Challenges for Rail Freight OSJD Freight Commission Odessa, 30 May 2011 Oliver Sellnick, Director Freight UIC

2 UIC – a global association with over 200 members around the world 2 80 Members Active 8235 Associate Affiliate

3 The World-wide organization for co-operation among Railways Provider Facilitator Organiser Developer Know How, technical and operational expertise Technical solutions Regulations, standards, best practises Exchange platforms, Innovation: new ideas, new concepts Project management Support policies of development of key infrastructure projects Forums Platforms Study groups International conferences Congresses Specifications Standards Interfaces Studies Interoperability for international rail corridors Promoting the development of rail transport at world level, in order to meet the challenges of mobility and sustainable development

4 Mission of freight department „What“ −Increase revenues of members by improving the competitiveness of international products and services −Reduce costs of members by harmonizing international business, operational and information processes „How“ −Being the major facilitator and neutral manager of multilateral cooperation in non-competitive areas among members −Organising knowledge transfer among members and from other industries with benchmarking, workshops, conferences

5 Freight railways expanding around the world 5

6 Different characteristics and framework conditions of freight markets – development in isolation Western EuropeEastern EuropeNorth AmericaAsia COMPETITION - Road - Barges - Coastal shipping - Increasingly rail - Increasingly road - Increasingly rail - Road - Rail - Shipping - Road AVERAGE TRANSPORT DISTANCE 350 km500 km> km1.200 km INTERMODAL MARKET SHARE 10%-15% stabilizing 15-25% still declining 30% stable>30% China / India growing BOTTOM LINELoss makingBreakeven to profitable Profitable KEY CHALLENGES Ensure long-term survival of sector Stabilize volume at sustainable level Attract capital to ensure moderate growth Build infrastructure to support rapid growth

7 Key trends rail freight > Opportunities  Growing world trade needs more transportation. Modal shift to rail important for sustainable transport  Rail freight increasingly integrates into logistic solution  International corridors in Europe, Asia, the Middle East promoting efficient long-distance rail traffic > Challenges  Interoperability and cooperation: -intramodal in terms of technology / administration / law / operations -but also intermodal connectivity  Productivity: train length and weight, capacity utilization  Integration with customers and information transparency

8 The European railway policy EU Vision « Creation of an integrated European railway area to allow cross border services under a single responsibility in order to guarantee the quality of services to the customer » The cornerstones of the EU approach  Open access in rail transport to favour competition and create incentives for product innovation and service quality  Fostering the interoperability of the national networks (and hence international services) through technical harmonisation  Develop a common rail safety approach to facilitate market access while maintaining a reasonably high level of safety  Develop the trans-European Network for rail > Free access improves competitives of rail but … > Lower infrastructure investments in rail > Infrastructure access more expensive > High external costs of road not internalised

9 Around 600 rail operating licenses in freight in Europe Scope Outside scope Scope (EU 27 – Cyprus, Malta & Ireland) + Norway + Switzerland Source: ** European Commission - rail market monitoring scheme_2008, *VDV website 2010 FINLAND (1, 0) Country (number of valid RU licenses, market share non-incumbent [%]) ESTONIA (13, 49) LATVIA (4, 9.6) SWEDEN (17, 20*) LITHUANIA (1, 0) NORWAY (8, 21) POLAND (67, 24) UNITED KINGDOM (26, 45) DENMARK (11, 5*) GERMANY (315, 22) NETHERLANDS (26, 45) BELGIUM (5, 6.1) LUXEMBOURG (2, 100) SWITZERLAND (20, y) CHECK REPUBLIC (33, 5*) AUSTRIA (17, 14) SLOVAKIA (1, 0) FRANCE (7, 10) SPAIN (10, 5) PORTUGAL (2, 0) ITALY (17*, 12*) GREECE (1, 0) ROMANIA (25, 41) BULGARIA (6, 3) HUNGARY (22, 14.4) 1

10 Creation of a European Rail Network for Competitive Freight Creation of internationally integrated infrastructure  Investment and capacity planning  Parameters (train lenghts, axle load, etc)  Operational rules  Path requests (OSS)  Quality monitoring

11 Market segments of European rail freight SegmentsCommoditiesShare of volume Competitive environment Coal, Steel Construction materials ~ 35% Traditionally barge competition Focus of intra-modal rail competition Price decline Chemicals Paper and pulp Automotive Steel ~ 45% Focus of road competition Complex production process, high barriers to entry Finished goods Containerized goods ~ 20% Strong road competition Intermodal Operator and Freight Forwarder as partner Block Train Wagonload Combined traffic

12 Combined Traffic Wagon Load Freight Forwarders Information Technology Quality Mgm. Wagon Exchange Freight Ops. TAF TSI Migration Global Freight Active cooperation of members on freight projects

13 > Zurich, 18 February 2010: signing of alliance and press conference > Xrail: production alliance > For international wagonload business > Uniform production standards Leading railways launched wagonload production alliance 1

14 Xrail features address customer needs 1

15 Improving the productivity of intermodal rail-road/sea transport –Strong volume growth projections but infrastructure capacity constraints –Roles and responsibilities along the value chain complex with numerous interfaces and duplicities –High volatility in business und non optimal resource deployment: –Peak work loads –Train lengths / weights –Unsatisfactory financial results of players in highly fragmented market  Productivity has to increase regarding network, hub & terminal infrastructure and rolling stock to enable profitable growth  Business has to be “industrialized” employing international best-practice processes, systems & price incentives  Improved cooperation & coordination needed along the value chain both vertically and horizontally

Agenda 2015 for Combined Traffic in Europe

The future is paperless 17 Companies not attending already committed: Goals −paperless transport −No manual intervention, thus improved quality −avoiding physical paper transport, thus reduced costs

EUR Pallet – invented in 1961 and kept young since then by UIC 18

19 Measuring GHG emissions and energy consumption with

20 – the central information hub for rail freight

Thank you for your attention OSJD Freight Commission Odessa, 30 May 2011 Oliver Sellnick, Director Freight UIC