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In wagonload traffic (TWCI) within the European Union (EU), we are witnessing a development that is more political than market-oriented. The EU is promoting the transfer of freight transport to climate-friendly modes of transport such as rail and inland waterway with various programmes and funds, and in principle this is to be welcomed.
The public freight companies, supported by the unions, describe the TWCI as a «public service». However, it is not they who bear the consequences, but the States and shippers. In fact, the subsidies redistributed by the EU at taxpayers' expense mean that the TWCI is heavily subsidised, with no incentive to increase productivity in the interests of sustainable development. This means that the TWCI is using taxpayers', society's and the economy's money to cement a monopoly devoid of any public service obligations such as the obligation to carry or the obligation to publish tariffs.
This lack of market orientation and entrepreneurial spirit on the part of the public railways and the unions will not help to achieve either the traffic transfer objectives or the climate objectives. What's more, as owners of the state-owned railways, governments are taking a long-term, imponderable financial and transport policy risk with regard to security of supply in their countries.
The consequences for shippers are no less serious. To achieve multimodal transport, shippers have to invest in the rail system, while they are dependent on a monopolistic company that is itself financially dependent and managed by political control. This is hardly security of supply and investment.
Subsidies must be used in a targeted and time-limited way to safeguard jobs in the long term and put TWCI on the road to success.
In this blog post, we take a close look at public subsidies in Germany, France, Austria and Switzerland from the perspective of their purpose and scale, and address the issue of conflicts of interest and the necessities involved.

What is at stake?

• State aid aims to establish sustainable and viable mobility.
• However, it can give rise to distortions of competition and discrimination.
• State financial aid must be used to ensure the transition to financial autonomy.
• Market players specifically need financial support for innovations such as DAC.
• The bodies granting the aid should check its effectiveness and any breaches of the rules on subsidies.
• If necessary, the law should be amended.

The European Commission provides financial support for the transfer of freight from road to more environmentally friendly modes of transport, such as inland waterways and rail. It provides financial aid in line with EU guidelines on State aid. The objective of this EU aid is sustainable and intelligent mobility, which in turn is supposed to help reduce CO2 emissions and relieve road congestion as part of the Green Pact for Europe. As is often the case with public funding, in the freight transport sector it is also necessary to ensure that competition in the internal market is not distorted and that self-financing and transparency are achieved.

Comparison of deficit financing in wagonload traffic

Limited relevance of the comparison

The subsidies mentioned in the table above are expressed in absolute figures. This makes them difficult to compare, in the absence of a reference amount. For example, SNCF (France) achieves several times the number of tonne-kilometres travelled by SBB, but receives considerably less money in comparison. Unlike the countries of the European Union, in Switzerland the total amount of subsidies also includes the migration to DAC. It is precisely because most countries have numerous sources of funding at their disposal at the same time that it is extremely difficult to compare subsidies in a meaningful way.

Conflict of interest between climate protection and competition

Governments mainly use their subsidies to encourage the transfer of traffic to sustainable modes of transport. The ultimate objective entails the risk of distorting the competitiveness of rail freight. If rail freight is to remain viable not only ecologically, but also economically, those responsible must aim for an autonomous, market-oriented rail freight system that integrates all rail freight companies without discrimination on the basis of intramodal competition, and is a reliable partner for shippers. Switzerland has set itself the goal of self-financing, and is well on the way to achieving it.

Guaranteeing non-discrimination

Wherever public and private players in the market come together, the accusation of discrimination quickly arises. A classic example is last-mile subsidies. This is the subject of heated debate both internationally and in Switzerland (see RailBusiness no. 6 and 7/2023). In our blog article entitled «Outsourcing the last mile and making it non-discriminatory», we outline the form that a non-discriminatory last mile could take in Switzerland. We recommend that management of the system should no longer be entrusted to a single major operator - as is currently the case with SBB Cargo - and propose that instead, the first and last kilometre services should be provided by a single service provider. Ideally, this would be the infrastructure operator, which, apart from this, does not provide any transport services. In our blog article entitled «Subsidising wagonload traffic: preventing distortion of competition and discrimination», you will find a more detailed explanation of why non-discrimination is paramount when it comes to State aid.

In Germany, the Verband deutscher Verkehrsunternehmen (VDV) and Die Güterbahnen (The Freight Railways) are calling for non-discriminatory subsidies for service routes between the customer's loading point and the last functional train consist. Appropriate regulations will ensure that the subsidy reaches particularly underserved and unprofitable regions, as well as new traffic, in order to attract rail transport to these areas as well.

Financial support for innovation

In our view, state funding should be a transitional measure designed to last until the players manage to finance themselves. This approach is particularly important for innovations such as the migration to DAC and the associated digitalisation of rail freight. Wagon owners cannot benefit directly from DAC, but have to make huge investments in re-equipping their rolling stock. To find out why we are in favour of up-front funding for the DAC, which paves the way for a new era of rail, rather than the ongoing subsidisation of an obsolete system, read our blog post entitled «Innovation in rail transport: DAC as a pioneer».

Rethinking the rail system

If the benefits of digitalisation are to be realised in rail freight transport, we need more than the DAC. What is needed is a fundamental transformation and optimisation of cross-system processes. Only in this way will market players be able to increase productivity, reduce costs and systematically adopt a customer focus in order to remain competitive by rail. This requires a new holistic approach to the entire rail system. This goes far beyond the (initial) financing of the TWCI or DAC. It concerns all the processes, incentive instruments, market mechanisms and interfaces of multimodal freight logistics in Switzerland.

Creating transparency through monitoring

If public funds are to be used in a targeted way, the objectives to be achieved with this support must be clearly defined. As is customary in the private sector, this means checking against measurable parameters, such as «how many DACs will be implemented by 2025 for how much money», «how many tracks have been built» or «how many lorry loads have been put on rail». The measurability of a success rate enables the players involved to adapt their strategy accordingly.

Preventing abuses of EU state aid guidelines

In 2020, Deutsche Bahn was accused of massive market distortion, as it was to receive a €5 billion increase in equity from the state as a result of the COVID-19 crisis. At the beginning of 2023, the European Commission launched an investigation into possible illegal state aid of between ten and twenty billion euros paid to the Freight sector of the state-owned railway company SNCF. These recent examples show that public aid always carries a risk of abuse. It is all the more important for governments to create the same conditions of competition for all and, if necessary, to refine the legal framework a posteriori.^[1]

Refining the guidelines a posteriori

The European guidelines for the rail sector are an example of such a review. The European Commission has proposed revising them in order to shift traffic to more sustainable and less polluting solutions while maintaining a level playing field within the European Union. The consultation of Member States on the promotion of transparent and non-discriminatory programmes, the limitation of individual aid to exceptional cases and the modification of the aid ceiling ended on 16 March 2022. The majority of respondents favoured the promotion of programmes offering equal opportunities to all companies and the granting of individual aid only in exceptional cases. The European Commission plans to approve the revision of the State aid guidelines applicable to the rail transport sector in the 4th quarter of 2023.

^[1]  See article published in DVZ on 30.05.2023 (in German)