Big opportunities for freight

It’s been a busy and important few weeks for DB Schenker. A new chief executive (Geoff Spencer) has taken over, and a headline-grabbing new port (London Gateway) has opened for business - at the moment, traffic is handled exclusively by Britain’s largest freight operator. 

DB hasn’t always enjoyed such positive news. It lost contracts to rival operators, while there have been mutterings for several years about staff morale. RAIL visits to firms previously served by the company heard talk of a business that didn’t really engage with customers, where the only point of contact would be with the driver of the train that arrived.

Some commentators even suggested in the past that all the business cared about was the Channel Tunnel and international traffic, and that it did not look favourably at other flows in the UK. 

Intermodal is now the largest commodity moved by rail in the UK, but DB is not the biggest player. Indeed, it wasn’t until March 10 1997, in its previous incarnation as EWS, that it ran its first train in that market (a Harwich-Doncaster intermodal train). Previously, Freightliner had cornered the market, and even today FL carries 79% of the deep sea container traffic. 

Attitudes, it seemed, needed to change. DB is working hard on that process, and new business is being won. 

The main office for DB in the UK is at Doncaster. Away from the busy yards (although the sounds of activity can still be heard from the office), senior officials are busy winning traffic. 

In the intermodal sector, that is led by Dr Carsten Hinne (managing director, logistics) and Steve Pryce (head of business analysis, logistics). They meet RAIL the day before RAIL’s National Rail Awards, unaware that their business has won the coveted NRA Freight & Logistics Achievement of the Year title. 

Hinne is a cheerful German who immediately starts chatting to RAIL photographer Paul Bigland (the pair had met at a DB intermodal conference the week before). Pryce is a more reserved Brit, but the pair chat jovially. 

The previous week, at the intermodal conference in Brighton, Hinne said: “The economic environment remains uncertain. Five years after the start of the financial crisis, it is still unclear how robust the recovery will be. Growth rates on the Far East to Europe trade lane have slowed to -1% in 2012, and the forecast is for a further drop in 2013, a significant change from the strong growth we were used to until 2008.”

That day, he said of London Gateway: “At DB Schenker we talk a lot about London Gateway, and I am not going to apologise for this. It is a fantastic development, a huge boost to the UK economy, and opens up tremendous new opportunities in the intermodal supply chain.

“But we have also been working hard with other ports. After recently adding one million Twenty Equivalent Units of capacity, Felixstowe has had another big year in 2013 with the opening of a new rail terminal, and we are looking forward to operating longer trains from this new facility. 

“Southampton for its part has greatly improved productivity, and is investing in upgrades that will allow it to continue to welcome the world’s largest container ships. We very much appreciate the support the port provides to our rail terminal there. 

“And there are exciting developments taking place at other ports outside the big three, for example at Liverpool, Teesport and Bristol.

“The developments in these sectors are very welcome - they are good for customers, and good for the health of the industry. And they are driven by competition.”

On a less positive note, Hinne told delegates: “There is one sector, however, that is an exception - slow to respond to the market, slow to embrace technological change, and defensive of the status quo. 

“I am talking, of course, about rail freight. In the years since privatisation there has been no investment or innovation by rail freight companies that can compare to what we have witnessed in the rest of the supply chain: on the seas, in the ports, and in the distribution networks of retailers.

“Why is this the case? In part it is the legacy of a state-owned industry that had long been shielded from competition. But more than this, it is the fact that, even today - 17 years after privatisation - intermodal rail freight still remains stubbornly resistant to competition. It is the only part of the rail freight market where the incumbent can still boast of having 80% market share, despite the best efforts of competitors. 

“This is not good. It is, of course, not good for my business, but nor is it good for you and for the rest of the industry. A lack of competition stifles innovation, and a lack of competition restricts choice. And ultimately, this market inefficiency is bad for the end customer.”

Hinne’s background is in overseas railways. He joined DB in 2002, and headed a strategy department in Germany working on the idea of a transport network. He believes that made the company unique. He moved to the UK in 2011, and now lives here. 

Pryce joined DB in 2007 in Germany, and worked in the western region of the business looking after Euro Cargo Rail in France. In 2011 he also moved to the UK. 

So, how does Hinne see the market? 

“We are slowly coming out of recession from a European perspective. But you don’t want to talk about perspective. We run 25% of European services and offer services to the European market. We are European-wide, and our vision is that we are now European.”

He turns to his dissatisfaction with the Channel Tunnel. “That market was always a problem. Costs are the issue there. We truly see ourselves leading the market by being innovative and inspiring. There is much potential for the Tunnel. In the UK we are net importers, and this works with the business mode. It is a big market.”

Pryce chips in. “Through the ports there is a high level of increase, 7% to 8% each year. The UK could come out of recession soon with that. Confidence increases in the market . In the past couple of months we have seen more trains running full.”

One of DB’s rivals once suggested to RAIL that the profit in an intermodal train could be found in the final few containers only. Does Hinne agree? 

“In a nutshell… the margins are very, very thin due to specific structures in the market. We have had a hard time, and we have reviewed activities in the market. We have had to be in line with profitability, because if we do things we have to be sustainable. There were services that were not profitable, and we had to stop them.

“If you are moving ten platforms there are markets where you can cover the costs, but you need to be ensuring that kind of control for the train. The point is that you need the trains to be running like clockwork. You have to also look at the supply to the terminals with road access - it all needs to be considered.”

Hinne is critical about the access available at some points. Some may call this hypocritical, bearing in mind EWS was handed the majority of freight yards when the freight industry was privatised, but Hinne says: “I am a clear believer in a free market.” 

Pryce adds: “There needs to be a development of the market. Other sectors have good competition. Intermodal is hard. The German market is highly competitive - you have to look at the market and ask how do we be competitive in it. Shipping lines need a choice.”

Hinne says there needs to be a clear belief within DB that it is neutral, and that it has to offer the best service to customers. 

“You might have seen at Southampton, we did not have our own terminal. We asked for access, but were not granted it. We know that customers want us there. We have enabled customers by building a hands-on terminal operation.” 

He describes nearby Millbrook as inefficient, and that DB is paid to look for the best solution for customers. “We need to cover costs, and to do so the service offering needs to be good.”
However, there is one new port in the UK, one that DB is very excited about. London Gateway officially opened on October 1, two weeks after RAIL met Hinne and Pryce. 

Situated on the north bank of the River Thames, London Gateway provides an additional 3.5million TEU to the nation’s port capacity. DB won the rights to operate the port, and is running trains from there. The first train to leave departed on September 23 (RAIL 732).

“We are very excited by this development, and are confident that this will be the first of many services out of the new port,” says Hinne. 

“DB Schenker is investing heavily in intermodal services, from London Gateway as well as from other ports, and we intend to offer innovative supply chain solutions with increased reliability, better quality and higher capacity than our competitors.

“London Gateway has absolutely massive potential. It is a long-term project, and when somebody spends long-term they are talking about ten to 20 years. We are there, we are first. We are talking about two trains. From November, when the port opens, we will operate regular services to Trafford Park and to Daventry.”

Hinne says that DB investigated electrifying access to the port, without success. But he does offer a hint for the future: “As soon as we get to the point of trains of high frequency, and with our attempts to be greener, we will look again.”

And he offers a suggestion as to who should lead the project. “I wouldn’t say that we should be leading the infrastructure options in what to do. We are talking to Network Rail, which sees and gets our view. We’ll let the others in. All our terminals are open. We are neutral.”

Hinne says he has noticed that customers seem to approve of the innovation DB is trying to introduce. 

“One common theme we have been approached about is how grateful customers are. There is co-operation.” 

Pryce interjects: “It goes back to the level of maturity in the market. Trucks and shipping lines - you do not have a good level of market.” 

He explains that a new IT system, Anubis, will help. Developed by DB in Europe and adapted for the UK, it makes it a lot easier for costs to be understood. The first trains from London Gateway are using it, with customers able to get transportation prices and follow the progress of their goods.”

Hinne goes on to discuss other ports. “Felixstowe is a marvellous relationship. They understand we will not only focus on Gateway. Our aim is to run 30-platform trains from Felixstowe that are 750 metres long. The new terminal at Felixstowe allows longer trains, and the trains we run there are full already.”

Even so, Pryce says DB still has to be realistic. “It is about results. When we started in intermodal, utilisation was about 70% of the train. Now we see values of over 95%. We have run 100% full for at least the last two weeks. There are intermodal markets focused on key areas such as the Midlands, South Yorkshire and the North West.” 

Hinne elaborates: “Distance is an issue. Talk about London Gateway. High frequency is in the equation. We can reduce dwell time, and run back and forth with the same trainset, and that brings the ‘break even’ point down.”

Radlett (Hertfordshire) and Colnbrook (Berkshire) are being eyed as possible locations for freight terminals, and Hinne believes that the short haul, high frequency philosophy could be used there, too. 

Which throws another possibility into the mix… High Speed 2. 

“It would free up space on the railway,” says Pryce. “It is important to go to Network Rail and tell them now what we would like to do tomorrow.” 

Hinne agrees, and says he gets the impression that NR is taking freight a lot more seriously now. 

There is also innovation on HS1. DB is so far the only freight operator to run regular trains along the route, running to Poland. Modified Class 92s haul European gauge wagons on the line. RAIL suggests that this is quite innovative, and Hinne agrees. 

“I believe there is growth potential. It is hard in the market because of pressure of the market in general. We are trying to review costs. I would like to see costs on international services down. I would like to see costs of using the Channel Tunnel down.” 

Pryce also talks about costs. “Think of the overall cost components. It is hard to make rail fully competitive. It has been very hard to compete with roads. But costs are creeping up on roads, so we are hopeful.” 

Pryce acknowledges that fuel increases also offer optimism for rail freight, as lorries become more expensive to operate.

“Customers are very, very keen on a full rail solution. When you operate in these markets it is tough, but it makes us and my team confident, and that is reflected in the way we are doing things.” 

He explains that the trains on HS1 are now operating “at a very high level of reliability”, and that real progress has been made.

In general, Pryce seems happy. “Look at services now. There has been a fast development over ten to 15 years. We have seen growth, and barriers have come down. It is starting to grow for international traffic, and there is a single European network link.”

It is then that Hinne throws in a curveball. “China? We don’t know. The market demand would say there is potential. We have had discussions in the retail market, and there could be trials. There is an appetite for it. Big and large retailers are looking at it. 

“The travel time is 18 days for China and Germany. You cannot match that. It is 30 days for ships. There is a big opportunity for freight.”