INTRODUCTION

  The European Rail Freight Customers Platform (ERFCP) is the representative body of rail freight customers in Europe. Both directly and indirectly through other industry bodies, it represents probably about 90 per cent of the customers of rail freight. ERFCP was set up to provide a voice for the customer in the world of rail freight previously dominated by the suppliers, mainly the national railway bodies of Member States.

  ERFCP's objective is to achieve the realisation of a reliable, cost-effective and efficient European rail system for transport of freight, able to meet the requirements of customers.

  ERFCP works with European institutions, including the European Commission, the European Parliament and other bodies, including Member States' representatives, to seek to achieve these objectives.

BACKGROUND

  Demand for efficient freight movement continues to increase at a high rate. The EU Transport White Paper (2001) suggests that demand for freight in the EU will increase by nearly 40 per cent between 1998 and 2010, but a more recent report for the Union International des Chemins de Fer (UIC) 1 suggests that combined transport will increased by 135 per cent between 2002 and 2015. Combined transport is, of course, only part of the potential rail traffic, but it includes most non-bulk traffic to and from deep sea ports and much of the future international rail freight potential. This figure compares well with forecasts from other bodies which suggest that the year on year growth of container imports of 7 per cent per annum is likely to continue.

  Thus, for customers to get their goods moved around Europe efficiently and effectively, reliable and cost effective rail freight services, in increasing volumes, are clearly essential, not least as road congestion gets even worse than it is today.

  Until recently, services provided to customers by the national railways was often poor and unreliable with frequent strikes in some countries and, with a few exceptions, customers generally found that they had no alternative suppliers by rail. Furthermore, they found that rail service suppliers did not appear to realise that their main competition was with road transport, and that they were failing to match the service, reliability and prices which the road and logistics sector continued to offer and improve upon.

  The results over many years has been a gradual reduction of rail freight's market share across Europe. One exception has been the UK, where rail freight volumes within the UK have increased by 50 per cent in the last eight years, largely due to privatisation of the train operators and the introduction of competition.

  However, cross-Channel rail freight where there is not competition, has declined dramatically since the opening of the Channel Tunnel 10 years ago, to about 1.5 million tonnes a year, compared with a 1994 forecast of 6 to 8 million tonnes.

WHAT IS NEEDED FOR EUROPEAN RAIL FREIGHT TO SUCCEED?

  In Europe generally, customers have concluded that the only effective solution to the problems of service quality and price of rail freight is competition above tracks. The European Commission's open access Directives (2001/12 and 14) reached the same conclusion and, where this has occurred, for example in the UK, in parts of Germany and across the Brenner, rail freight volumes are increasing and customers are becoming more satisfied.

1 Union Internationale des Chemins de Fer, Paris, Study on Infrastructure Capacity Reserves for Combined Transport by 2015, May 2004.

  Where this has not occurred, such as in France, many customers remain deeply dissatisfied with the inability of the state and the national railway to provide an acceptable service, or to allow competition above track and to set up a regime where the barriers to new entrants are not impossibly high.

  For rail freight to succeed and grow, those customers who have the choice between using road and rail must have the confidence that their supplier(s), one or more train operators, are able to deliver. They are less concerned about who is to blame when things go wrong than with ensuring that some organisation is responsible for getting their goods from origin to destination.

  This is not possible under the traditional arrangement whereby one national railway hands over a train at the frontier to another; rarely is there any prior notification of the arrival of a train. Nobody has overall responsibility for performance, or for putting things right when they go wrong.

  In locations where there is the choice of more than one operator, one can find that some of the private operators have obtained operating and safety licences in several Member States, and can offer a terminal-to-terminal service, and take full responsibility for it, dealing with several infrastructure managers on the way.

  Customers welcome this approach and in location where choice is available (parts of Germany and Netherlands, north south across Switzerland or the Brenner and, of course within the UK but not through the Channel Tunnel), more traffic is running and more reliably.

INFRASTRUCTURE CAPACITY

  For the infrastructure itself, there is of course no point in introducing competition, but there is an ongoing need to ensure that infrastructure managers (IMs) treat all their customers, the train operators, fairly and equally.

  Many IMs argue that congestion on rail infrastructure will hamper rail freight growth. The European Council of Ministers of Transport Report on their 125th Round Table[1]argues that "the saturation of infrastructure was largely due to the inertia of the incumbent networks and their inability, for example, to change the safety and administrative procedures for freight convoys."

RESPONDING TO THE SPECIFIC QUESTIONS POSED IN THE INQUIRY

What are the current barriers to entry in the international rail freight market?

  The current barriers to entry for freight train operators (FOCs) to enter the international market are high but they vary in different Member States. Generally, a new FOC must obtain an operating licence and safety certificate from each national authority of the Member State in which it wishes to operate. In addition, the operator must have traction that can operate in the Member State concerned; this means not only the correct electric traction voltage but also signalling systems for the countries or routes concerned, as well as drivers trained on these routes. This is also the conclusion of the ECMT Round Table Report.

  In some Member States, one finds that only traction manufactured in that country is capable of being approved on technical grounds and, generally, new operators find that they cannot obtain second-hand equipment to reduce the cost of entry because this equipment is owned by the national railway and, even if not used, will not be sold to a potential competitor.

  There may also be barriers in the shape of "not enough capacity", and this can of course be because the IM does not deal fairly between requests from its national operator and independent new entrant. Both these issues are covered in references 1 and 2 in some detail.

  To what extent are these barriers a result of a failure to fully implement existing EU Directives in all Member States?

  The above barriers to entry are principally the result of a failure of Member States to implement the open access Directives in a consistent and timely manner.

  Some Member Sates, such as France, have fully implemented the Directives, but have failed to ensure that new entrants can overcome the technical and commercial hurdles summarised above. Germany has not yet implemented the Directives, but does allow competition among FOCs, but there are many examples of alleged abuse of monopoly position by the dominant national operator, and of collusion between DB Cargo and the infrastructure manager DB Netz in commercial negotiations that should remain confidential.

  Other consequential changes required include the removal of border crossing delays. For some time now, a private sector operator was able to operate trains in Poland and Germany, but not across the frontier because the national railway argued that it had exclusive rights negotiated with the frontier control authorities to operate trains across the frontier. Similarly, the national operator claimed exclusive rights to operate the last kilometre into Hamburg port.

  That is why it is so important that the open access Directives are implemented in respect of terminals so that, whoever owns or operates them, there is a legal obligation for the owner to allow any licensed operator to use them provided that there is sufficient capacity.

  Is further action necessary at a European Union Member State national level to ensure enforcement of EU Directives?

  For the reasons stated above, we believe that urgent action is necessary at both levels to ensure uniform and complete implementation of these Directives.

  The Commission, along with Member States' governments, must grasp the problem of lack of enforcement and ensure urgent resolution on a consistent basis. Performance clauses as proposed in the Third Railway Package, may be a means to an end, but in themselves are a much less attractive solution than the availability of competition.

  Is further European Union legislation necessary to make the policy of introducing competition into international rail freight effective?

  We doubt whether further EU legislation to ensure the introduction of competition in international rail freight is necessary. The proposed third railways package which would include measures requiring all rail freight contracts between train operators and their customers to include performance clauses requiring the train operator to pay compensation in the event of delays. Whereas the intentions of this are laudable, by far the best solution is to ensure that there is real competition available between and in all Member States so that a customer can change operators if not satisfied with the services provided by one of them.

  What action should the United Kingdom Government consider to ensure that the United Kingdom takes full advantage of the potential growth of international rail freight as a result of this policy?

  The UK Government has still not implemented the open access Directives, although it may argue that, since there is competition above rail already, there is not so much urgency. However, there is no on-rail competition through the Channel Tunnel, and the current charges for rail freight, a consequence of contracts signed between Eurotunnel and the then two nationalised railways, BR and SNCF, more than 20 years ago, are a continuing deterrent to growth, since they fail to reflect the current competitive market rates for cross-Channel freight by road, either by ferry or Eurotunnel's shuttle service.

  Implementation of the Directives in the UK must enable rates for rail freight through the Tunnel to be competitive with other modes, and barriers to access, both technical and commercial, to any operator who wishes to run services through it must be removed.

  Since the UK rail connection to the rest of Europe goes into France, where there are different but equally challenging difficulties for new entrants, the UK Government must also enter into serious negotiations with the French Government to ensure that their duties to promote the use of the Channel Tunnel for rail freight are delivered.

August 2004