European Experience with Competitive Rail Operations
By Heiner Bente and Ray Chambers
The Corridors: Best Practices from Around the World. Intercity American passenger rail service is not close to the standards of the other industrialized nations of the world. With growing population and congestion it is time take a new look at the way rail passenger service is operated in America. While America has slumbered for decades with its lax, government run passenger service, the rest of the world has been wide awake. The US is stuck with an inefficient uneconomic model that dates from the mid-20th Century. Meanwhile much of the rest of the world has introduced competition and private sector innovation into passenger railroading. For more than two decades international institutions, including the World Bank, vigorously pressed reforms that broke up bureaucratic and monopolistic state railroads, demanded competition for rail operations and promoted substantial infrastructure investment. The European Union followed suit. Perhaps we can learn something here.
Today, private railroads operate first class regional and high-speed service across Asia, including Australia and Japan. Britain, Sweden and Germany among others have successfully initiated controlled competition for passenger operations. In each country, these experiments in competitive passenger operations have resulted in new sleek equipment and increased ridership. Britain undertook the most extensive privatization. With new private operators, passenger traffic grew so fast it outpaced the independent infrastructure company. The infrastructure deficiency has since been corrected with creation of a new public-private hybrid organization called Network Rail. It is no coincidence that the country with the greatest commitment to private operators has had the fastest passenger growth in Europe. In Britain, between 1990 and 2005, traffic rose from about 9 billion passenger miles to 35 billion passenger miles.
To put it in perspective, the United States has a population of 300 million and Amtrak provides only about 24 million passenger trips annually. In Britain, with a population of 61 million, private contract operators manage 1.2 billion passenger trips a year.
The German Model. The German experience may provide the best reform template for the U.S. For years Deutsche Bahn (DB), the government-owned monopoly operation of intercity rail service, experienced unsustainable losses. In 1996 the DB monopoly over the regional German corridor lines was ended. The previous federal responsibility to determine and finance (i.e. subsidize) regional passenger rail services was spun out to state authorities. However, the states were protected financially in assuming the service. Financial resources were provided to the states for both infrastructure and operating subsidies.
Most importantly these state authorities were given the right to put long-term rail-services out for competitive tender. A number of smaller domestic and several large international railroads rushed into the market and were fairly successful in winning market shares from the incumbent. A federal oversight agency was established to set standards for operations, check safety requirements and set and enforce the rules of competition.
The resulting system has been a major success. Today there are 60 local and regional railway companies operating. Among them some companies have grown into significant competitors to DB. For years, about every second bidding process was won by DB's competitors. The state-owned DB, which in the meantime has also lost monopoly control of the long distance services, has reacted to the competitive pressure from market entrants and has restructured successfully to survive in the new competitive world.
Recently, a German federal court ruled that the legal right of authorities to put contracts out for tender is now a legal obligation. German state authorities in charge of contracting rail services expect a massive "wave" of bidding procedures in coming years
Across Germany's regions, private and state investment have sparked a significant increase in passenger traffic. For example, one new operator in the Rhineland-Westphalia started with 800 passengers a day. The average now is 16,000 passengers a day. On the NordWestBahn network there was a 70 percent traffic increase in one year following the takeover by a new operator. These numbers are not unusual. Across the board there has been a modernization of equipment. In 2002 more than 1,000 new rail cars were put into service on the regional lines. New investment volume for rolling stock alone amounts to 11 billion dollars. Many innovative services have been introduced: Internet access on regional trains; regional gourmet food services and taxi/rental cars as a part of the basic train ticket.
The US passenger rail debate is bogging down between advocates of huge government subsidies, on the one hand, and those who see no future role for passenger rail. A better approach, following the German example, would facilitate maximum competition and private investment to provide modern rail intercity service as one part of a national transportation program.
Heiner Bente is an internationally recognized expert in passenger rail restructuring. He was one of the architects of the German Model described in the above article. Mr. Bente is currently Chairman of the Advisory Board of Civity Management Consultants in Hamburg, Berlin. His email is heiner.bente@gmx.net
Ray Chambers is Senior Transportation Fellow of the Cascadia Center/Discovery Institute in Seattle. Mr. Chambers is also sole proprietor of RBC & Associates of Washington, D.C. where he serves several clients as a transportation policy advisor. His email is rbcllc@cox.net.
