Deregulation's Impact on the Railway Freight Transport
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Milla Laisi DEREGULATION’S IMPACT ON THE RAILWAY FREIGHT TRANSPORT SECTOR’S FUTURE IN THE BALTIC SEA REGION Thesis for the degree of Doctor of Science (Technology) to be presented with due permission for public examination and criticism in Honka hall, Kouvola House, Kouvola, Finland on the 25th of October, 2013, at noon. Acta Universitatis Lappeenrantaensis 529 Supervisor Professor Olli-Pekka Hilmola Kouvola Unit Lappeenranta University of Technology Finland Reviewers Professor Dawna L. Rhoades College of Business Embry-Riddle Aeronautical University The United States Research Professor Pekka Leviäkangas Department of Industrial Engineering and Management University of Oulu Finland Opponents Professor Yuriy Fedotov Graduate School of Management St. Petersburg State University Russia Research Professor Pekka Leviäkangas Department of Industrial Engineering and Management University of Oulu Finland ISBN 978-952-265-453-3 ISBN 978-952-265-454-0 (PDF) ISSN-L 1456-4491 ISSN 1456-4491 Lappeenranta University of Technology Yliopistopaino 2013 Abstract Milla Laisi Deregulation’s Impact on the Railway Freight Transport Sector’s Future in the Baltic Sea Region Lappeenranta 2013 173 p., 2 Appendices Acta Universitatis Lappeenrantaensis 529 Diss. Lappeenranta University of Technology ISBN 978-952-265-453-3 ISBN 978-952-265-454-0 (PDF) ISSN-L 1456-4491 ISSN 1456-4491 The European transport market has confronted several changes during the last decade. Due to European Union legislative mandates, the railway freight market was deregulated in 2007. The market followed the trend started by other transport modes as well as other previously regulated industries such as banking, telecommunications and energy. Globally, the first country to deregulate the railway freight market was the United States, with the introduction of the Staggers Rail Act in 1980. Some European countries decided to follow suit already before regulation was mandated; among the forerunners were the United Kingdom, Sweden and Germany. The previous research has concentrated only on these countries, which has provided an interesting research gap for this thesis. The Baltic Sea Region consists of countries with different kinds of liberalization paths, including Sweden and Germany, which have been on the frontline, whereas Lithuania and Finland have only one active railway undertaking, the incumbent. The transport market of the European Union is facing further challenges in the near future, due to the Sulphur Directive, oil dependency and the changing structure of European rail networks. In order to improve the accessibility of this peripheral area, further action is required. This research focuses on topics such as the progression of deregulation, barriers to entry, country-specific features, cooperation and internationalization. Based on the research results, it can be stated that the Baltic Sea Region’s railway freight market is expected to change in the future. Further private railway undertakings are anticipated, and these would change the market structure. The realization of European Union’s plans to increase the improved rail network to cover the Baltic States is strongly hoped for, and railway freight market counterparts inside and among countries are starting to enhance their level of cooperation. The Baltic Sea Region countries have several special national characteristics which influence the market and should be taken into account when companies evaluate possible market entry actions. According to thesis interviews, the Swedish market has a strong level of cooperation in the form of an old-boy network, and is supported by a positive attitude of the incumbent towards the private railway undertakings. This has facilitated the entry process of newcomers, and currently the market has numerous operating railway undertakings. A contrary example was found from Poland, where the incumbent sent old rolling stock to the scrap yard rather than sell it to private railway undertakings. The importance of personal relations is highlighted in Russia, followed by the railway market’s strong political bond with politics. Nonetheless, some barriers to entry are shared by the Baltic Sea Region, the main ones being acquisition of rolling stock, bureaucracy and needed investments. The railway freight market is internationalizing, which is perceived via several alliances as well as the increased number of mergers and acquisitions. After deregulation, markets seem to increase the number of railway undertakings at a rather fast pace, but with the passage of time, the larger operators tend to acquire smaller ones. Therefore, it is expected that in a decade’s time, the number of railway undertakings will start to decrease in the deregulation pioneer countries, while the ones coming from behind might still experience an increase. The Russian market is expected to be totally liberalized, and further alliances between the Russian Railways and European railway undertakings are expected to occur. The Baltic Sea Region’s railway freight market is anticipated to improve, and, based on the interviewees’ comments, attract more cargoes from road to rail. Keywords: Baltic Sea Region, barriers to entry, deregulation, European Union, railway freight market, Russia UDC 656.076(470+571)(474):338.246.025.2:339.923 Articles This doctoral thesis consists of an introductory part and the following six articles: 1. Laisi, M., Hilmola, O-P. and Sutela, M. (2012) North European Companies’ Relation with Russia and China – Future Outlook on Transport Flows, Benchmarking: an International Journal, Vol. 19, No. 1, pp. 11-31. 2. Laisi, M. and Saranen, J. (2013) Integrating the Baltic States and Europe – Rail Baltica, International Journal of Business Excellence, Vol. 6, No. 3, pp. 251-269. 3. Laisi, M. (2011) Barriers to Entry in Railway Freight Market – Building Knowledge through Swedish and Polish Operators’ Experiences, International Journal of Logistics Systems and Management, Vol. 8, No. 3, pp. 350-362. 4. Laisi, M., Mäkitalo, M. and Hilmola, O-P. (2012) Stimulating Competition in the Liberalized Railway Freight Market, Baltic Journal of Management, Vol. 7, No. 1, pp. 68-85. 5. Laisi, M. (2013) National peculiarities in Russian railway freight market –what the market has to offer for foreign railway undertakings?, International Journal of Procurement Management, Vol. 6, No. 6, pp. 702-717. 6. Laisi, M. and Panova, Y. (2013) Deregulation of the Russian Railway Freight Market –Learning from Empirical Results, International Journal of Logistics Systems Management, Vol. 16, No. 4, pp. 341-364. Contribution of the author Publication I The author was the main contributor to the publication and responsible for the literature review. The analysis of the results was done together with co-authors. The paper was accepted by the journal following a double-blind review process. Publication II The author was the main contributor to the publication and responsible for part of the literature review, discussions and conclusions. Empirical data gathering was done jointly with the co-author, as was analysis and interpretation of the data. The paper was accepted by the journal following a double-blind review process. Publication III The author was solely responsible for the publication. The paper was accepted by the journal following a double-blind review process. Publication IV Publication IV included two separate research processes. The author was responsible for gathering the data via semi-structured interviews, while a Delphi panel was conducted by a co-author. The author was the main contributor to the publication and responsible for all parts; co-authors contributed minor parts to all sections. The paper was accepted by the journal following a double-blind review process. Publication V The author was solely responsible for the publication. The paper was accepted by the journal following a double-blind review process. Publication VI The author was the main contributor of the research, gathering the research data, conducting the literature analysis, analyzing the results and finalizing the publication. The co-author was responsible for gathering and evaluating the Russian literature, and for writing a section for the literature review. The paper was accepted by the journal following a double-blind review process. Acknowledgements -Non scholae, sed vitae discimus- Doing doctoral studies has been a long but interesting journey. As the Latin phrase states, we do not learn for school, but for life. I agree with the statement, and want to thank the persons who have participated in my learning process. First and foremost I want to thank my supervisor Professor Olli-Pekka Hilmola for providing support during the process. Your enthusiasm has guided me through the way, and helped in situations when the walls seemed too high to pass. Professor Marko Torkkeli, Professor Markku Tuominen and Professor Vesa Harmaakorpi deserve thanks for proving the university’s support during the way. I would also like to thank Professor Dawna L. Rhoades from Embry-Riddle Aeronautical University and Research Professor Pekka Leviäkangas from University of Oulu for giving important comments and indicating the topics and parts which needed further analysis. Your remarks gave me new insights, and guided me to right direction. I want to express my sincere thanks for Research Professor Pekka Leviäkangas and Professor Yuriy Fedotov for agreeing to be the opponents. Although conducting dissertation is rather lonesome work, one could not do the process without great