Efforts in Europe to shift freight from congested roadways to rail mostly have met with failure. But the experience of a German paper maker may open the door to a reversal of that trend.

Zanders Feinpapiere AG, in partnership with P&O Trans European, is using trains to move large volumes of product to and from its plants, in a program that also has helped the company centralize warehousing and slash logistics costs.

Founded in 1829, Zanders is Germany's leading producer of high-quality coated paper for catalogs, art prints and specialty packaging. International Paper acquired a majority share in 1989.

Zanders has two German production sites near the city of Cologne - in Bergisch Gladbach 30 kilometers to the east, and Duren about 120 km to the west. Cologne's location on the Rhine River allows for easy access to the Port of Rotterdam, the company's main gateway for overseas distribution.

Like most European shippers, Zanders had relied almost exclusively on trucks to move materials to and from its plants. That changed when the company set out to streamline and modernize its fragmented supply chain, a move prompted by the rise in global competition.

Logistics was a prime candidate for change.

Supporting Bergisch Gladbach were 10 separate storage sites, six inside and four outside the plant. In a situation described by P&O marketing manager Frank Spiekermann as "chaotic," Zanders was picking from multiple locations in order to amass materials for production or shipment.

Zanders' immediate goal was to bring all materials storage into one easily accessible site. At the same time, it saw an opportunity to move 300,000 metric tons of raw material and finished product over the rails each year, out of a total volume of 850,000 tons.

Considering the poor record of Europe's railroads as efficient movers of freight, the goal was an ambitious one. To achieve it, Zanders turned to P&O Trans European, the intermodal offshoot of P&O Nedlloyd. The contract logistics arm of P&O encompasses all modes of transport within Europe.

Capital resources include more than 2,000 vehicles, 61 Rhine barges, 6,700 trailers and 1,000 domestic-style containers. But it was P&O's experience in warehousing - the vendor controls some 775,000 square meters of storage around Europe - that proved most valuable.

P&O helped Zanders create a central warehouse at Bergisch Gladbach, tied to a dedicated rail terminal. The complex has space for 35,000 pallets in a high-bay warehouse that minimizes damage to sensitive stacks of paper. Each pallet gets its own resting place, with picking, conveying and load planning all fully automated. Customers throughout Germany and France can be supplied within 72 hours from time of order.

A Private Function
Operated by a new entity known as BGE, the adjacent rail facility is owned jointly by Zanders, P&O Trans European, the city council of Bergisch Gladbach, and HGK Hafen, a private rail operator. It has two tracks and capacity for 14 freight cars. Public subsidies from the state of Westphalia accounted for nearly half the $80m cost of the project, which took 14 months to complete.

The creation of BGE helped the partners secure a license to operate their own railway cars over Germany's state-owned tracks. New rules that came into being with the European Union allowed for separation of operating rights from ownership of rail infrastructure, which for the most part still rests with EU governments.

At a time when most European freight shippers are sticking to the highways, Zanders runs regular trains between Bergisch Gladbach and the river port of Cologne, carrying raw materials such as coal, pulp and chemicals inbound, and finished goods outbound. Normally the use of rail over such a short distance can't be justified economically, but Zanders makes it work by moving loads in both directions, Spiekermann says.

The BGE terminal opened for business last October. The combination of centralized warehousing and lower-cost rail already has reduced Zanders' total logistics costs by nearly 8 percent, says Spiekermann.

As of late February, the partners had shifted some 70,000 tons of Zanders' annual production, which totals 430,000 tons, onto the rails. Hermann-Josef Mertens, managing director of BGE, says the company could be shipping 180,000 tons of output a year by train within four to five years.

The project has substantial environmental benefits. The Zanders intermodal program will eliminate an estimated 16,000 truck trips a year, according to BGE. Charles J. Rice, managing director of P&O Trans European, says the number of trucks eliminated by the rail service could reach 100 a day.

Plans call for Zanders' rail volumes to hit the 300,000-ton mark, for both inbound and outbound traffic, by October of this year. "From what we've learned in three months of full operation, we are going to succeed," says Spiekermann.

The company's next step is to formulate a similar program of consolidation and intermodal movement for its plant in Duren. P&O will centralize warehousing with some 20,000 pallet places for finished goods. Zanders can't utilize a single warehouse for all production because the two plants turn out different types of product and are too distant from each other, Spiekermann says.

P&O Trans European has been taking over Zanders' European logistics function in stages. In the final phase of the Bergisch Gladbach project, the British-based third party will assume the management of all incoming materials.

Mertens is a strong believer in outsourcing logistics. "Every partner can concentrate on his core business, in which he has best practice, and by combining these core competencies we can deliver an even better customer service," he says.

Eyes Wide Open
Zanders' early success hasn't blinded it to the realities of rail within the EU. Spiekermann admits that service quality still falls short of the company's expectations. Rail cutoff times are still too early in the day. Additional obstacles include wide differences in equipment specifications, information technology, signaling, track gauge, timetables, and government policies on access.

Currently 80 percent of European freight moves by truck. Of all modes, "rail has been the biggest loser within the last 20 years," says Kurt Jensen, senior consultant with KPMG in Rotterdam. While rail volumes remained steady between 1970 and 1997, the sector's market share in terms of ton-kilometers slipped from 21.2 percent to 8.6 percent. Motor carriers' share, meanwhile, rose from 30.8 percent to 43.8 percent.

"It's very simple. [Rail] doesn't work very well," says Gregoire Letort, European product manager of services with G.E. Transport International Pool in Amsterdam. Letort previously was a manager of NDX Intermodal, the partnership among the national railways of Germany and the Netherlands, and U.S.-based CSX Intermodal Inc. Formed in 1996, NDX was supposed to bring a new spirit of cooperation and service quality to the European rail network. Two years later, the failed entity sold its assets to Transfracht International, part of the German National Railway.

Letort says NDX was hurt by numerous political barriers, with EU governments blocking the cross-border movement of locomotives and other equipment. Labor strikes and a general lack of infrastructure made things worse. An NDX train from Rotterdam to Barcelona had an on-time record of just 42 percent. Delays - not counting the time it took to switch from one track gauge to another - ranged from eight to 72 hours. Yet the failure of that single service had severe consequences: It put 700 trucks a week back onto Europe's already congested roads.

A French Roadblock
France is one of the EU's biggest opponents of intermodal unit trains. Fearing a loss of jobs, unionized drivers have pressured the government to limit the spread of international rail. But when the truckers' union said it would permit 20 percent of its members' freight to travel by long-haul train, provided the state-owned railroad could promise reliable, dedicated resources, France's Transport Minister refused to commit, Letort says.
Similar opposition to intermodal has come from Belgium, Spain and Italy, according to Piet Hein Cobergh, senior consultant with Berenschot in Utrecht, the Netherlands. Even Germany, which is relatively enlightened on the subject, gives state-controlled carriers first dibs on the most attractive long-distance routes, Spiekermann says. Improvements must await the further liberalization of government policy on private-sector access to the rails.

Europe's railroads long have favored passengers over freight, says Claude Fiquet, secretary general of the European Intermodal Association in Brussels.

Major European cities are close enough to make rail a viable option for travelers. That leaves little room for the mile-long unit trains that have become a part of the American landscape, where greater distances and the absence of national borders favor freight. As for economical double-stack railcars, low bridges, tunnels and electric power lines make that technology all but impossible in Europe.

Locomotives can travel 75 miles per hour or more, but Europe's low-priority freight trains average speeds of 10 to 20 miles per hour, according to consultant Ralf Jahncke, chief executive officer of TransCare GmbH in Wiesbaden, Germany. Commercial trucks, by contrast, average 40 miles per hour, despite severe road congestion around major cities.

But governmental attitude is still the primary obstacle to change. All the talk of European unity and deregulation has yet to filter down to those who control the region's rail assets. At a time when customer service is the focus of many supply chains, railroads are "bureaucratic, slow, and inert," says Cobergh.

EU officials continue to explore ways to promote cross-border intermodalism. In 1997, EU Transport Commissioner Neil Kinnock unveiled plans for a Trans European Rail Freight Freeway, with specially designated tracks that could be used by any railroad.

EU member states refused to open up their prime routes. According to the International Union of Combined Road-Rail Transport Companies (UIRR), an association of intermodal marketing companies, "the price and quality of the freeway routes were generally speaking so unattractive that they attracted very little interest."

Change in the Offing
Shippers have some cause for hope. Northern European governments are showing more flexibility on the issue of free access to the rails. Two years ago, says Jahncke, intermodal freight made up a negligible portion of the German state railway's turnover. He expects the figure to rise to 7 percent this year, and 50 percent by 2003. Southern Europe, he says, will have to follow eventually.

The failure of NDX didn't put an end to cross-border collaborations. The national railroads of Germany and the Netherlands have merged their cargo operations. Leading ocean carriers, including Maersk Sealand and P&O Nedlloyd, created the European Rail Shuttle, an intermodal service running over state-owned tracks. A dedicated rail line between the Port of Rotterdam and Germany's industrial Ruhr region may soon be upgraded to include a link to the Port of Antwerp. Other intermodal services are operating successfully between Rotterdam and the Czech Republic, Switzerland, Spain and Italy. Even France is buying 300 locomotives dedicated to freight.
"I feel strongly that we will see major changes in the coming years," says Cobergh. "It's only a matter of when and how."

Experts have proposed a number of solutions. In a speech last year in Brussels, Kinnock called for multi-current locomotives, as well as technical integration of Europe's various railroads. Poor links between information systems cost shippers additional time and money, and make it difficult to track freight across borders, he said.
An EU task force recently issued similar recommendations for truckers providing haulage at both ends of an intermodal move. The group cited long waiting times, limited terminal hours, late trains and competition among motor carriers as factors in the poor performance of intermodal.

In the end, experts say, EU governments and their rail operators will have no choice but to reform. With international traffic expected to rise by 60 percent between 1998 and 2010, Europe's roads are in danger of total gridlock. Traffic congestion already costs the 12 member states of the old European Community ECU 100bn a year, UIRR says, and things are bound to get worse.

Environmental worries will further drive the development of intermodal.
According to Eurostat, the EU Statistical Office, road transport accounted for 84.4 percent of crude oil consumption in the EC in 1988. Only 2 percent was consumed by rail.

Fuel-price hikes and new limits on driver hours will force European shippers to increase their reliance on rail, Letort says. Fuel costs in France alone were up 27 percent in 1999, and the trend continues this year on a worldwide basis. A decrease in legal working hours from 39 to 35 hours a week will push truck costs even higher.
Clogged arteries may not be enough, says Cobergh. "Maybe a true heart attack on the roads must happen before something gets done."