European ports seek hinterland links

As highways near saturation, Europe's largest container ports are turning to railroads to improve freight mobility.

By Michael Babb -- Logistics Management, 9/1/1998

European container-port operators have their work cut out for them. Containerized shipments to Europe are increasing steadily at a rate of about 5 percent each year, straining capacity and creating a need for more infrastructure investment. In 1996, more than 34 million twenty-foot equivalent units (TEUs) arrived at the continent's deepsea ports, five of which now boast membership in the exclusive "Million-TEU Club": Rotterdam (5 million), Hamburg (3 million), Antwerp (2 million), Bremerhaven (1.5 million), and Le Havre (1.2 million).

Port operators are fully aware that even greater change looms on the horizon: Giant container ships, carrying 6,000 and eventually 8,000 TEUs, are on their way. These so-called "post-Panamax" vessels will change the economics of shipping and port operations. For one thing, the super cargo vessels will likely limit their calls in Europe to two or three major ports. And because these enormous ships will carry more containers but will call at fewer ports than most ships do today, Europe's ports will have to change their operations and infrastructure to accommodate the enormous volumes a single ship will load and discharge in one day.

Ports are responding to these challenges by spending hundreds of millions of dollars on deepening their harbors, installing the latest automated equipment, and improving their supporting logistics and transportation infrastructures. The French have coined a phrase to describe the process: "massification," they call it--making things bigger and more cost effective.

Europe's container ports also are trying to compete by reducing terminal handling costs to very competitive rates. At Le Havre, for example, the handling charge per container is about US $150--barely a third of what American ports charge. Yet the cost to move that same container inland to Lyon may be nine times that amount. (See Figure 1.) Better transportation connections to the hinterland, therefore, could become an important differentiating factor for Europe's container ports.

Sustainable Mobility

The ability to move cargo into and around Europe is referred to as "mobility" by transportation experts like Bryan Stone, an intermodal transportation consultant in Basel, Switzerland. The big question for Europe's ports, says Stone, is whether that mobility can be sustained into the next century. If the demand for mobility grows, will Europe be able to sustain it by its highway network alone, or must it better develop other transportation services?

Ever since the first containers were unloaded at Bremerhaven in 1966, most of the international cargo entering Europe has reached its final destination by truck. Trucking has become Europe's main method of transport for containerized cargo, with volumes growing by 50 percent over the past 30 years. Trucking remains the backbone of the European shipping industry; in 1995, 77 percent of the 1.58 trillion ton-miles logged by containers in Europe were handled by truck. It also is the most cost-efficient mode of transport, with rates falling by about 30 percent since European trucking was largely deregulated in 1990.

Trucking, therefore, has become the benchmark for cost and performance standards across all modes of transportation. Yet trucking's success is not without its drawbacks. Congestion and environmental concerns have become major policy factors in the European Union (EU). The European Commission's (EC's) DG VII committee, which is responsible for transportation in the European Union, has concluded in its "EC Motorway Network Perspectives" report that many roads will have "capacity problems" by 2010. Demand, if not checked, is forecast to rise by a further 40 percent by that year. The most severely affected areas will be the Benelux countries and northwestern Germany--precisely where North Europe's major ports are located.

Roadway expansion, meanwhile, is not a realistic option for financial, space, and ecological reasons, notes Bryan Stone. He puts a price tag of $140 billion on the cost of congestion in 1995--and it has gotten worse since then. Adding to trucking's problems is the fact that road vehicles belch out 25 percent of all carbon dioxide emissions in Europe.

Rail Dissatisfaction

If trucks are causing such a problem, why aren't Europe's railroads stepping in? One reason is that the railroads' customers show a marked dissatisfaction with rail service. "Users know that rail opportunities are not being properly used," says Stone. "Liner companies complain that railways are unresponsive, are still product- and tariff-obsessed, and are far away from their users' world of global competition, costs, markets, and changing demand."

That difference in outlook is a product of history. Because each European country still has its own national state-owned rail company, there is no coherent rail network. The one exception is Britain, where rail service already has been privatized. In general, however, the story of European railroads is a story of entrenched, state-owned and -subsidized monopolies, with powerful unions and high-salaried government bureaucrats who resist change. The system is plagued with inefficiencies and inconsistencies.

Another issue that hampers the competitiveness of Europe's railroads is that most of them treat freight transportation as a low priority. Unlike the United States, where passenger traffic has all but vanished, Europe's main railways carry mostly passenger traffic, which generates high revenues. In Europe, freight trains sit and wait on sidings for hours while commuter and intercity trains whiz by, says Thierry Vaillant of Le Havre's Department of Inland Transport. Even maintenance work takes priority over freight traffic, he complains.

There are other reasons why freight trains aren't successfully competing against trucks for inland container traffic. For one thing, frequently encountered tunnels prevent double stacking of containers, so trains have to be longer in order to carry enough containers to be cost-effective. But the pneumatic brakes in use throughout Europe limit train length; just switching to electronic brakes could double a train's length and therefore its capacity, say experts. Perhaps most baffling of all: In some countries, such as Spain and in Eastern Europe, the rail gauge is different so containers must physically be transferred from one train to another before crossing a border. Even where tracks are the same gauge, locomotives must be changed if signalling systems are incompatible, and train crews may have to be exchanged if there are language problems.

If the European Commission has its way, though, railroads will become a more competitive and viable option for inland container transportation. The EC made a first attempt to open access to rail lines with Directive 440/91. This requires EU member states to separate their rail infrastructure and operations, and to allow competing rail operators to use the infrastructure on equal terms. In other words, under 440/91, the same rail infrastructure, which normally is state-owned, can be used by competing intermodal operators to provide service to various markets. The railroads' customers may become their own operators, or they may sign independent contracts with traction companies (providers of locomotives) for haulage.

Needless to say, Europe's entrenched national railways aren't enamored with the idea of open access, although the United Kingdom, the Netherlands, and Sweden are notable in that they are making some progress. "They are beginning to see this as the solution to the problem," observes Stone, "but we have to move fast. Some national railroads are actually putting up the barricades." What they are trying to block is a wave of major deregulatory laws and directives that the European Union is issuing this summer; if these are effective, it will be hard for the railroads to hold back the tide of change.

Europe's governments also are heavily promoting rail and intermodal service as one antidote to the air pollution that has plagued Europe for decades. That should bode well for intermodal services in Europe, but in fact there have been few success stories. One of them is Intercontainer-Interfrigo (ICF), a joint marketing venture formed 30 years ago to provide intercontinental rail service for Europe's ports. ICF handles about 1,300,000 TEUs per year and is growing at about 8 percent per year. But as Chief Financial Officer Mark Smith remarked at a recent press conference, considering the increased demand for rail services due to road congestion, his business ought to be growing at twice that rate.

But government promotion of rail-freight service clearly isn't translating into market acceptance. "It is true that governments and the public give wide acceptance to alternative services such as railroads," says ICF spokesman Urs Muller. "But in the transportation market, [the perception of] railroads as the 'environmentally friendly' transport solution is not the reason why forwarders or shipping lines use this method. Railroad is accepted if prices and quality are better than competitive modes of transport," he believes.

Ports Invest in Railroads

Despite all the negatives surrounding rail service, European ports still see intermodal transportation as vital to their future success. To make sure railroads serve them well, they are actively investing in service and infrastructure improvements.

The Port of Rotterdam, for example, is investing 7 billion guilders (US $3.5 billion) in a dedicated rail-freight connection with Germany over the next few years. Rail freight's share of inland transportation at Rotterdam, just 7 percent five years ago, has more than doubled to 15 percent today. Various intermodal operators already run some 250 inbound and outbound trains a week from that port. One example is European Rail Shuttle, owned by ocean carriers Sea-Land, Maersk, and P&O Nedlloyd, which ran 130,000 TEU in 1997 on daily shuttles to Italy and Germany.

In France, there is less road congestion around the Port of Le Havre, which has favored truck transport to the extent that 73 percent of all containers move out by road. Le Havre does not enjoy a favored rail position, since the French national rail freight system, CNC, is built around the main hub of Paris. This may be good for freight distribution around the country, but it cannot compete for large shipments out of Le Havre, says Vaillant. Another unfavorable factor is that CNC freight trains are limited to 750 meters in length, which means they can only take 60 to 80 containers at a time, he adds.

To overcome these obstacles, the port has created an agency called Le Havre Shuttles (LHS). To demonstrate that it can rival other ports in connections to Europe's heartland, LHS now offers three shuttles per week to Strasbourg, with an ambitious goal of transporting 15,000 containers per year. LHS uses the CNC's hub system, so it is not a true block train at the moment, but it offers shuttle prices that it says are one-third the cost of standard rail-freight service.

Although the port complex of Bremen and Bremerhaven in Germany has not directly invested in rail operations as have Le Havre and Rotterdam, it leads Europe in the amount of cargo it doesn't put on the road. That's a strong competitive selling point, officials believe. "The strengths of the ports of Bremen/Bremerhaven are scheduled rail connections and short-sea shipping," says ports spokesman Hartmut Schwerdtfeger.

Of the ports' entire container volume of 1.7 million TEUs in 1997, about 20 percent was transported by rail and 45 percent moved by feeder vessel, leaving just 35 percent to travel by road. Likewise, of the nearly one million automobiles that pass through the Bremen/Bremerhaven harbors each year, ports operator BLG boasts that nearly half were shipped by rail, 20 percent by feeder vessel, and the remainder by road. "Container and automobiles together are nearly 90 percent of the entire cargo volume of BLG in Bremen and Bremerhaven," says Schwerdtfeger. "As far as we know, the share of water and rail within the hinterland traffic of the ports is relatively high and leading in Europe."

Hope for the Future

Clearly, European ports and governments have numerous reasons for promoting intermodalism as the best method of transporting containers between deepsea ports and inland destinations. But it will be an uphill battle to gain market acceptance. Political, cost, and service issues all are hampering intermodalism's success in Europe, even as road congestion threatens truckers' ability to deliver goods on time.

Will intermodal port connections in Europe ever reach the level of popularity they enjoy in North America? Stone expects that trucking will remain the core of European inland haulage because of its ability to meet changing market demands. "[Trucking's] response to demand-led logistics planning and supply-chain management is perceived as better than rail or intermodal today," he says. Europe's ports and intermodal services will have to work closely together if they are to overcome that perception and move more of the continent's containerized freight over the rails.