The German government’s subsidy of €1.9bn to DB Freight has been approved by the European Union’s competition authorities. In a statement on November 29th, the European Commission said that it had “concluded that a German State aid measure of €1.9 billion to support DB Cargo, one of Europe’s leading rail freight operators, is in line with EU State aid rules”. The EU commented that it had received a complaint from “a competitor” prompting them to examine if Deutsche Bahn had been acting in an uncompetitive manner. In particular, the Commission said it had examined if Deutsche Bahn had been operating an “open-ended profit and loss transfer agreement” to DB Cargo and offering an “intra-group services to DB Cargo at potentially favourable pricing terms”. Apparently, this has been the case but Deutsche Bahn has promised not to do it again. As for the payment of €1.9bn, the EU said that this is part of an explicit restructuring of Deutsche Bahn and thus is just a one-off payment.
The industry organisation representing private rail freight operator in Germany, De Gueterbahnen, described the ruling as “a good day for rail freight transport of the future” as “the EU Commission has banned the German government and the DB Group from assuming the losses of the freight rail subsidiary DB Cargo” which will “end the possibility of damaging competitors and keeping them small by means of dumping prices”.
Both Deutsche Bahn and DB Cargo are undergoing what they describe as an “extensive transformation process aimed at ensuring a competitive business model for the future”. This seems to include extensive job cuts and management restructuring. However, it is unclear what will happen if this restructuring does not return DB Cargo to profitability.
Rail freight in Germany in particular and continental Europe in general, is undergoing a near revolution. The two largest industrial sectors that are key customers for rail freight, automotive and chemical industries, are undergoing savage restructuring which implies both reductions in volumes and traffic patterns. Sustaining profitability in such an environment may not be easy.
Author: Thomas Cullen
Source: Ti Insight
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