15 Years Deregulated Rail Freight Market – Lessons from Sweden 1

15 years deregulated rail freight market – lessons from Sweden

Inge Vierth Swedish National Road and Transport Research Institute, VTI

1. INTRODUCTION Sweden was one of the first countries to separate rail infrastructure and running services. In 1988 the National Rail Administration was established as fully legally, organisationally and institutionally independent infrastructure manager. Since 2010, the Transport Administration (Trafikverket), a merger of the rail and the road administrations, is in charge of the national rail and road infrastructure. The national rail freight market was opened in 1996 and the EU freight market completely in 2007. The markets for commercial national and the international passenger services were opened recently; non-commercial passenger services are tendered by regional agencies and the Transport Administration.

In 2001, the national state railway SJ was commercialised and split into companies for passenger transport (SJ AB), freight transport (Green Cargo AB), real estate (Jernhusen AB) and maintenance (EuroMaint AB, Swemaint AB) etc. In 2004, the Railway Act was adopted and the Swedish Rail Agency (Järnvägsstyrelsen) was established as regulatory body. Since 2009, the Transport Agency (Transport- styrelsen), a merger of the agencies for all modes, is the regulatory body. The development on the rail market has been monitored by the EU-commission, national agencies, researchers etc.

The paper addresses the Swedish rail freight market. This market gets the highest liberalisation index in Europe of (IBM & Kirchner, 2011) while there is no effective competition on this market according to the Swedish Transport Agency (Transportstyrelsen, 2010). We analyze to what extent desired effects as new operators, better services and lower costs have been achieved respectively which hinder and challenges remain 15 years after the opening of the national market and four years after the opening of the international market. Some comparisons are drawn with Germany, The UK and The Netherlands, who also opened their rail freight markets in the middle of the 1990s. The study is carried out with help of literature, official statistics, the Swedish Transport Administration’s information on paid track charges, annual reports of the Swedish operators and interviews with eight operators, five shippers and authorities etc.1

1 Operators: Green Cargo, CargoNet AB,DB Schenker Rail Scandinavia, TGOJ (Trafikaktiebolaget Grängesberg-Oxelösunds Järnvägar), MTAB (Malmtrafik i Kiruna AB), TÅGAB (Tågåkeriet in © Association for European Transport and Contributors 2011

2. FOLLOW UP OF SWEDISH RAIL FREIGHT MARKET Sweden registers roughly 20 billion rail tonne-km per year, which is about 5% of the European rail freight market. The rail share of the land based freight transports is much higher for Sweden (2008: 35%) than for Europe EU27 (18 %), EU15 (ca. 16 %) resp. Germany 22 %, The UK 12 % and The Netherlands 5 % (EUROSTAT, 2011). The Swedish rail network comprises some 11 000 km railway lines. The rail infrastructure charges (banavgifter) are based on short term social marginal costs. Track charges (spåravgifter) that are paid per gross tonne-km and are supposed to reflect the extra costs for maintaining the infrastructure are the main component.

2.1. Number of operators and ownership Sweden has a flourishing rail freight market comprising 15 operators in 2010. Already from 1991, a few years before the deregulation, it was possible to perform feeder transports for the state railway SJ. In 1992, the state owned mining company LKAB got also the right to run its iron ore transports in the north of the country. Since the opening of the market in 1996, 34 operators started rail freight services, 17 finished during that period. Between 1996 and 2004 about twelve operators were active. One explanation for the increase to 17 operators in 2004 is the successive opening of the international market, which was fully opened in 2007. There have been few variations in recent years.

Entries 5 Exits 0 Operators

-5

-10 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Source: Swedish Transport Administration (Trafikverket)

Figure 1 Operators on Swedish rail freight market, entries and exits 1991-2010

Several spin-offs, mergers, bankruptcies, start-ups and name changes have occurred over time. We aggregate the operators that were in business in 2010 into four categories to show the main developments:

Bergslagen AB), Hector Rail, TX Logistik as well as the Association of Swedish Train Operating Companies, shippers: IKEA, LKAB, SSAB, Stora Enso, Volvo Logistics © Association for European Transport and Contributors 2011

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1 Green Cargo 1 CargoNet AB 1 CargoNet AS 1 DB Schenker 1 TGOJ 2 MTAB 3 Hector Rail 3 TX Logistik 3 TÅGAB 3 Peterson Rail 4 Inlandståget 4 MidCargo 4 RailCare 4 Stena 4 TågfraktRecycling Skånetå Source:g Swedish Transport Administration (Trafikverket)

Figure 2 Schema over rail freight operators

1. incumbents in the "Green Cargo group" including Green Cargo AB (until 2000 SJ), TGOJ AB (Green Cargo’s subsidiary till end of 2010, integrated in Green Cargo since 2011), CargoNet AS (jointly owned by Norwegian State Railway NSB (55%) and Green Cargo (45%) till end of 2010, since 2011 owned by NSB), CargoNet AB, subsidiary to CargoNet AS for Swedish market and DB Schenker Rail Scandinavia (since 2008 jointly owned by German State Railway (DB 51 %) and Green Cargo (49 %) performing international transports to mainland Europe. 2. other operators owned by Swedish state: MTAB via mining company LKAB 3. other major operators (with more than 20 employees in 2010), including TÅGAB (a privately owned operator that started as feeder train operator), Hector Rail AB (mainly owned by Norwegian shipping industry), TX Logistik AB (started by German logistics company, since 2010 owned by the Italian State Railway), Peterson Rail AB (subsidiary to Peterson Rail AS in Norway specialised on transports of timber, paper) 4. other minor operators (with less than 20 employees in 2010), including MidCargo AB (former BK Tåg one of the first private operators), RailCare Tåg AB (part of Rail Care group that works rail infrastructure maintenance), Stena Recycling AB (subsidiary to Stena Metall AB), Tågfrakt AB (private company performing terminal services and freight transports) and Inlandståget (former Inlandsbanan owned by 15 municipalities, before the separation in 2009 both infrastructure and operation was in the hand of the municipalities)

One prominent rail transport operator was IKEA Rail AB who performed transports on behalf of IKEA between Älmhult in Sweden and Duisburg in Germany 2002-2005. IKEA Rail finished to carry out these services as operator, partly due to the problems they met as one of the first operators performing international rail transport.

Figure 3 illustrates the presence of international players on the Swedish market, both national state railways form other countries and private companies.

State Municipality Private S wedish MTAB Inlandståget Tågfrakt Midcargo TÅGAB RailCareTåg TGOJ Stena Recycling Green Cargo Non Swedish CargoNet AB (partly owned by Green Cargo) Hector Rail CargoNet AS ( partly owned by Green Cargo) Peterson Rail * DB Schenker Rail ( partly owned by Green Cargo * TX-Logistik *

Figure 3 Overview over ownership in 2010

2.2. Market segments Within the rail freight market, combined (road rail) transports increased from 13% (1997) to 22% (2010) and the number of operators in this segment rose from two to ten. The increase of the combined transports is largely explained by the development of the shuttle trains to/from the port of Gothenburg. The port the shuttles should not have been possible without the deregulation of rail freight market (Nilsson, 2010).

The share for system transports, excluding MTAB’s iron ore transports that correspond to ca. 21% of the market, increased from 21% (1997) to 30% (2010) and the number operators rose also from two to nine. The definition of system transports has changed with the entrance of new operators and concepts. Originally a rail operator carried out system transports for one single shipper who requests a transport of a large quantity between two points, for example two factories. Nowadays, also forwarders and logistics providers buy system transports between two points, for example between two marshalling yards, from the rail operators. The operators use block trains that can include wagons from different shippers.2 Hector Rail’s transports that go on fixed lines and are based on three to ten years long contracts (Johansson, 2010) are one example for the new entrants’ services.

2 There are no international regulations and the statistics agencies use the operators’ interpretation of the segment, unless there are obvious reasons for another classification (Sjöberg, 2010). © Association for European Transport and Contributors 2011

The sub market for wagon load, that had the largest share of the rail freight market in 1997 (44 %) decreased to 28 % in 2010. Green Cargo is basically the only operator in this segment. This is due to the fact that wagon load transports, as opposed to combined and system transports, require a network of train building points and marshalling yards to meet the demand from a large number of senders and receivers. The wagon load system is associated with greater risk-taking for the rail operator as the shippers in this segment do not have that large regular transports volumes.

2.3. Market shares We use information on paid track charges (spåravgifter) per gross tonne-km3 in Sweden to estimate the different operators’ market shares. The newly established operators have increased their market share but in 2010 the “Green Cargo group“ stood for about 72 % of the tonne-km in Sweden: Green Cargo performed 54 %, CargoNet AB 9 %, TGOJ 5% and Schenker Rail Scandinavia 3% of the tonne-km. MTAB’s: transport volumes are highly influenced by the demand for iron ore, their share went down to 13 % in 2009 and increased again to 15 % in 2010.

The market share of the non-incumbents increased since the entrance of Hector Rail and TX Logistik in 2004/2005. The category “other major operators” produced more tonne-km (then the year before) when the total market shrank in 2009, they increased their share from 9 % to 12 % and held a share of 11 % in 2010. Hector Rail is the largest player in this category standing for 7% of the total tonne-km, TÅGAB and TX- Logistik had about 2% each and Peterson Rail (who perform international transports) less than 1%. The “other small operators” together had about 1 % of the total tonne- km. The overall picture is similar when the market share is measured in turnover and number of employees4, based on information from the companies’ annual reports5.

Table 1 Concentration on Swedish rail freight market 1997-2010

1997 19 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Market shares in tonne-km

"Green Cargo group" 81% 81% 85% 84% 85% 85% 84% 83% 79% 78% 77% 76% 73% 72%

MTAB 19% 18% 14% 14% 14% 14% 15% 15% 17% 15% 14% 14% 13% 15%

Other major 0% 0% 0% 0% 0% 0% 0% 0% 3% 5% 8% 9% 13% 11%

Other minor 0% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%

Market shares in turnover

"Green Cargo group" 92% 92% 92% 92% 91% 92% 92% 91% 88% 87% 87% 85% 83% 81%

MTAB 8% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 8%

3 The track charges (spåravgifter) are the main part of the Swedish rail infrastructure charges. 4 We skip the presentation of the market share measured in number of employees in this paper. 5 Companies registered in other countries and Stena Recycling (with small transport activity in large company) are excluded. © Association for European Transport and Contributors 2011

Other major 0% 0% 0% 0% 1% 1% 1% 1% 3% 4% 5% 7% 10% 11%

Other minor 0% 0% 1% 1% 2% 0% 0% 1% 2% 2% 1% 1% 1% 1% Table 1 illustrates that that fact that MTAB has a lower share of the turnover than of the tonne-km is one reason for the higher market shares for the incumbents measured in in turnover.

We also calculate the Herfindahl-Hirschman Index (HHI) as an indicator of the amount of competition in the market.6 The development of the HHI 1997-2010 suggests an successive increase in competition on the Swedish rail freight market, both in the case where the “Green Cargo group” is treated as one operator and the case where all operators are treated separately. See Figure 4. The different lapse of the curves in recent years, is explained by the increase of TGOJ and DB Schenker Rail Scandinavia’s market share in 2009 and the fact that CargoNet AB took over the traction of their trains (that had been drawn by Green Cargo before) and paid rail infrastructure charges in 2010.

0.8 0.6 0.4

Hirschman Hirschman 0.2 -

Index 0

2001 2004 1997 1998 1999 2000 2002 2003 2005 2006 2007 2008 2009 2010 Herfindahl HHI (all operators separately ) HHI (Green Cargo as "group")

Figure 4 Herfindahl-Hirschman Index for Swedish rail freight market 1997-2010

2.4 Operators’ financial results The profitability of the rail freight operators is generally low and decreased during the recession year 2009. This is confirmed by Transport Agency who analyse the financial key figures for a selection of companies (Transportstyrelsen, 2011). Yield on capital employed is in many cases under 5 %. Green Cargo AB:s results were positive from 2004 to 2008, TGOJ:s results were mainly positive (except for 3 out of 12 years) while CargoNet AB:s were mainly negative (except for 3 out of 14 years).

MTAB:s profit was stable while the other major operators increased their profits significantly in 2007, 2008 and 2009. The results are similar for the yield on capital employed.

6 The Herfindahl-Hirschman Index HHI is defined as the sum of squares of the market shares of each individual firm. As such, it can range from 0 to 1 moving from a very large amount of very small firms to a single monopolistic producer. © Association for European Transport and Contributors 2011

Table 2 Operating profit 1977-2010

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Operating profit (in million SEK) "Green Cargo group” -2 34 29 14 -16 -124 -16 136 173 214 279 78 -274 -71 MTAB 22 5 -6 11 10 25 18 25 18 13 10 13 12 14 Other major operators 1 3 0 1 1 5 3 -5 2 8 24 45 31 1 Other minor operators -3 -1 -1 0 -22 9 -2 -2 1 2 2 2 0 -8

The operators’ solvency, the ability to withstand losses, is estimated to be highest for MTAB (50% in 2010). Solvency is lower for the “Green Cargo group and the other minor operators (32% in 2010) and lowest for other major operators (19% in 2010).

2.5 Cost effectiveness The combination of 18 % less employees and 22 % higher turnover (in real terms) means that the average turnover per employee rose by nearly 50 % between 1997 and 2010. The increase was roughly the same for the "Green Cargo Group"7 (46 %). During our interviews it was confirmed that Green Cargo AB has rationalized its business due to pressure from the competing rail operators but also from the road transport sector. MTAB's turnover per employee increased by almost 40 %, starting from a high level in 1997 (SEK 2.4 million per employee). The turnover per employee for the other (major and minor) operators has tripled starting from a low level in 1997 (SEK 0.7 resp. 0.9 million per employee).

3,500,000

3,000,000

2,500,000 "GC group" 2,000,000 MTAB 1,500,000 Other major operators 1,000,000 Other minor operators

500,000 Average Turnover per employee (SEK) employee per Turnover

1,999 1,997 2,001 2,003 2,005 2,007 2,009

Figure 5 Estimated turnover (in real terms) per employee 1997-2010

7 GC group © Association for European Transport and Contributors 2011

A similar picture is obtained for the indicator “tonne-km per employee” between 1997 and 2010. The average increase (31 %) was slightly higher than the increase for the "Green Cargo Group" (27 %). One explanation for the high efficiency for MTAB and new other major operators is the high utilization of the personnel and the rolling stocks in block trains. The mining company LKAB could reduce transport costs’ share of the total production costs from 21 % in 1992 to 11-12 % in 2000 (Alexandersson, Hultén, Nordenlöw, & Ehrling, 2000) and 9 % in 2010 ( (Nordmark, 2010). The main decrease in costs was achieved when LKAB took over the transports from SJ, since then cost efficiency has been improved. DB Schenker Rail Scandinavia experience that they have economies of scale but also high overhead costs compared to private operators (Kyster-Hansen, 2010).

2.6 Prices and services Another central issue in connection with the deregulation is the development of prices and services. Prices are determined by production costs (including taxes and fees), service levels, intramodal competition, intermodal competition, customer bargaining power, etc. We estimate the prices by dividing the operators’ turnover (in current prices) with the corresponding annual tonne-km in Sweden.8

1.20 "GC group" 1.00

0.80 MTAB

0.60 Other major 0.40 operators

Price ( SEK/tonkm) ( Price 0.20 Other minor operators 0.00

Average rail

2000 2008 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2009 2010

Figure 6 Estimated prices per “operator category” 1997-20109

Figure 6 shows as expected, that MTAB’s prices for iron ore transports are much lower than the prices of the "Green Cargo group" and the average prices. MTAB's, the "Green Cargo group’s" and the average prices have followed each other. The rates grew most between 2008 and 2009 when turnover did not decrease to the same extent as tonne-km. The prices of the other (major and minor) operators have

8 Operators performing services mainly outside Sweden are excluded in the price calculations. Factor 2 is applied to calculate (net) tonne-km based on gross tonne-km. The factor is derived from transport statistics. 9 The prices increased by about 9% in real terms.

10 fluctuated more but approached the average prices in recent years. The average price increase (16 %) is somewhat lower than the price increase for the "Green Cargo group" (20 %).

In the next step, we compare the average rail price index (based on the prices in Figure 6) with the price indexes that Statistics Sweden publishes since 2004 for road and sea and coastal shipping transport (SCB, 2011). It turns out that the price increases for rail freight (16 %) and road freight (18 %) were about the same between 2004 and 2010. However, the road transport rates climbed gradually and remained relatively constant during the up- and downturn 2008-2010 while the rail rates remained fairly constant between 2004 and 2007, increased sharply in 2008 and 2009 and decreased again in 2010.10 Figure 7 shows also that sea transport prices are set on a global market and more sensitive to business cycles than the prices for the land based transports.

130 125 120 Rail 115 Road 110 Sea

105 Price index , 2004=100 , index Price 100 2004 2005 2006 2007 2008 2009 2010

Figure 7 Index for rail, road and sea transports, Index 2004=100

Shippers stated that they could reduce their transport costs because each contract can be procured in competition. It was also confirmed that there is price and quality competition on the rail freight market and that the competing operators obtained transports both from the incumbents and the road sector. The rail share of the land- based tonne-km rose from 37% (2009) to 39% (2010) (Trafikanalys, 2011).

The managing directors of Green Cargo, TÅGAB, Hector Rail, Inlandståget, and Association of Swedish Train Operating Companies develop in an article (Stöhr, Yngström, Nyblom, Eliasson, Andersson, & Vadman, 2011) that not the environmental performance of the trains explain the growing importance of rail freight

10 An interesting observation in this context is that our estimate of the average price for rail transports decreases between 2009 and 2010, though the rail track access charges were increased by 10%. In this case, the assumption that operators pass increased charges to shippers (100%) would not apply.

11 but that deregulation and improved service quality have driven the increase in rail freight, which in turn leads to less negative environmental impacts.

2.7 Remaining obstacles and challenges Despite of the positive developments on the Swedish rail freight market described above, several remaining problems were described during the interviews.

Market entrance, performance of services

According to the Swedish Competition Agency (Konkurrensverket) there have been no disputes according the Competition Act on the rail freight market (Ankner, 2010). The competing operators have though expressed verbally to the Competition Agency that they feel themselves counteracted by the incumbents. They accuse i.e. Green Cargo for price dumping (cross-subsidising between wagon load and other domestic services) and express that the incumbents have comparative advantages when they use rolling stock that has been depreciated. In 2003 The Competition Agency suggested to separate TGOJ from Green Cargo in order to promote competition (Konkurrensverket, 2002) but this was never realised. The development went in the other direction when Green Cargo incorporated TGOJ in its organization in 2011. Some of the interviewed operators perceive this as a step backward as the number of operators is reduced, while others welcome the integration because they think that there has not been no real competition between TGOJ and Green Cargo.

The Transport Agency (Transportstyrelsen, 2010) points out that the requirements to get permits and perform rail transport services according to the Railway Act of 2004 are important to ensure a high level of safety but at the same time function as entry barriers for new players. Two operators describe the registration of rolling stock in other countries (B-licences) as time consuming and costly. The problem that inadequate interoperability makes it difficult for companies to operate in several countries was taken up by the Competition Agency (Konkurrensverket, 2004).

Access to main network

In many interviews the lack of track capacity in the main network that is shared between passenger and freight trains is mentioned as a problem for rail freight. According to Transport Agency, capacity allocation has improved partly because the Railway Act of 2004 gives clearer rules (than earlier documents) for the allocation. Since 2004, operators and infrastructure managers can raise conflicts regarding capacity allocation, provision of services and infrastructure charges for examination to the Transport Agency (Transportstyrelsen, 2010). This opportunity has been used by some rail freight operators.

Access to terminals including tracks

The capillary infrastructure and the about 30 terminals for combined road rail transport are owned and managed by different stake holders: the state-owned © Association for European Transport and Contributors 2011

Jernhusen AB, the Transport Administration, municipalities, ports, road and rail operators, shippers etc. Jernhusen AB is a profit maximising corporation responsible for all estate in the vicinity of railway lines. The company has the state mandate to develop freight terminals and maintenance depots and to make them available to operators and other users on competitively neutral terms. In 2010 Jernhusen AB took over terminals that were owned by CargoNet AB (former Railcombi) since the opening of the market 1996.During that time competitors’ access to the terminal facilities was not always assured. Jernhusen AB develop incentive-based business models and associated services and reduced the customers’ prices for handling of loading units and shunting by about 40% (Huusko, 2010).

According to our interviews, the access to terminals including tracks has been improved since Jernhusen AB (who is not a competing rail operator) has taken over several terminals, but it is also seen as a drawback that Jernhusen AB has a monopoly on the unique properties. The role of the state as profit maximising owner is problematized. The Competition Agency developed 2002 (Konkurrensverket, 2002) that there is reason to transfer further parts of the capillary network from Green Cargo to the National Rail Administration (now Transport Administration).

Maintenance workshops / depots

Maintenance costs for the rolling stock make up about one third of the total rail transport costs (Huusko, 2010). During our interviews it was confirmed that most operators are dependent on purchasing maintenance services. According to the Transport Agency (Transportstyrelsen, 2010) it is not clear how the bargaining power of the maintenance market looks like. Many operators believe that the competition between maintenance companies is low and that there are regional monopolies (though there are new entrants) while several maintenance companies feel that the bargaining power is with the operators.

Shunting and marshalling services

The other operators use Green Cargo for shunting services in marshalling yards. This means that the competing operators are dependent on the major player and their competitor in the market. Since 2005 the Transport Administration is involved in the provision of shunting and marshalling services on a competitively neutral basis Sweden’s largest marshalling yard in Hallsberg and has procured Green Cargo as operator. Both the Transport Agency (Järnvägsstyrelsen, 2008(a)) and the Competition Agency (Konkurrensverket, 2002) has proposed to build an independent company that performs these services on a competitively neutral basis.

Rolling stock and staff

The general picture that we got in the interviewers is that access to rolling stock is not a problem on the rail freight market, apart from demand peaks or access to specific

13 locomotives (i.e. locomotives that can go on the Swedish and on the Danish network). There are leasing markets both for locomotives and wagons. One shipper and one operator mentioned that deregulation and shippers’ long contracts (three to ten years) have contributed to the investment in new locomotives. The Transport Administration has created incentives for investments in new locomotives as the operators can get paid for energy they return when breaking. Two operators complain though that the Swedish rail infrastructure charges do not provide incentives for investments in new efficient rolling stock that allow for the use of longer and heavier trains. This is described as a disadvantage especially for the new operators that do not own much rolling stock.

Access to staff is not considered as a major problem for operators. One operator mentions train driver shortage as a potential future problem.

Economic barriers

One conclusion for the wagon load segment (that is characterized by network elements) is that the reason for the concentration in this segment can be found in the production technology and the economic conditions and not in the maturity of the market. The wagon load system is also characterized by scale advantages and a fragmentation may threaten the wagon load traffic. SIKA (SIKA, 1997) argued that "more than one wagon load system cannot be judged to be economically viable in Sweden in the long term ".

Other obstacles

Several interviewers mentioned obstacles connected to the European signal system ERTMS, that “moves costs form the infrastructure to the rolling stock”. On the national level, the handling of the compensation of the extra costs for the ERTMS- locomotives on the Bothnia Line is mentioned as a problem. On the international level it is mentioned that different ERTMS-versions in Sweden and Denmark lead to huge extra costs for the operators. This is described as a problem, also in comparison to other modes.

Another aspect that was brought up by an operator are the Transport Administration requirements when it comes to reporting: the fact that it is mandatory to install Green Cargo's IT-system leads to unnecessary high costs for new entrants.

The lack of independent forwarders, who could play an important role in the consolidation of freight volumes was also brought up as an issue.

3. INTERNATIONAL COMPARISONS The EU-countries use partly different approaches to guarantee open entry to the rail freight markets. The UK and The Netherlands established a fully legally, organisationally and institutionally independent infrastructure manager as Sweden. In Germany the infrastructure manager is owned by the holding company DB AG that also owns one operator: DB Schenker. DB Schenker is a combination of the units DB Schenker Rail and DB Schenker Logistics, comprising rail, road, air and sea freight and contract logistics.

Conditions between the national markets differ: the German market is by far the largest; the share of manufactured products transported is tentatively higher in Sweden and Germany as in the UK and The Netherlands. The rail infrastructure charges are comparatively low in Sweden11, the German Lkw-Maut is levied as distance based road infrastructure fee. Despite these differences, the developments in the countries considered are quite similar.

Table 3, that is based on our calculations above for Sweden and the European Commission’s monitoring report and statistics, shows that the new operators have increased their market shares but that the incumbents (still) have a quite strong position in Germany (DB Schenker Rail 78 %), in Sweden (“Green Cargo group” 76 % ) and in the Netherlands (DB Schenker Rail Nederland 75%).12 The largest operator in the UK is DB Schenker Rail UK with a 56% market share, followed by Freightliner Ltd (20%) and Freightliner Heavy Haul Ltd (15%).13

Table 3 Rail freight market in Sweden, Germany, UK and Netherlands 2008

Sweden Germany UK Netherlands

Number of operators (valid 17 315 26 - licenses) Market share of incumbents 76% 78% 0% 75% (tonne-km)

Rail tonne-km (EU pocket 22,9 115,7 billion 24,8 billion 7,2 book) billion billion Increase in rail tonne-km 1995- 21% 64% 65% 132% 2008 (4 billion (45 billion tonne- (9 billion tonne- (4 billion tonne- tonne- km) km) km) km) Rail share of land based 35,3% 22,2% 11,5% 5,4% transports 2008 Sources: (COM(2009)676 final /2, 2010) own calculations for Sweden, (EUROSTAT, 2011)

11 2007-2009 the charges for a typical freight with 960 gross tonnes were five times higher in The Netherlands, six times higher in Germany and eight times higher in the UK. (ITF, 2008). 12 In the Commissions monitoring report (COM(2009)676 final /2, 2010) DB Schenker Rail Nederland is categorized as incumbent but not DB Schenker Rail UK 13 Both in Sweden and in Germany, entrants increased their market shares during and after 2009.

DB Schenker Rails’ activities in The Netherlands and in The UK are examples for the development that state railways operate in other countries than their home country. State railways have taken over other state railways and private companies. The consolidation in the European rail freight sector has been accelerated by the recession (COM(2009)676 final /2, 2010). The German non state-operators see a need for the European completion authorities for follow the concentration process (mofair e. V. (Hrsg.), 2011). One of the more newly established operators in Sweden believes that the national state railways 'breakthrough' in each other's markets facilitate the establishment of private operators.

Starting from a high rail share of the land-based transports of 35% in 1995, the tonne-km increase 1995-2008 was lowest in Sweden (21%) and highest in The Netherlands (132%). The increase in absolute terms was though ca. 4 billion tonne- km for both Sweden and The Netherlands. The high increase rates for Germany and the UK can be explained by the fact that tonne-km decreased before 1995. The increase rates are much lower if 1990 is used as base year (Germany 14% resp.UK 37%).

In the other countries the new operators entered, as in Sweden, the markets for combined transport and for system transports. DB Schenker Rail is the only operator on the sub market for wagon load, which comprises about 40% of German the rail freight market. An additional problem in Germany is connected to rail electricitry (about 15% of the total rail transport costs) that is sold by DB-Energie and gives DB AG possibilities for price discrimination and information about the use of track capacity and the design of track user fees.

4. SUMMARY AND CONCLUDING REMARKS The Swedish experience shows that it took time until the opening of the market influenced market shares. Apart from the entrance of MTAB (the subsidiary of the state owned mining company) the entrants did only take marginal market shares the first eight years after the deregulation in 1996. Besides TÅGAB, the Swedish operator that grew successively, the increasing market share of the newly established operators is explained by the entrance of operators that are not Swedish owned since 2004. The incumbents in what we defined as “Green cargo group” co- operate and compete with each other. From 2011 the structure is refined, TGOJ is integrated in Green Cargo AB and Green Cargo AB is no longer part-owner of CargoNet AS.

All new operators enter the sub markets for combined transport and system transport while Green Cargo remains to be the only wagon load operator. This is due to characteristics in the production system and required access to shunting services (that are performed by Green Cargo). The development has been similar on the much larger German market. One question that arises is to what extent the combined

16 and system transport services take volumes from the wagon lad sector and make it more difficult to perform efficient wagon load transports.

Efficiency has increased gradually since the opening of the Swedish rail freight market. New and more effective services have been developed, both as a consequence of direct and threatening competition on the rail market and intermodal competition. Many of the effects that were desired with the market opening such as new operators, better services, lower costs have been achieved. The rail freight operators’ profitability is, though is relatively poor, which can make it difficult to get access to capital and can be an entrance hinder for potential operators.

Increased rail tonne-km can be interpreted in that way that rail prices and services have improved and made rail more attractive. The increase cannot only be contributed to the deregulation; but it is obvious that the deregulation has not been a stumbling block. More analysis is needed especially when it comes to the European comparisons and contribution of different factors.

The Swedish experience also shows that it takes time to set up procedures and that the different stake holders need time to find their role. While access to staff and rolling stock is not seen as a major problem there are remaining obstacles regarding the access to the infrastructure and common functions and facilities in and in connection to the terminals.

The development of the Swedish rail freight market is not unique – especially in the light of the on-going internationalisation and consolidation on the market. In that context, it is important to ensure that large players that cover several countries and/or several modes and forwarding services do not jeopardize success of the rail freight market. It is a challenge for the stake holders both in national and cross boarder traffic, to improve the rail transport system and to reduce that type of costs that do not exist for the competing modes.

ACKNOWLEDGEMENTS The paper is based on the project “Uppföljning av avregleringen av godstrafiken på järnväg” funded by the Swedish Transport Administration. A Swedish report will be finalised by January 2012.

REFERENCES

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