Information published on 22 September 2010 in the UIC electronic newsletter "UIC eNews" Nr 201.

The Rail Freight Portal http://www.railfreightportal.com: Interview with Dr. Alexander Hedderich (CEO DB Schenker Rail)

  • Freight

Dr. Hedderich, you have been working in operations for a year now. What were your first impressions when you became CEO of DB Schenker Rail in September 2009?

A year ago the company was – as were many of our customers – in the middle of the economic crisis. We lost a great deal of business in spite of assertive countermeasures and very positive cooperation with our staff representatives. During this period we had the task of developing a new approach for the company. There were many fundamental questions on the agenda: how do we handle wagonload? What should we do in intermodal traffic? How can we take advantage of our European network?

Do you have answers to these questions?

We are setting the course right now. For example wagonload: it is the backbone of our business. This fact has become increasingly clear, so we will be developing this part of the business – although it is the most difficult part of our business when compared with intermodal and block train . And between 2008 and 2009 wagonload business shrunk by a quarter. We are currently optimising the whole system, with numerous targeted measures. We no longer use train formation yards for certain quantities and products on direct routes. If we manage to implement this concept at a European level I am optimistic that we have a positive future ahead of us with a good product line-up.

XRail constitutes a clear commitment to international wagonload traffic – an initiative which you cofounded only a few months after taking on your current role. How is the organisation progressing?

XRail’s message to customers is that the seven freight railways involved want to work in partnership and, in the long term, establish a quality network which covers the whole of Europe. To this end the existing networks between partner railways are being consolidated and further regions should naturally also join. XRail partners are shortening the time between a transport request being made and an estimate being sent. We provide more precise information on the estimated times of arrival. Improved operation plans facilitate easier scheduling. We want to use this reliability to encourage other industry sectors to move to rail transport, and to make wagonload traffic a high value product. It will take a few years for the service to be available ‘in all its glory’ because performance improvements of this kind require considerable changes in production and IT at many rail companies.

What is DB Schenker’s reaction to the efforts of other railways to optimise their wagonload systems?

From a German point of view the XRail alliance covers around half of the international rail traffic market. We do naturally also work with other railways in France, Poland and Italy. The difference here is that the partners in these markets have not committed themselves in the same way. I have great respect for the different viewpoint of these railways. However, we need solutions in such countries. We are therefore considering how we can ensure reliable services. When Trenitalia stopped providing services at many freight terminals we stepped into the breach with NordCargo. Rail Cargo Austria (RCA) and SBB Cargo have also expanded their services there.

Today DB Schenker Rail is operating in 14 countries with its own companies or in cooperation. This is unique in the market. How do you manage such a large network?

By following a clear strategy: we want to connect the companies into a European network, which benefits customers. The customer has a single service provider responsible along the whole length of the transport chain. In 2009 rail transport had a market share of just over 17 percent in Germany; on many cross border routes, however, the market share is much lower, in spite of the fact that rail should be using its advantage especially on long routes. Within our own organisation, we can manage processes better. We are intensively working on integrating our companies in the Netherlands, Poland, Great Britain and France and increasing productivity within them. We want to increase market share and that is exactly what we are doing by linking our domestic products across borders. A good example of this is the automotive sector. Here we are transporting between Spain and Russia, Scandinavia and Turkey. This can be added to the fact that in the automotive sector we are increasingly able to offer integrated products with our colleagues from DB Schenker Logistics. The conclusion to be drawn here is that only by having a good network with uniform quality can you hope to succeed in the market.

So at the end of the day working with other national railways is less promising?

That is not what I am trying to say, indeed there are many good examples of international cooperation. However, entering a new country always means competing on the one hand and working together in specific areas on the other. That is something the railways have to get used to first. Competition in Germany has been a positive experience for us. And railways in other countries are now having the same experience with DB: competition puts them under pressure but helps them at the same time. Wagonload is the exception: numerous wagonload networks are not expedient – due to the high costs involved. Wagonload calls for a cooperative approach, which we have chosen with XRail.

How far have you come in terms of the European organisation of DB Schenker Rail?

We are currently reorganising a great deal. My main concerns are production and sales. In this context we are currently discussing new European organisational structures with the codetermination bodies. We will establish continuous European planning and execution organisational arrangements. This organisation will have the role of managing the market and quality requirements resulting from the increasing internationalisation of transport chains and tightly interlink our European businesses. Our goal is: creating continuous production and transport management from the consignor to the consignee and comprehensive management of the customer network.

Which of the lessons learned in the crisis are also valid for the future?

Greater flexibility in cost structures. Indeed, the trick lies in creating a competitive cost base and then sticking to it, even when growth and stability return for a sustained period. To achieve this in future we will be consolidating shipments, reorganising the activities of train formation yards and marshalling yards and also changing the set-up of service repair depots in Germany. In this way we want to increase trains’ load factors, thereby increasing stability and punctuality. And we are investing in the future: in 2010 the unprecedented figure of 410 million euro will be invested in new freight trains and locomotives.

What are the innovations within your business that bring about the right cost reductions and lead to increase productivity?

One feature of rail is that it is an integrated system where improvements cannot be made simply through vehicles or infrastructure. There is never sufficient focus on this interconnection when the link between infrastructure and traffic is discussed. Two important projects: autocouplers, which will sensibly be introduced into scheduled freight traffic first, and longer freight trains. This would require longer passing tracks to be built now.

The media and economic research institutes are now depicting a positive image of the economic situation. Are you optimistic too?

We are very pleased about the upward trend. But we must not become complacent. Unpredictability is often a characteristic of economic downturns.

What future does DB Schenker Rail see in the Russian and Far East markets?

Business is taking off again. We have been transporting containers between Duisburg and Moscow since June. We now want to expand our range of services because the demand is there. There are also new services planned from Russia to China. It is a huge market and, in geographical terms, predisposed to rail transport. We will be keeping it in our sights.

How do you see European developments such as freight corridors and the first rail package?

From the point of view of a highly populated Member State like Germany, with its growing share of international traffic, it is essential that current bottlenecks on the rail network will be eliminated. With the compromise achieved on the development of freight corridors, the various modes of rail transport, i.e. national and international freight and passenger transport, cannot and must not be played off against one another. Therefore it is our objective to make the most of the opportunities arising from the integrated development of European corridors, within the context of its practical implementation.

Do you see costs caused by EU legislation as a threat to the competitiveness of rail?

The fundamental concept of creating a European communication and signalling system, ERTMS, and thereby establishing interoperability, is essentially a good idea. In rail, however, we have long innovation cycles. In the changeover period, fitting both systems will result in additional costs. The rail system cannot bear these costs. And there is also the question: are we working on problems which have already been solved? For example the use of multi-system locomotives makes infrastructure upgrades superfluous.

How important are green logistics for your customers? After all you are transporting goods on environmentally friendly rails…

The days when being environmentally friendly was only a matter of image are long gone, the environment factor plays an important role in competition. Our “Eco plus” service for CO2 neutral transport provides a good example. It was Audi AG, a highly respected German company, which first signed a contractual agreement with us to pay more for a portion of their car transport so that it can be powered by renewable energy sources. And I think you should know that we already have further companies interested in this service.
We are also constantly reducing our own carbon footprint: between 1990 and 2008 DB Schenker Rail reduced its CO2 emissions by 47 percent. By 2020, emmissions will be reduced by a further 20 percent. All newly purchased shunting locomotives have a particle filter although this is not yet a legal requirement. The additional costs are around the same as the price of a well equipped family car. But that is part and parcel of wanting to offer our customers an environmentally friendly product.

Last but not least we would like to know: which topic is taking up most of your time at present?

For me there are two significant challenges: initially getting DB Schenker Rail back on track in terms of stability, both operationally and economically. Secondly: bringing together our companies across Europe to create a strong network. That is also a cultural challenge. DB Schenker Rail is not a German railway company with subsidiaries abroad, but rather a European railway company with a strong presence in Germany.

For more information please contact Gustav Manding: manding@uic.org and please visit the Rail Freight Portal: http://www.railfreightportal.com