September 28. 2021. 6:32

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European rail freight getting back on track, boosting economy and environment alike

While the European transport sector accounts for more than 25% of the European bloc’s greenhouse gas emissions, rail is responsible for a mere 0.4% and is the only mode of transport to have reduced its emissions and energy consumption since 1990. It’s not surprising, then, that the EU is determined to shift much of the existing freight road transport to rail. EU plans to celebrate the “Year of Rail” were somewhat put on ice during the most acute phases of the public health crisis, but—in a promising sign for the economy and the environment alike—renewed attention and investment is now flooding into European rail freight.

Public sector: Spain sees pandemic recovery money as chance to boost rail freight

This renewed confidence in rail freight is coming from European governments and private firms alike. In June, Spain’s transport ministry announced that it plans to dedicate €1.5 billion of its pandemic recovery funds to improving the country’s freight movements, with much of the spending focused on shifting freight traffic from road to rail. Madrid is hoping that the influx of cash will help achieve its ambitious goal of increasing rail’s market share from its current 4% of net tonne-km (a figure which lags substantially behind the European average of 18%) to 10% by 2030.

Roughly €1bn of the funding will be devoted to modernizing Spain’s freight distribution network with an emphasis on its railways, including through the development of four new rail freight terminals in Madrid, Barcelona, Valencia and the Basque province of Álava and the improvement of Spain’s rail freight links with other European countries. Another €365 million is slated to help promote sustainable rail transport, including through offering eco-incentives and purchasing dual voltage and variable gauge rolling stock. The funding comes at a vital time, since as Spanish infrastructure secretary Sergio Vásquez Torrón noted, Spain has already seen its freight traffic, particularly on the road, rebound to pre-pandemic levels.

Private sector: Leading Belgian operator Lineas finding funds to accelerate growth

This rebound in freight traffic which Spain and other European countries are experiencing is also spurring private companies to seek new sources of financing in order to take advantage of investment opportunities. Belgian market leader Lineas, the largest private rail freight firm in Europe, secured €60 million in additional financing in January. The deal, which saw Belgium’s national railway company (SNCB) relinquish its final 10% of what was once its subsidiary, is intended to bolster Lineas’s international expansion plans.

While Lineas is already present in Belgium, France, Germany, the Netherlands, Italy and Spain, its network remains quite centralized. As CEO Geert Pauwels explained: "Until now, each of the routes was linked directly or indirectly to Belgium.” With the assistance of the new influx of capital, “the idea will now be to create new hubs, from which [Lineas] will leave to connect other destinations". Lineas has already embarked on its first international investments after the capital injection; in April, the Belgian freight firm acquired the Netherlands’ International Rail Partner (IRP) in order to reinforce its access to the port of Rotterdam and pick up IRP’s 12 locomotives.

More substantial acquisitions may be on the way, in particular given reports from industry sources that Lineas is in the process of finalizing a sale and leaseback operation which could see the Belgian firm net several hundreds of millions of euro for its roughly 250 locomotives and 7000 wagons. Such an operation, if confirmed, would likely raise renewed questions about the fact that the SNCB sold nearly 70% of its stake in those same assets for a mere €20m back in 2015, particularly given that the company which became Lineas was valued at €510m in 2011. Lineas did not respond to a request for comment on the reported sale and leaseback scheme, but such a substantial deal would greatly increase the private company’s financial flexibility and allow it to make sizeable acquisitions in order to compete with state-owned rivals DB Cargo and SNCF Logistique.

Reason for optimism, but further support likely needed

The fact that both public and private actors in Europe are making substantial moves to shore up their rail freight networks is an encouraging sign that the darkest days of the pandemic-induced recession may be over for the transport sector. It’s also a promising sign for European emissions goals which can likely only be achieved by shifting a substantial portion of road-carried freight onto the rails.

Even so, the coronavirus crisis is still weighing heavily on the European rail sector—despite the positive developments in the sector, rail freight revenues are still substantially lower than in 2019. What’s more, operators have voiced their concern over what will happen if pandemic-era support measures such as track access waivers lapse before the market recovers fully. Under the circumstances, it’s not surprising that rail associations have called on the EU to extend the ‘Year of Rail’ to 2022 as well—more time is clearly needed to build on the current positive market signals.