Energy prices reach new record high, this is how rail freight adapts
With energy prices hitting new record highs in May, rail freight carriers face new challenges to keep their costs in check. Surcharges have become inevitable, efficiency is becoming the norm and in some countries, it is more attractive to run a diesel locomotive than an electric one.
As a result of the war in Ukraine, energy prices have risen sharply in 2022. The decision by European countries to ban Russian oil is expected to put further pressure on energy prices in the second half of the year. This has an impact on fuel prices, but the price of electricity directly correlates to the rising energy price. The rail freight industry is facing the consequences of both.
First time in our history
“It is the first time in our 30-years of history that we had to adapt our rates halfway through the year”, says Martin Koubek from Metrans. The company, which operates but also runs a train fleet over all of Europe, has added a surcharge to all its transport on 1 June, including traction on rail.
“This was needed, because it was not possible anymore to absorb the high prices. We have waited a long time to do this because we are quite conservative that way. We usually do not change our rates halfway through the year, but we could not avoid this any longer”, he explains.
Different in each country
It is difficult to tell in numbers what kind of increase the industry is dealing with, as it depends on the country and type of transport. But there are anecdotes of a threefold, or fourfold increase in the price of electricity, knows Luuk von Meijenfeldt, CEO of locomotive leasing company NexRail. “The price of electricity is currently rising more than the price of fuel.”
In some countries, such as Hungary and Germany, it is even more attractive at the moment to run a diesel loc than an electrical unit. “This does not mean that railway undertakings are putting their electric units on the side. The diesel units are often old, and can no longer be run in an efficient way. What you see is that energy efficiency is now starting to play a much bigger role in the choice for rolling stock”, he explains.
In Hungary, where electricity price increases are most dramatic, rail freight operators have become well aware of the need to be more efficient. “Due to the quadrupling of electricity costs, each unplanned stop, slowdown and acceleration due to a slow signal is much more costly for railway companies than before” says industry association Hungrail Magyar Vasúti Egyesület.
“Unfortunately, the Russian invasion of Ukraine has further raised the price of electricity, so a further twenty-five to thirty percent price increase is expected based on the trend of the first months of 2022. Thus, only the cost of electric traction can take away 22 per cent of the sales revenue of freight railway companies.”
Role of rail
On the positive side, some transport analysts expect that continued high energy prices will cause a dramatic shift in transportation, with significant new volumes moving to rail as new technology enables better efficiency and lower emissions.
Despite the challenges ahead, Fatih Birol, executive director of the International Energy Agency (IEA), discussed the benefits rail can bring in navigating the energy crisis and highlighted the significant benefits rail can bring to the energy sector and the environment. By diversifying energy sources and providing more efficient mobility, rail can reduce transport energy consumption and reduce emissions of carbon dioxide and local pollutants, he concludes.