Dr Dirk Stahl,
Chief Executive Officer, BLS Cargo Ltd
SWITZERLAND LIES at the very heart of the European rail freight market. The number of lorries in transit between Germany and Italy reached 1·3 million in 2000, and mandatory goals enshrined in law since 1999 have been set that should halve this number by 2009.
New base tunnels are being driven under the existing Gotthard and Lötschberg routes, but genuine competition between rail freight companies has already turned the tide. Rail's share of road+rail transit tonnage actually went up from 63% in 2003 to 65% last year.
By European standards, this is a very high market share. The extent to which liberalisation of the rail freight market has contributed to raising both the quality and quantity, putting Switzerland at the heart of what we believe is a truly dynamic change, was impressively illustrated last year in a study by IBM/Kirchner that sets out the current situation regarding liberalisation and competition in the European rail freight market.
The main conclusion of this analysis is that in addition to Switzerland itself, five countries relevant to the transalpine corridors through Switzerland have genuinely liberalised rail freight operations: Italy, Germany, the Netherlands, Denmark and Sweden. This liberalisation provides many cross-border business opportunities for new as well as established rail operators.
This is in marked contrast to the east-west-axis, and also to north-south transalpine routes via Austria and France. For about two years now, this framework has created competition in such a dynamic way that even people who are right inside the business are more than astonished.
Market attracts varied players
In the first phase of the process, the Swiss transalpine corridor attracted different players. SBB Cargo, Railion, TX Logistics, FS Trenitalia, rail4chem, BLS Cargo and Ferrovia Nord Cargo all sought a good position, either to keep existing market shares, or to launch new products into the market.
During a second phase it became clear to all players that competition has to be seen in the context of the complete international transport chain, for example from Rotterdam to Milano or København to Torino. They realised that the customer expects modern business models where they have a contractual relationship with only one principal railway partner, who manages the whole international transit and takes full responsibility for the quality of the service.
The chosen business models range from an integrated company through shareholdings to alliances and co-operation agreements:
- Railion and BLS Cargo have built up very strong co-operation that includes Railion holding a 20% share in BLS Cargo. This is combined with partnerships with different Italian railway companies, some of which have recently been strengthened. Most notably, Railion now holds 95% of the equity in Strade Ferrate del Mediterraneo;
- SBB Cargo has built up its own subsidiary companies and production units in Germany and Italy;
- Trenitalia in Italy has taken a 20% shareholding in the German and Swiss based private train operator TX Logistic;
- Other players such as rail4chem and Ferrovia Nord Cargo have also strengthened their activities and work closely with their partners.
During 2003 and the early part of 2004, when these strategic positions were being created, there was a mixture of old fashioned co-operation between the state-owned players (effectively Railion, SBB and FS), and the more modern groupings and market activities of the alliances already mentioned.
Looking at the principal market segments, intermodal transport in particular was being carried out more and more by the modern groupings, with backing and pressure from the customers. Conventional international wagonload traffic remained within the traditional framework of co-operation between state-owned railways, with the exception of transit services on the Swiss network, where BLS Cargo was well placed to win a bigger share of the business.
Decisive step in December
With the latest timetable change on December 12, competition between the alliances on the transit routes through Switzerland took another decisive step towards more modern structures. A huge tender invitation was issued by Hupac, the leading intermodal operator in the Swiss corridor, putting the operation of around 12000 trains a year out to bid. The different players responded by developing their international offerings in a bid to capture this business.
The biggest shares of the Hupac traffic have now been awarded to the Stinnes-Railion-BLS Cargo grouping and to SBB Cargo. Smaller contracts went to Trenitalia-TX Logistics and rail4chem.
With this significant step, it looks as though the move towards competition on the transalpine corridors has reached a decisive point, and that it will not be reversed in the future. We estimate that in 2005 only a residue of between 10% and 20% of all transit trains through Switzerland will be managed in the old-fashioned way through co-operation between the state-owned railways.
The impact of liberalisation
Competition has already demonstrated very positive effects in the Swiss transit market. New production concepts devised by the different alliances, notably through-running across borders using multi-system locos, have reached a position of stability and are starting to improve the quality of services. The positive approach of all the players in the market, coupled with the fact that investments in this business are paying off, have helped to strengthen the confidence of customers in rail.
The positive impact of this process can be seen in the fact that rail freight tonnage in Switzerland during 2004 was 11% higher than in 2003. This average disguises the fact that intermodal traffic rose by 18%, because conventional freight increased by just 1%.
After years during which the road share of transit freight increased at the expense of rail, it is perhaps even more significant that the share of road+rail traffic carried on trains rose from 63% in 2003 to 65% in 2004. This is an extremely high market share for rail, which cannot be observed anywhere else in Europe. It really seems that the Swiss policy to shift freight to rail, which includes special subsidies for combined transport, the AlpTransit infrastructure investment in base tunnels, and especially the introduction of competition, makes it possible to 'harvest the fruit'.
An important player
BLS Cargo was set up in 2001 as a subsidiary of BLS Lötschbergbahn Ltd, but in June 2002 the freight company's share capital was opened up to other investors. Today, 20% is held by Railion Deutschland and 2·3% by Ambrogio, an Italian intermodal group.
Even in the first few months after its formation, BLS Cargo began to build up lean but effective management and operating structures, in order to cope with the dynamic effects of the liberalised market. This is also true of our international shareholders, with whom BLS Cargo co-operates closely.
For many years BLS operated trains exclusively on the Lötschberg corridor between Bern and Domodossola, one of the two important transit axes through Switzerland. In 2003 BLS Cargo launched two trains a day transiting Switzerland via the Gotthard main line, which until then had been operated entirely by SBB.
During 2004 BLS Cargo steadily increased the number of freight trains running via the Gotthard so that there are now 120 each week. We can definitely say that our entry to the Gotthard market has been successful, as in 2004 BLS Cargo handled 20% of the net tonne-km moved over that route. Indeed, I anticipate that the BLS Cargo market share on this axis could increase further in the near future.
BLS Cargo remains the market leader on the Lötschberg axis, where it currently holds a market share of about 80% in terms of net tonne-km. This leadership puts us in a very strong position to exploit the opening of the new Lötschberg base tunnel in 2007. The tunnel should have a very positive impact on both the capacity and the service quality of rail freight.
In August 2002 BLS Cargo ordered 10 Class Re485 locomotives able to operate in Switzerland and Germany. This was the beginning of the cross-border operation with our partner Railion Deutschland. At this time, BLS Cargo was one of the first European freight railways to introduce modern traction on the Swiss transalpine routes.
As a result, BLS Cargo Class Re485 locos now run through to Mannheim and Railion's Class 185 locos run to Domodossola, Chiasso and Luino, with positive effects on utilisation, capacity, cost-effectiveness and service quality.
BLS Cargo has moved quickly to secure a very good position in this process. Since its foundation in 2001, we have reported steady growth not just in services but also in profits. The excellent results in 2004 show that a smaller company not owned by the state can prosper and add value in the liberalised rail freight market.
In the four years before BLS Cargo was created (1997 to 2000) the annual freight business handled by BLS was stable, averaging 357 million net tonne-km a year. Since then growth has been rapid, with the total for 2004 reaching 2100 million tonne-km.
Between 2001 and 2004 BLS Cargo more than tripled its traffic volume (Fig 1). In the last three years BLS Cargo has worked hard to diversify its product portfolio both geographically and in terms of the types of traffic. New powerful products in all the main segments of combined and conventional traffic include a rolling motorway service of 10 trains each way per day between Freiburg in Germany and the Novara terminal in northern Italy.
BLS Cargo has been profitable in every year since it was founded. In 2004 a profit of just over SFr3·4m was earned on turnover of SFr161m.
In order to guarantee high quality and frictionless processes, BLS Cargo last year launched a review of the whole organisational structure and the existing business processes. The objective was to obtain the internationally approved ISO9001:2000 certification, which was successfully secured in December 2004.
Competition in rail freight in Switzerland will continue to intensify. This year the participants have to be prepared to face increasing demands that are inseparable from stronger competition in a liberalised market, and we anticipate that the new rail freight companies who have entered this market recently will win larger shares.
BLS Cargo expects to meet this competition by working hard and consistently at improving the competitiveness of the enterprise. A healthy financial structure and future-orientated business models, including cross-border operations with our partners, mean that we are well equipped to accept the challenge.
Key aspects of our activities in 2005 will be preparing the operational concept for start-up of the new Lötschberg base tunnel. Core aspects of this work include equipping our locos with ETCS Level 2, and maximising traction efficiency in the context of cross-border operation.
BLS Cargo has also set ambitious goals for market development in 2005. Our positive business development in the past and our successful ISO certification will give BLS Cargo the power and motivation to improve our production processes and offer our customers more attractive proposals.
BLS Cargo in profile
- Founded in 2001
- Current shareholders: BLS 77·7%, Railion Deutschland 20%, Ambrogio 2·3%
- Annual turnover SFr164m
- Employees: 30
- Resources: 60 locos, 30 wagons, using synergies with BLS (eg drivers, maintenance)