THE EUROPEAN Union's Directorate-General for Competition was this month expected to approve the purchase by Deutsche Bahn AG of all the shares in EWS Holdings, the UK's biggest rail freight operator. On September 19, EWS Chief Executive Keith Heller explained to a Rail Freight Group meeting in Oxford that his strategy was to create a true continental operation that could one day match in scale North American railways such as former EWS shareholder Canadian National.
Soon after Heller left CN to run EWS in January 2004, one of four key objectives that he established was 'to span Europe'. As well as successfully launching Euro Cargo Rail in France where 'we operate geographically in all the regions', he told RFG members 'we have operating authority' and 'will receive locomotives later this year that will allow us to enter Belgium'.
But the next major expansion is to be in Spain where Ignacio Larequi has been appointed Director General of Euro Cargo Rail Spain with an office in Madrid (below). Initially, as in France, the aim is to establish domestic hauls, but Heller reminded RFG that railways 'are very successful in hauling freight longer distances. It is much easier, and more profitable, to haul freight a long distance'.
'So sorting things out in the UK and getting things running right here, getting things up and running in France, setting up in Spain, was all about building up a European rail freight network. It wasn't the only thing, but it was the prize at the end of the journey.'
But Heller had a problem: 'I was going to run out of money. Now EWS is a cash-positive business — it has been cash-positive since it started — but we're not cash-positive to the extent that would allow us to leverage up the business to buy the kind of assets we needed to create this European rail freight network'. Neither CN nor the financial institutions holding EWS stock were willing to back this project with serious investment.
Another inescapable fact facing EWS was that a high proportion of long freight hauls in Europe transit, originate or terminate in Germany. Heller realised that DB also wanted 'to create long-haul freight opportunities across Europe, so we were of a like mind about what we were trying to create. And that is not to create a monopoly; that's to create an alternative to the truck.
'It is an open-access environment — even in France — so over time there will be many competitors, we hope, providing long-haul intermodal and freight services across Europe. We hope Freightliner and others that are very capable operators who really know what they're doing will follow, because this is a huge market for rail freight against trucks.'
Given recent moves towards integration of DB's Railion subsidiaries operating in Denmark and the Netherlands into the much larger German operation, the purchase of EWS may have raised concerns among RFG members about its future independence. Heller assured them that 'the structure by which we will go forward is that EWS will stand alone. It will be a separate business with a shareholder.'
While 'DB is part of our business and the basis of our business plan', he stressed that 'EWS management is, and will be, empowered to deliver that business plan. So that includes continuing our journey in the UK, growing in France, extending into Belgium and starting up in Spain. And the added piece that we've always had in mind that we will do with DB is build those kind of long-haul rail services that give shippers and consumers in Europe an alternative to trucks.'
Given the well-publicised failure of Channel Tunnel freight services, coupled with the revelation from RFG Chairman Lord Berkeley that SNCF President Anne-Marie Idrac had told him that the French government had refused to match the UK government's £6m/year subsidy to cover Eurotunnel's operating costs, RFG members sought assurance that UK operations would not remain isolated from this development.
'We will grow the trains through the Tunnel, and we will see that happen very soon', Heller promised. Far from EWS neglecting UK operations, he said the opposite was true. 'You see us not trying to stretch ourselves from the capital point of view, because if I had not done this I would have been stuck in a position where I was really trying to stretch our capital capability to reach into Spain, for example'.
- CAPTION: As a stand-alone business within the DB group, EWS will continue to expand its operations in continental Europe, including France where DB has talked of developing a 'partnership' with Fret SNCF (RG 7.07 p418)
Building freight business in Spain
EWS Planning Director Graham Smith assured our Consultant Editor Richard Hope on October 3 that so far the company's proposal to establish freight operations in Spain had been well received. 'We have met the government people who have been very positive. One of the things that the transport ministry likes about us is that we will be the first non-Spanish operator — that interests them because, in the past, they haven't registered very high up in reports on liberalisation'.
'We have also had a very warm welcome from ADIF, the infrastructure provider, and I have to say we had a very courteous welcome from Renfe Operadora' which currently operates most freight services.
Smith points out that rail's market share of freight tonne-km is only 4% in Spain, with 26 million tonnes moved annually, and this means 'potentially huge' scope for growth. 'We have met shippers and their end customers and they are all extremely interested in what we are doing, although we made it quite clear that we won't be starting up until 2008, given all the things we need to put in place first'.
There are other operators — Acciona, Comsa and Continental Rail — 'so we are not the first', Smith concedes. But 'none are doing huge volumes of business — they will be running maybe one or two trains a day - and these guys are extensions of companies with other interests. What we can bring to Spain is the fact that our core business is operating trains, not running airports or building motorways'.
In September ECR advertised in the Spanish press for drivers. 'We are looking for a mixture of non-railway people and experienced drivers to train them, which takes about nine months'. Smith says 'the only thing they have in common is a willingness to be flexible and work hard in return for decent pay'.
As for tonnage, 'we have identified opportunities in northern Spain where ports handle considerable bulk materials, particularly through Gijón, Bilbao and Santander, but we have also found quite a few opportunities in Barcelona, Valencia and Madrid. There are lots of traffic flows – bulk materials, containers, new cars – currently moved by road which are very addressable by rail'.