The future for rail in Sweden should – and could – be bright

The Association of Swedish Train Operating Companies (ASTOC) acts on behalf of Sweden’s train operators. It seeks to represent the interests of commercial rail traffic in its dealing with the Government and Parliament, authorities, business principals, the media and other bodies. ASTOC also assists in increasing the rail industry’s know-how and competitiveness by providing information, advice and services to members. The CEO, Mr. Peder Wadman, runs the daily operations together with a handful of employees working at the association’s office in central Stockholm, including the regular input of staff resources from several member companies.

The Association can trace its roots all the way back to 1876 and the early days of rail services in Sweden, when privately owned railways had an important role. After nationalisation, the Association was mainly dormant for several decades. However, following the many reforms in the sector since the 1980s, with the vertical separation of track infrastructure from operations and the step-wise market opening process leading to a number of new entrants, the Association was reborn by the end of the 1990s. Today, ASTOC has 23 train operating member companies (see Figure 2), covering both the passenger and freight side of the industry and a wide spectrum of ownership structures: private, public (state or regional authorities), semi-private, and companies of both Swedish and foreign origin. In addition, the vehicle maintenance firm EuroMaint recently became an associated member of ASTOC.

One of the most important tasks of ASTOC, in recent years, was the procurement of a collective third-party liability insurance agreement for the Association’s members. The end result of this process was a liability insurance solution that is considered to have the most competitive rates and conditions in Europe (according to Marsh Bench Marking for the Transportation sector). This was possible to achieve by means of a combination of factors, including the collective procurement approach (directed towards both the national and international market) involving smaller firms as well as the major companies SJ and Green Cargo, efforts to explain all the risk factors for train operating companies and the creation of a specific risk profile based upon real claim and incident statistics as well as information on the distribution of responsibilities between operators and Banverket, the infrastructure manager. The agreement reached also enabled customisation, with differentiated terms and conditions adapted to the size of each company’s operations. Thus, it was suitable to apply both for the small and the very large member companies. Looking at participation, over 85% of today’s total traffic is included in the facility. During 2008, rolling stock insurance was added as an additional opportunity for ASTOC members. All-in-all, Mr. Wadman considers the liability insurance deal to be one of the main achievements of ASTOC and a clear-cut benefit coming from combining the forces of its members into one co-operative organisation.

The ‘Swedish model’ of decision making, seeking the views and cooperation of many different stakeholders before reforms are implemented, puts its mark also on the work of ASTOC and its relations with authorities and other organisations. In particular, ASTOC has worked closely with Banverket on a number of important issues. One example is the ongoing development of a new standard for traffic agreements between Banverket and the operators, including performance-based elements. Rather than having the Government developing and enforcing this kind of regulatory framework, the sector has found it important to actively take part in the development, seeking a solution that is mutually beneficial for both operators, the infrastructure manager and not least the end customers using the services.

ASTOC is also working closely together with the newly formed regulator, the Swedish Transport Agency, as with its predecessor, the Swedish Rail Agency. When ASTOC found out that the rules on safety and security developed by the Agency for the railway sector were not sufficient to meet the current demands Swedish and EU laws put on train operating companies, ASTOC initiated an effort to develop additional sector rules. Thereby, member companies could easily obtain a complete set of general rules, with only a limited need to develop additional company-specific rules.

Naturally, ASTOC’s members are affected by changes in the regulatory framework, and some of them would not even exist without previous regulatory reforms. The step-wise approach of reforming the Swedish railway sector is an ongoing process that has picked up speed in recent years. The Government has recently (June 2009) decided to go on with deregulation and market-opening as a way to adapt to the increased possibilities for international passenger services from January 2010. In a rather radical approach, the domestic rail services are now to be opened up for on-the-track competition, to be fully implemented in 2012. ASTOC has taken a generally positive view on this development, but has highlighted the necessity to handle a number of outstanding issues in order not to have the reforms backfiring. One of the most important issues is the lack of sufficient capacity for additional railway services, in particular close to the three major cities. The Government is currently exploring the possibilities to have differentiated track access charges, possibly similar to road congestion charges. ASTOC believes that this may have a positive impact regarding the efficient use of the available capacity, but it can never replace the need for additional investments. In particular, if the sector is to continue to develop and grow in the long-term, additional track infrastructure investments are necessary.

The historical development highlights the positive long-term development that can be achieved when market opening is combined with appropriate investments. In the early 1990s Sweden went through a period of deep recession. The Government and Parliament decided to tackle this with – among other things – heavy investments in rail infrastructure, paving the way for improved railway services, in particular regional passenger services and faster long-distance trains. This marked the beginning a period of remarkable growth of the number of passengers travelling by rail (also in terms of market shares), as can be seen in Figure 1. Later on, freight volumes also started to take off, eventually making both passenger rail and freight rail reaching all-time-high levels in 2008. The negative side of this is that the capacity built up by the investments of the 1990s has now been consumed. Today’s capacity constraints are making large chunks of the current network vulnerable to disturbances and it leaves little room for additional rail traffic.

As Mr. Wadman puts it: “When the State has invested in infrastructure, we (the operators) have delivered. In order for us to continue to deliver, the State must continue to invest”.

In these times of recession and financial crisis, ASTOC and its members find it important to point out that the Swedish railway sector, despite a drop in demand for passenger services and a sudden 30% loss of freight volumes, is not screaming for additional public money to save the industry (like the bank or the car sector). Instead, ASTOC asks for investments to be made in order to provide a foundation for additional and continuous growth once the recession is over.

Parallel to the forthcoming introduction of on-the-track competition, several other changes in the regulatory framework and business conditions for train operators are foreseen. A Government committee has recently suggested a far-reaching deregulation of all public transport services and a new framework for the supply of tendered (public obligation) services and their interface with commercial services. Moreover, as a way to improve coordination and efficiency, it has recently been suggested to merge the National Road Administration (Vägverket) and the National Rail Administration (Banverket) into a new authority, also incorporating elements of the corresponding authorities for sea and air transport. Consequently, a new super-authority for the entire transport sector would be formed. Regarding the public transport reforms, ASTOC is mildly positive but highlights the need to get a smooth transition from the current system to the new one. Merging the transport authorities bears the risk of creating a bureaucratic giant without focus, diluting the specialist competence needed for each transport mode. ASTOC has instead suggested the creation of a proper transport ministry (which Sweden has not had for a very long time) acknowledging the importance of transport and taking the appropriate political responsibility.

The role and importance of European Union affairs is increasing, affecting the Swedish railway industry in many ways. Since 2005, ASTOC has been a member of the Community of European Railways and Infrastructure Companies (CER), closely following the development of EU regulations, directives, guidelines and the development of common standards. The current Chairman of ASTOC, Mr. Jan Sundling (former CEO of Green Cargo) is a member of the CER Management Committee.

Sweden, as an industrial nation, is depending upon its abilities to export products to other countries, not least within the European Union. For ASTOC, this translates into a strong interest in the conditions for international rail freight services. Given the perceived problems by some of its members to get reliable and competitive rail freight movements from the Swedish border and across continental Europe, ASTOC therefore welcomed the new proposal from the Commission in December 2008 regarding a regulation for rail freight corridors. In ASTOC’s view, higher priority for rail freight services is necessary if the European rail sector is seriously looking to regain some of its lost market shares.

On a related matter, ASTOC has made it its mission to improve the possibilities for train operating companies to have its own staff running international trains on trips lasting several days, including several consecutive nights away from home. The current rules regarding these practices are very strict and limiting. In a joint effort with other CER members, ASTOC (partly through its partner Almega – organising Swedish employers) has taken part in negotiations with the trade union representatives on a reformed system that would allow additional nights away from home and a more flexible application of rules. So far, it has been impossible to reach an agreement. ASTOC therefore believes that the Commission needs to step in and take a closer look at the current rules and practices and how they compare to other transport modes. Unless the rules on working conditions become more harmonised across modes, the railway sector would continue to be at a competitive disadvantage, regardless of all the other efforts made by the EU institutions to improve the conditions for rail.

As a final note, ASTOC firmly believes that the future for rail in Sweden and Europe should – and could – be bright. However, the actual outcome depends on the concerted actions of a number of organisations. The competitive situation for rail can clearly be improved by several reforms seeking to shift the balance to rail from other modes. Nevertheless, a large part of the responsibility lies on the sector and the railway and infrastructure companies. They need to reform themselves and adapt to the demands of their customers if they want to be relevant players on the European transport market.

Figure 1: Railway transportation in Sweden 1970-2007

Figure 2: ASTOC Member Companies 2009