The Rail Freight Challenge for Emerging Economies How to Regain Modal Share Bernard Aritua INTERNATIONAL DEVELOPMENT IN FOCUS INTERNATIONAL INTERNATIONAL DEVELOPMENT IN FOCUS The Rail Freight Challenge for Emerging Economies How to Regain Modal Share Bernard Aritua © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 22 21 20 19 Books in this series are published to communicate the results of Bank research, analysis, and operational experience with the least possible delay. The extent of language editing varies from book to book. This work is a product of the staff of The World Bank with external contributions. The findings, interpre- tations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Contents Foreword v Acknowledgments vii About the Author ix Executive Summary xi Abbreviations xvii CHAPTER 1: Rail Freight in Emerging Economies 1 Rail freight and economic development in emerging economies 1 Increasing investment in railways and efforts to reverse the loss of modal share 4 Actions by emerging economies 6 References 8 CHAPTER 2: Global Trends Shaping Transport and Logistics 9 Containerization and the transformation of global freight transport in the 20th century 9 The rise of third-party logistics and the “new normal” for supply chains 10 Disruptive technologies transforming industrial productivity and logistics in the 21st century 14 Note 15 References 15 CHAPTER 3: Regaining Modal Share in a Changing World 17 Reviving freight rail in Europe and North America 17 Specializing in traditional “rail-friendly” traffic 20 Including freight rail as part of a total logistics solution 22 Adopting innovative logistics solutions and infrastructure for bundling freight 26 Forming nontraditional partnerships involving railways 28 Developing in-house logistics capabilities 30 Investing in logistics technology and intermodal digital platforms 34 Summary of lessons for rail organizations in emerging economies 37 Note 37 References 37 CHAPTER 4: What Can Policy Makers Do to Facilitate Modal Shift or Reverse the Declining Trend? 39 Championing institutional and regulatory reforms that focus on the customer 39 Using spatial planning and land use measures to encourage the clustering and settlement of logistics activities close to rail 40 iii iv | THE RAIL FREIGHT Challenge FOR EMerging EconoMIES Investing in detailed analysis of disaggregated national freight flows 41 Using taxes, subsidies, and incentives to create momentum for multimodal transport 42 Championing pilots that foster cooperation and consolidation of freight 43 Boxes 1.1 Turning around rail freight in Mexico 5 1.2 Addis Ababa–Djibouti standard-gauge railway 5 1.3 Maintaining centralized control of rail in China 7 1.4 Stabilizing the freight rail sector in the Russian Federation 7 3.1 Transitioning from an inefficient to a modern, market-oriented railway sector in Germany 20 3.2 Increasing competitiveness by automating marshalling yards 22 3.3 Reinventing freight rail as part of a total logistics service in Europe 25 3.4 Reinventing port-centered intermodal transport in Rotterdam 26 3.5 Creating opportunities for railways: Case study of the Nuremberg freight village 27 3.6 Using a third-party logistics provider and rail transport to improve logistics at Petco 29 3.7 Shipping fresh produce from Chengdu to Moscow by train 30 3.8 Expanded service offerings at BNSF 31 3.9 Leading rail-based logistics in Europe: DB Schenker 34 4.1 Creation of a massive logistics park in Zaragoza, Spain 40 4.2 Using grants and incentives to promote intermodal rail–road transport and modal shift in Germany and the United Kingdom 42 Figures 1.1 Correlation between per capita GDP and LPI score, 2018 2 1.2 Performance of logistics in selected countries, 2018 3 1.3 Freight traffic and rail and road modal shares in India, 1950–2015 4 2.1 Evolution of the “new normal” for supply chains 11 2.2 New items that are part of the third-party logistics provider value proposition 12 2.3 Investment by third-party logistics providers to help shippers manage the “new normal” 13 2.4 Share of services that shippers outsource to third-party logistics providers, 2017 14 3.1 U.S. freight railway productivity, volume, revenue, and rates, 1964–2017 18 3.2 Optimized networks viewed through the lens of total logistics 23 3.3 Transition from current to desired transport configuration 24 3.4 Responding to the need for total logistics 24 3.5 Revenues of BNSF by business group, 2000–17 29 3.6 Operating revenues of the Norfolk Southern Railway by market group, 2000–17 33 Photographs 3.1 Wagon tipping for efficient unloading of coal from rail to barge, Königs Wusterhausen, Germany 21 3.2 Marshalling yard for consolidation of wagon loads 22 3.3 Logistics terminal in Duisburg, Germany, integrating multiple modes to meet customers’ needs 26 3.4 Heavy-lift harvesting machines on a block train 32 3.5 Double-stack container train 33 3.6 Swap bodies used to improve operational efficiency 35 3.7 Piggybacking of a container on a rail line 36 3.8 Intermodal freight—including piggybacking, single-stacked containers, and double-stacked containers—on a BNSF train in California 36 Foreword Globally, policy makers and the public aspire for more freight to be moved by rail and waterways. The environmental and societal benefits of such a shift are com- pelling. Reducing the negative externalities associated with road-based freight, such as truck-induced congestion and noise pollution, is a strong incentive for modal shift from road to rail. Understanding how to influence modal shift is important because, after sev- eral years of relatively low public investment in railways, many emerging econo- mies are making considerable investments in rail infrastructure. One reason for these investments is alignment with commitments to reduce greenhouse gas emissions by moving more freight on low-carbon modes such as railways and inland waterways. Therefore, public policy makers are interested in accelerating modal shift. At the level of firms and industrial sectors, many shippers are also increasingly responding to public sentiment to reduce the negative effects of road-related logistics, further underlining the need for modal shift. In addition to the environmental and societal drivers, there are macroeco- nomic reasons for rebalancing modal share in many countries. Policy makers are increasingly concerned about the national logistics costs of road-only freight and the knock-on effect on sectors of the economy for which logistics cost is a key factor. Macro-level indicators such as the Logistics Performance Index and Doing Business, both published by the World Bank; the Global Competitiveness Index, published by the World Economic Forum; and the Global Connectedness Index, produced by DHL, all signal to policy makers the status of national logis- tics.