Will continued pandemic-related rail support help in reaching 2030 goals?

Pandemic-related support schemes for the railway sector via adjusted track access charges could be a longer-term measure to support the modal shift to rail. This was discussed at last week’s Track Access Charges Summit held this week in Rotterdam.

EU member states were permitted to provide state aid in the form of track access charges (TAC) waivers or reductions until 14 April. The measure was recently extended until 31 December, 2023.

More and more countries are beginning to see TAC flexibility as a means of supporting rail freight, European Rail Freight Association (ERFA) secretary general Conor Feighan explained.

Over the past two years, TAC was waived or reduced in several countries, among them the Netherlands, Austria, Belgium, France, Italy, Luxembourg and Germany. In 2020, this resulted in the lowest total amount in TAC paid in five years, according to figures of the 10th Market Monitoring Report of the Independent Regulators Group (IRG) published this month.

‘Markups can only be applied when the market can bear it’

Whether lowering the TAC is the right solution for the future is up for debate. Support for the rail freight industry is needed regardless of the pandemic, Feighan said. The current share of rail in the modal split rail is 11 percent, still a far way from the envisioned 30 percent in 2030, and there are still many obstacles on the way.

Stefan Marschnig, assistant professor at the University of Graz believes that there are other, better alternatives. “Rail transport is not cheap, there are costs involved. Sure, you can eliminate markups that the market cannot bear, but not the direct costs, which are needed to provide good infrastructure”, he said.

Markups are additional costs related to certain variables, intended to incentivise a certain behaviour. For example, it could make transport on congested routes more expensive, and traffic on less consumed routes cheaper. However, markups can only be applied when the market can bear it. The direct costs are those costs incurred by the infrastructure manager for operating the network.

State aid could end up in the ‘wrong’ hands

According to Marschnig, a better option would be to provide state aid or compensation schemes for certain market segments. “In Austria, rail has a 30 percent modal share. There are certain segments that receive subsidies, such as single wagon load traffic. TAC reductions are not going to get us to the 30 percent or higher modal split in Europe, much more is needed to achieve these volumes”, he commented.

The risk with state aid, according to Feighan, is that it could easily end up with an incumbent (company linked to a national holding firm), something that is not desirable as it would increase the dominant position the company already has. This was the case in Germany, where the government wanted to support DB Cargo, a form of state aid that was blocked by the European Commission.

“Supporting certain market segments could lead to similar situations, as single wagon load is often carried out by the incumbents for most of its part”, he added. “During the pandemic, support via track access charges was the best available option. But for the longer term, this measure will need to be investigated much further.”

Not just about the money

There are other elements that are not favourable for the longer-term support package, Dominik Huebler, economic consultant at NERA Consulting, said. “For example, the fact that under the current directive waivers are paid out retroactively results in a situation where railway undertakings are receiving money for the operations they are carrying out. Instead, we need to look at how we can incentivise more traffic on the rails.”

“We should not forget about the bigger picture”, Kogler adds. “This bigger picture is that other sectors do receive considerable support, while we want to have more cargo on the rails, away from the road. We somehow need to tilt that balance, with any kind of support.”

A version of this story first appeared on RailFreight.com, RailTech.com’s freight-focussed sister publication. 

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Author: Majorie van Leijen

Majorie van Leijen is editor of RailTech.com and RailFreight.com, online magazine for rail freight professionals.

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