Whilst European rail freight has managed to benefit over-proportionately from the dynamic growth in the economy and the increase in world trade over recent years, the sector is now recording an unprecedented collapse in demand due to the global economic crisis.
Across Europe, the sector has posted a fall of 36% compared to the same quarter in 2008. Other freight transportation sectors, such as road freight (down 14%) or air freight (down 23%), recorded similarly painful figures for the first quarter of 2009.
In the latest study by Strategy&, European Rail Freight Survey 2009, 250 of the biggest industrial and logistics companies in Europe confirmed this negative trend. The survey was conducted from February to April 2009 when the full impact of the recession was felt.
The economic crisis has led to increased pessimism
Approximately 60% of respondents expect demand for rail freight to fall in 2009. Nearly a third is working on the assumption of a drop in demand of over 10%. Industrial shippers were particularly pessimistic, with around 80% expecting a stagnation or decline in business. However some respondents were positive – 21% expected a growth in demand of up to 10%, due to specific factors such as large construction or infrastructure programmes and robust industries and commodities. Logistics providers tended to be slightly more optimistic, with 28% expecting rising volumes.
However, the anticipated collapse in sales is clearly not impacting equally across all areas in the sector: the declining volumes and resulting price pressure are particularly affecting freight in the intermodal transport sector and on block trains with long-term scheduling. The influence is less marked on car-load transport and for block trains commissioned to short deadlines. Given the massive collapse in the steel and automotive industry and in global container transport, fewer long-term scheduled trains are being commissioned, and pressure on prices is being further intensified due to intensive competition between the traditional state railways and many small private railways.
Crisis as catalyst for structural adjustments
The severe economic crisis and faltering global trade are hitting the transport and logistics sector, as a key industry in globalisation, particularly hard. As in many other sectors, the recession is becoming a catalyst for far-reaching structural adjustments. Our study indicates that the providers to emerge stronger from the crisis will be those who consistently adapt or achieve greater flexibility in their production capacities and gear their service offerings and their price strategies in a targeted manner to the needs of the various customer groups.
Despite the current crisis, half of those customers surveyed expressed concern that capacities in European rail freight might not be adequate to the significantly-increasing demand expected in the future. If this scenario actually happens, three-quarters of logistics managers are forecasting a shift in transport volumes for the upturn phase away from rail towards other providers, particularly road freight.
The survey found that many customers are expecting capacity constraints, with the Rhine corridor being the focal point of capacity restrictions. Nearly half of respondents (49%) believed that a significant capacity shortage over the next five years was likely in the corridor which transports goods from Dutch and Belgian harbours through Germany and Switzerland towards Northern Italy. More than a quarter (27%) was concerned about the connection from Germany through Paris and Bordeaux towards Madrid, and equally from Germany towards central and South-Eastern Europe via Vienna and Budapest.. Unsurprisingly, given that many of Europe’s important freight corridors pass through Germany, German customers are likely to be the most affected by capacity restrictions over the next five years.
For the corridors experiencing capacity shortage, 30% believed that marshalling yards and terminals are seen as the key bottlenecks in the European freight network. Consequently, single wagon transport is believed to be the hardest hit by restrictions, due to the lack of marshalling yard capacity and the priority given to passenger traffic and long-running international freight trains. Infrastructure managers and rail operators should therefore jointly lobby for infrastructure investment to be focused on the most critical bottlenecks.
Customer satisfaction suffering under worsening competitiveness
Customer satisfaction with rail freight providers has dropped off significantly. On a scale of one to six (with one being the highest satisfaction rating and six the lowest) in 2008 it was rated at 2.8, whereas in 2009 it has fallen to 3.6. The main reason for this clearly lies in worsening competitiveness compared with road freight. Whereas hauliers have been able to pass on lower fuel prices directly to their customers, track user charges and energy prices for goods moved by rail have increased compared to the previous year.
Our survey reveals that the resulting price differential between rail and road is the biggest driver of the fall in customer satisfaction compared to the previous year. A further contributory factor is that customer expectations have risen significantly in recent years. Before awarding a contract to a logistics partner, an exacting selection process is worked through. That said, and despite the difficult economic climate, it is not only price which is the central focus. A total of 78% (55% in 2008) indicate that price plays the biggest role, but it is closely followed by quality of order handling (72%) and respecting agreed delivery dates (70%) as two further key service criteria.
Conclusion: European players are under pressure to act now
The findings of Strategy&’s European Rail Freight Survey 2009 demonstrate the massive pressure for players in the European rail freight sector to take action. They need to adapt their capacities and costs quickly to the significantly lower demand currently experienced, but in doing so cannot afford to lose sight of the growth expected over the medium- to long-term. As a consequence of the current economic crisis, there will also be structural changes in major customer sectors for rail freight (e.g. steel, chemicals, automotive). To be able to service extended and complex supply chains in the future adequately, both railway operating companies as well as infrastructure companies need to invest consistently—even during the current crisis—in expanding the rail network and driving forward optimisation of capacity management and order management. This is the only way for rail to survive successfully in the long term in the ongoing competition with road.