In just three years, German Railway's freight business has expanded from a simple rail operator to one of the world's largest logistics and transport providers. Chris Jackson asked Board Member Norbert Bensel what lies behind this growth

'I AM CONVINCED that Railion will be one of the winners when the chips are down', says Norbert Bensel. Asked about his vision for the future shape of rail freight in Europe, DB AG's Board Member, Transport & Logistics, has no doubts.

'At the end of the consolidation process, what we will be left with, beyond all doubt, is just a handful of major operators that are able to cover all the important European routes. There may still be some smaller companies around, handling business on local routes', but Bensel is committed to ensuring that his group is amongst the leaders. He emphasises that with operations in Germany, the Netherlands, Denmark and Italy 'Railion is already the leading European freight railway'.

DB's move into the logistics business began in 2003 with the acquisition of Stinnes, which was primarily active in road haulage and shipping operations through its subsidiary Schenker.

Three years after moving the Stinnes AG headquarters to Berlin, DB restructured the combined freight operations into five business units: Land Transport, Air &Sea Freight, Contract Logistics/SCM, Rail Freight and Intermodal. Last year the group purchased US-based logistics group BAX Global, adding a much stronger presence in the Asia-Pacific region.

Bensel says the BAX acquisition has helped 'to extend our market position significantly.' With a turnover of almost €15bn and around 75000 employees, he says 'DB Logistics now ranks as number three in worldwide sea freight, number two in worldwide air freight, number one in European land transport and number one in European rail freight transport. If you consider that up to three years ago we were nothing but a freight railway operator, this is certainly a development to be proud of.'

He is also clear that there will be further change in the next few years. 'With the transport and logistics industry in a process of ongoing consolidation, to stay where you are means going backwards. So just now we are working towards three targets in particular.

'In the field of contract logistics, we are currently number six worldwide, with a turnover of around €1bn. We are hoping to continue our expansion in this area, and we want to grow more rapidly than the market. Secondly, we aim to continue to improve the coverage of our land transport network - as seen most recently in our takeover of the Norwegian company Linjegods.

'And our third goal is to make rail even more competitive as a transport option, for both block trains and wagonload operations. Here we always have an eye to Europe as a whole, because this is where the most attractive possibilities for growth are to be found - above all in the international freight market.'

Single-source supplier

'Today, DB Logistics is responsible for more than half of DB's turnover', says Bensel proudly, emphasising that the business 'constitutes an important guarantee of DB's future capital market capability. With Schenker and BAX, Deutsche Bahn has succeeded in achieving an excellent position in a market that looks to the future.'

Bensel is keen to underline the benefits of DB's multi-modal expansion strategy. 'One-stop shopping is becoming increasingly significant for the customer. More and more, it is not just a question of isolated shipments but of commissions that involve entire logistics packages.

'DB Logistics is now able to offer all modes of transport from a single source, with the addition of a wide range of logistics services. For example, Railion now handles containers from Asia for delivery to a Southern European destination, which have been contracted to Schenker because it offered the option of rail transport from the sea port to the hinterland. This linkage of carriers has already proved very successful - between 2003 and 2005 Schenker was able to increase the volume of its rail shipments from the ports to their hinterlands by more than 50%.'

Earlier this year DB AG announced its intention to run freight trains to and from China, but Bensel is not worried about the risk of internal competition. 'The volume of trade between China and Europe is so enormous, that it is hardly likely that Schenker and Railion will be competing with one another.' On the other hand, he concedes, 'it is a trickier matter when we come to backloading in the direction of Asia, where we need sufficient volume to make rail transport worthwhile.'

On-rail competition

In Europe Railion faces increased competition, with recent growth in both domestic and foreign open-access operators. Bensel believes that today 'Germany is the most competitive region in the whole of Europe, wth more than 200 suppliers in the field of rail freight transport.'

Once again, size matters, he insists. 'Only Railion is in a position to offer the entire range of rail freight services - including single wagonload shipments. With 100000 wagons and something like 3000 locomotives, we have a massive reserve of rolling stock. As a result we can be more flexible than smaller rail companies in handling orders that come at short notice, and at the same time we can guarantee a high level of reliability.'

Another benefit, says Bensel, is DB Logistics' 'sector-specific product range, where the customer can choose a customised mix of additional services based on a modular system over and above the mere transport of goods.' This, he claims 'is practically unrivalled on the market.

'With our Railion subsidiaries in the Netherlands, Denmark and Italy, our participating interests in a number of rail companies abroad and extensive partnerships, we have at our disposal a unique international network, and it is the customer who benefits. It is no accident that already almost 60% of our entire transport output, which comes to a total of 83 billion tonne-km, involves international shipments.' Bensel believes that 'we are better prepared than any other rail company for the opening-up of the European market'.

Critics arguing for the break-up of DB's integrated structure have accused Railion of playing 'dirty tricks' against new operators and open-access companies, and complaints have been made to the regulatory authorities about access to infrastructure and facilities. Bensel says he is 'not aware that there have been any specific complaints about our practices from competitors', insisting that as Railion does not have any infrastructure of its own, 'it is not in a position to discriminate'.

Pointing out that infrastructure manager DB Netz AG 'is obliged to maintain neutrality, and is subject to control by the Federal Network Agency', Bensel suggests that 'the competitive system is functioning without a hitch', as demonstrated by the fact that 'rail companies have been able to increase their share of freight shipments over the past year by more than 50%'.

Where next?

Railion has been cited as a possible bidder in the mooted privatisation of many other European rail freight operations, including PKP Cargo in Poland, and the aborted sale of ZSSK Cargo in Slovakia. It has also been rumoured to have expressed interest in the manoeuvrings now underway in Estonia.

Bensel confirms that 'as market leaders, we are keeping tabs on all developments in the European rail freight transport market. And that of course includes the Baltic region', but he will not be drawn further. So how about the recent liberalisation of the rail freight market in France? 'We do not necessarily pursue a strategy of leaping into the breach, and doing everything ourselves, whenever the legal conditions permit.

'For us the important thing is that we should be able to give our customers a guarantee of top-quality service. In situations where our partnership with other rail companies has proved successful, there is no reason for us to shift to an alternative strategy. The only exception to this rule is when customers are dissatisfied with their present working partner, and ask us to suggest alternatives.'

With the growing revenue from DB Logistics operations around the world helping to support DB AG profitability, Bensel confirms that the freight business could see further investment should the stock market listing go ahead. 'With access to the capital market, Deutsche Bahn would have completely new opportunities for financing its investments. And of course Railion would also stand to benefit from this.'

  • CAPTION: Railion has a 'massive reserve' of rolling stock with around 3000 locos and 100000 wagons. This van train is about to cross the Nord-Ostsee-Kanal at Rendsburg in Schleswig-Holstein Photo: DB AG/Wagner
  • CAPTION: Railion signed a co-operation agreement with PKP Cargo on July 26 with the aim of simplifying border procedures. This container train for Poland is crossing the River Oder at Frankfurt Photo DB AG
  • CAPTION: The Asian market beckons. Railog's Turkey Container Shuttle bound for Istanbul Halkali is being loaded at Duisburg Photo DB AG/Obst
  • CAPTION: Norbert Bensel says only Railion is in a position to offer the full range of rail freight services. A wagonload service passes the ruins of Ehrenfels castle in the Rhine valley

Table I. DB AG's freight business in figures

DB Logistics 2003 2004 2005

Turnover km 10 800 11 500 145001

EBIT km 2882 293 272

Full-time staff 61 000 65 000 75 0001

Schenker

Turnover km 6 900 8 000 8900

EBIT km 1582 260 257

Full-time staff 38 000 39 000 42 000

BAX Global

Turnover US$m 2 000 2400 2 900

EBIT US$m - - -

Full-time staff - - 12 000

Stinnes

Turnover km 517 638 718

EBIT km 132 (2) 3

Full-time staff 1 500 2 000 2 000

Railion

Turnover km 3 000 2 900 2800

EBIT km 1692 35 12

Full-time staff 29 500 24 900 23500

1. Including BAX Global 2. Result after interest

TABLE: Table II. Railion traffic 2000-05

20001 2001 20022 2003 2004 2005

Tonnes carried million 301·3 291·3 278·3 282·3 283·6 266·5

Tonne-km million 80634 80348 77981 79864 83982 83111

1. From 2000 includes Railion Nederland NV 2. From 2002 includes Railion Danmark A/S

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