News analysis German rail market faces m


Despite strong growth in demand, the German rail market is facing considerable uncertainty resulting from changes in the way rail services are funded, amendments to legislation and regulation and a squeeze on public spending. Maria Leenen and Karl Strang from consultancy SCI Verkehr say the decisions being taken now are likely to have a profound effect on the entire market.


WENTY years after its reform, the German railway sector is facing substantial challenges. While demand for rail transport is surging, questions remain over whether there will be enough money to fund the boom as all sources of public funding for rail are about to undergo major renegotiation. This combined with


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reforms to market regulation, consolidation of public budgets, and competition with other public services for funding in an increasingly partisan political environment due to upcoming parliamentary elections, means that Germany is facing an unprecedented situation which is likely to lead to a major shakeup in the market.


Although most outcomes


remain uncertain, the market players need reliable information. Our latest study, The German Rail Market - Facts, Figures, Players, Trends, assesses all the relevant segments comprising the passenger and freight rail operators on one side and the product and services suppliers on the other. In 2011, the total revenue


from operating passenger and freight services in Germany reached ƒ21.5bn, while the market for infrastructure, systems and rolling stock goods and services is forecast to grow by 5% per annum from ƒ8.3bn today to ƒ10.6bn in 2016.


Rolling stock is by far the


largest and most dynamic segment, accounting for 60% of the German market and growing by 5.9% a year. The trend-setting products within that are emus for regional and commuter transport, the demand for which is growing at 11.2% per annum and should reach ƒ1.62bn in 2016.


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Regional and commuter passenger rail accounts for 42% of total rail revenue in Germany. Ridership rose by 400 million journeys to 2.4 billion between 2000 and 2011, mainly due to the rising cost of motoring, worsening road congestion, and growing concern about the environment. Growth has also been aided by an influx of new trains as a result of the concessioning of rail services which began in 1997, and an expansion of services which saw the number of train-km increase from 591 million in 2000 to a record of 641 million in 2011. German Rail (DB) currently generates 86% of total passenger-km, but only operates 74% of train-km, suggesting that its competitors need to convey passengers over longer distances. Tenders for concessions


remained fairly constant between 2008 and 2011, but started to increase last year (Figure 1). They will grow significantly this year, with tenders for up to 265 million train-km expected to become


operational between 2014 and 2016. However, the average number of bidders per tender has decreased from a high of seven in 2000 to an historic low of 2.4 in 2010. Notably, some of the large companies which are active in other areas besides public transport are becoming increasingly critical of rail concessions when they compare the margins achievable in rail with those of other industries. The cost of bidding for a German passenger concession ranges from ƒ300,000 to ƒ500,000 depending on the size and nature of the concession. Most concessions in Germany are what are known as gross contracts, where the client collects the revenue and pays the operator a management fee for running the service according to the client’s specification. Some clients experimented with so- called net contracts whereby the operator collects the fares and is paid a much smaller fee. But clients have now reverted to gross contracts because they want clear


control of the services they are paying for. Germany’s regional


passenger rail fleet is among the youngest in Europe (Figure 2). The trains currently in service will determine the operators’ choices in the next two decades, leaving very few opportunities for the introduction of new types. Additionally, many variations in tailor-made onboard equipment and accessories prevent the development of a secondary market for used rolling stock, which could stimulate competition.


Some of the 27 client bodies


responsible for specifying, letting and managing concessions, have taken over additional entrepreneurial functions such as rolling stock leasing. This is causing concern among some operators which are questioning what is left for them to manage if they have no control over revenue, timetables, and rolling stock. These developments show clearly that the sector is in dire need of readjustment. This would involve bold discussion


Direct assignment


First tenders Theoretical average annual volume of competitive tenders


Figure 1: Volume of German regional and commuter rail tenders 2008-2018 in million train-km. Source: Assessment by SCI Verkehr according to current body clients’ plans and expected tenders


© SCI Verkehr GmbH IRJ April 2013


Renewed tenders


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