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)