BYLINE: Daniel Nordmann

Director, SBB Cargo

ON AUGUST 1 SBB Cargo moves its headquarters from Bern to Basel. Pulling out of the Swiss capital to start afresh in a new venue symbolises a programme of major change for SBB Cargo. The programme was announced on April 4 and followed a strategic review of the domestic and international rail freight business.

In practical terms the move will bring together SBB Cargo’s three main management centres, consolidating them in Switzerland’s main rail freight hub where north-south traffic flows meet those moving east-west.

In comparison with most of Europe’s railways, SBB has run a relatively successful freight business in recent years. SBB Cargo was formally established as a subsidiary at the end of 2000, but it remains part of a state-owned organisation. Annual turnover is around 800m euros, with traffic reaching 10000 million tonne-km a year, ranking it in the middle of the European league table of rail freight operators. SBB Cargo has 5000 staff on its payroll and has an allocation of 400 main line locomotives and 400 shunting locos. Other assets include 13000 wagons and loco workshops at Biel and Bellinzona.

Within Switzerland, SBB Cargo plays an important role as a freight carrier, and its 70% market share of all transalpine freight through Switzerland is clearly dominant. It is worth exploring just how this favourable position has been achieved, especially as SBB Cargo operates in a small country where conditions are theoretically not propitious for rail freight.

To begin with, SBB has proved more able than other railways to adapt to the changes that have started to reshape the European industrial economy in recent years. This can partly be attributed to the fact that in Switzerland there have never been heavy flows of bulk industrial products such as coal or ore, so that from an early date SBB paid attention to meeting the needs of smaller industries. This meant that the demanding logistical requirements of trading companies could usually be accommodated. In this way the typical expertise of a freight railway handling large quantities of bulk goods was complemented by the ability to be flexible and to offer high standards of service.

Secondly, in recent years, SBB’s brief from its owner, the state, was to retain market share. The only way to do this was to make constant cuts in freight rates, but thanks to productivity improvements, it proved possible to compensate for this loss in revenue.

The competitive framework

For many years SBB enjoyed more favourable competitive conditions than other railways. Most importantly, lorry weights in Switzerland were restricted to a maximum of 28 tonnes, which forced much road transit freight to drive through Austria or France. A ban on lorries moving at night also gave rail an advantage, and this is still in force.

Apart from all that, SBB Cargo is fortunate in being able to count on loyal customers. Most are linked to the national network by private sidings, and since last year all customers have been able to contact us through a single call centre opened in Fribourg. They are now making increasing use of our electronic data exchange services.

Finally, the railway infrastructure in Switzerland is designed and built to high technical standards that allow very intensive use. The network is one of the busiest in the world, with a mix of frequent local and inter-city passenger trains, domestic and international freight. Numerous stations and busy junctions demand high operating standards, and despite the difficult conditions that this imposes on freight traffic, SBB Cargo still has a primary role. On the other hand, increasingly dense passenger services mean that it is becoming more difficult to obtain paths for freight, especially as passenger trains continue to have priority.

Conditions are changing

There is no guarantee that the success enjoyed by SBB Cargo until now will continue as several factors militate against it. Throughout Europe, road hauliers continue to gain market share because the quality of cross-border rail service appears to be in constant decline. SBB Cargo’s customers are not alone in being unhappy with the service provided for international traffic.

Another factor that may affect SBB Cargo is the deregulation of rail freight that is finally happening across Europe after a long build-up. The changes that this will bring pose a particular threat to smaller operators such as SBB Cargo, which is especially vulnerable to competition because of its role as a transit railway.

SBB Cargo enjoys a relatively high market share of domestic freight of 25%, but this limits the opportunities for growth. Since 1999 the domestic rail freight market has been fully deregulated so that we are increasingly facing competition, especially for our most profitable trainload services.

Rail operators must ask if they are adding sufficient value to their conventional services, and question if the future lies with providing full logistics services.

Perhaps the most significant factor affecting our future business is a change in Switzerland’s transport policy that became effective this year. Permitted lorry weight limits have been raised to 34 tonnes, and over the next four years increasing quotas of 40 tonners will be allowed into Switzerland. Although a charge is imposed on these vehicles, it is more than outweighed by the productivity gains of the road haulage companies, resulting in more competition for heavy goods and commodities. On the other hand, rail becomes slightly more competitive for lightweight products.

Revising the strategy

These considerations led SBB Cargo to review its future role, and it announced important changes to its commercial and management strategy on April 4. First, it will concentrate on core activities, plus ’related additional services’. It will apply this philosophy for both domestic and international traffic. On the other hand, we will abandon non-rail activities such as warehousing and storage.

SBB Cargo must grow its business, but not at any price. The aim is to achieve ’growth through quality’. The state has placed an obligation on us to grow our business, but it also expects us to achieve a positive financial result. For domestic traffic we will continue to offer a complete range of services, but our efforts elsewhere in Europe will be geared specifically to winning traffic where there are strong prospects for growth.

Domestic plans

The internal market is, and will remain, SBB’s main area of activity. Wagonload traffic will continue to be the basis of our service throughout Switzerland - there will be no withdrawal from outlying areas. This will ensure that we are able to meet the demands of industry’s decentralised structure in our country, and in this way and we will differentiate ourselves from all our competitors.

Keeping a national wagonload service will only be possible thanks to use of mobile production and distribution teams, who deliver wagons and are in direct contact with the Fribourg control centre. But it is quite clear that we can only continue to offer nationwide service if productivity is further improved.

With individual wagonload traffic, SBB Cargo is in a strong position, but trainload traffic, in contrast, is the target for our new competitors, who for the moment are small regional operators. In our view the future lies in offering our customers more useful services. This summer, for example, we will launch an express network between 40 main centres, allowing a faster overnight service, and in two years’ time we plan to offer same-day daytime services. To obtain paths for these trains, they will have to operate at speeds close to those of passenger services.

Another concept that we wish to develop is the dedicated network for major customers. The best example at the moment is the containerised parcels service that we operate for the Swiss Post Office between its own terminals, launched two years ago. Services such as this run to very demanding standards and allow SBB Cargo to secure its position in the market.

Eurohub Basel

We are convinced that there is considerable potential for growing the rail freight market in Europe. But this will only be possible if service standards are raised, and today’s operations where freight is simply handed on from one railway to another no longer meet customers’ expectations. We plan to change this by taking advantage of the opportunities offered by deregulation.

Our focus will be on north-south traffic passing through Switzerland, where there is strong growth on flows moving between northern Italy and the major industrial centres in the Benelux states and Germany. Other traffic, for example moving east-west, will be handled in partnership with other national railways.

To handle the north-south business, we aim to develop our facilities in Basel to achieve the necessary improvements in productivity and quality. We are well aware that high costs and long delays are caused by trains being reformed too frequently in marshalling yards, and our objective is to remarshal just once in what will become ’Eurohub Basel’.

In handling traffic north and south of Switzerland, we will adopt different approaches. To the south we shall introduce new operating methods in conjunction with Italian State Railways aimed at resolving the problems that for years have caused delays at the frontiers in Chiasso, Luino and Domodossola. It is vital that we succeed quickly, as the situation at the border will become ever more difficult as traffic continues to grow.

Our approach is to reallocate responsibilities, with traffic moving to and from destinations south of Milano planned and managed by FS. SBB Cargo will take charge of freight to and from terminals north of Milano, including intermodal business. This arrangement should avoid the clash of two different and incompatible planning methods at the frontier, and we plan to test the new system from June. Trains will continue to be hauled by locos from each railway, with their own crews, and not under open access arrangements.

To the north we will tackle the problem in a different way. Much of the traffic will be handled by DB Cargo, and we shall intensify our co-operation. At the same time we will seek new flows of traffic and operate them ourselves within Germany. Our chosen partner for this business is Häfen und Güterverkehr K