RAIL POLSKA has built up a platform on which to grow in the future. Starting out in the late 1990s as a company monitoring progress with privatisation of PKP with a view to bidding for a share of the cargo business - the second largest rail freight operation in Europe - Rail Polska, owned by Ed Burkhardt's Rail World, became an open access operator in 2003.
Since then the company has grown rapidly, and in 2006 our trains carried over 1·5 million tonnes. That was 55% up on 2005 and 40% more in terms of tonne-km.
Apart from the volume growth, 2006 was significant for Rail Polska in two other ways. The company introduced into revenue service the first three conversions of M62 locomotives (known in Poland as Class ST-44 and sometimes dubbed Gagarin). The converted locos are designated by Rail Polska as EM62 because EMD engines are the heart of the conversion. A fleet of 36 M62s and 2M62s was acquired at public auction in Estonia in the second half of 2004 and hauled to Poland in 'cold' condition.
Secondly, 2006 saw the start of our first cross-border movements, from Germany. We carry seven trainloads of cars every month from the border crossing-point at Guben to a car distribution centre just south of Warszawa, a round trip of almost 1 000 km. The movements are tightly timed with the aim of offering a committed timetable service - and the EM62 plays a critical role in delivering it.
The locomotive conversion, carried out at Rail Polska's own facility at Oswiecim, consists of replacing the engine components with used EMD 16-645 engines which are rebuilt and shipped to Poland by Rail Polska's sister railway in the USA, the Montreal, Maine & Atlantic. Other main components such as the generator are also sourced from the USA. The electrical cabinet is new and offers significantly improved functionality such as a traction management module. Bogies have been purchased in Germany and the existing traction motors and braking system have been retained for now. A GPS-based fuel and event monitoring system has been installed, and the drivers' cabs have been completely redesigned.
Externally there is very little to distinguish the converted locomotives from the original, so much so that we sometimes have difficulty in convincing the PKP-PLK dispatchers that this is not an M62 capable of hauling 22 to 24 coal wagons but an EM62 able to handle 35 to 40 wagons. The performance in service is very encouraging. Fuel consumption and other consumables per net tonne-km are significantly down, and the number of breakdowns is remarkably low. Environmental performance is vastly improved.
Rail Polska's life as an open access operator began with two siding operations in 2003. One was at Oswiecim serving the Dwory Chemical Co and the other was at Wroc?aw serving the combined power-heating plants of Electricité de France at Wroc?aw itself and at Siechnice. In addition to the siding servicing activities, the two sites also provide bases for our main line freight operations and were the essential foundation for starting this activity.
At Oswiecim we have full support facilities for freight operations, including locomotive and wagon repair facilities and the Operational Control Centre. The infrastructure team is also based at Oswiecim - between the siding facility and the chemical plant are 70 km of track to be maintained to the high standard necessary for handling hazardous materials. The facilities available at Wroc?aw are less extensive, and a major upgrade of the tracks there was completed in 2006.
Of the 80 licensed railway operators in Poland at the end of 2006, 67 have freight licences, of which perhaps five are duplicates. Probably no more than 10 can be seen as serious open access operators. Almost all the other big private operators have some dedicated volumes which are not subject to competitive tender and which give them a very strong foundation for competing in the open market.
The biggest competitor, of course, remains PKP Cargo. Despite much talk over the years, there is still no firm timetable for the privatisation of PKP, although the current corporatised structure of the business units is similar to structures adopted elsewhere as a prelude to full or partial privatisation. Incumbent freight operators with national facilities enjoy tremendous advantages over their open access competitors. Availability of drivers at multiple locations, for example, reduces the costs of personnel required for long-haul freight.
Open access challenges
The typical approach of private operators competing with a strong incumbent is to target block train movements. Clearly a wagonload service can only be offered by a carrier with the facilities to consolidate and split trains on a nationwide basis. It is often said that block train business is more profitable and that the private operators are cherry-picking. This ignores the effect of competition. If all the private operators, or just several of them, are chasing the same block train business, price quickly becomes the main basis for competition - what was seen as a profitable part of the business becomes the most price competitive.
Rolling stock is another area where incumbents enjoy an advantage. First, given the long life cycle of railway assets, incumbents are typically still operating rolling stock acquired during the time they were integrated state railways. This is probably now fully depreciated and is well matched to the national infrastructure and freight market.
About 60% of the Polish network is electrified at 3 kV DC. New entrants can acquire either new or second-hand traction, either electric or diesel. All new locos are expensive and suitable second-hand electric locos are very hard to find. Some second-hand diesel locomotives are available, but they have the worst operating economics, which are only partly balanced by low acquisition cost. Traction is thus one of the biggest challenges faced by open access operators and perhaps explains why the EM62 programme is so important to Rail Polska.
Acquiring wagons presents the open access operator with similar challenges. Over 20% of Rail Polska's coal wagons have been converted from tank wagons for which we no longer have revenue operations. The tanks were removed, the frame and running gear remodelled and a new body built on top.
The future of open access
Will market conditions be kind to open access operators? Poland's total rail freight market has grown in the 21st century from its low point in 2001, adding more than 100 million tonnes by 2005. But 2005 actually saw a fall of around 5% in comparison to 2004. Within this figure domestic transport, 75% of the total, contributed most of the decline. Export traffic grew and transit was virtually unchanged. The most recent statistics show that the market grew by 7 to 8% in the first nine months of 2006, but stop-start growth provides its own challenges.
Open access freight operations, at least in Poland, may be at the end of their first phase. In terms of tonnage, open access operators had a 4% market share in 2003, but this had reached 17% by 2006. Can the private operators keep growing at this pace? The challenge now will be to address sectors other than bulk commodities and to develop east-west traffic. Freight movements by lorry across Poland's eastern borders have already shown significant growth, but rail has not shared in this.
The private operators will play a major role in getting bigger volumes onto rail. They will do this by providing better customer-focused service and by concentrating on specific initiatives. In some cases private operators will have their own subsidiary in another country in others they will form an alliance with an existing railway company.
Can rail win the east-west traffic? As transit freight by rail did not grow in 2005, east-west traffic flowing through Poland did not grow either. Perhaps more surprisingly, the growth in export traffic was only in part to EU countries - exports to Germany by rail actually fell. It appears to be too early to draw conclusions about the prospects for east-west flows, but it is likely that non-bulk commodities, principally in containers, will provide the best prospects for the future.
While such prospects are encouraging, it has to be acknowledged that long-distance, cross-border traffic is an area where rail's traditional performance has led potential customers to doubt whether rail can actually provide the level of service they require. Rail also has to compete with road in the container market. So new east-west traffic is not an easy target.
The aim of European policy for rail freight is first to stop its decline and then to create growth using market opening and restructuring as the chosen tools. Perhaps one could term these 'glasnost' and 'perestroika'. It could be argued that glasnost and perestroika failed because even the policies implemented in their name did not address the underlying economic malaise of the former Soviet Union.
It is interesting to ask whether the EU approach to rail freight is falling into the same trap. While it is true that open access operators would not exist without the EU's policies, these policies only go so far. The private operators have to pick up the challenge of addressing the underlying economics. Open access operations are not for the faint-hearted, but Rail Polska will continue to take up the challenge.
- CAPTION: Obtaining suitable traction and rolling stock has proved a stiff challenge for Rail Polska in a market still dominated by state-owned PKP. The Rail World subsidiary has opted to refurbish a number of former Estonian M62 locos with EMD engines
- CAPTION: The cab of the original M62 locomotive has been completely redesigned (above) as part of the EM62 conversion programme
- CAPTION: Cross-border freight remains beset by administrative complexity that is deterring potential customers, according to Rail Polska. A Warszawa-bound automotive service is inspected at the Guben border point