Implementing Change in the European Railway System

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Exploitable results

The 'Implementing change in the European railway system' (Reorient) project developed business and management models for various service concepts. An appropriate business model is important to make sure the required types of operators are involved and assigned adequate responsibilities. The complexity of the rail business and the great differences in potential participants' initial assets and financial situation make it infeasible to quantitatively evaluate generic business models. Instead, the Reorient team developed a qualitative survey questionnaire based on the elements of the conceptual framework to acquire information from respondents to make conclusions about the type of business model appropriate for the Reorient service concept. A survey was carried out to: - acquire information about operators opinions on the type of business model appropriate for the Reorient corridor; - identify operators interested in investing in the Reorient shuttle services and making use of the services. Survey data were collected in nine corridor countries: Austria, Bulgaria, Czech Republic, Greece, Hungary, Norway, Poland, Romania and Finland. Respondents were characterised by their size and type of business, i.e., manufacturing (20), export/import/wholesale (12), third party logistics provider (3PL) (13), fourth party logistics provider (4PL) (4), transport (20) and other (2). Respondents were asked to evaluate four archetypical business models. Each of these four different models suggests a different insight of the leader in the corridor. From the survey, we find that a diversity of international commercial terms (Incoterms) are used for the change of ownership agreement between seller and buyer in the corridor. We found, however, that the seller more often than the buyer is responsible for planning and execution of logistic operations. The responsibility overall, and in parts of the companies' transport chains, is also frequently outsourced to 3PLs and transport companies, which is in accordance with the archetypical models. From the survey responses we found that the shuttle train services will improve the ability to supply goods to/from customers in the Reorient region for 34 % of the respondents and possibly for 38 %. Especially Austria, Czech Republic, Greece, and Romania are positive. By business unit, we found that especially 3PL companies and the transport providers are positive. Manufacturers were least supportive. One reason can be that they often outsource their need for logistics and transport. Another reason can be that they are more limited than transport companies in their number of business relations, i.e., transport companies do transport for many companies, which increases the chances that the Reorient service concept is in one of their itineraries. The majority of the 71 business units belong to big companies (company turnover > EUR 100 million). The importance of the markets is apparent from answers to questions of "What would encourage you to invest in new business ventures in the Reorient countries?": Almost 50 % selected market size and scope, whereas the rest were equally distributed on institutional environment, ICT and directions from companies' top management. Market presence/expansion in Reorient countries fits for 75 % of the respondents. This confirms the analysis based on official statistics that there is a market potential for new rail-based services in the corridor.

Inter-country variability in rail market deregulation and emergence of intra-modal and inter-modal competition gives rise to important policy-effectiveness questions. Rail deregulation directives envisioned that intra-rail rivalry would improve the railways' competitiveness versus road, and over time, transfer freight volumes that today are carried by road to rail. However, the up-to-now implementation outcomes have diverged substantially from these intentions because no clear relationship between completeness of market deregulation and the types of competition could be observed. Operators in some countries established strong intermodal competition however, without intra-sector rivalry. Some others developed fierce intra-rail rivalry despite incomplete market deregulation and without venturing into rail-road contests. The latter did not bring about any diversion of freight volumes from road to rail. Findings of the 'Implementing change in the European railway system' (Reorient) project juxtapose differences between the Reorient corridor countries as regards the completeness of market deregulation and occurrence of intra-modal and intermodal competition. Results suggest that Poland and Romania developed intra-rail competition without completing rail market deregulation. Norway, Finland and Sweden on the other hand did not embark on intra-rail contest despite almost compete rail deregulation. Neither Greece nor Hungary managed to complete rail deregulation, and both are devoid of intra-modal competition. Significant facts with regard to the road-rail industry in Poland are as follows: - 60 % to150 % annual growth in new entrants' freight service, - PKP Cargo SA and PKP PLK are in considerable financial difficulties, - governmental and European subsidies to PKP and PKP PLK, - seriously deteriorating national rail network, - large investments in road-building, - no investments in rail network. Significant facts with regard to the road-rail industry in Hungary are as follows: - non-existent intra-modal competition, - market dominance of MAV Cargo, - MAV Cargo's shuttle trains compete mar¬ginally with road, - government and European subsidies to MAV Cargo and MAV infrastructure, - large investments in road building, - some investments in rail network envisioned in the future. New rail entrepreneurs indicated that before expanding into the road freight sector they had to learn how to compete with incumbents and that time was needed to build their own financial solidity because investment capital for private rail business expansion was not available. Knowledge of the business expansion cycle shows that rail-road rivalry may be contingent on: - adequate scope of managerial knowledge required for risk-taking arising from domain enlargement; - access to capital needed for expansion of production assets; - sufficient stock of own financial reserves from operations profitability. For the new rail ventures, this requires: - good knowledge of service quality required by shippers of high-value cargo; - possession of flatcars for transfer of intermodal load carrying units (containers, swap-bodies and semi-trailers); - large amounts of cash for in-house financing of capacity expansion, and/or issuing of secured equity or bonds for inflow to external capital, all needed in concert and, accompanied by good timing. The above experience provided inputs to time-paced business expansion trajectory that outlines developments from small rail start-ups controlled by professional owners, via publicly quoted large turnover companies to international corporations with networks of subsidiaries and/or joint ventures in various national markets. Recommendations: - more intra-rail competition between national and international rail freight operators will increase intermodal rivalry, - opening of rail market for financial capital inflow from private investors will increase service quality, and chances for intermodal rivalry, unification of rail infrastructure charges along trans-European corridors will increase operational profitability and application of ICT solutions for enhanced rail competitiveness.

Rail intermodal traffic in the US has grown from 6.2 million containers and trailers in 1990 to 11.7 million in 2005. The US success is due to deregulation that opened a growing market for freight transport for intermodal services because of globalisation and changes in trade flows. From the 1990s, the shipper and carrier sides of transportation have adjusted to the new environment and the benefits of deregulation have been realised. New technologies made it possible to provide competitive rail-based services that expedite big volumes of freight on a limited number of routes. A variety of types of companies - intermodal marketing companies, ocean carriers, trucking companies, or small package express carriers - became the retailers of intermodal rail freight, allowing railroads to continue their role as wholesalers of intermodal rail freight. Third party operators in US rail freight business are often referred to as intermodal operating companies (IMOCs) or intermodal marketing companies, (IMCs). It is characteristic that forwarders are usually brokers that sub-contract extensively, which is different from Europe, where the industry is characterised by horizontal logistics and the vertically integrated nature of many of Europe's leading providers. In Europe the deregulation process started later than in the US, and this process is still going on as EU expansion continues. A main difference is the private sector vertically integrated ownership structure in the US and the mixed separate ownership of infrastructure and rail operating companies.

Several rail-based shuttle services are currently in operation between countries in the Reorient corridor and western Europe, but no shuttle service is provided in the north-south direction of the corridor. This creates a window of opportunity. The 'Implementing change in the European railway system' (Reorient) consortium has consequently identified market opportunities for improved rail-based services within a corridor from the Nordic countries to South Eastern Europe. Taken together, the economic importance of the Reorient corridor, the recent trend toward greater growth in the northbound direction, the current route choices of freight flows between Reorient countries, and the fact that a proper rail service is missing in the Reorient corridor, indicate that it is possible that a new rail service could attract a considerable amount of freight from road to rail-based solutions in the Reorient corridor. We have embedded the identified factors for attracting freight from road to rail-based solutions in a set of suggested rail shuttle services in the Reorient corridor: 1. Swinoujscie-Bratislava/Vienna-Budapest: full container load (FCL) block train dedicated to movement of paper rolls to mills. 2. Trelleborg-Swinoujscie-Bratislava/Vienna: Semitrailer, swap body on flat car (SFC), and full container load (FCL) shuttle train customised to needs of third party logistics (3 PL) and fourth party logistics (4 PL) providers who buy roundtrips. 3. Gdansk/Gdynia-Bratislava/Vienna-Budapest-Beograd-Thessalonica: mixed container on flat car (CFC) and SFC shuttle train. 4. Bratislava-Budapest-Bucharest-Constantia: mixed CFC/SFC shuttle train and/or FCL (for unitised bulk). This service will compete with existing service from Rotterdam. New services need to incorporate the attributes and properties that give rails a competitive advantage. Most importantly, new services need to reduce the service requirement -- service satisfaction gap. This is the gap between what customers want from logistic operators, and their satisfaction with the level of service provided. If these gaps can be reduced, rail can gain large volumes of new freight. Section six of this report analyses the impact of improvement in the service quality as a result of barrier reduction strategies, and how various alternatives fare under different conditions. They indicate that a modest reduction in barriers can produce good results.

Researchers at 'Implementing change in the European railway system' (Reorient) found that in the more important countries with respect to a rail freight service on the north to south-east axis of Europe, Czech Republic, Hungary and Poland, rail passengers are both willing to endure a longer trip and longer waiting times in order to facilitate international rail freight. Whereas one should be careful not to put too much emphasis on statements, the results nevertheless signal a voter willingness to support EC-policies with respect to rail freight. Passengers in Greece, Hungary, Poland and Romania have a quite favourable attitude whereas Bulgaria together with Norway are less positive. Financing intermodal rail freight solutions poses a social dilemma in that other national sectors receive less. When asked how to apportion EUR 100 million, rail freight still receives substantial support, but it is clear that in countries such as Romania, having other pressing exigencies, rail receives a smaller share than in countries where health care, education and crime is seen as less of a problem. It is also clear it is primarily when rail freight solutions compete against less critical policy areas, that a contribution from the EC would bolster popular support for rail. What are the most important factors explaining support? Results from a multivariate regression analysis show that the perceived environmental risk from long haulage freight traffic on roads is not as important for social support as the overall positive perceived effect of rail freight on county and country as well as the efficacy of rail to solve such problems. When Bulgaria is included in the analyses, a strong local identity is a factor reducing social support for rail. When this country is excluded, a strong European identity is shown as having the most important positive impact.

That was the question posed by the International Herald Tribune in an article covering the recent accession of Bulgaria to the EC. They reported on demonstrations by property developers and other stakeholder groups fighting against EC environmental legislation. That it is the special protected areas that may cause international freight transport the biggest conflicts is also evident from the sharp conflict over a Polish motorway project through an important marshland area, the Porsuda valley. "On one side of the argument there are eagles, wolves and orchids; on the other side there are endless heavy lorries and burgeoning economic growth. Welcome to Europe's new environmental battleground." (Michael McCarthy, The Independent 15.3.2007). From political discourses and at rail conferences, representatives from the newer Member States argue that in their countries the definition of the Natura2000 areas precedes important infrastructure development projects. The legislation has therefore more profound adverse impacts on infrastructure development than for countries where infrastructure was already well established. Time aspects are also important. Those affected by the legislation argue that whereas environmental legislation was introduced over many years in the western European Member States, the newer Member States are required to meet the legislation overnight. However, it is also possible to argue that after infrastructure projects are already decided, it is more difficult to find good solutions. Rail freight is less in conflict with Natura2000 areas 'Implementing change in the European railway system' (Reorient) project results show that rail solutions along a north-south corridor are considerably less in conflict with EC special protected areas than long haulage truck transport. No serious conflicts were reported. This is due to the extensive rail network that already is in place and that is under-utilised. That rail overall is the more environmentally friendly solution is well known. However, our study also shows that with respect to potential conflict areas, rail is in a much better position than road along the business corridor from north to south.

Financial barriers are a major factor hindering the rapid adoption of new trans-European rail freight solutions. They are substantial and cannot be handled by the rail freight and logistic industry alone. Support for rail among the voting public and local politicians is thus critical for securing national and regional corridor development. Rail freight has a stronger position, and handles a much larger share of rail freight volumes in the Reorient corridor countries than in western European EC countries. But this does not necessarily mean that rail also enjoys popular support. The opening up to a market economy could mean that the voting public and politicians are anxious to adopt western European solutions, abandoning rail and instead adopting long haulage freight solutions. That such worries are not unfounded is evident from the Polish government transport planning document that shows that between 2007 and 2013, Poland will receive about EUR 19 billion EU funds for improvement of infrastructure and natural environment. EUR 11 billion will be channelled to building new highways, whereas EUR 4.8 billion - less than half - will go to railways. What is then the current level of social support for rail freight solutions? Language difficulties exacerbate the problems. A conceptual framework for organising the input was also missing - which factors facilitate social support for rail and which factors can be conceived as hindrances? The 'Implementing change in the European railway system' (Reorient) team developed their own survey instruments to answer these questions. Reorient ten country voter study This encompassed 2 429 interviews among voters and local politicians in 10 cities along the Reorient corridor, and 10 cities outside the corridor. Adopting a social dilemma approach, the questionnaire contained 57 questions. The questionnaire was translated and translated back into the original language to ensure that the questions were perceived the same way in all countries. A telephone survey was undertaken by a marketing company, and the results from each country checked by subcontractors for each country to ensure that the results were plausible. Social dilemma approach The current situation of European freight transport by road is a social dilemma, since gratification of one group (i.e. those in need of freight transport) has adverse consequences (e.g. traffic congestion, accidents, noise and pollution) for a larger group of people. Using national resources for balancing freight transport between road and rail is also a social dilemma, since adverse consequences for one group (i.e. those wishing to spend national funds for an alternative purpose) deter them from contributing to producing benefits to a larger group (e.g. a more healthy environment for all Europeans). Based on prior research on social dilemmas, the importance assigned to rail freight transport vs. roads, crime prevention, and education etc. will be measured. Social orientation is also studied (i.e. preference for common benefits over own individual benefits) as is environmental risk perception. This includes perception of traffic congestion, accidents, noise and environmental pollution as local, national and European problems. Local, country and European identity was also analaysed.

Potential market for new rail services in the corridor Analysis of current freight flows from a variety of EC and international data sources and expected growth based on EC research project models were supplemented with 'Implementing change in the European railway system' (Reorient) survey results of flows in the Member States. The research results indicate that a new rail service could attract a considerable amount of freight from road to rail-based solutions - There is a significant intra-corridor trade, - Reorient countries trade with other Reorient countries comprises up to 13 % and a minimum of 4 %. - An imbalance in the directional goods flows could have posed a challenge for new services. However, this imbalance is in the process of being evened out both in relative and absolute terms. - In addition to attracting flows from road haulage, the new services will also draw rail freight volumes from competing corridors in Germany. Since these at the moment carry the major freight volumes north-south, this again will have a positive secondary effect of transferring more of the western European freight flows from road to rail. - The fact that a proper rail service is missing in the Reorient corridor provides good opportunities for new services to exploit the potential. - The resulting availability and improved service quality in the Reorient corridor may increase the share of high value general cargo for rail-based services. Shippers' quality requirements The Reorient team developed, carried out, and used information from a survey among freight shippers located in the Reorient corridor to identify international shipment routes shipment types and the difference in quality of service provision versus shippers' quality requirements for truck-only and rail-based transport. It was also to identify shippers' underlying determinants for choice among available transport solutions. - Rail shipments are big and primarily shipped by big shippers. - Manufactured goods (general cargo) is the major commodity group in the market for intermodal service. - The numerous small shippers have a relatively low rail share. - Rail-based transport is cheaper than truck for the major commodity groups. Considerable shipment size and market power is commonly a prerequisite to bargain for competitive prices. - We found specifically that reliability, transit time, type of goods (e.g., hazardous versus non-hazardous, high-value versus low value) are the most important determinants for mode choice. As the value of the shipment increases, the shipper will be less sensitive to the price of shipping the goods. Satisfaction - importance gaps Results from the Reorient shipper survey confirmed the importance of certain quality factors. Essentially, the quality factors with high importance are the same for rail users and truck users, but with a slightly different ranking. The Reorient shipper survey also contains shippers' evaluation of satisfaction. For rail users we found that highly ranked factors with a big gap between ranked importance and actual satisfaction comprise: - cost of door-to-door delivery, - processing of loss and damage, - transit time, - reliability and service availability at origin. Gaps were overall considerably smaller for truck-only users. Essential factors for increasing rail-share Reorient has identified manufactured goods (general cargo) as the major commodity group in the market for rail intermodal services, and also deduced essential factors that would stimulate shippers in this market to increase their share of rail-based shipments and also attract shippers that are currently truck-only. The big shippers are particularly important, as these already have a large rail share, and have the potential of increasing this share even further. The overall higher value of goods conveyed by trucks implies that greater competitive interface for rail may capture more high value goods. Although shippers are willing to pay more for transport of high value goods, competitive prices are still crucial, because price is a strong determinant for mode choice in cases where several transport solutions satisfy the shipper's quality requirements. Companies that do not consider rail transport may have threshold requirements on the level of certain elements of transport quality. This threshold is higher than the level of quality provided by the available rail services. The big gap between importance and satisfaction implies that marginal improvement in rail transport quality may easily satisfy the minimum standards required by segments that today use truck-only transport. This may attract new customers from road to rail. But current rail customers may change from rail to other modes in case the quality deteriorates. We found that mode shifts are particularly sensitive to changes in reliability and transit time. Reorient recommendations: The competitiveness of rail is on the edge. Rail shares are more sensitive to changes in the quality of transport than road. Change processes are also self-reinforcing. This suggests that measures to improve rail need to be implemented quickly, to give them a better chance of succeeding. Improved rail transport quality may quickly exceed critical levels for attracting a greater segment of shippers' freight needs. The EC and national governments should encourage a market structure with several large shippers. These have the competence, access to equipment and wagons allowing a larger share of the shipments to go by rail. We are here only considering rail share. Reducing entry costs for small companies by providing them access to flat cars for transporting their semi-trailers can reduce the number of truck-only shippers. Logistic service providers should be stimulated to manage medium and small shippers' small shipments by offering cost effective rail-based consolidation/bulk breaking logistic services. There is a market for new rails services along the Reorient corridor, and investors should consider the proposed services developed and evaluated within the Reorient project.

How can social support be increased/ enhanced? To improve support for rail reforms, both distributional and small-minded rule-bound or pedagogical challenges must be met. The distributional aspect is the problem of a redundant work force. Depending on labour market and state policies, downsizing the number employed may, - at least in a short term perspective - carry substantial negative social costs that have to be handled. The pedagogical challenge is how to attain the change in mentality among stakeholders, business and administrative players, that will enable the rail freight industry to provide an improved service and become more competitive. At the start of the 'Implementing change in the European railway system' (Reorient) project, we thought that a country's capacity to absorb and retrain workers would be the most important factor explaining the speed and smoothness of rail reforms. According to such a theory, countries like Austria and Norway should be better off than countries such as Bulgaria and the Czech Republic. An alternative theory was that the quality of social dialogue would be the determinant. According to such an argument, the Czech Republic and Norway would come out on top. Reorient results provide more support for the latter explanation - social dialogue may thus be the more important explanatory factor. Making the transition from public utility to rail freight business is not easy. As expressed by a top manager of the Norwegian incumbent rail freight company - it would never have been possible if the rail union workers had not participated in the transition. This is easy to understand, since the whole terminal structure was streamlined in a clear decisive manner. The types of services, number of rail employees and range of worker competences needed within the company was altered. It must be kept in mind that the transition in the Nordic countries came well before EC legislation. The restructuring was implemented over a longer time period, making it easier to adapt. Participation of all stakeholders in discussions at a sector level can increase the understanding of the need for reforms, the content of the reforms and ways of implementing and refining the legislation. New RU's should be included in discussions by law where applicable. However, facilitation of social dialogue must be country-specific. Whereas tripartite and bipartite negotiations are subject to formal regulations in some countries, it is tradition and mutual confidence between the parties that is the basis for dialogue in others.

Model for social support Neither utility theories nor politically motivated models for social support provide much help with respect to providing a conceptual basis for assessing social support for rail. Our results at 'Implementing change in the European railway system' (Reorient) project show that international rail freight solutions receive support from people that see long-haulage trucking as causing adverse environmental effects if they also perceive rail to have a beneficial impact and if they do not have other priorities. Where road transport is not perceived to be a large environmental problem, support for rail may still be gained if rail freight solutions are promoted as a solution to the adverse impacts from long haulage trucking in western Europe. What is the value of this research for the rail industry, logistic operators, national governments and the EC? The Reorient project researchers have: - developed a conceptual framework for assessing social support for rail that works; - produced quality assured questionnaires, with necessary translation and back-translation; - undertaken a ten-country survey that has assessed country similarities and differences with respect to city population support for rail; - provided specific recommendations for the rail industry and logistic industry on how to utilise the results. Reorient policy recommendation: Intermodal rail freight divisions of the Community of European Railway and Infrastructure Companies (CER and UICs) should use the survey results to mobilise popular support for rail freight using media and other channels. They should emphasise rail's ability to solve problems and the improvement potential of rail, more than the fact that long haulage truck transport causes problems. They should promote European identity building in the area of transport. In the Scandinavian countries they should emphasise rail freight transport's ability to solve EC-problems in western Europe more than those in the Scandinavian countries. When rail is not competing against health, education, crime prevention and other highly prioritised areas, the EC and national governments will find it easier to obtain social support for intermodal rail freight solutions when these are seen as a package deal where the EC (and/or other countries contribute) along trans-European corridors.

People in Bulgaria, Czech Republic, Greece, Hungary, Romania and Poland are the countries perceiving road traffic-related problems to be worst. Scandinavian countries perceive road traffic to have a relatively smaller adverse impact on their country, whereas they perceive road traffic problems to be serious in the EC. With the possible advent of gigaliners one can expect that this will become even worse. The first condition for popular support for rail - that noise, pollution, congestion and accidents associated with long-haulage truck freight loads is perceived to be a serious problem - is thus fulfilled. However, support for rail is not only dependent on externalities of long-haulage road freight, but also on the perceived efficacy of rail to solve these problems. From the 'Implementing change in the European railway system' (Reorient) project's findings, it can be seen that rail is generally also believed to provide a solution for these problems, either in their own country or for the EC as a whole. The second condition that must be fulfilled for popular support for rail can thus to a large extent be seen to be fulfilled in all Reorient corridor countries. International rail freight has thus a strong standing in all Reorient corridor countries. On a scale from one to seven, sixes and sevens are the most popular scores. A positive stance towards new trans-European solutions as shown by the Romanian voters can help support the increases in rail transport from Turkey and the Black Sea via Constanza through Romania to western and northern Europe. The strong support for rail in Reorient corridor countries is important social capital for rail and logistical freight industry operators, and for national groups wishing to promote rail solutions.

The 'Implementing change in the European railway system' (Reorient) project distinguished implementation conditions/barriers within the following seven categories: - political conditions - administrative conditions - social/cultural conditions - technical conditions - barriers related to the financial perspective - barriers related to the market perspective - institutional and organisational conditions. Within most of the categories, project members also made a distinction between the ability to carry out a function (the degree to which a condition is present and/or available), and the interest in carrying it out (the degree to which the attitudes, objectives, or behaviour of specific actors would support or resist the creation of a required condition). Results were collated across the 11 countries along the Reorient corridor for the two subcategories (ability and interest) for each of the seven categories of interoperability requirements. Overall, in terms of ability, the implementation conditions are generally less than adequate. (On average, the abilities are adequate in an average of only about 4 of the 11 countries.) However, there are severe limitations in very few cases. The biggest barrier to implementing the EU's interoperability directives is clearly financial. With respect to the subcategory 'interest' the researchers used a different scale to define the scores. A country's interest was rated as favourable, neutral, or unfavourable. In most countries and most categories, the interest in implementing the directives was neutral. However, there do appear to be some strong social/cultural barriers to implementation in many countries. Support Willingness of the national rail regulator to implement administrative changes, which falls into the subcategory 'administrative' within the category 'interest' was ascertained. There is strong support in the Nordic countries and in Hungary for implementing the necessary administrative changes, while there is some degree of opposition in Bulgaria, Greece and Romania. Capability Government potential to support investments, which falls into the subcategory 'financial' within the category 'ability' was ascertained. There are significant financial barriers to achieving the goals of interoperable international rail freight transport in Bulgaria, Greece and Romania. No such barriers exist in the Nordic countries or Austria. Relationships between requirements and implementation conditions Although there was considerable variation in the status of interoperability across the 11 countries along the Reorient corridor on practically all of the interoperability requirements, there was also considerable variation in the status of the implementation conditions across the countries. As a result, the Reorient researchers found that most of the variability in status was able to be explained by relationships that were found to exist between the requirements and the implementation conditions. The relationships between implementation conditions and the requirements in the first three requirement categories are quite different from the relationships between implementation conditions and the requirements in the categories related to the transport network. In the former case, success in meeting the requirements was closely linked to political, administrative, and market conditions in the country. In the latter case, financial conditions were much more relevant. These results are good news in terms of understanding the underlying problems in achieving seamless international rail freight transport. They provide new insights into these problems. However, it is bad news with respect to solving the problems, in the sense that they suggest that changing the current status of the related conditions may require major changes in a country's economic, political, cultural, educational, etc. situation (i.e., not only EU directives). Conclusions The factors explaining the status of meeting the legal/institutional, procedural, and market requirements are significantly different from those explaining the status of the network-related requirements. Considering only the legal/institutional, procedural, and market requirements, the main barriers to meeting the requirements relate to inadequate mandates and lack of willingness of national regulators to implement and enforce administrative changes. There are inadequate organisational structures, skills and knowledge of rail institutions (railway undertakings, infrastructure managers, and regulators) to handle changes in task execution. There is a lack of potential and willingness of rail undertakings (RUs) and infrastructure managers (IMs) to adjust to changed market structures. If only the requirements related to the transport network are taken into account, financial barriers are dominant. The main financial barriers are the potential of both the railway sector and the national government to accommodate required investments and the willingness of the railway sector to invest in technological improvements and new business concepts. Other barriers for improving the transport network are inadequate organisational structures, skills and knowledge of rail institutions, and technical barriers.

One of the objectives of the 'Implementing change in the European railway system' (Reorient) project was to assess the status of rail interoperability along the Reorient corridor. To this end, a wide range of information on a range of subjects was collected. The sources were: - existing European data sources, - special data collection by country specialists, - interviews with infrastructure managers, government officials, rail operators, union representatives, etc., - subcontractors with special knowledge of the conditions in each of the corridor countries were crucial for the success of this effort. Interviews The primary basis for the assessment of interoperability status and the most relevant implementation conditions was provided by a survey of the major actors in the railway system within each of the 11 countries along the Reorient corridor. Different specific questions were asked of each of the various types of organisations surveyed: - infrastructure managers, - railway undertakings (RUs) (different questions for incumbent RUs and new entrants) - government institutions responsible for interoperability (different questions for the transport ministry, national competition authority, and national rail regulator); - intermodal terminal managers, - railway unions. Quantitative analyses To perform statistical analyses of the results, and facilitate comparisons among the countries on implementation status and implementation conditions, the Reorient researchers assigned quantitative scores to the qualitative answers. Terminology The EU directives (from the 1st and 2nd Railway Packages) specify requirements for achieving seamless rail freight transport. Deficiencies in meeting the requirements produce interoperability problems. Implementation conditions help facilitate the implementation of the requirements. Implementation barriers are shortcomings in implementation conditions that hinder meeting the requirements. Interoperability requirements Requirements to achieve seamless rail freight transport include all necessary conditions related to the institutional/legal framework, the market system, and the physical railway system, presumed by the EC (in its Directives) to lead to seamless rail freight transport. For example, Directive 2001/12/EC, relating to market opening and integration requires the separation in a railway undertakings' financial accounts of freight and passenger activities. We distinguished requirements within the following eight categories: - legal/institutional framework regarding the freight railway system - interoperability and accessibility procedures - market opening and market conditions - technical network links - terminals and transfer points - border crossings - interoperability according to technical specifications for interoperability (TSIs) - rolling stock. Generally, scores for the requirements are higher (i.e., the requirements are met better) in the Nordic countries (Norway, Finland, Sweden). Interactive thematic maps are available on the Reorient project website that allow exploration of these results. For a quick overview of the scores assigned to any or all of the 46 requirement aspects based on the survey results, click on the following link, and choose the requirement aspect you want to see in the drop-down menu at the bottom of the map: https://www.reorient.org.uk/content/map/Requirement_aspects. Overall, it is clear that there is considerable variation in interoperability status across the countries. However, excluding the category TSIs, it appears that practically all countries are doing a reasonable job of complying with the requirements of the directives.

Since potential conflicts on environmental issues can be disruptive to rail services, the 'Implementing change in the European railway system' (Reorient) team decided to supplement the overall evaluation of the environmental impacts of rail freight solutions with a dedicated small study on potential local sensitive areas with respect to noise and Natura2000 areas along the business corridor. Research objectives - identify: - possible nature or noise conflict areas along the business freight corridor from Szczecin over Poznan and Gdansk over Ostrava to Vienna that could cause interruption of services; - vulnerable nature protection areas and problems in densely populated urban areas (noise, dangerous goods); - legislative requirements that could hamper the realisation and operation of the Reorient business corridor. The work on localised conflict areas supplements the more general evaluation on average impacts of rail. Transfer point sensitive areas. Even though rail is the more environmentally-friendly solution, conflict may occur. This will most likely be concentrated at transport access or transfer points, such as the harbour of Swinousjcie (Poland). The area in the park and around the Szczecin Lagoon is designed as a Natura2000 special protection area (SPA) and nominated as a national site of community importance (SCI). Observations from Reorient study. - Reorient noise and Natura2000 area results. - Supplementary freight volumes along the business corridor will not lead to noticeable new negative regional and local effects. - Negative impacts from freight operations are likely to occur in terminal areas - not line stretches. This is especially true in the case of terminal expansion activities, but also with respect to terminal noise and local freight distribution traffic. - Operators should be aware of nature protection issues with respect to Wolinski national park/ Szczecin Lagoon and 10 other designated or proposed Natura2000 areas. - Infrastructure manager activities might cause disruption of services. Reorient recommendations New road infrastructure through important areas should not be heavily subsidised. National governments should assist rail train operators in securing hub terminal areas that are less in conflict with noise. Operators need to be aware of potential conflicts due to maintenance activities.

For potential investors in new rail services, it is important to understand where cost and value is generated in the transport chain. Each participant should earn a rate of return sufficient to attract and retain the amount of capital that is needed to provide freight transport services commensurate with market demand. The 'Implementing change in the European railway system' (Reorient) project used knowledge of successful US business models and current European models to conceptualise a framework for how business and management models evolve. It depends on the market for rail-based services and the interplay between several actors that changes overall the business environment and the utilisation of enhanced technology. To assess the ten investment criteria, researchers analysed the market potential based on official statistics and carried out a survey and model analysis. The conceptual framework was utilised as a foundation for development of ten investment criteria. These identify the potential for success of a rail freight company's ability to attract capital. They were derived from conversations with railway officials, information published in reputable rail trade periodicals, and railway company reports. 1. High probability of achieving an acceptable risk-return relationship. Over the years since deregulation in the US freight railway industry, railway companies have, in general, been relatively risk-averse in choosing among capital investment opportunities. Investments involving entry into new markets requiring large-scale additions to the railway asset base have been subjected to a much higher minimum rate of return requirement than capital investments undertaken for the purpose of reducing operating costs. 2. Estimated traffic and revenue - their level, consistency, and duration. Entry into new markets requiring substantial initial capital investment has typically been undertaken only in circumstances where there is a relatively high probability that the traffic and revenue estimated to be obtained through such investment will continue throughout the expected life cycles of the invested assets. 3. Scale of the corridor market - are estimated traffic and revenue levels sufficient to support the number of rail freight service providers permitted to operate in the corridor? 4. Network effects - are individual corridors complementary to one another, and what is the connectivity of rail operations and rail service marketing between complementary corridors? 5. Balance of traffic flows - what is the opportunity for achieving a relatively high level of balance between movements of loaded containers and rail wagons in the front-haul direction versus the back-haul direction? 6. Nature of rolling stock requirements - specialised service designs versus general service designs. (Investment in rolling stock required for new railway business ventures can be undertaken with lower risk and hence lower minimum rate of return requirements when the rolling stock required for such ventures can be readily redeployed in other markets if the ventures for which the rolling stock was initially acquired fails to meet expectations.) 7. Infrastructure geometry, track quality, and track and bridge axle-load capability - will the infrastructure support train operations at the speed, train length, and locomotive and wagon weight limits required to meet the demands of freight shippers while also keeping costs of operation at affordable levels? 8. Provision of management information systems, processes, and technology sufficient to support both the internal rail management functions and external railway customer service and marketing processes. 9. Setting of priorities for use of rail line and terminal capacity - that is, establishment of criteria for determining preference for use of track and terminal capacity as between trains serving the several distinct categories of rail freight service (e.g., relatively fast intermodal freight trains, freight trains catering to wagonload and small multiple wagonload consignments, and block or trainload movements of bulk commodities, such as coal, grain, and iron ore). 10. Retention of existing infrastructure and vacant rail-owned real estate, presently either underutilised or unutilised, to accommodate possible future growth in traffic flows at levels in excess of the capacity of in-service or active track. (Some US railways have moved relatively quickly to divest lines that have lost all traffic, or are still active but are not considered to be adequately profitable.)

One reason for the more positive perceptions of rail freight along the north-south Reorient corridor is that many of the railway unions in eastern and central Europe were part of the opposition. This was especially true in Poland, where the Solidarity movement became internationally famous. Since opposition was coupled with a wish for reform, and an opening up to market liberalisation, trade unions in central Europe have been more positive towards reform. In fact, the position of the trade unions in central Europe has been more likened to their role in the US rather than in Germany and France. 'Implementing change in the European railway system' (Reorient) project stakeholder survey results 1 Trade unions are more sceptical, whereas new rail undertakings (RUs) place more importance on access rights. Infrastructure managers (IMs) and incumbent RUs are more worried than others about financing. In all groups, technical harmonisation in border-crossing transport gains major support. 2 The interviews suggest that respondents from 'peripheral islands', i.e. Greece and Finland, do not see many benefits from implementation, while Bulgaria and Romania are more optimistic. 3 There might be a loss of synergy between infrastructure and operations (especially pointed to by trade unions, but also other stakeholders). Neutral capacity allocation is seen as crucial for fair competition, especially by new RUs. 4 About two-thirds of the respondents expect that EU railway legislation will contribute to solving major obstacles in achieving seamless freight transport. However, solving the problems will take a long time. The efficacy and results of the national implementation of the interoperability legislation is crucial. 5 Safety. On one hand, there is fear that competition presses costs down which in turn may negatively affect safety. Many of the interviewed trade unions and a few IMs and RUs share this concern. On the other hand, there are elements of the legislation that are expected to promote safety. The latter argument is supported by more than half of the respondents from IMs and RUs as well as a few trade unions. 6 There is limited experience with the effects of EU railway legislation on working hours and wages. Stakeholders felt it premature to draw conclusions. 7 Two important conditions for rail freight transport go beyond the scope of the directives: - the trends underlying freight demand - conditions within road transport. The results from the Reorient interviews indicate there is no lack of stakeholder support that would hamper implementation of railway directives along the Reorient corridor.

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