France wrestles with rail freight reform

An emblem of the French state, the Societe Nationale des Chemins de Fer Francais (SNCF) is in need of both financial and strategic change.

The French President, Emmanuel Macron, has pledged to reform France’s institutions and economy. A big part of that is reform of its railways.

SNCF is in debt, with the bottom-line number being around €46bn. It needs investment. The Government has pledged to commit “€10m per day for 10 years” yet even this might not be enough. The government is constrained both by EU rules on direct subsidies and by its own fiscal position. Emmanuel Macron and his Prime Minister know that the trajectory of SNCF is not viable. Most attention is paid to passenger services but rail freight is also in a bad condition. Fret SNCF has long suffered from problems of competitiveness, making a loss in 2017 of €120m. It has been selling assets, such as the STVA vehicle transport business but concerns remain about its viability in the face of possible competition from independent rail operators. The response has been for the French government to push through a reorganisation that will see Fret SNCF become a semi-independent part of the wider SNCF Group. In addition, the new organisation will be recapitalised, giving some relief to its debt burden of €4.3bn. New ‘freight corridors’ will be created, with better pricing structures enabling more viable freight services.

A major problem for all parts of SNCF is employment contracts. Many workers at SNCF effectively have a guarantee of lifetime employment whilst train drivers have the right to retire in their fifties, a condition that dates back to the age of steam trains. Unsurprisingly the Government would like to change this. Equally unsurprisingly the employees are resisting such changes through extensive strike action.

It is unclear where Geodis fits into this. The purchase of the contract logistics and forwarder was controversial in the first place, but there appears no indication that it is up for sale despite SNCF’s financial problems.

However, the fear of Emmanuel Macron’s critics is that SNCF is being reorganised to make it easier to break up and privatise. In particular, they are concerned about Fret SNCF, especially in a rail freight market that is supposed to be open to competition. If these concerns are real then there may be some questions around the future of SNCF’s logistics services. However, judging by the fury of the strikes on the French railway there is still some considerable time before such decisions could be made.

Source: Transport Intelligence, May 10, 2018

Author: Thomas Cullen


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