INTRO: With the industry recently undergoing changes that few would have expected, it is perhaps foolhardy to predict the future of railways in any detail. But five broad ideas are likely to influence developments in the opening decades of the new century
BYLINE: Louis S Thompson
Railways AdviserThe World Bank
IN THE RAIL ARENA, fools confidently predict the future while wise men are still trying to understand the past. I am suspicious of detailed predictions, since the rail industry has seen so many recent changes that no one could have foreseen. Even 20 years ago, who would have predicted the collapse of central planning and the impact this had on the formerly socialist railways? Who could have predicted the promulgation of the European Commission Directive 91/440?
Few would seriously argue that the trend towards widespread car-ownership in the developing world will not follow that in the developed world - but what if it does not? I am confident that there will be other revolutions, technological and political, that will change our expectations totally, and they could make a hash of anyone’s predictions.
With this in mind, there are some trends of long duration, and some pressures of shorter timescale, that are strongly at work in the transport arena. With suitable caveats, we may safely be able to say some things about the railways of the first decades of the 21st Century. In particular, I believe we can speak of five broad ideas that will influence future developments.
The dominant theme when looking at change is the financial pressure on governments. As economies become ever more closely linked, governments lose their ability to pursue disparate economic policies concerning domestic subsidies or social policies. In addition, globalisation puts pressure on economic efficiency in transport: economies which do not have effective transport simply lose out.
Acting together, these pressures are forcing all modes of transport to become more efficient and more cost-effective, and to reduce their burden on public finances. The days in which Japanese National Railways was allowed to amass a debt of US$250bn are gone, as is the idea that German Railway would be able to accumulate debts amounting to hundreds of billions of marks. Railway deficits and capital needs of 1 to 2% of GDP, or larger, used to be common: those days are surely over as well. All railways are going to have to do more for less, and those that count on continuing nourishment from the public purse are in for trouble.
We should not concentrate on just Europe or North America. In fact, China with 19% of global passenger-km, India (16%) and Japan (14%) together carry nearly half the world’s rail passenger traffic, and they each carry more than all of Western Europe combined (14%). China, with 19% of global tonne-km, and India (4%) carry far more of the world’s rail freight traffic than Western Europe (3%), although we must also acknowledge that Russia (26%) and the USA and Canada (31%) are the largest rail freight carriers.
Taking this world view, institutional change has many facets. Today’s railways range from the traditional monolithic ministries in Russia, India and China to the wholly private railways of New Zealand and North America. It seems certain that the day of the monoliths is over and that the next decade in Russia, India and China will see the formation of state-owned rail enterprises operating under commercial law. In addition, these enterprises will adopt the tools of modern commercial management including profit centres and financial accounting. These countries are looking closely at restructuring options including infrastructure separation and creation of special-purpose companies to serve particular markets, and they will implement some of these changes.
Most of the railways in Europe, including those in countries hoping to become part of the European Union, will adopt the infrastructure separation model propounded by the European Commission. They will totally separate passenger services from freight and infrastructure operations. They will also shift more and more operating (and financial) responsibility for local services to local governments who are better equipped to define and serve local needs. It is significant, for example, that the railways of some of the countries applying to join the EU, notably Poland and Romania, are already committed to reforms well beyond those required by 91/440 and other directives. The railways of the Middle East and North Africa may follow a similar path to institutional reform.
The railways of Africa and Latin America are already employing a different model in which infrastructure ownership remains in the government domain but operating responsibility is shifted to others. The process is essentially finished in Latin America and has made good progress in Africa. We can foresee the time when all railways in Sub-Saharan Africa are transformed into public infrastructure/private operator models. The railways of North America are, and will remain, largely in private management.
The role of markets
There is no more striking phenomenon than the near-universal adoption over the last decade of the market model of economic organisation. This is of course a relative statement, with some governments retaining larger roles in regulation and in the social and defence sectors than others. That said, the norm is now business-driven enterprises operating under commercial law as the best way to produce competitive goods and services in national and international markets.
Railway enterprises are going to face ever-more sophisticated and differentiated market demands. Freight customers will want more reliable and tailored services using specialised equipment. They will not be satisfied with rail’s traditional ’take it or leave it’ approach, and will switch to other modes when confronted by it. In many cases, the distinction between railway and customer will be increasingly blurred, with customers owning facilities and equipment and railways serving effectively as conveyor belts between far-flung manufacturing and distribution sites.
The market for suburban and commuter services will be equally demanding. Major cities are all different, having distinct income levels, population distributions, congestion patterns and employment requirements amongst many other characteristics. It is increasingly difficult for a national railway to serve these distinct markets, and it is almost certain that they will stop trying, instead shifting at least planning and service definition responsibilities to local and regional authorities. In most cases, the solution will be to transfer all responsibility for such local services to local authorities although, of course, national governments may continue to pay a share of the financial requirements.
Perhaps the sector under the most severe competitive attack is inter-city passenger. Increasingly sandwiched between the private car with its cheapness, instant availability, ubiquity and independence on the one hand, and the airlines with their speed and lower cost on the other, rail is already seeing its market share under severe attack.
High speed lines might counter this trend in certain areas, but at high economic and financial cost. Increasing congestion and higher fuel prices (especially in the USA) might also improve rail’s position, but it faces an uphill struggle to retain its market share. Even in Europe and Japan where fuel costs and road tolls are quite high, the car has won a predominant share of the passenger market which is increasing.
A less obvious but equally important conclusion related to institutional structures, based on an analysis of rail markets, is that the skills and management tools needed to survive in each market segment are so different that it is no longer possible for the same management to control everything. This again leads to the conclusion that railways will increasingly become collections of more or less independent enterprises, each created to serve a particular market. The present railway structures of the USA, Great Britain and Japan illustrate this trend.
Harnessing the private sector
We are now witnessing a dramatic shift in the traditional belief that rail operation, as distinct from infrastructure ownership, is at all uniquely suited or assigned to the public sector. Operation of the railways of Latin America has been shifted almost totally to the private sector through concessions - and this includes the suburban passenger services and metros of Buenos Aires and Rio de Janeiro.
Concessions can be either positive, with payments from private concessionaires to public owners, or negative with payments from public owners to private operators. Either way, the public owner benefits from competition for the market in rail services and receives increased efficiencies. In Latin America, the labour productivity of rail concessions is already four to five times higher than when under public operation. Demand grew by 30 to 200% in the first few years of private operation and the quality of services is now much higher.
Events in Great Britain, Canada and New Zealand, as well as C