NETWORK INDUSTRIES TRANSPORT

NETWORK INDUSTRIES TRANSPORT The transport sector represents a key area for growth and competitiveness, not only due to its size but also to its particular function in servicing the other sectors of the economy. Transport and storage services account for around 5.0 % of total employment in the EU and for 4.8 % of total value added 1. Efficient transport services and infrastructure are vital to exploiting the economic strengths of all EU regions and supporting the internal market, thereby facilitating economic and social cohesion. Investment in transport infrastructure enables growth and employment. Transport-related goods and services are the second biggest household budget item after house-related expenditure 2 and have a considerable bearing on citizens well-being. The differences in transport user costs between Member States suggest that there is untapped potential for efficiency improvements in some Member States. 1. KEY STATISTICAL INDICATORS The performance of the transport sector in different Member States can be assessed with reference to three main indicators: market access, quality of infrastructure and efficient use of transport infrastructure. 1.1. Market access Despite some progress, legal barriers to market entry persist in transport sectors in the majority of the Member States. Administrative, technical and regulatory barriers are also present, particularly in the rail sector. This paper uses the OECD indicators 3 of market regulation in energy, transport and communications (ETCR) for air passenger transport and road freight transport. It should be noted that the indicators only cover the 21 EU countries that are members of the OECD and that reforms carried out after 2007 are not taken into account 4. Regulatory burden air passenger transport and road freight transport 2007 1 2 3 4 According to ESTAT National Accounts data, around 11 million people are employed in transport and storage services, including warehousing and support activities for transportation, plus courier and postal services. The latest data are from 2010 and based on the NACE REV.2 classification. If the manufacturing of motor vehicles and other transport equipment, and the distribution and repair of motor vehicles and motorcycles are included, the figures rise to 7.7 % of value added and 8.2 % of employment or around 18 million employed (data for 2009). EU households spend about 13 % of their income on transport-related goods and services. Data source: OECD (2011), Product Market Regulation Database. Meanwhile, the situation has particularly improved in the road freight sector, following adoption of Regulation 1072/2009 on common rules for access to the international road haulage market, and the removal of restricted access to road freight cabotage markets. 1

Data source: OECD (2011), Product Market Regulation Database. The regulatory and market conditions are broken down into various categories with equal weights, with low values indicating light regulatory burdens. No data available for BG, CY, LV, LT, MT and RO. In the case of the railway sector, the main issues of concern, which are present to a different extent in various Member States, are the foreclosure of the domestic passenger market, the absence of open tenders for the award of public service contracts, and governance of the network that does not prevent discrimination of service operators. The use of open tenders in awarding public service contracts (PSC) is an indicator of the competition for the rail market. For the time being about 40% of all passenger-kilometres in the EU are so far accessible to new entrants, 20% have been opened in a way that allows commercial services in open access to co-exist with directly-awarded PSCs, while some 40% of all passenger-kilometres are not open for competition, and fall either under exclusive rights or directly awarded PSCs (that do not co-exist with open access). Thus the access to the larger part of the passenger rail domestic market is still impeded. Furthermore, the current governance of railway infrastructure in the EU still causes problems of network inefficiencies and discrimination in infrastructure access in most of the MS. Operators entering a new market continue to face discrimination in obtaining access to the infrastructure and rail-related services, which are often owned and operated by the incumbent rail undertaking. As a result, incumbent operators often maintain a de facto monopoly of the national market and this lack of competition is one of the reasons for the low quality and efficiency of services. Countries that have gone furthest in opening up the rail market have shown improvement in the quality of services and a rising market share of rail transport. The total market share of all but the biggest railway undertakings, for both freight and passenger transport (2011, source: EC) can be considered an indicator of competition in the rail sector. A low number of competitors, however, does not necessarily imply the existence of barriers to entry, but may also reflect market characteristics, for example the small size of the market. Market share of all but the principal railway undertakings 2011 Data source: Commission SWD (2012) 246 final, accompanying the 2012 report on monitoring development of the rail market. No data available for GR, and PT. For passenger transport, no data available for LU and SE. Not applicable to CY and MT. 1.2. Infrastructure The quality of infrastructure is negatively affected by insufficient investments both in the expansion and in the maintenance of the transport network. Adaptation of infrastructure to new mobility patterns poses additional challenge that requires new investments as well as a change in the approach to the design of transport network. 2

Given the regional specificities and differences in transport patterns, a good indicator to compare the situation among the Member States is the index of satisfaction with transport infrastructure quality (2012) produced by the World Economic Forum for its Global Competitiveness Report. Satisfaction with infrastructure quality, 2012 Data source: World Economic Forum, The Global Competitiveness Report 2012-2013. Scale from 1 [extremely underdeveloped] to 7 [extensive and efficient by international standards]. 1.3. Efficient use of transport infrastructure Bearing in mind that current budgetary limitations do not allow for substantial investments, there is still a scope for improvement in the way the existing infrastructure is actually used. It has been estimated that congestion costs Europe about 1 % of Gross Domestic Product (GDP) every year. The indicator used here is the ratio of average speed to free flow speed for local and urban road transport (<=50 km/h), and for inter-urban road transport (>=100 km/h). Congestion, urban and inter-urban traffic Data source: European Commission. No data available for BG, CY, GR, LV, MT, RO. 3

2. ASSESSMENT OF THE MAIN CHALLENGES IN THE MEMBER STATES Several Member States would profit from lowering barriers to market entry and reducing the regulatory burden in transport markets. In the case of Germany, France, Italy, Spain, and Austria which are large and/or transit countries such efforts are likely to have a positive impact on the EU economy as a whole. The availability and quality of infrastructure varies between Member States and is particularly low in the Eastern part of the EU, where renovation and upgrading of an otherwise extensive railway infrastructure is a fairly common challenge. Conditions must be put in place to ensure adequate overall planning and full absorption of funds earmarked for rail projects in the Cohesion Fund, particularly for Poland, Bulgaria, the Czech Republic and Hungary. The relevant Baltic Member States and Poland should proceed with the implementation of the Rail Baltic project, which would connect the EU main networks with north-eastern Europe with an unbroken north-south link. France, Greece, Italy, Portugal and Spain should further improve port services and port hinterland connections by rail (and or inland waterways). Improved maintenance and upgrading of inland waterways, and particularly of sections of the Danube in Bulgaria and Hungary, could remove significant bottlenecks in the EU transport network. Despite the comparatively good provision of infrastructure in the Benelux countries, Germany and the United Kingdom, all of these suffer from a high level of road congestion, which calls for better exploitation of all transport modes, deployment of intelligent transport systems and adequate pricing for the use of infrastructure. 3. HORIZONTAL ISSUES The European transport sector provides ample growth opportunities. Besides, given that transport and logistics represents a sizeable share of firms costs and of households expenditure, the provision of more efficient transport services and better logistics can affect EU citizens and businesses in a tangible way. Yet, to full seize transport-related growth opportunities, a number of horizontal challenges - common to most Member States need to be addressed. First, the transport sector gives rise to a series of negative externalities which result in economic and social costs to society. The most relevant external costs are those linked to congestion, greenhouse gas emissions, local pollution, accidents and noise. Internalising external costs would help reduce distortions and provide correct monetary incentives to users, consumers and business. It could also be a source of additional revenues. The introduction of schemes to internalise the external cost of transport, such as broader application of the user pays and polluter pays principles, should therefore be promoted and encouraged in all Member States. Furthermore, most Member States are still lagging in meeting the EU target on the use of Renewable Energy Sources (RES) in transport (10 % to be achieved by 2020). Besides reducing the environmental impact of transport, meeting this target would contribute to ensuring security of fuel supply and reducing both oil dependency and the sensitivity of the economy to oil price fluctuations. Transport infrastructure presents different issues for different Member States: while for some the main issue is to upgrade and maintain existing infrastructure, others need to develop or expand their transport network. However, most Member States face the common problems of financing investment in transport infrastructure, exacerbated by tight budget constraints resulting from the financial crisis, and of creating a network that better integrates and connects the different transport modes. Another common challenge is creating conditions of fair competition between the various transport operators in a market that is not distorted by illegal State aid or by abuses related to the control of infrastructure. For example, State funding of regional airport is often needed to ensure territorial cohesion and access to poorly connected regions. However, there are also cases of detrimental airport duplication which place an unnecessary burden on public finances or create an undue 4

distortion of competition in the internal market. Sustainable growth of airports and airlines requires full compliance with state aid rules. As for maritime transport, ports have no obligation to keep separate accounts of economic activities that are subject to inter- and intra-port competition and their regulatory/public activities within the port. In rail, failure to separate infrastructure managers and service operators is not conducive to fair competition or efficient exploitation of the infrastructure. Finally, the slow pace of deployment of smart mobility systems such as intelligent transport systems for road, the air traffic management system SESAR and the European rail traffic management system (ERTMS) is a further cross-cutting issue. This is causing considerable economic losses, both in terms of unexploited capacity and in terms of operators duplicating costly equipment. 5

ANNEX: Additional statistical indicators Table 1. Access to market and market performance Access to markets Productivity Performance of the passengers transport markets OECD ETCR Air passenger transport OECD ECTR Road freight transport Market share of all but the principal undertakings (freight) Rail Market share of all but the principal undertakings (passengers) 6 Labour productivity of the transport sector (*) MPI train services MPI airline services MPI local public transport BE 1 12 11.8 0.2 3 20 24 19 BG na na 21.6 2.6 23 22 13 26 CZ 19 5 13.2 0.2 18 12 10 3 DK 5 1 25.0 18.0 2 9 4 12 DE 1 5 25.0 8.0 13 19 6 10 EE 18 15 45.0 50.0 19 2 9 8 IE 16 5 0.0 0.0 8 8 23 13 GR 21 21 na na 11 17 10 23 ES 13 1 8.1 0.0 12 11 27 16 FR 6 19 20.0 1.0 7 14 13 11 IT 14 15 24.1 8.3 4 23 22 24 CY na na - - 14-17 25 LV na na 23.3 10.5 17 4 18 9 LT na na 0.0 0.0 16 1 18 2 LU 8 1 0.0 na 5 6 8 7 HU 10 18 19.5 1.8 22 14 3 22 MT na na - - na - 5 27 NL 4 15 40.0 4.8 9 13 18 18 AT 9 5 14.6 5.4 6 16 7 5 PL 17 1 35.8 48.3 21 25 15 14 PT 19 12 na na na 10 21 16 RO na na 54.7 3.9 na 24 2 20 SI 10 20 0.0 0.0 15 3 1 4 SK 1 14 2.0 0.0 20 7 10 5 FI 15 1 0.0 0.0 10 5 16 1 SE 7 5 40.0 na 1 21 25 21 UK 10 1 51.4 89.9 na 18 26 15 Note: Top five performances in green, bottom five performances in red. For the indicators available for 21 or less MS, only the top/bottom three performances are highlighted. In the case of the indicators of market share on non-incumbents, performances under 3 % are highlighted. If not otherwise specified, data are derived from European Commission sources.

Table 2. Infrastructure Reduction of administrative obstacles World Bank Logistic Performance Index Quality of roads (WEF) Quality of rail infrastructure (WEF) Quality of port infrastructure (WEF) Quality of air transport infrastructure (WEF) Infrastructure provision Density of motorway network per 1000 km2 Density of motorway network per 1000 inhabitants Density of rail network per 1000 km2 (**) Density of rail network per 1000 inhabitants Km of high speed rail lines Gross investment in transport infrastructure building as % of GDP (ITF) (***) BE 5 13 7 2 5 3 11 2 20 209 0.92 BG 18 26 22 25 24 21 22 16 11 1.79 CZ 21 21 13 20 9 16 21 1 4 1.72 DK 4 3 10 7 7 9 8 10 16 0.61 DE 2 9 3 4 2 5 13 4 18 1344 0.85 EE 25 18 20 10 21 23 19 25 8 1.44 IE 13 14 16 13 14 15 9 20 17 1.00 GR 26 20 23 21 17 17 17 23 24 1.35 ES 11 7 4 8 6 7 2 17 19 2144 1.83 FR 8 1 1 12 3 11 10 13 15 2036 0.98 IT 12 17 18 24 19 10 16 14 21 923 1.22 CY 17 10-17 16 8 3 na na na LV 27 23 17 19 18 na na 19 3 1.98 LT 24 15 11 15 22 19 18 21 10 1.59 LU 10 8 8 11 12 2 4 3 12 0.97 HU 19 19 19 23 23 13 14 5 5 1.29 MT 20 24-9 11 na na na na 0.22 NL 3 6 5 1 1 1 12 7 25 120 na AT 7 3 6 18 13 12 7 11 7 0.86 PL 15 25 24 26 25 22 24 9 13 1.24 PT 14 2 15 16 15 6 5 18 22 1.43 RO 23 27 25 27 26 25 25 15 14 2.61 SI 16 16 21 14 20 4 1 12 9 1.77 SK 22 22 14 22 27 18 20 6 6 1.34 FI 1 4 2 3 4 24 15 24 2 0.72 SE 9 12 12 5 8 20 6 22 1 0.86 UK 6 11 9 6 10 14 23 8 23 113 0.85 Note: Top five performances in green, bottom five performances in red. For the indicators available for 21 or less MS, only the top/bottom three performances are highlighted. If not otherwise specified, data are derived from European Commission sources. 7

Table 3. Environmental and social dimension Ratio of average to free flow speed (<=50 km/h) Congestion Deployment of clean transport technologies Safety Ratio of average to Share of RES in CO2 emissions from % of electrified Road fatalities per free flow speed transport new passenger cars railway lines over million passenger (>=100 km/h) (EEA) total lines in use cars 8 Road fatalities per 10 billion pkm BE 15 18 13 5 2 16 14 BG na na 24 25 3 25 25 CZ 3 11 12 20 18 17 20 DK 10 12 25 3 20 10 5 DE 13 17 5 23 10 6 6 EE 7 7 26 27 22 19 16 IE 20 2 19 7 25 8 4 GR na na 23 9 21 23 19 ES 1 13 11 10 8 5 12 FR 5 10 4 6 13 13 8 IT 4 5 9 8 5 11 10 CY na na 18 24 15 21 LV na na 22 26 23 26 26 LT 16 8 7 19 24 18 17 LU 11 20 17 17 1 7 9 HU 17 15 14 15 16 22 23 MT na na 27 2 4 15 NL 12 19 8 4 6 2 3 AT 8 4 3 12 7 12 13 PL 18 6 6 20 9 24 24 PT 2 9 10 1 11 20 18 RO na na 21 14 17 27 27 SI na na 20 13 15 14 11 SK 14 14 1 22 14 21 22 FI 6 3 16 18 12 9 7 SE 9 1 2 16 4 3 1 UK 19 16 15 11 19 1 2 Note: Top five performances in green, bottom five performances in red. For the indicators available for 21 or less MS, only the top/bottom three performances are highlighted. If not otherwise specified, data are derived from European Commission sources. (*) Figures include postal and courier activities, EU27 benchmark value estimated for 2011. (**) Data for BE and SE are estimated. (**) GDP data are from Eurostat. Data are in general based on 2000-2010 averages of GDP and investments and they cover gross investments in road, rail, sea and inland ports and airports infrastructure building (maintenance not included). However, the following exceptions apply: BE: from 2000 to 2009; BG: road data from 2006 to 2010, sea data from 2001 to 2010 and IWW to 2003 to 2007; CZ, AT, HU, LU, SK: Sea ports not applicable because of landlocking, AT data until 2007, LU until 2008; DK: Sea and Air until 2009; IE: rail data available until 2007. Data on sea ports not available; EL: from 2000 to 2007; IT: from 2000 to 2009; CY, NL: not

available; LV: sea data from 2002 to 2008;.MT: from 2000 to 2005. Data available only for road; RO: Sea ports not available; SE: sea ports data from 2002 to 2008; UK: sea and air data from 2000 to 2005. 9

Indicators presented in the tables: Table 1. Access to market and market performance Access to markets: The selected indicators are the OECD indicators of regulation in energy, transport and communications (ETCR), which summarise regulatory provisions in air passenger transport and road freight transport, and the total market share of all but the principal railway undertakings, for both freight and passenger transport (2011, source: DG MOVE), which can be considered an indicator of the level of competition in the rail sector. Since a ranking for this indicator would be scarcely significant, given the relatively high number of MSs performing close to zero, the actual figures and not the rankings have been provided in the table. Productivity. The indicator chosen is the gross value added by person employed in the transport sector (2011, source: Eurostat, National Accounts by NACE at 21 branches) Performance of the passengers transport markets. The selected indicators are the market performance indicators (MPI), as perceived by users, related to the train services and the local public transport services (2011, source: Monitoring consumer markets in the European Union, DG SANCO). An additional indicator is the performance of the airline services market (2011, source: Monitoring consumer markets in the European Union, DG SANCO). Table 2. Infrastructure Reduction of administrative obstacles. The selected indicator is the World Bank s Logistic Performance Index 5 (2012). Infrastructure provision. The selected indicators are the indexes of satisfaction with respect to road, rail, port and air transport infrastructure quality (2012), which are part of the World Economic Forum Global Competitiveness Report, the density of the motorway network per 1000 km² of territory and per 1000 inhabitants (2010, source: DG MOVE Transport in figures), the density of the railway network per 1000 km² of territory and per 1000 inhabitants (2011, source: DG MOVE Transport in figures). The gross investments in transport infrastructure building 6 (road, rail, sea ports and airports) as % of GDP (2000-2010, source: ITF) has also been included; however, it should be underlined that data for this indicator are not completely harmonized (and in addition the coverage is partial for some countries see also the table footnote). Furthermore, high values are not necessarily associated with a positive performance (e.g. in the case of "catching-up" countries). Since a ranking would be scarcely significant, only the actual figures and not the relative positions have been included in the table. Similarly, for the 7 MS with high speed rail infrastructure, the length of lines, but not a ranking, has been provided (2012, source: DG MOVE). Table 3. Environmental and social dimension. Congestion. The selected indicator is the Ratio of average speed to free flow speed for local and urban transport (<=50 km/h), and for inter-urban transport (>=100 km/h), both produced by JRC. Deployment of clean transport technologies. The selected indicators are the share of Renewable Energy Sources (RES) in transport (2010, source: Eurostat), the CO 2 emissions from new passenger cars (2011, source: EEA) and the share of electrified railway lines over total lines in use (2011, source: DG MOVE Transport in figures). Safety. The selected indicators are the number of road fatalities per million passenger cars and the number of road fatalities per 10 billion passenger-kilometres (2011, source: DG MOVE). 5 6 Source: World Bank, Connecting to Compete - Trade Logistics in the Global Economy, 2012. Expenditure on new construction and extension of existing infrastructure, including reconstruction, renewal and major repairs of infrastructure. 10