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60 Seiten, Note: 1,3
List of Abbreviations
List of Figures
List of Appendices
1.1 Presentation of the Problem
1.2 Structure of the Thesis
II Market Specifications and Developments in the Rail Logistics Sector using the Example of DB Schenker Rail
2.1 Introduction to Logistics and Freight Traffic in Europe
2.2 Railway Logistics as a Sub-Industry of the Logistics Sector
2.2.1 Deep Dive – the Polish Railway History and Market at a Glance
2.2.2 Introduction of the Acquisition Parties – DB Schenker Rail and PCC Rail
2.2.3 Positioning of DB Schenker Rail on the Polish Market
III Theoretical Foundation
3.1 Michael Porter’s Five Forces Model
3.2 Determining the Success of a Company within the Industry
IV Analysis of the Success of DB Schenker Rail’s Market Expansion in Poland
4.1 Assessment of Poland’s Rail Freight Industry Structure using the Five Forces Model
4.1.1 Threat of New Entrants
4.1.2 Threat of Substitute Products or Services
4.1.3 Bargaining Power of Buyers
4.1.4 Bargaining Power of Suppliers
4.1.5 Rivalry Among Existing Competitors
4.1.6 Implications on the Intensity of the Five Forces in regard to DB
Schenker Rail Polska
4.2 Analysis of the Success of DB Schenker Rail’s Market Entry in Poland
List of Literature
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Figure 1: Detailed Overview of Transport Modes
Figure 2: Five Forces Model
Figure 3: Rail Liberalization Index 2011
Figure 4: Demand-Related Quality Profiles of Freight Traffic Transport Modes
Figure 5: Modal Share Evolution and Forecast in Poland from 1970 to 2030
Figure 6: Freight Railway Undertaking’s Market Share in Poland 2012
Figure 7: DB SRP’s Market Share Evolution from 2008 to 2012
Appendix 1: Transport Performance of Leading European RUs
Appendix 2: Trading Links between Germany and Poland
Appendix 3: Short Sea Shipping Development Poland
Appendix 4: Pipeline as a Threat of Substitute
Appendix 5: Modal Share Evolution and Forecast in Poland
Appendix 6: Polish Railway Network Charges
Appendix 7: Polish Rail Freight Market Profitability
Appendix 8: DB Schenker Rail Polska Performance
Liberalization of international trade and privatization of entire industry sectors within the past decades have shaped the international business environment enormously. Such trends fostered rapid escalations in cross-border merger and acquisition (M&A) activities, foreign direct investment (FDI) in infrastructure projects, and the international movement of resources. (cf. Ramcharran 1998, p. 38) The logistics sector, with its numerous consolidations, appears to be particularly affected from this cross-industry progression (cf. Böhmer 2003, p. 96). One can primarily observe larger logistics service providers which increasingly target international markets. This trend towards internationalization results from the aspiration for enhanced service offers, such as one-stop-shopping and integrated logistics solutions, as well as the combining of transport flows and a concurrent exploitation of economies of scale, economies of density, and economies of scope. (cf. Phohl 2003, pp. 22f; cf. Henning et al. 2003, pp. 399 et seqq.) In regard to rail freight transport, Poland turns out to be of special interest because the country hosts the second largest railway logistics market in Europe (cf. EC 2012, p. 41). Starting from 2002 the number of privately operating railway undertakings (RUs) steadily increased and unrestricted access, also for foreign RUs, was eventually accomplished in 2006 (cf. Król 2010, pp. 166 et seqq.; cf. IBM 2011, pp. 177 et seqq.).
A company which acted in line with the overall market trend and carried out an international market expansion represents DB Schenker Rail and its expansion to Poland.
The thesis at hand is based on the abovementioned business example and focuses on the assessment of the Polish rail freight industry structure using Porter’s Five Forces model. With the application of this framework a statement on the industry’s overall profitability is made. However, direct inferences on a firm’s individual profitability cannot be drawn because performance of industry players can still diverge widely. Nevertheless, it can be shown what kind of competitive situation DB Schenker Rail faces after its market expansion. Furthermore, it will be analyzed whether DB Schenker Rail’s profitability is in alignment with the overall industry. A comparison of the company’s profitability with the one of the entire rail freight industry, together with other quantitative performance measures in form of sales growth and market share development as well as qualitative performance measures focusing on the achievement of preset corporate goals and DB Schenker’s long-term strategy and vision, allows a conclusive statement on whether the company’s market expansion to Poland is to be considered a success.
Chapter II will introduce the basic concepts of logistics, and particularly the rail freight market in Europe. This preface to the freight market will ensure a general understanding and background knowledge of the industry which will be analyzed along with the company case that is introduced later in the chapter. After a definition of the logistics industry in chapter 2.1, its sub-industry of railway logistics will be elaborated briefly. Due to the focus on the Polish market, its national specifications will be discussed in chapter 2.2.1. Subsequently, the companies DB Schenker Rail and PCC Rail will be presented in terms of structure and performance to allow an understanding of the corporate players presented in the case and their positioning in the industry. Eventually, the acquisition case of DB Schenker Rail, which is the starting point of the succeeding analysis, will be introduced in chapter 2.2.3.
Prior to the actual analysis, Porter’s Five Forces framework will be introduced in chapter 3.1. Chapter 3.2 will explain, how the measure of profitability, among other indicators such as market share and sales growth, helps to answer the question of whether DB Schenker Rail’s market entry in Poland was successful.
The theory mentioned above will be applied to the Polish railway market to identify the intensity of different forces acting upon DB Schenker Rail and its competitors in chapter 4.1. A statement on whether DB Schenker Rail’s market entry was a success will be made in chapter 4.2 on the basis of the derived implications on profitability and other quantitative and qualitative indicators.
Finally, the results of the thesis will be summarized in chapter V.
In order to understand the rail freight sector, which represents the core of the thesis at hand, in context, the underlying overall logistics framework will be discussed first. The terminology of logistics is rather brought and definitions may differentiate according to distinct points of view and foci. Coyle et al. offer a rather generalist definition which describes logistics as “(…) the process of anticipating customer needs and wants, acquiring the capital, materials, people, technologies, and information necessary to meet those needs and wants; optimizing the goods- or service-producing network to fulfill customer requests; and utilizing the network to fulfill customer requests in a timely manner” (2013, p. 37). Other definitions emphasize on the logistical activities of transportation, handling and order picking, and storage (cf. Klaus 2002, pp. 7 et seqq.).
The movement of physical goods within and between corporate entities can be carried out by different modes of transportation. These comprise rail, road, air, water and pipeline transport. (cf. Mangan et al. 2008, p. 61) The figure below illustrates each transport mode and its specifications in detail.
Figure 1: Detailed Overview of Transport Modes
illustration not visible in this excerpt
Source: own diagram based on Klaus/Krieger 2004, p. 543
The fragmentation of the overall freight traffic and attribution to different types of carriers is referred to as modal split or share (cf. Klaus/Krieger 2004, p. 574). Main drivers determining the modal split are urban sprawl of industrial areas, improvements of road networks also in remote areas, and decreases of shipment size from wagonloads to less than wagonloads as well as the good’s structure effect, which describes the decrease in shipments of primary goods, such as coal and iron, and a simultaneous increase in the transport of consumer and industrial goods, and the logistics effect, which refers to the emergence of supply chain management (SCM) and just-in-time (JIT) delivery concepts that favor highly flexible and reliable transport modes (cf. Richey 1998, p. 61; cf. ECMT 2004, p. 12).
The choice of transportation mode is based on the unique set of the parameters transport costs and transit time because they have a direct effect on material flow costs (cf. Bookbinder 2013, p. 419). In addition, Eckey and Stock identified predictability and adaptability as important factors in the decision making process (2000, pp. 23f). Even though these four parameters facilitate the comparison of different transport carriers, it is rather difficult to compare transportation costs because they depend on the type and quantity of the goods that are to be transported, as well as the distance between place of origin and final destination. Generally, there is a negative correlation between transportation costs and transit time, with air freight being the fastest and also most expensive transport mode. However, the time dimension changes in correspondence with the distance. For short hauls, trucks are cost as well as time efficient. (ibidem, pp. 25 et seqq.)
Another type of shipment is intermodal transport, which embodies “(…) the movement of goods in one and the same loading unit or vehicle, which uses successively several modes of transport without handling of the goods themselves in changing modes” (PROTRANS 2003, p. 33). The actual selection of transport modes is a challenging undertaking in global SCM, because international financial issues (taxes, border crossing costs etc.) and the involvement of intermodal transport must be considered (cf. Bookbinder 2013, p. 421).
Despite the modes of transport, freight traffic may also be segmented according to the type of good being transported. In fact, transport services can be grouped into the following categories: agricultural products, nutrition and animal feed, coal, crude oil, mineral oil products, iron ores, non-ferrous metal ores and scrap, iron/ steel/ non- ferrous metals, stones and earths, chemical products and fertilizers, capital goods, and consumable goods. (cf. Eckey/Stock 2000, p. 8)
Freight traffic volumes are determined by a number of factors, such as the level and structure of the production and commercial activities of an economy, the distribution of economic activities within the region, the intensity and structure of foreign trade links, the spacious position of the economy, the characteristics of freight logistics concepts of the manufacturing industries and commerce, and special transport intensifying regulations, e.g. recycling or packaging regulations (cf. Aberle 2003, p. 9).
In general, the structure of transported goods has shifted during the last decades. Transport of bulk goods declined and transport of single, small heterogeneous goods increased. Demands regarding shorter handling transport time, higher transport frequency, flexibility, and reliability increased simultaneously. (cf. Engelmann, 2003, p. 7; cf. Kuchenbecker 1998, p. 5) Despite the enormous increase in freight transport, the development of different product categories is quite diverse. E.g. the proportion of consumable goods in relation to all transported goods increased from 15.3% to 27.6% between the years 1970 and 1993 in Germany. To the contrary, the haulage share of coal decreased from 12.2% to 8.5% during the same period of time. (cf. Eckey/Stock 2000, pp. 4 et seqq.) This development puts rail freight as a bulk good transport mode at a disadvantage.
The increase in European freight traffic is closely linked to the enlargement of the EU, which faced an increase of member states from 15 in 1990 to 27 today. This development strengthened trading links between Eastern and Western European countries and has led to shifts of some manufacturing activities from Western to Eastern Europe. Such trade flows stimulate the establishment of extensive infrastructures including corridors and terminals. (cf. Bookbinder 2013, p. 240)
Transportation is categorized as a service (cf. Pfohl 2003, p. 5). The following characteristics are commonly, but not exclusively, attributed to services: intangibility, simultaneous production and consumption, not storable, and not examinable prior the purchase (cf. Grüner 1997, p. 10). In recent years many corporations outsourced their logistics activities to external logistics service providers (LSPs).
LSPs providing a broad and holistic set of services are also known as third-party logistics (3PL) companies or providers. (cf. Mangan et al. 2008, pp. 61 et seqq.) In the PROTRANS study 3PL providers are defined as organizations providing third-party logistics which are “(…) activities carried out by an external company on behalf of a shipper and consisting of at least the provision of management of multiple logistics services” (2003, p. 32). The 3PL market size in Europe amounted to 121bn EUR in 2011 (cf. Statista 2012).
In the previous chapter, rail freight was identified as one part of the logistics framework. Now it is of particular interest to have a closer look on developments in the European rail freight sector to understand the environment and conditions DB Schenker Rail is confronted with.
Throughout the past decades the European rail freight market has experienced far-reaching structural and legislative changes. The system has been continuously modernized which has led to an enhancement in quality of service and a decrease in real costs. In fact, freight transport prices have decreased by approximately 85% since the beginning of the age of railways, more than one and a half centuries ago. (cf. Savy 1998, p. 41) In 1886 a convention on technical uniformity in the railway sector was held in Berne. At this conference most European countries agreed on a common track gauge of 1435mm which is referred to as standard gauge. However, Portugal, Spain, the Baltic States, Finland, and Russia objected this common standard and decided to use a broad gauge which differs from country to country. (cf. Drapatz 2008, p. 141) Despite the common standards mentioned above, many disparities in the national railway systems still exist. Currently there are five different power systems to supply electrical traction, which comprise 750V, 1.5kV, and 3kV direct current (DC), as well as 15kV (16 2/3Hz) and 25kV (50Hz) alternating current (AC). (cf. Drapatz 2008, p. 140) Thus, unrestrained interoperability is restrained to diesel and multi-system locomotives. This also applies to Germany and Poland, where 15kV AC and 3kV DC systems are in use (ibidem, p. 140). Furthermore, the existence of different signaling devices, protection schemes, and automatic train controls (ATCs) portrays a significant problem (ibidem, p. 138; cf. Rießberger 2004, pp. 180 et seqq.). The EU has recognized this issue and promoted the development of a completely nouveau inter-European ATC, called European Train Control System (ETCS). ETCS has already been launched but will take several more years for an area-wide implementation (cf. Drapatz 2008, pp. 142 et seqq.). According to Drapatz, the European railway market is characterized by an insufficient interoperability, a missing market liberalization, and poor profiting of comparative performance advantages due to market interventions (2008, p. 135).
To counteract these insufficiencies, the EU elaborated the following guidelines for the railway sector: free market access for all transport modes, unrestricted LSP selection through the customer, non-discrimination among nation- and Europe-wide operating LSPs, free cross-border freight transport within the EU, the promotion and sponsorship of eco-friendly transport modes, intensified competition with the aim to reduce costs and to foster innovation, and special incentives for intermodal transport. (cf. Richey 1998, p. 63) Consequently, the EU introduced the White Paper of March 2011 to propose a “(…) strategy to revitalize the Community’s railways by creating a sound financial basis, ensuring freedom of access to all traffic and public services and promoting the integration of national systems and social aspects” (EC n.y.). Between 2001 and 2013 four railway packages have been developed based on these directives. Worth mentioning is the first railway package from 2001, which defined the Trans European Railway Freight Network (TERFN). Within this network transnational rail freight transport should be facilitated and network access granted to all European railway undertakings. The opening of the entire European railway network was scheduled for 2008. From this point on railway companies should encounter the exact same conditions for accessing the network and should be granted transit rights for border-crossing freight transport. (cf. DE-Consult 2002, p. 10) These guidelines were developed by the EU and transposed by the member states into their national law (cf. European Parliament 2013, p.2).
The rail freight market share has steadily declined in almost all EU countries over the past four decades. This development is attributed to a mismatch between customer requirements and the actual deliverables of the rail freight industry. The fact that most players on the railway market are state-owned also contributes to this development because thus far, important structural railway reforms have not been fostered sufficiently. (cf. ECMT 2004, pp. 12f)
Major players in the European rail freight market are DB Schenker Rail (Germany) with a market share of 25%, followed by PKP (Poland) with an 8% market share, and SNCF Fret (France) with a market share of 7%. (cf. Appendix 1)
For the upcoming analysis of the Polish rail freight industry and DB Schenker’s position in the market it is not only important to understand the system's given idiosyncrasies, but also the geographic specifications. A short introduction of the Polish railway evolution and the key players serves as a basis for the industry assessment in chapter four.
The Polish railway system was shaped in times when Poland did not exist as a sovereign and independent country. What constitutes Polish territory today used to be split into Austria, Prussia, and Russia. This led to the development of three clearly heterogeneous railway lines in the beginning of the nineteenth century. Major differences were related to technical standards, the network density, operational instructions, and priorities concerning the construction of line linkages. Between 1918 and 1939 enormous efforts were made to unify the national railway network and additional lines were supplemented to connect major cities. (cf. Janiszewski 1996, pp. 22f) After the collapse of communist regimes between 1988 and 1990, Eastern European companies were not able to gain a foothold on the world market and many of them went bankrupt. This misfortune led to the decline of the Eastern European economy as well as transport and rail freight activities. (cf. ECMT 2002, p. 10)
The length of the railway network in Poland was 19,702km in 2010. The development of the network size in Poland was very drastically. From 1990 to 2010 the cumulated railway length was cut in half (cf. EC 2012, p. 77). In terms of rail freight transport the Polish market is of great significance. The country has a market volume of 48.7M tkm and ranks second in Europe right after Germany (ibidem, p. 41).
Key players of the Polish railway market, including their functions, will be elaborated subsequently. Urz ą d Transportu Kolejowego (UTK), the Office of Rail Transportation in Poland, is an independent authority with the following areas of responsibility: passenger rights, railway market regulation, railway transport safety, and technical coherence of the railway system (UTK n.y.). As a result of the privatization of the Polish State Railways (PKP), the PKP Group was established in 2001. It consists of the parent company PKA S.A. and twelve companies which are in charge of the provision of services. Among these twelve companies are the network provider PKP Polskie Linie Kolejowe S.A. and the incumbent logistics service provider PKP Cargo S.A.. (PKP Group n.y.)
Before DB Schenker Rail’s activities and market expansion in the Polish market will be delineated, the company itself and its acquisition candidate PCC Rail will be introduced shortly. This approach ensures a general understanding of the corporate culture of the above mentioned RUs.
DB AG had a net profit of almost 1.5bn EUR in 2012 which makes it the nineteenth largest enterprise in Germany measured in terms of revenue (cf. FAZ 2013). DB Schenker Rail is amongst several of the company’s subsidiaries and is managed by DB Mobility Logistics AG (DB ML AG) (cf. DB 2011a, cf. DB 2012, p. 55). Due to multiple acquisitions in the past, Deutsche Bahn does not solely offer railway services, but is also engaged in transport services based on road, air, and water traffic (cf. Drapatz 2008, p. 28). Having had logistics revenues of 18.5bn EUR worldwide and of 14bn EUR in the European logistics market, DB Mobility Logistics was the fifth largest 3PL provider in the world and ranked number three in Europe in 2010 (cf. Klaus et al. 2011, pp. 170 et seqq.). DB Schenker Rail, formerly known as RAILION, is the leading rail logistics service provider in Europe and operates under the DB ML AG umbrella. It sold a volume of 105,894 tkm in 2012 (ibidem, p. 226; cf. DB 2012, p. 2). The company offers a wide range of services. Block trains for transport of high volumes, single cars which allow the shipment of small to medium volumes, and intermodal transport comprise the core products. (cf. DB SR n.y. a) It offers customized solutions for various industries, e.g. automotive and chemical industry, as well as additional services, such as maintenance, direct access to railway sidings, door-to-door solutions, and consulting services (cf. DB SR n.y. b; cf. DB SR n.y. c). Past experiences in M&A activities from 1999 to 2008 represent takeovers in the Netherlands, Denmark, Italy, and UK (cf. DB SR 2011, p. 1). Medium- and long-term goals include the maintaining and strengthening of the company’s position as the leading rail freight carrier in Europe (cf. DB SR 2013).
Headquartered in Duisburg, Germany, PCC is an internationally operating consortium which is active in the sectors chemicals, energy, and logistics. With its 70 subsidiaries and approximately 2,500 employees, PCC is represented in 16 countries. Currently, the logistics branch comprises of the Polish subsidiaries PCC Intermodal, which organizes the international transport of containers by different modes of transport, and PCC Autochem, with a focus on international freight transport by tank trucks, as well as the Russian subsidiary PCC Rail. (cf. PCC n.y. a; cf. PCC n.y. b; cf. PCC n.y. c) Until 2008, before the takeover from DB Schenker Rail, PCC Rail S.A. and PCC Rail Rybnik-Group were also part of the logistics sector (cf. PCC 2008a, p. 73). PCC started operations in logistics in 2000 through the takeover of PCC Spedkol. Since then, the company acquired controlling stakes in PTKiGK S.A. and PTK Holding S.A. Zabrze, two large Polish rail operators, as well as in the Szczecin-based port company Drobnica-Port Szczecin and achieved a strong position in the market as the largest privately owned rail freight carrier in Poland. In 2008 PCC Rail had a market share of approximately 8%. (cf. news aktuell 2009; cf. PCC 2008b; cf. PCC n.y. d)