“We are consolidating and strengthening our European network”

Thanks to strong companies, and cooperation and joint ventures with partner railways which have matured over the years, DB Schenker Rail offers rail freight services throughout almost the whole of Europe. DB Schenker Rail comprises the three regions East, Germany/Central and West. The regions are supported by central functions such as production, sales management, finance and human resources. Business activities in the Region are carried out by highly efficient subsidiaries, which act, according to market requirements, either as full railway companies or as pure operating companies. Above and beyond this, specialised sales, forwarding or logistics companies are active in national and cross-border markets1. In an interview for Global Railway Review, Dr. Alexander Hedderich, CEO of DB Schenker Rail, explains how the company is moving forward and its commitment to strengthen its European network.

Dr. Hedderich, you have been in charge of DB Schenker Rail for almost 18 months now. What were your first impressions when you became CEO?

In September 2009 the company was – as were many of our customers – in the middle of the global economic crisis. We lost a great deal of business. During this period we had the task of developing a new approach for the company. There were many fundamental questions on the agenda: how do we handle wagonload? What should we do in intermodal traffic? How can we take advantage of our European network and strengthen it?

These are strategic questions. Does your management have answers?

We were setting the course in the years 2009 and 2010. For example, wagonload: it is the backbone of our business. This fact has become increasingly clear, so we will be developing this part of the business – although it is the most difficult part of our business when compared with intermodal or block trains. And between the years 2008 and 2009, wagonload business shrunk by a quarter. We are currently optimising the whole system, with numerous targeted measures. If we manage to implement this concept at a European level, I am optimistic that we have a positive future with a good product line-up. And our results for the financial year 2010, which will be presented by the end of March 2011, will show that we have set the right course. We are back in the black numbers – at least on EBIT-terms – and we will continue on the path of growth.

You co-founded XRail as a clear commitment to international wagonload traffic. How is this organisation progressing?

 XRail’s message to customers is that the seven freight railways involved want to work in partnership and, in the long-run, establish a quality network which covers the whole of Europe. To this end, the existing networks between partner railways are being consolidated and further regions should naturally also join. XRail partners are shortening the time between a transport request being made and an estimate being sent. We provide more precise information on the estimated times of arrival. Improved operation plans facilitate easier scheduling. We want to use this reliability to encourage other industry sectors to move to rail transport, and to make wagonload traffic a high value product.

It will take a few years for the service to be available ‘in all its glory’ because performance improvements of this kind require considerable changes in production and IT at many rail companies. However, the start was promising. Today, XRail serves around 150 relations and reached more than 10% of all international wagonload traffic in the network. Besides the European DB Schenker Rail, SNCB Logistics, CD Cargo, CFL Cargo, Green Cargo, Rail Cargo Austria and SBB Cargo are partners in this organisation, which is open to others, who join our commitments.

Well, there are efforts of other railways to shrink their wagonload systems, so what is DB Schenker’s reaction in view of such developments?

From a German point-of-view, the XRail alliance covers more than half of the international rail traffic market. We naturally also work with other railways in France, Poland and Italy. The difference here is that the partners in these markets have not committed themselves in the same way. I have great respect for the different viewpoints of these railways. However, we need solutions in such countries. We are therefore considering how we can ensure reliable services. When Trenitalia stopped providing services at many freight terminals, we stepped into the breach with NordCargo. Rail Cargo Austria (RCA) and SBB Cargo have also expanded their services there to give support.

Today DB Schenker Rail is operating in 14 countries with its own companies or in cooperation. This is unique in the European market. How do you manage such a large network?

By following a clear strategy, we want to connect the companies into a European network, which benefits customers and their needs. The customer has a single service provider responsible along the whole length of the transport chain.

Rail transport in Germany has a market share of just over 17%; on many cross border routes, however, the market share is much lower, in spite of the fact that rail should be using its advantage especially on long routes. Within our own organisation, we can manage processes better. We are intensively working on integrating our companies in the Netherlands, Poland, Great Britain and in France. So we want to increase market share and that is exactly what we are doing by linking our domestic products across borders. A good example of this is the automotive sector. Here we are transporting between Spain and Russia, Scandinavia and Turkey. This can be added to the fact that in the automotive sector we are increasingly able to offer integrated products with our colleagues from DB Schenker Logistics. The conclusion to be drawn here is that only by having a good network with uniform quality can you hope to succeed in the market.

Does that mean working with other national railways is less promising?

That is not what I am saying; indeed there are many good examples of international cooperation. However, entering a new country always means competing on the one hand and working together in specific areas on the other. That is something the railways have to get used to. Competition in Germany has been a positive experience for us. And railways in other countries are now having the same experience with DB: competition puts them under pressure but helps them at the same time. Wagonload is the exception: numerous wagonload networks are not expedient – due to the high costs involved. Wagonload calls for a cooperative approach, which we have chosen with XRail.

You are aiming for a strategic position – how far have you come in terms of the European organisation of DB Schenker Rail?

We are currently reorganising a great deal. My main concerns are production and sales. In this context we are currently introducing new European organisational structures. We will establish continuous European planning and operations organisations. These organisations will have the role of managing the market and quality requirements resulting from the increasing internationalisation of transport chains and tightly interlink our European businesses. Our goal is creating continuous production and transport management from the consignor to the consignee and comprehensive management of the customer network.

The last downturn was hard on the whole industry. Which of the lessons learned in the crisis are also valid for the future?

Greater flexibility in cost structures. Indeed, the trick lies in creating a competitive cost base and then sticking to it, even when growth and stability return for a sustained period. To achieve this in future we will be consolidating shipments, reorganising the activities of train formation yards and marshalling yards and also changing the set-up of service repair depots in Germany. In this way we want to increase trains’ load factors, thereby increasing stability and punctuality. And we are investing in the future, in new freight wagons and locomotives.

The media and economic research institutes are now depicting a positive image of the economic situation. Are you optimistic as well?

 We are very pleased about the upward trend. But we must not become complacent. Unpredictability is often a characteristic of economic downturns. We must be more flexible to cope with volatile markets.

What are the innovations within your business that bring about the right cost reductions and lead to increased productivity?

One feature of rail is that it is an integrated system where improvements cannot be made simply through vehicles or infrastructure. There is never sufficient focus on this interconnection when the integration of infrastructure and transport is discussed. Two important projects: autocouplers, which will sensibly be introduced into scheduled freight traffic first, and longer freight trains. This would require longer passing tracks to be built now.

What future does DB Schenker Rail see in the Russian and Far East markets?

Business is taking off again. We have been transporting containers between Duisburg and Moscow since June 2010. We now want to expand our range of services because the demand is there. There are also new services planned from Russia to China. It is a huge market and, in geographical terms, predisposed to rail transport. We will be keeping it in our sights.

How do you see European developments such as freight corridors and the first rail package?

From the point-of-view of a highly populated country like Germany, with its growing share of international traffic, it is essential that current bottlenecks on the rail network will be eliminated. With the compromise achieved on the development of freight corridors, the various modes of rail transport, i.e. national and international freight and passenger transport, cannot and must not be played off against one another. Therefore it is our objective to make the most of the opportunities arising from the integrated development of European corridors, within the context of its practical implementation.

Do you see costs caused by EU legislation as a threat to the competitiveness of rail?

The fundamental concept of creating a European communication and signalling system, ERTMS, and thereby establishing interoperability, is essentially a good idea. In rail, however, we have long innovation cycles. In the changeover period, fitting both systems will result in additional costs. The rail system cannot bear these costs. And there is also the question: are we working on problems which have already been solved? For example, the use of multisystem locomotives makes infrastructure upgrades superfluous.

You are transporting goods on environmentally friendly rails – how important are green logistics for your customers?

 The days when being environmentally friendly was only a matter of image are long gone, the environment factor plays an important role in competition. Our ‘Eco plus’ service for CO2 free transport provides a good example. It was Audi AG, a highly respected German company, which first signed a contractual agreement with us to pay more for a portion of their car transport so that it can be powered by renewable energy sources. And I think you should know that we already have further companies interested in this service: Hermes Logistics and Europipe already joined in using Eco plus by the end of 2010 and I am sure there will be more customers interested in this product.

We are also constantly reducing our own carbon footprint: between 1990 and 2008, DB Schenker Rail reduced its CO2 emissions by 47%. By 2020, emissions will be reduced by a further 20%. All newly purchased shunting locomotives have a particle filter although this is not yet a legal requirement. The additional costs are around the same as the price of a well equipped family car. But that is part and parcel of wanting to offer our customers an environmentally friendly product.

Which topic is taking up most of your time at present?

 For me there are two significant challenges: keeping DB Schenker Rail on track in terms of stability, both operationally and economically. Secondly is bringing together our companies across Europe to create a strong network. That is also a cultural challenge. DB Schenker Rail is not a German railway company with subsidiaries abroad, but a European railway company with a strong presence in Germany. Our management is committed to our European strategy. And in a not so far future we will bring together a joint management team for European functions within our new DB Schenker Headquarter in Frankfurt.

Reference

1. www.dbschenker.com