prospects for a pan-european rail network in the post-liberalization...

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Prospects for a Pan-European Rail Network in the Post-Liberalization World

London, 27th October 2009

© TransCare AG 2


1. Introduction

2. Status Quo of European Railways

3. Implications of Rail Liberalization and Mergers by Former State Railways in Coal Transport

4. New Players in the Overland Freight Landscape

5. Rail Network Capability to Handle Forecasted Volumes

6. Rail as a Competitor to Deep Sea Transport

Contents

© TransCare AG 3

TransCare Key Facts

1. Introduction

� Management Consultancy for Logistics and Transportation

- Founded 1993 (50 international experts)

� Locations

- Wiesbaden (GER, headquarter), Moscow (RU), New Delhi (IN), Madrid (ES)

� Business Areas

- International management and strategy consulting

- International multimodal transportation, logistics and infrastructure consulting

- Optimisation and strategic reorientation of logistics networks

� Approach

- Increasing efficiency in logistics process chains and reduction of logistic costs

� Client Portfolio

- Shippers, logistics and rail service providers

- Seaports, terminal and logistic park operators

- National transport ministries

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� Consultancy with engineering and economic know-how

- Thought through and cost sensitive solutions

� Integration of transport mode, warehouse, organisation and IT

- Integrated optimisation of your company�s logistics

� Innovative concepts with pragmatic implementation

- Short term success with long term effects

� Full service consultancy from the concept to the implementation

- Competent support out of one hand

� In-depth specialist knowledge, across-the-border experience and the motivation �to get stuck in�

- Neutral concepts and assertive personalities

TransCare Achievements

1. Introduction

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TransCare Service Portfolio

� Transportation network strategies (Rail/Road)

� Rail integration intoindustrial logistics

� Planning, optimisation and calculation of complex transport systems

� Modular layout planning for ports, intermodal terminals and logistics parks

� Planning and optimisation of operative processes

� Investment calculation and business plans

� Tender activities for operation and transshipment technologies

� Operator concepts

Transport Logistics/Infrastructure Planning

Management Consulting Logistics Network Optimization

� Evaluation of network structures

� Analysis of currenttransport flows

� Evaluation of currentnetwork costs

� Development of network structure and transport flows graphical models

� Development of anew cost structures

� Process optimization

� Detailed implementation plans/support during implementation

� Success measurement

� Company strategy development

� Business plan development

� Service portfolio strategy

� Commercial due diligence

� M&A support

� Market and competitoranalysis

� Market entry strategy

� Change management

� Research and studies

1. Introduction

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TransCare References - Abstract

Management Consulting Logistics Network Optimization

Transport Logistics/Infrastructure Planning

1. Introduction

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Full Cost Structures for Steam Coal Deliveries to ARA 2007in US dollars/t

1. Introduction

With the average share of logistics costs of >60 % in 2007 coal business is �mainly� a logistics and transportation issue

54 % 76 % 64 % 66 % 59 % 63 %

Source: Global Insight, London 2008

x % Share logistics costsas of total

Other Mine Costs

Wages

Royalties / Levies

Profit & ROC

Port & Rail Costs

Average Sea Freight Rates

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Contents

1. Introduction






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in bln. tkm(1) FOC = all Freight Operators in UK (without DB Schenker Rail (UK) Ltd)Source: TransCare based on annual reports

� The European rail market is still domi-nated by the former state railway compa-nies (see graph).

� Besides former state railway companies, private carriers have established their business (e.g. CTL Logistics, Freightliner).

� There are also niche players concentrating on special goods (HHPI), corridors (SBB Cargo) or industrial rail companies (VPS).


Top Railway Companies in Europe 2008

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Decline of European Railway Freight Volume

Loss of volume2009 vs. 2008

>40%

20% - 40%0% - 19%n.a.


All major European Railways were hit hard by the economic downturn � even harder than other modes of transport

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Headlines from European Rail Companies 2009


Major European Railways did not establish �breathing production systems� that can cope with decreasing volumes and therefore suffer from extremely dropping profits

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Contents

1. Introduction






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Source: IBM Global Business Services, Rail Liberalisation Index 2007

Advanced

On Schedule

Delayed

Rail Liberalisation Index 2007

In most countries external railway carriers are already licensed and involved in freight transport.

The liberalisation is advanced in Great Britain, Germany, Sweden and the Netherlands.

The market opening in Luxembourg, France, Greece and Ireland is delayed.

All the countries examined have been gradually opening their rail markets since the last survey in 2004.

3. Implications of Rail Liberalisation�

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The German ExperienceTraffic Performance in Rail Transport in Germany (in bln tkm)

CAGR 2003-2008: 32,9 %

CAGR 2003-2008: 2,9 %

CAGR 2003-2008 total: 6,3 %


79,2 83,1 81,789,5 92,1 91,2

5,98,8 13,7

17,522,5 24,5

0

20

40

60

80

100

120

2003 2004 2005 2006 2007 2008

Liberalization causes a new market situation�

private rail carriers

Deutsche Bahn Group

Source: TransCare based on Deutsche Bahn Competition Report

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The German ExperienceDevelopment of Deutsche Bahn Group Average Price Level (in �-ct/tkm)


�with decreasing prices and�

3,50

3,70

3,90

4,10

4,30

4,50

2003 2004 2005 2006 2007 2008

nominal

real

-13,69%

+5,34%

Source: TransCare based on Deutsche Bahn Annual Reports 2003-2008

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The German ExperienceDevelopment Productivity at Deutsche Bahn Group (in EUR/Capita)


�the challenge to increase productivity

0

20

40

60

80

100

120

140

160

180

2003 2004 2005 2006 2007 2008

+26,62%

Source: TransCare based on Deutsche Bahn Annual Reports 2003-2008

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The German ExperienceDB Schenker European Rail Network


Fierce competition in the home market forced DB Schenker to establish a pan-European network � First in market!

own assetscooperation

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Main Mergers & Acquisitions in European Railway Market


5 l

Year

2004 2005 2006 2007 2008

Revenues per year [in mln EUR]

500

110 l; 2,000 w

42 l; 450 w

34 l

176 l; 4,828 w

110 l; 2,300 w

35 l; 845 w

BuyerBought companyLocos/wagons

2009

400 l; 7,700 w

157 l; 1,750 w40 l

500 l; 14,000 w

13,000 w

22 l

7,800 w

18 l

100 l; 2,500 w

90 l

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European Rail Market Development 1995 - Today


Rail transportation in Europe is developing from national monopolies towards an European oligopoly � hopefully!

1995 2000 2005 Today

Monopoly � only state railways

Initiation of private railways

Development of an oligopoly?

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Contents

1. Introduction






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Private Rail Companies Involved in Coal Transportation


Chances of private rail companies will be significantly more in market niches than in developing own pan-european networks

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Pros & Cons of Private Rail Companies for Clients


Pros Cons

New assets (mainly from rolling stock leasing companies)

Focus on niche markets and cost leadership by optimized asset utilization

Higher service quality

Greater independence from incumbents

Critical size

No full coverage of all requested services

Less flexibility

Necessity of clients´commitments (long-term contracts, fixed volumes)

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Activity Based Costing in Rail Transportation


� As rail transportation and its pricing is not yet transparent based on full competition, tools to judge pricing are needed

� If a power utility or a coal trader wants to transport coal from/into the hinterland he will ask rail companies to get a freight rate, but several questions remain �unanswered�:

How do rail companies calculate their costs?

Is this a fair price?

What can be done to reduce cost of the rail company and therefore price from client´s side?

� Example how to calculate rail transportation:

Rotterdam - Neunkirchen

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The rail network bottlenecks are in the hinterland connections of the large European ports where the increasing import coal volumes will be handled in the future

25

Railway Network - Capacities

Rail network capacity is limited because of the following factors:

� Different priorities (passenger and freight)

� Different train lengths and weights

� Different speed limits

� Restrictions in selection of stations for stops

Electrified

Diesel

scale = 20 million t/mm

5. Rail Network Capacity

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Train Length and Weight

Max. train weight [t]

Max. trainlength [m]

Upgradelocomotive

Expand train length

4.500

1.050

1

3

2

Increaseaxle load

Restrictions

1 Limited by loco power, brakes, etc.

2 Limited by infra-structure (signalling, passing lanes, etc.)

3 Limited by axle load

useable non-useable optimization approach

Optimisation of train length and weight requires high investments and cannot be done in short term period


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Capacity Utilization

Max. train weight [t]

Max. trainlength [m]

0 %

20 %

40 %

60 %

80 %

100 %

0 % 20 % 40 % 60 % 80 % 100 %

Capacity utilization optimization can be done without any or with small investments


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Rail transport could connect Atlantic and Pacific trading markets, but can only be competitive at times of high seaborne freight rates

29

Landbridge China/Russia � Europe

16 days

26 days

rail transport along the Transsib deep-sea transportation

� Rail transport from China/Russia to Europe reduces transit times by up to 40 % compared to sea transport

� The Russian Federation plans huge investments for the improvement of Transsib infrastructure

6. Rail as Competitor to Deep Sea Transport

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Seaborne Freight Rates

6. Rail as Competitor to Deep Sea Transport

Annualchange

200-days-average

Average since 1995

Baltic-Dry-Indexin points

Seaborne freight rates have been extremely volatile since 1995, but rail transport needs long term thinking and stable price levels

Competive price levelof rail transport

prospects for a pan-european rail network in the post-liberalization...

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