Anthony Lambert looks at how Deutsche Bahn is rapidly becoming Europe’s only serious worldwide contender in rail freight

Over the last five years, Deutsche Bahn (DB) has become the giant hulk of rail freight in Europe and a muscular logistics player under the name Railion, a semi-successful pun on the English words “rely on”. Now it’s looking to redefine globalisation by reducing rail freight times from China’s east coast to Europe to an astonishing 12 days, which should give some shipping lines pause for thought.

The latest in a string of acquisitions are a controlling interest in the long-established Spanish logistics company Transfesa and the outright purchase of UK freight operator English, Welsh & Scottish Railway (EWS), for a sum rumoured to be in the region of €400m. EWS operates the majority of freight trains in the UK and has a successful French subsidiary, Euro Cargo Rail. The real prize for DB is the Channel Tunnel, though freight tonnage carried on this route has sunk to a lower level than that of the train ferries it replaced, thanks largely to poor service quality in France. With 19% of Germany’s exports going to France or the UK, the potential for growth is immense if performance issues can be resolved.

This expansion is part of a wider process that is seeing the creation of freight alliances spanning Europe on the one hand, and the formation of new freight operating companies under EU access directives on the other. As Dr Norbert Bensel, chairman of the transport and logistics division of DB, notes: “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.” In other words, European rail logistics could resemble the US, where there are many short-line feeders to the big players that dominate the backbone freight routes spanning Europe. Consistent with this model, Germany already has dozens of new entrants in rail freight with a combined market share approaching 20%, while Deutsche Bahn continues to expand internationally.

These private railway companies have welcomed the German government’s decision to separate DB Netz, the infrastructure arm of DB, from operations as part of its privatisation plan. A critic of the UK privatisation model, DB chairman Hartmut Mehdorn had argued for the privatisation to include DB Netz; this was rejected by the government, which will retain a controlling interest in DB. To introduce private capital to help develop the company and the services it offers, approval was given by Chancellor Angela Merkel’s cabinet in July for the sale of an initial 20%-25% stake. The German government also promised to retain a minimum of 51% of DB’s assets. The proposals have to be ratified by parliament, and an approach to the capital markets is not expected much before the end of 2008.

DB AG, as the company will be known post-flotation, will operate Germany’s entire 34,000km network for 15 years before it is handed back to the government. The requirements of EU legislation for open access by other train operators will be guaranteed through the expanded regulatory powers of the Bundesnetzagentur, the German regulator. The usual union reservations about the privatisation process were partially defused by the most generous pay settlement since World War II; in July about 60% of DB’s 230,000 workers received a 4.5% wage increase, but a dispute with 10,000 train drivers seeking a rise of 31% remains unresolved.

The great cloud on the horizon for rail freight operators is the proposed introduction across Europe of a 25m mega-truck weighing up to 60 tonnes; destined to ply its way up and down the motorway network and already in service in Sweden and Finland, this putative road freight “solution” is being investigated by the European Commission for its environmental and social impact. The rail industry is holding its breath. EB