Interview with… Francesco Dionori, Chief of Transport Networks & Logistics Section, Sustainable Transport Division – UNECE
UNECE is the forum where the countries of western, central and eastern Europe, central Asia and North America – 56 countries in all – come together to forge the tools of their economic cooperation. That cooperation concerns economics, statistics, environment, transport, trade, sustainable energy, timber and habitat. The Commission offers a regional framework for the elaboration and harmonisation of conventions, norms and standards. The Commission’s experts provide technical assistance to the countries of South-East Europe and the Commonwealth of Independent States. This assistance takes the form of advisory services, training seminars and workshops where countries can share their experiences and best practices. In transport, UNECE, through the Inland Transport Committee works to improve the daily lives of people and businesses around the world, in measurable ways and with concrete actions, to enhance traffic safety, environmental performance, energy efficiency and the competitiveness of the transport sector.
In the international transport system, the lack of interoperability is a significant disadvantage leading to increases in costs, travel times and, in the end, customers choosing different transport modes. In order to approach these problems, international governments and institutions have elaborated and are now implementing measures and activities that help to eliminate barriers.
UNECE member states are trying to solve the administrative problems through such initiatives as the creation of Unified Railway Law – URL that does not exist in the rail sector, although all the other transport modes already have some form of unified law. Through the URL, operators will be able to carry out their activity within a single legal regime on the east-west axis, that connects Europe to Asia. The URL provisions, currently being tested on several corridors, will facilitate rail transport.
For railway transport development between the two continents there is also the Euro-Asian Transport Linkages (EATL) project elaborated under the aegis of UNECE and UNESCAP. 9 railway routes on the Europe-Asia axis have been studied as part of this project and have been compared with maritime routes. The phases implemented so far show the importance of railway transport and underline the importance of growth over the next years, building on infrastructure optimisation projects.
A significant difference between the rail freight markets in Europe and Asia is their different “maturity levels”. While Europe is a very mature market, whose competitiveness has been facilitated by liberalisation, the Asian market still has a long way to go because of a significant investment gap compared to Europe, but opportunities are immence.
In the interview below, Francesco Dionori, Chief of Transport Networks & Logistics Section, Sustainable Transport Division – UNECE, explains the current situation and development level of the rail transport and logistics sector in Europe and Asia, the new opportunities and challenges the parties involved in the project are confronted with, as well as UNECE’s actions aimed at to establishing a sustainable transport system.
What can you tell us about the current situation of rail transport and logistics in Europe?
Francesco Dionori: We all know that rail transport is often seen as the poor relation when compared to road, mainly because of its market share but also its legacy issues relating to interoperability. There are clearly rigidities, and significant sunk costs that need to be incurred in the sector that make exponential growth difficult to achieve. This has all been compounded in recent years by the economic crisis. It is not all doom and gloom though. Rail transport has grown in much of Europe where it has been able to focus on markets of interest and where it has its comparative advantage. A number of new operators have started carrying freight (and passengers) across Europe offering new opportunities for customers that previously would have used road. The creation of these niche markets has subsequently lead to the development of new logistics chains that complement the rail sector.
For the constant development of this mode of transport, what are the challenges the companies face and how are they tackled, including by the political class?
Francesco Dionori: Many physical and administrative barriers still remain for the smooth movement of freight on rail nationally and internationally. On the physical side, the lack of interoperability puts the rail sector at a significant disadvantage to road, increasing the cost of transport when trains need to go through gauge changing facilities or need to be moved from one train to another at national borders. The higher cost of buying rolling stock that can use all the different signalling and electrification systems across Europe also increases transport costs. On the administrative side the absence of coordinated border controls between some countries for rail transport as well as the different legal regimes currently in place between CIM and SMGS countries means that further delays and costs are includes by businesses wishing to use rail transport. This creates perverse incentives where companies have no choice but to use road transport, or to base their production decisions to go around the rigidities in the rail sector.
Governments and international institutions have tried to tackle this through such things as the interoperability drive of the European Union Agency for Railways and the EU Directives and Regulations that relate to its activities with the aim of tackling the physical barriers. Member States of UNECE have sought to address the administrative aspects by coming together to create Unified Railway Law (URL), something that doesn’t exist at the moment in the railway sector but does in all other transport modes. With URL, freight operators will be able to deal with one legal regime, one consignment note and one liability regime for rail transport along the East-West Corridor connecting Europe to Asia. This is best shown in the figure below.
While there are technical/physical and administrative barriers it is also important to note that often road and rail do not have a level playing field. Many countries directly or indirectly subsidise road transport. This may be an optimal approach nationally but it distorts intermodal competitiveness and incentivises some freight traffic on to the road which may have more appropriately been moved by rail (or inland waterways).
More and more rail transport services have been launched between Europe and Asia (China mostly) over the past years resulting in an increase of demand. What is UNECE’s role in facilitating services between the two continents and what are UNECE’s estimate regarding the future activity of rail transport on this axis?
Francesco Dionori: As we all know, transport by rail from Asia to Europe (and vice-versa) has significant benefits over other forms of transport both in terms of cost and time. The Euro-Asian Transport Linkages project (EATL) prepared under the auspices of UNECE and UNESCAP looked at this in detail with the aim of identifying those key transport corridors that already exist on the route and those that are likely to come into being in the coming years. Part of this project was a study looking at nine routes between Europe and Asia, comparing the rail and sea routes. The study concluded that all the case studies showed that rail was better than travel by sea and that in five of the nine scenarios rail performs better than the maritime sector in both cost and time. The current phase of this project is coming to a close but it has shown the importance of the railways along this route and also highlights the growing importance in future years as a result of infrastructure improvements highlighted in the study and recent announcements in relation to investments along the Silk Road.
With the completion of URL, East-West rail movements will be facilitated further for the reasons set out in the previous response. The provisions set out in URL are currently being piloted on some corridors to test them in anger and see if they need to be modified further before they are used internationally.
In your opinion, what are the new opportunities for rail transport and logistics in Europe and Asia?
Francesco Dionori: The best people to identify growth opportunities for the rail sector are those entrepreneurs and railway companies that have found the niche markets that I mentioned earlier. In my humble opinion there is the possibility to move significant amounts of containerised traffic from the maritime sector to the railways. There are also goods which today travel by air which it may be more appropriate in the long term to move to rail. These two alone could tip the balance for East-West freight transport. The real opportunities however lie in harnessing technological developments in ways that can best fit the rail sector. This means using big data and digitalisation to streamline logistics, it means encouraging companies in the sector to consider sustainability aspects of their freight movements (for example through green logistics). Some of these innovations and initiatives can be pursued at a local, national and international level, but only by considering these opportunities at an intercontinental level will they be the most effective.
How would you describe competitiveness in the railway freight and logistics transport in Europe and Asia? What are the main elements that differentiate the two continents?
Francesco Dionori: The rail sectors in Europe and Asia are very different, I would like to focus on one of the differences – the level of maturity of the sector. Europe can be seen as a very mature market where rail has been entrenched in the movement of many goods across the continent, in some cases for over a century. In its maturity it has had to deal with capacity constraints and a network that often prioritises passenger traffic over freight traffic. In Europe, what has been achieved recently in terms of competitiveness has been driven primarily by liberalisation which has broken down many of the entrenched practices in the railway sector and forced all parties to seek “disruptive” approaches to increase the use of rail freight.
The Asian rail sector, for many freight rail services still remains in its infancy, this does not mean that railways are new to the continent, just that the level of investment has yet to reach that of Europe in rail freight and thus the potential opportunities have yet to be fully realised. With significant investment that in being directed across Central Asia and on a number of cross-border connections this is likely to change. Rail will become more attractive and competitive for intercontinental shipments giving some shippers no choice but to switch from the maritime sector.
This of course creates a different issue, what happens when all this rail freight reaches Europe and finds a saturated and capacity limited network? Policy makers need to consider this when encouraging the use of railways in Asia as there is little benefit in crossing Asia by rail only to have to transfer it to sea in the Baltic or the Mediterranean because of capacity constraints.
Freight traffic has a development potential between Europe and Asia of over USD 75 billion and a significant deal of freight volume is still shipped by sea. What methods of increasing the attractiveness of rail transport would you recommend?
Francesco Dionori: For rail freight transport to be successful it needs to find its niche between Europe and Asia. It is unlikely that all the goods that currently travel by sea and air will switch to rail because of the time sensitive nature of most of those goods currently travelling by air (fresh fish for example) and the size of some goods travelling by sea (heavy machinery for example that cannot fit within the rail gauge). As mentioned earlier, container traffic that is less time sensitive has a strong potential for growth as has the further expansion of automotive industry related parts and finished goods. Some postal packages could also switch.
For it to be interesting for freight forwarders to switch, rail needs to be able to make itself more attractive. This means making rail faster, cheaper, reliable and secure. Speed can be improved through URL and improved administrative practices as well as investments in relieving key infrastructure bottlenecks along the main corridors as well as through improved transhipment times. Costs need to be addressed along the corridor where perverse incentives exist through the high access costs for some routes. Both speed and cost can also be improved through increased cooperation between countries along the East-West corridors as only with effective cooperation can significant administrative barriers be removed. Reliability also needs to be addressed, performance is not always measured contractually for freight services and often there is no clear indication of when a delivery will actually be made. Quick wins from such things as tracking and tracing of containers can significantly improve this. Rail also needs to ensure that security is improved on the network, too often cargo is stolen from freight trains while they are waiting at a signal or in a station waiting to leave. On top of all this rail needs to ensure that it invests in innovation. The new EU grants should facilitate this.
Considering the advantages of rail transport, it should be the backbone of the logistics chain. To that end, how could railways attract bigger cargo volumes without affecting the process of logistics chain, while contributing to the complementarity of the other transport modes?
Francesco Dionori: If rail disrupts the logistics chain is this really a problem? Those who use transport services seek the best alternative, if rail becomes the best alternative for a larger amount of movements to the detriment of other modes, this affects the logistics chain but does it not also introduce advantages in terms of sustainability?
Rail will never become the chosen form of transport for the majority of door-to-door deliveries, it has to continue to work within the logistics chain and be an integral part of it. For rail to have larger volumes it needs to work on increasing the share of the logistics chain that it is serving as well as substituting road, sea and air in the overall chain. By addressing the points I highlighted in my previous answer rail can start doing this. As I mentioned, for a customer to choose rail over its current mode it needs to offer a better service. We have seen, on a smaller scale, how a number of new entrants into the freight market have cherry picked flows from incumbent operators, while I am sure an important part of that was due to different pricing structures, an important consideration in the decision making process would also have been different levels of service. The same approach can be applied to modal shift along the logistics chain, furthermore, this innovation should not only be a zero-sum game where a certain number of containers are taken from a sea vessel and transported by rail, it should also be focused on finding those niches where currently there is no movement of goods and where rail could make that movement possible.
What should the (national and EU) authorities do to ensure a legislative framework to create a fair transport system (especially between rail and road)? What common principles could be implemented?
Francesco Dionori: I would prefer to speak about sustainable transport system rather than fair transport system as something that is fair for one part of the population or industry is not fair for another. There are a number of initiatives that are already in place and that are being set up that are there to create a more economically, environmentally and socially sustainable transport sector. Any legislative framework should revolve around these three pillars of sustainability. It is up to national and supranational authorities (where they exist) to strike the right balance between rail and road (and other modes of transport) to ensure that they can work towards a more sustainable future. There is no “rail is good, road is bad” slogan, usually, one cannot live without the other. Countries need to ensure that they are not creating perverse incentives that are shifting traffic to road transport through different taxation regimes for example. On the other hand, they need to ensure that they are incentivising rail transport that is sustainable (in this case meaning that it lasts beyond the subsidies) which has not always been the case.
UNECE has a database of intermodal transport policies that a number of member States have submitted to us that give national bodies an insight into what is being done in different countries. This is purely a list of actions and does not say whether they are good or bad practices, it does give governments an opportunity to review what practices exist out there and how they can actually incentivise intermodal (and rail) transport. The database is available on our website at: http://apps.unece.org/NatPolWP24/
How does UNECE get involved in ensuring a coordinated development and in harmonizing rail transport in the region?
Francesco Dionori: As mentioned previously, the work that we do in the rail sector is focused entirely on facilitating the harmonised development of rail transport across Europe. This is the main activity of the Working Party on Rail Transport (SC.2) which brings together member States from the entire UNECE region and therefore extends beyond the boundaries of the European Union. The main activity that we are currently undertaking is in relation to Unified Railway Law as discussed in response to a previous question but the work also extends to other areas. The EATL project is one of these areas as mentioned previously, but also the updating of the European Agreement on Important International rail and the related European Agreement on Important International Combined Transport Lines and Related Installations. The activities undertaken at our working parties also focus on rail security and we are developing a knowledge platform to assist member States to share best practice in dealing with security issues on the railways. Through the Trans European Railway (TER) project we are also facilitating the development of masterplan for high speed railways across the region which will, in future, be rolled out to the entire region.
Coordinated development is also assured through the work we are undertaking in intermodal transport and logistics where we are seeking to aid member States in developing freight and logistics masterplans through the publication of guidelines as well as increasing the transparency of information that is available to freight operators through the preparation of the intermodal terminals study which should closely relate to the work that has been done by the European Commission in its Last-mile study but covering those member States that are outside the EU. UNECE also carries out significant activities in the gathering and dissemination of transport statistics, this may not seem relevant at first, but it is actually fundamental in ensuring the development of the railways as only with solid data as a base can effective national and international policies be defined.
What we do is provide the basis for our member States to meet, discuss, exchange best practice and reach conclusions on how best to ensure the coordinated development of the sector across the region I therefore take the opportunity to invite readers to actively participate in the activities of the main working parties at UNECE – the Working Party on Rail Transport (SC.2) and the Working Party on Intermodal Transport and Logistics (WP.24) to facilitate this development as rail transport, and especially rail freight does not stop at the borders of the EU.
Pamela Luica is talking with… Francesco Dionori, Chief of Transport Networks & Logistics Section, Sustainable Transport Division – UNECE
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