Transport in the European Union: Current Trends and Issues (1)

Barcelona, July 12, 2018.- The European Union has published an extensive report on the transport sector. Antecedents, the present and the future in materia of new norms to make it more competitive and efficient. We publish a summary in two reports.

Transport is a fundamental sector for and of the economy. It embraces a complex network of around 1.2 million private and public companies in the EU, employing around 10.5 million people1 and providing goods and services to citizens and businesses in the EU and its trading partners. Transport also provides mobility for Europeans, thus contributing significantly to the free movement of persons within the internal market.

Efficient transport services and infrastructure are vital to exploiting the economic strengths of all regions of the European Union, to supporting the internal market and growth, and enabling economic and social cohesion. They also influence trade competitiveness, as the availability, price, and quality of transport services have strong implications on production processes and the choice of trading partners. With such a central role, transport is by definition also inter-related with various policy areas, such as environmental and social policies.

The main challenges for the transport sector in the EU include creating a well-functioning Single European Transport Area, connecting Europe with modern, multi-modal and safe transport infrastructure networks, and shifting towards low- emission mobility, which also involves reducing other negative externalities of transport. From a social perspective, affordability, reliability and accessibility of transport are key. However, this has not been achieved across the board. Addressing these challenges will help pursue sustainable growth in the EU.

Recently, the Commission has taken several initiatives to foster the development of the Single European transport area, a policy that it has been pursuing for decades now. Progress towards this goal has been made, e.g. with:

the 4th Railway Package;
the Blue Belt initiatives for maritime transport;
the proposed Single European Sky II+ package for aviation transport (still pending);
the NAIADES Programme to promote inland waterways.

The Commission seeks to address shortcomings, particularly in the market integration of road transport, through a set of initiatives for a socially fair transition towards clean, competitive and connected mobility presented in its Low-emissions Mobility Strategy (adopted in July 2016) and subsequently in its Communication “Europe on the Move”2 of 31 May 2017. This Communication accompanies a series of legislative proposals (so- called “mobility package”) the revision of the rules on access to the road haulage market, improved social legislation for road transport and a revision of the road charging rules.

On 8 November 2017, the Commission adopted a second set of proposals (“second wave of the mobility package”). They respond to the challenge of making mobility clean, competitive and connected through a combination of demand- and supply-side measures on low-emission mobility. These combine an enabling regulatory framework with actions to mobilise financial means, where needed, while ensuring consumer acceptance and safeguarding the social protection and employment dimensions.

In concrete terms, the proposals encompass a number of measures with the aim to enable a transition towards low and zero emission mobility, such as a reform of the Clean Vehicles Directive or a follow-up to the Action Plan related to the Alternative Fuels Directive.

The shift towards low-emission mobility was already an objective in the Transport White Paper of 2011 and was supported by various initiatives. The 2016 Communication “A European Strategy for Low-Emission Mobility” highlights the areas on which Commission initiatives will focus:

digital mobility solutions;
fair and efficient pricing in transport (which should better reflect negative externalities of transport) promotion of multi-modality;
an effective framework for low emission alternative energy;
roll-out infrastructure for alternative fuels;
interoperability and standardisation for electro-mobility;
improvements in vehicle testing;
a post-2020 strategy for all means of road

Additionally, in 2018 a “Multi-modal Year” will bring together relevant initiatives and events, including a ‘European Single window’ in maritime transport. As part of the second wave of the mobility package, the Commission is proposing a revision of the Combined Transport Directive.

More details on the state of play of transport policies can be found in the 2016 White Paper implementation report, in the staff working document accompanying the Communication “Europe on the Move”and in the Implementation report of the EU maritime transport strategy 2009- 2018.

To help EU countries develop the trans-European transport network (TEN-T network), the EU adopted a Regulation in 2013 providing Union guidelines for transport investment (TEN-T guidelines). The Regulation establishes a legally binding obligation for the EU countries to develop the so-called “core” and “comprehensive” TEN-T networks.

In addition, the Regulation identifies projects of common interest and specifies the requirements to be complied with in the implementation of such projects. The Connecting Europe Facility (CEF) Regulation, adopted in 2013, allocated a seven- year budget (2014-2020) of EUR 30.4 billion, of which EUR 24 billion are for the transport sector.

These examples demonstrate the considerable opportunities provided by the European transport sector, but also the challenges it faces, notably in terms of digitalisation, innovation, global leadership and societal benefits. This is particularly true in the current situation of disruptive changes in technology (e.g. e-mobility) and mobility patterns (e.g. the sharing economy) which highlights both the challenges and the opportunities discussed in this note.

The transport policies in the EU are characterised by divergent national priorities. Fragmentation of the transport market will continue to limit the quality of transport services in Europe and will leave growth potential untapped, unless European policy initiatives towards a Single Market for transport, such as the ones quoted above, are thoroughly implemented at national level.

In addition, gaps in the social legislation related to transport and divergent national practices have led to deteriorating social conditions for transport workers and may also worsen the quality of transport services. Market opening and social cohesion are thus intrinsically linked.

Rail transport in particular has been struggling to achieve its potential. This is despite its comparative advantages (notably speed and comfort for passengers and economies of scale for freight) over medium to long distances and the significant contribution it can make to both the decarbonisation of transport and socially inclusive mobility.

Rail freight services suffer from low quality and reliability. This is due to the lack of coordination in cross-border capacity offer, traffic management and planning of infrastructure works.

The creation of a Single European Rail Area requires major efforts to achieve technical interoperability and to ensure that rolling stock is able to run across national borders. In addition, standardisation of systems and equipment in its broader sense is crucial to gain efficiency and reduce costs. Specific EU legislation, such as the Technical Pillar of the 4th Railway Package, aims at promoting interoperability. The rules are implemented with the assistance of the European Union Agency for Railways (ERA).

The lack of effective competition may explain why in many EU countries rail transport has not developed customer-oriented services, innovative business models and costs/price reductions that can be witnessed after market opening in other transport modes. The degree of competition in the railway sector, measured as the total market share of all but the biggest railway companies, is low (see Figure 2). Although a low number of competitors may reflect the small size of a market, various barriers to entry still hamper the development of competition in rail.

The rail freight market has been fully open to competition since 2007. Between 2010 and 2015, the market shares of competitors continued to increase in most EU countries, most significantly in Belgium, Bulgaria, the Czech Republic, Germany and Hungary. Exceptions to this growth trend were Estonia and France.

In the rail passenger market, the market shares of competitors are lower and less diverse, and also depend on the degree of liberalisation, which varies across countries. In most countries incumbent rail companies have control over 80% of the market, except for Poland (48%), Sweden (67%), Italy (77%) and the United Kingdom (where there is no incumbent). In 10 countries there were still no alternative operators in 2015.

The 4th Railway Package is set to complete the market opening process by dismantling the remaining legal monopolies in domestic passenger markets. It introduces the principle of competitive tendering for public service contracts (PSCs) and improves the way infrastructure is governed to create a non-discriminatory environment. However, until the package is fully implemented, important challenges remain to be addressed on the ground.

Rail passenger market opening has been pursued by several EU countries in advance of the legal deadlines imposed by EU law, to different degrees and with varying results. New commercial (open access) services have been introduced in the Czech Republic, Germany, Italy, Austria, Sweden and the United Kingdom. While the reasons for success or failure in operating a new rail business are diverse, a common trait is that, in the absence of safeguards against unfair practices, new entrants face serious obstacles.

In particular, new commercial operators still face discrimination in obtaining access to rail infrastructure and essential service facilities, such as stations and maintenance workshops, which are often owned and operated by incumbents. Incumbents may also engage in anti-competitive behaviour or rely on cross-subsidies to keep competitors out of the market.

In 2015, two thirds of all EU passenger rail services were provided under PSCs, particularly for regional and suburban traffic. This average hides significant differences across countries. In Denmark, Ireland, Greece, Croatia and Luxembourg, all passenger services are covered by PSCs. The use of competitive tenders for the award of these contracts is a key indicator of the degree of market opening. In the EU, the majority of PSCs are still awarded directly to incumbents. While the 4th Railway Package has introduced the principle of competitive tendering, it will take time (up to 2023) before the use of tenders is widespread.

In the road transport sector, the market for international (intra-EU) freight and passenger services has been entirely opened to competition, but domestic transport remains largely protected. On the freight side, “cabotage”, i.e. domestic transport performed by foreign hauliers, is subject to restrictions. As a consequence, operators face difficulties in optimising their operations and one in two vehicles operating domestic transport outside of its country of registration runs empty.13

The performance of national hauliers can to some extent be compared by looking at the shares of home-based vehicles in exports and imports from other EU countries. Under certain conditions a similar distribution of the transport activities between hauliers from the importing and hauliers from the exporting country might be expected. In reality, however, this is rarely the case in the EU.

Hauliers from some of the new EU countries, e.g. Poland, Bulgaria, Croatia and Romania are largely dominating the transport operations in the external trade of their respective countries. This reflects low labour costs.

The relative competitiveness of hauliers from the new EU countries also shows in their share in cross- trade (transport between two countries neither of which is the country of registration of the haulier): they account for 80% of all cross-trade in the EU. At the other end of the spectrum, hauliers from countries such as Sweden, France, Italy, Belgium and Denmark appear to be less competitive and have a relatively low market share when it comes to carrying the exports and imports of their own economies. With a combined share of less than 2% in total activity, these countries are more or less absent from the cross-trade market.