for railway companies with the EU treaties.

The non-confidential version of the decision will be made available under the case number SA.63635 in the state aid case register on the Commission's competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.

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