Summary Report (Page 2 of 4)

How Is Europe Responding to the Challenges?

In a market economy, public policies and how they area implemented can strongly influence the overall competitiveness of individual firms and of national economies. This is true not only with direct intervention strategies such as tax policy, but also with other policies that establish the market conditions within which goods are produced and consumed. Certainly, one of the most important factors in competitive production is the ability to transport people and goods in as safe and cheap a manner as possible. Given the level of economic growth in the EU described above, along with the concomitant challenges facing the transport system, what are the Europeans doing to provide a transport system that will support a truly integrated common market?

Private Sector Actions

Shippers, freight forwarders, service providers, logistics companies, and terminal operators are responding to the changing character of the European transport market in a variety of ways. Importantly, they are also responding to market forces that transcend any individual national border or common market boundary. The scan team visited a very limited number of facilities and service providers in comparison with all that exist in Europe. However, the scan team feels that even with such a limited exposure to the European private transport industry (broadly defined to include those who use the services as well as those who provide them), the sites visited provide a good snap shot of how private firms, often in partnership with government agencies, are responding to the demands and challenges of the economic market. The major observation from these visits is as follows.

Market Pressures are Leading to Service Rationalization Strategies Aimed at Increasing Economies of Scale

Given the capital intensive nature of many freight operations, and the savings that can occur with the sharing of costly infrastructure, the scan team saw many instances where large-scale investments were made to develop facilities that consolidated operations. By developing what might be called "hub" operations, the per unit cost of transport is lowered. Some examples:

Quadrante Europa/Verona Freight Village: The Verona (Italy) Freight Village is one of the largest consolidation centers in Europe, offering a wide variety of services to shippers, freight forwarders and freight operators. Its location at the intersection of major motorways and rail lines in northern Italy makes it an ideal location for transshipment to northern Europe through the Brenner Pass. More than 4 million tonnes of freight by rail and 7 million tonnes of freight by truck passed through the Freight Village in 1999. The Village handles over 30 percent of Italy's intermodal traffic, and more than 50 percent of its international intermodal traffic. With over 2.5 million square meters of space, the Village offers many different services to customers, including intermodal transshipment capabilities among rail, road and air transport; customs services (for non-EU shipments), warehousing facilities, forwarding and logistics support facilities, and general office space. The intermodal traffic passing through the Village heading to Germany is facilitated greatly by the offered services.

Kombiverkehr: Established in 1969, this German company is one of the world's largest providers of intermodal transport services. With original encouragement from the German government, over 250 European forwarders and transport companies are shareholders in the company. In essence, Kombiverkehr provides one-stop shopping for anyone desiring to transport goods via intermodal transport. Not only does it analyze the transport market to guarantee the lowest transport cost to its customers, but Kombiverkehr staff also organize and control the services of all suppliers. Intermodal services include block train service in Germany and in the EU, block train service to German ports, and rolling highway services throughout the EU. A block train is an entire train dedicated to a particular service and destination versus a shuttle train, which has a fixed number of rail cars and runs on a given schedule. Currently, Kombiverkehr utilizes 28 block trains per day serving approximately 60 terminals/cities (plans call for 42 block trains per day). Rolling highway services, where the entire truck is put on a rail car and the driver stays in the cab, is only used if there is a governmental subsidy. Such a subsidy is provided by one of the German states (Saxony), which is providing a subsidy until a new motorway is finished.

Kombiverkehr also enters into partnerships with other organizations to further develop intermodal infrastructure. In particular, it has partnered in terminal projects in two German ports to expand intermodal handling capability (in one port, the German government provided a substantial subsidy for capacity expansion; this was frowned upon by the EU, which is concerned about port competitiveness among EU member states). In 2000, Kombiverkehr provided services for the movement of two million TEUs (equivalent to 900,000 truckloads), 21 million net tonnes, and 14 billion tonne-kilometers.

Port of Gioia Tauro/Medcenter Container Terminal: The Port of Gioia Tauro, located on the southwestern coast of Italy, is one of the newest ports in the world. Interestingly, it has been developed primarily as a transshipment port for the movement of containers from one vessel to other vessels that distribute the containers to over 50 ports in the Mediterranean, Adriatic Sea and Black Sea. This type of transshipment represents over 95 percent of the total freight movement in the port. When the original plan as a bulk cargo port was not realized, the Italian government and a freight carrier consortium invested in the port as a new concept in Mediterranean freight distribution. The government provided approximately USD $40 million for civil works construction and the private consortium provided over USD $250 million for supporting infrastructure (e.g., cranes). In 1995, the port served 50 vessels and handled 170,000 TEUs. In 2000, over 3,000 vessels called at the port and 2.6 million TEUs were transshipped. The government and freight handlers are now investigating the possibility of marketing the port as an intermodal gateway to Europe. A trip from southeast Asia to Rotterdam or Hamburg via sea would take 20 days or 22 days, respectively. Delivering the containers to Gioia Tauro and using intermodal services via northern Italy and Switzerland would take a total trip time of 14 days. There are currently two train departures per week to Milan from Gioia Tauro, with 9 weekly departures from Milan to Rotterdam. The government, with EU financial support, is improving rail access to this region of Italy, thus making intermodal service even more viable in the future. In addition, the port is working with the Italian government and the EU to establish a free trade zone within the port boundaries. The EU is sponsoring a major training initiative at the port.

HUPAC/Trans Alps Service: The Alps serve as a natural barrier to the north-south movement of goods through Europe. Given that Switzerland is not a member of the EU, a coordinated approach to providing additional capacity has to depend on negotiations among many different parties. For example, up to 2000, Switzerland did not allow truck weights over 28 metric tonnes, while in Europe the weight limit was 40 metric tonnes. Accordingly, it was not surprising that 2/3's of the freight movement through Switzerland was by rail, whereas 2/3's of freight movement through the French and Austrian Alps is handled by truck. Through negotiation and compromise, the Swiss truck weight limit has been made consistent with the European standard; however, the Swiss raised a road tax from USD $90 per truck to USD $200 per truck to compensate for additional road damage. Even with this increased cost, it was cheaper for Germany/Italy freight movement to use Switzerland. This demand has often caused queues of up to 10 kilometers at the Swiss border.

In response to this market opportunity, the HUPAC Group, a provider of intermodal services, offers a variety of transport options. It owns 2,300 rail cars, locomotives, and its own terminals. With a USD $300 per truck subsidy from the Swiss government, HUPAC offers a rolling highway service that carries trucks and drivers across the Alps. This represents approximately 60 percent of the volume carried by HUPAC; the other 40 percent is intermodal containers. Given that HUPAC can carry three times more freight on intermodal services than rolling highway, and given that from an environmental perspective the rolling highway still relies on truck traffic at either end of the line-haul trip through the Alps, HUPAC officials consider intermodal service to be the important market for the future. A new rail tunnel in the Alps, partially funded with the new road taxes, should provide more direct rail service from Milan to Frankfurt, especially with EU investment to upgrade rail lines on either side of Switzerland. HUPAC currently offers shuttle trains between Italy and Germany/Belgium/The Netherlands.

Although HUPAC officials suggest an important future for intermodal transport, they also expressed caution about some of the important hurdles that yet remain. These included passenger and rail service sharing the same right of way, lack of interoperability among the national railways, the strength of labor unions in opposing new service arrangements, language and legal differences among EU countries, and the declining quality of service from the railroads (an internal study of their own service showed that 85 percent of the delay was caused on the rail portion of the trip).

Flughafen/Cargo City, Frankfurt, Germany: Frankfurt airport is the busiest cargo airport in Europe, and ninth busiest in the world. The management of the airport has been privatized, with 51 percent of the stock held by the national, state and city governments, and 49 percent held by private investors. Fraport, the name of this new management structure, has adopted a strong entrepreneurial approach to its business. It has aggressively pursued consulting opportunities in other countries, helping to finance, build and operate airports elsewhere. They provide management services for the Frankfurt airport, and are enhancing their already formidable cargo logistics capabilities. They lease buildings and provide distribution and cargo handling services in Cargo City, a major transshipment site for freight that was established in 1996 on land once used by the U.S. Air Force (over 60 percent of the freight moving through Frankfurt is transshipped). Just over 240 airlines, forwarding agents, and service providers are using Cargo City for a variety of services. Fraport works closely with prospective users of Cargo City, providing services ranging from preparing site plans to brokering investment in the proposed facility. In addition, Fraport markets its location as the world's first air/truck/train/ship port in the world with high speed train service, direct links to Germany's autobahn, access to the inland port on the Rhine, and air links to more international destinations than any other European airport.

In 1997, Fraport developed its own intermodal rail terminal and worked with Deutsche Bahn to provide rail service to the north. Called the "cargo sprinter", this service was a self-propelled consist that could handle five 40-foot containers. Two trains operated every day. During the first year, the service obtained 95 to 96 percent schedule reliability and all the capacity was used. During the second year of operation, the railroad reconstructed the rail lines and schedule reliability declined dramatically. Not surprisingly, freight forwarders dropped the service. Fraport hopes to reinstitute this service, but only if schedule reliability can be guaranteed.

Port of Rotterdam/Delta Terminals/Rail Service Center: The Port of Rotterdam is the largest port in Europe, serving as the major gateway to the continent. Over 80 percent of all freight handled in the port is destined to outside the Netherlands. The evolution of the Europe Combined Terminals (ECT) complex at the port is an example of the strategies adopted by intermodal terminal operators to become more efficient and competitive. In particular, the Delta Terminal illustrates one of the most advanced terminal operations in the world. The transshipment operation is fully automated with robot vehicles moving containers to and from vessels. Over USD $250 million was invested in the automation, aimed primarily at reducing labor costs. The terminal operates seven days per week, 24 hours per day. ECT officials have worked with clients and customs officials to expedite the customs clearance process. Plans are being made to expand substantially the capacity of the Delta terminals in anticipation of significant growth in container transport. However, ECT officials are concerned about the bottlenecks created by the limited land side access. There has been a concerted effort to shift the access mode share away from road transport to rail and barge. This strategy has been partially successful. In 1995, the respective mode shares of access modes were road (53%), rail (14%), and barge (33%); in 2000, the mode shares were road (44%), rail (15%) and barge (41%). The shift has clearly occurred in favor of barge. With the massive new investment in the Betuwe line (see inset), however, ECT officials are hoping that rail can take even more market share from trucks.

With over one million ship movements annually serving the port, it is not surprising that congestion on the access routes to the port has been one of the most critical problems facing port and government officials. In response, the Dutch government has heavily invested in the development of a freight-only rail line connecting Rotterdam to Germany. Part of the strategy for improved rail access to the port was the creation of dedicated rail service center for the port. By the mid-1990s, approximately 50 different terminals and depots provided rail access throughout the port. A private company approached the Dutch government with a plan to rationalize this rail access. This plan was based not only on the governmental policy of shifting access market share away from road transport, but also on the realization that the market was changing. Container transport already held a significant market share, and was likely to increase. Carriers are concentrating on a limited number of ports, where port attractiveness depends on such things as accessibility for vessels, reliable inland connections, cargo handling capability and customer service. The plan closed the 50 terminals and replaced them with two rail service centers at either end of the port. A shuttle service between these two service centers was established with 100 TEU capacity per shuttle. Daily shuttle train service was also instituted between the rail service center and 37 different destinations in Europe. The Dutch government built the infrastructure for the port shuttle and the two rail service centers; the private company pays rent and owns the rolling stock for the port shuttle operations. The new rail service concept has been successful in increasing market share, although not yet to significant levels. The opening of the Betuwe line is anticipated to increase the attractiveness of rail access to the port. Such attractiveness will be necessary to achieve the government's goal of rail achieving a 20 percent market share in mode of access by 2010.

As can be seen in the above examples, intermodal freight has been an important strategy for the different facility operators, logistics company, and service providers visited. However, it seems clear that to make intermodal freight transport successful, a large number of challenges need to be faced. These challenges range from the ability of handling large numbers of containers on terminal access routes (i.e., Rotterdam) to the ability of the railroads to provide scheduled service that is reliable (i.e. HUPAC and Frankfort Airport). Those making the shipping decisions, the freight forwarders, will choose those services that are most reliable at minimal cost. Thus, given the emphasis and expectations placed on the role of intermodal transport by government officials, it remains to be seen if the necessary service structure and infrastructure will be in place to provide the level of market share that is desired.

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