High Oil Prices Boost Rail Travel

If the cargo aboard a freight train that rolled into Hamburg, Germany, earlier this year—a mixed load of clothes, ceramics and electrical goods—looked unremarkable, its arrival heralded the start of a new era. The train, an experimental service run by an international alliance of railway operators, including Germany's Deutsche Bahn and the Russian and Chinese State railway companies, had traveled 10,000 kilometers direct from Beijing, taking half the time needed to reach Germany by sea. The alliance's aim by next year: a regular freight shuttle service that will undercut airline shipping on price.

It's an extreme example of how rail is resurging around the world. The trend, fueled by concern over the environment and frustration with the hassles and congestion of road and air travel, has been building for some time. But in recent months, interest has exploded thanks to the rising price of oil. "The whole movement to rail is going to accelerate because we are now facing an energy crisis and an environmental crisis at the same time," says Guillaume Pepy, president of the French state-owned rail company SNCF, and chairman of Eurostar. Businesses and commuters eager to save money on fuel are opting for train travel, which can be exponentially more efficient than a car or plane journey, particularly as distances grow. For example, even a diesel locomotive at its most efficient can move a ton of weight 436 miles on a single gallon of fuel, according to the American Association of Railroads, making a full train about 10 times thriftier than a hybrid car, let alone a typical 18-wheel truck. "Hands down, traveling by rail is the most fuel-efficient and least carbon-intensive way you can go," says Nancy Kete, director of the World Resource Institute Center for Sustainable Transport.

As the real-world cost of carbon increases, not least because of growing regulation (most notably European Union controls on emissions), it's no wonder that a host of new investors are pouring money into rail travel, and engineers across the world are laying fresh tracks to carry a generation of faster and lighter trains. Europe alone should see 6,000 kilometers of new high-speed line by 2010; China aims to complete 10,000 kilometers by 2020. Even in the United States, where car culture has resulted in years of rail neglect, there's talk of a new package of government subsidies for rail giant Amtrak (which has seen passenger numbers rise by 17 percent in the last two years). Says Gelfo Kroeger, a spokesperson for Deutsche Bahn, the German rail company behind the Beijing link: "We have companies looking at us now who would never have looked at us before."

The world's best-known market trend-watcher, Warren Buffett of Berkshire Hathaway, recently shelled out $5.7 billion for an 18 percent stake in the U.S. railroad company Burlington Northern Santa Fe, and then splurged a further $1.4 billion on two more stakes in the sector. (Smart move: rail stocks have soared even as overall markets are down.) FedEx is planning the transfer of some of its European cargo from air to high-speed rail services. Even airlines, faced by mass defections to the train on short-haul routes in Europe, are now looking at collaboration rather than competition. Air France announced earlier this month that it had opened talks with Veolia, one of Europe's largest private rail companies, on a joint venture that would see transfer passengers continue their journey by train rather than plane on some trips. In time, its sleek new trains could be shuttling travelers between, say, Paris's Charles de Gaulle airport and other European cities.

Already, existing networks are being ramped up. Under proposals due for approval by Parliament later this year, France's high-speed network, the most extensive in Europe, will more than double in size. Expansion also looks inevitable in Britain, where passenger numbers in 2007 hit a level not reached since the mass demobilization of troops after the second world war. "Railway wins wherever there is a new high-speed line between two major commercial centers and the journey takes less than three hours rail," says Johannes Ludewig, director of the Brussels-based Community of European Railways. A new London St. Pancras terminal and faster services have given the Eurostar a boost. The company now claims 70 percent of the market for travel between London and Paris.

It's the airlines, forced to hike fares as oil prices rise, that are suffering worst from the competition. A round trip by rail from London to Brussels now costs as little as $200, barely more than a budget carrier charges. Once the air route between Madrid and Barcelona ranked as the busiest in the world with 70 flights a day. That was before a new high-speed rail line launched earlier this year slashed the rail-journey time by almost 90 minutes. With trains running at 70 percent capacity, rail now dominates the route.

Trucking firms are also feeling the competition, as more companies switch to cost-effective rail shipping. According to one recent study, more than 900 American trucking companies went under in the first quarter of this year. For some the logic is clear. One of the country's largest trucking concerns, J.B. Hunt, last week announced that it would be shifting more of its cargo from road to rail. Given all the interest, more mergers, acquisitions and general dealmaking across the rail sector seem likely. Germany's Deutsche Bahn has already bagged a clutch of smaller foreign companies in the attempt to create an international network that can operate across Europe's liberalizing rail market.

More deregulation is sorely needed. Over the last 10 years, the total volume of freight travel has leapt 74 percent in Britain and 52 percent in Germany, but only because those states often deregulated their rail networks. Elsewhere, networks are dominated by less efficient state owned operators. "The market has really grown as far as it can," says Monika Heiming of the European Rail Freight Association. "In future, it is going to flat-line until the infrastructure improves." Bottlenecks are commonplace on crowded networks, especially when freight takes second place to passenger traffic, and Europe lacks the standardized signaling system that's vital to efficiency. Likewise, critics of Amtrak say the U.S. government should stop funding it and let private operators bid on existing tracks and equipment to provide better service.

Will a seamless international rail network ever become a reality? That much-vaunted "Eurasian land-bridge" between China and Europe took months of patient planning between different national companies. History may again be on the side of the railways. But then history, like some rail services, never works to an exact timetable.

High Oil Prices Boost Rail Travel | World