which regulation for which rail freight market … laroche...which regulation for which rail freight...
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Which regulation for which rail freight market structure in Europe? The Belgium
case study
Florent Laroche, Christa Sys, Frank Troch, Thierry Vanelslander
Transportnet seminar – Karlsruhe – 11/03/2016
1
Question: How to ensure a good level of competition on the Belgian rail freight market?
Introduction – Research goal
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S-1 Worst case S-2 Medium case S-3 Best case
2 operators 4 operators 10 operators
Risk of concentration and low competition on the Belgian market?
Which levers for Belgian authorities to keep a high level of competition?
8M tons-km (+10%) 12M tons-km (+64%) 17M tons-km (+133%)
BrainTrains project: How to increase the share of the rail freight mode in theintermodal chain by 2030 in Belgium?
Define the market
Data collectionRanking
Static measuresDynamic measures
Level of regulationLevers for regulation
Part 4 – Regulation paths for Belgian market
Part 3 – Concentration market
Part 2 – Operators overview
Part 1 – Market scope
Regulatory analysis
Introduction – Framework
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Market analysis
Only 3 operators have their head office in Belgium
100% of operators are international (> one country)
B logistics keeps 80% of market share (2013)
2 regional operators: Crossrail, Railtraxx
6 major operators: DB Schenker, Europorte, B logistics, SNCF Geodis, PKP Cargo, CFL Cargo
4 subsidiaries: Euro Cargo Rail, Captrain, Rotterdam Rail Feeding, Trainsport
12 active operators
Market scope – The Belgian market (2014)
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Connected to 3 major European corridors
> 70% of the traffic is international
7 billion Tons-km
Main figures for the Belgian market
Market scope – The Belgian market
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Link between the number of active operators and the market size (in tons-Km) by European country in 2014
Source: Own calculation
Germany115 companies
112 Mds tons-Km
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Strongly linked to the European market (international operators)
Strategic place for international operators (port of Antwerp)
Market scope – Western-European market
NO
SEDK
DENL
BELU
CHFR
UK
ESPT IT
AT
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Analyze of active operators in the Western-European market (homogeneity)
(PL)
Independent/SubsidiariesInternational/national/localDate of creationType of service (diverse/specialized)Nationality (place of head office)
Qualitative data
Operators overview – Data collection
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Sources
Quantitative data (Time series 2007-2014 when
possible)
Limits
Amadeus databaseAnnual reports & websites of operatorsSurvey (by email)
Turnover (€)Freight tons-KmFreight tonsNumber of employees
Lot of gaps among quantitative dataVery few time series
Data collection for each active operator per selected country
Operators overview – Results
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49% are Germans (location of head office)
46% started to operate after 2000
26% operate at an international level (> one country)
≈ 169 independent operators
70% are not specialized (> one market segment)
Estimated aggregated turnover ≈ 15€ billion (2014)
Operators overview – Results – Top 20
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Rank Company Turnover Nationality Date1 DB Schenker Rail 4.517.000.000 DE 19942 Rail Cargo 2.073.100.000 AU 19233 SNCF Geodis 1.107.000.000 FR 19374 PKP cargo 999.767.000 PL 19185 SBB Cargo 821.240.009 CH 19026 Geneese&Wyoming 635.928.658 USA 19957 Trenitalia cargo 623.000.000 IT 19058 B logistics 451.860.473 BE 19269 Green cargo 444.266.000 SE 1856
10 Hupac 392.400.000 CH 196711 Europorte 267.000.000 FR 200512 RENFE mercancias 259.800.000 ES 194113 CTL Logistics GmbH 177.634.046 PL 200314 CFL Cargo 153.793.792 LU 194615 Cargo Net 147.255.689 NO 188316 Lotos Kolej 141.359.734 PL 200217 BLS Cargo 138.978.758 CH 194118 Verkehrsbetriebe Peine - Salzgitter 115.651.000 DE 197119 LKAB Malmtrafik 112.571.000 SE 1903
20 Holding Exploris 94.000.000 LU 2014
Considered as class I in USA (> 400M€)
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Mainly incumbents among the biggest companies (80%)
100% operate on an international level (> one country)
One alliance represented (Holding Exploris)
Met
ho
do
logy
(Lip
czyn
ski,
20
05
)
First step: Which level of concentration?
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Concentration market – Static measures
Herfindahl-Hirschman Index (HHI)
Concentration Ratio (CR4)
Number equivalent (NE)
Indicators
Data
000,101
2
n
i
isHHI
n
i
isCR1
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HHINE /1
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Panel 31 operators
Limits No time series
Tons-Km by operators (2014)
Represents 82% of the market
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Concentration market – Static measuresPa
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CR 4Tight Oligopoly > 60%Loose oligopoly 25 – 60%No oligopoly < 25%
HHI
Low concentration < 1000Moderate concentration 1000 – 1800 High concentration > 1800Monopoly 10 000
56%
1266
NE 8“A number to indicate how many "effective" competitors exist in a sector” (Lipczynski, 2005 in Sys, 2010, p131)
Results
High ratio: high market concentration
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Concentration market – Dynamic measuresPa
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Second step: Which tendency of market concentration?
Ratio Capital/Labor cost(Meersman et al., 2011)
Persistence of profit (POP) (Lipczynski, 2005)
Existence of economies of scale?Existence of abnormal profit on short-run (SR) and long-run (LR)?
Low ratio: low market concentration
Persistence on LR: low competition & high barriers
No Persistence on LR: high competition & low barriers
Market concentration Competition & barriers
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Concentration market – Dynamic measures – Ratio C/L
Data
Panel
To compare
34 operators12 incumbents
22 new operators
2007-2014Labor cost
Depreciation cost
Source Amadeus database
5 firms
Panel from meersman et al, 2011
LuminusBASF
Arcelor mittalCoca-Cola Belgium
Cordeel temse
Ratio Capital/ Labor cost per operator
Liberalization and structure re-organization
No reasons to have a monopoly or duopoly
Source: Amadeus
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Concentration market – Dynamic measures – Ratio C/L
0,00
0,10
0,20
0,30
0,40
0,50
0,60
0,70
0,80
2007 2008 2009 2010 2011 2012 2013 2014
Ave
rage
rat
io c
apit
al/l
abo
r
Moderate economies of scale
High
Low
Incumbents
New operators
Moderate
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Part
4Concentration market – Dynamic measures –persistence of profit (POP)
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Persistence of a firm’s standardized profit rate= firm’s actual profit rate – average profit rate across all firms per year
Panel 24 operators10 incumbents
14 new operators
Data 2006-2014Turnover (€)EBIDTA (€)
Source Amadeus database
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On short-run
On long-run
Average short-run profit persistence (0,177) lower than in other industries (0,4-0,5)
High competition
Quick erosion of the short-run persistenceDynamic competition (entry
on the market)
Standardised profit rates of all firms ≠ 0 (-0,011)
Remain barriers to entry (no convergence between firms)
54% of firms have a negative long-run persistence of profit
Risk of concentration (exit, mergers, alliances)
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Concentration market – To resumePa
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On the Western-European rail freight market
Moderate concentration (DB Schenker power market)
Existence of loose oligopoly
Remains barriers to market entry (cost of rolling stock)
No reasons to have a monopoly or duopoly
Sign of increased competition since 2006
Ratio C/L = moderate economies of scale
POP = Low persistance of profit on short-run and convergence on long-run
Tendency to mergers/ acquisitions/ alliances
Static measures = moderate concentration
Average HHI per country
4794 Concentrated
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Regulatory analysis – European competition in trompe l’oeil
Market share of new operators in 2013 (Eurostat, 2015)
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Strong national base for main incumbents
High concentration on national market
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Regulatory analysis – Belgian casePa
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Two cases
Goal
Action level
Authority
Levers
Tools
Concentration on EU marketConcentration only on Belgian
market
Reduce barriers to entry (contestability)
European problem (industryattractiveness)
Belgian problem (market attractiveness)
European CommissionEuropean Railway Agency
Federal StateRegulatory agency
Competition policyHarmonisation/standardisation
Corridor policy
Competition policyInfrastruture quality/pricing
Investments (corridors)
Market monitoring (operator level)Indicators of concentration (European/national)
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Conclusion
Key element to manage freight operators: Before liberalization: measure of efficiency by benchmark
After liberalization: measure of competition by market analysis
Assumption of a good level of competition is enough to control market efficiency
Two conditions for market analysis: Define a relevant market scope to assess the market power
Monitoring of operators to reduce asymmetric information
Two levels of market analysis: European level: moderate concentration and increasing competition
Belgian level: high number of major operators but remains market power from incumbent (highlycontestable)
Two levels of regulation: European level: single market and control mergers and acquisitions
Belgian level: control performance of network manager and national connections to European corridors
To go further: Improving quality of time series to assess evolution of market
Improving the regulation analysis (type of incentives, etc.)
Thank you for your attention.
BRAIN-TRAINS
BELSPO project
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Annex 1 – European opening rate
An analysis in trompe l’oeil: strong national base for main incumbents
CompanyVolume operator (Vo in Md T-km)
Volume market (Vm in Md T-
km)
National market share (Ms in %)
Opening rate (Or in %)
UE-28 market share
Rail Cargo 25,9 19,2 82% 38,6% 2,9%
SNCF Fret 28,5 32 64% 28,1% 2,3%
DB Schenker 104,2 112,6 67% 27,2% 8,2%
Green cargo 11,1 20,9 44% 16,8% 0,54%
Trenitalia cargo
14,9 19 76% 3,4% 0,15%
PKP Cargo 30 50,8 59% 0,5% 0,04%
Opening rate (Or): percentage of traffic from the international market
Limits:- Problem of data quality and reliability- No historical overview
Source: own calculation
Vo
MsVmVoOri
)(
2323
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Annex 2 – POP analysis – Results
The strategy of acquisition seem to have a negative impact on the profit
ABOVE -> BELOW ABOVE (upper the normal profit)
Name Country Date Activity Acquisition Date Market share Name Country Date Activity Acquisition Date Market share
Green Cargo SE 1856 Diverse Logistic group (PostNord) 2012 3% LKAB Malmtrafik SE 1903 Specialized - - -
DB Schenker DE 1994 Diverse Multiple - 26% BLS CH 1941 Diverse - - >1%
Floyd HU 2004 Diverse - - - Hupac CH 1967 Specialized - - -
Direct rail Service UK 1995 Specialized - - >1%
Freightliner UK 1995 Diverse ERS Railway 2013 3%
Magyar HU 2003 Diverse - - >1%
Hector Rail SE 2004 Diverse - - >1%
Continental ES 2007 Diverse - - -
BELOW (under the normal profit) BELOW -> ABOVE
Name Country Date Activity Acquisition Date Market share Name Country Date Activity Acquisition Date Market share
RDT 13 FR 1920 Diverse - - - SBB Cargo CH 1902 Diverse - - 3%
Rail Cargo AU 1923 Diverse Multiple - 7% PKP Cargo PL 1918 Diverse - - 7%
Mendip Rail UK 1993 Specialized - - - VPS DE 1971 Diverse - - >1%
Crossrail BE 2000 Specialized DLC 2007 - Comsa ES 2007 Diverse - - >1%
Lokomotion DE 2000 Diverse - - -
Rail Traction IT 2001 Specialized - - -
Europorte FR 2005 Diverse GB Railfreight 2010 1%
Acciona Rail ES 2007 Specialized - - -
Inrail IT 2009 Diverse - - -
General data: 2 536 billion Tons-Km (Eurostat, 2015) Coal and chemical products: 50% of tons originated in 2012 (AAR, 2014) vs 16% in UE in 2012 (Eurostat, 2015) Modal splite for railway: 30,7% in 2012 (Eurostat, 2015) Most of the competition between networks 560 operators (AAR, 2014)
Ranking (AAR, 2014): Class I: turnover > $453 million Short line and regional railroads
Class I: 69% of traffics (Tons-Km), 90% of employees & 94% of revenues 7 operators : BNSF Railway Company, Canadian Pacific Railway, CN, CSX Transportation, Kansas City Southern
Railway Company, Norfolk Southern Railway Company, and Union Pacific Railroad
Short line and regional railroads: 31% of traffics, 10% of employees
Annex 3 – Comparison USA/West UE
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EuroporteDB Schenker
2525
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Incumbent: negative short-run since 2007 as sign of dominant position (Sys, 2010)
New operator (2005): negative short-run & acquisition strategy (GB Railfreight, 2010)
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Concentration market – Dynamic measures– persistence of profit (POP) – Results
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BelowBelow
AboveAbove the norm
Below
Below
Below
2010
Below2009
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