France Freight Transport Report 2007

It was reported in October 2006, that French national railway operator SNCF would not petition the EU Commission for permission to provide a new round of state financial aid for the loss-making freight transport business, even though a turnaround plan had been less successful than hoped. As part of a threeyear project announced in 2003, which included a EUR1.5bn cash injection, the SNCF hoped to reduce the annual loss to EUR47mn in 2006, but officials already indicated that freight losses would be higher. A major factor is that SNCF is for the first time beginning to face real competition in the rail freight business. While creating a challenge for the state-run operator, this growing competition will be positive for the business as a whole. In BMI's newly released France Freight Transport Report we forecast that rail freight traffic, measured in million-tonne kilometres (mntkm), will rise by an annual average of 2.1% over the next five years (2007-2011). Overall freight traffic, across all modes, will grow by 1.7% per annum over the next five years. This is faster than the 1.4% registered in the preceding five-year period. By 2011, we calculate that the value of the transport and communications sector will have reached US$186.2bn, or 7.2% of GDP.

The evidence suggests that some aspects of French policy have been beneficial for the freight industry. The administration has favoured public investment in big infrastructure projects, particularly in airports, railways and highways. While arguably the ongoing fiscal squeeze means this will not be sustainable, some of the benefits, in terms of increased capacity, are making themselves felt within our forecast period. The emphasis on building key private sector companies up into 'national champions', while heavily criticised for its anti-competitive overtones, may also deliver some advantages. Air France-KLM is a good example: supported by the government, the merged airline is now the largest European carrier, and poised to enjoy further growth. The other side of the coin, however, is that France has been slow to welcome (and indeed, in some cases seems to actively block) the advent of the budget airlines which have swept across much of Europe.

Our forecasts for the French industry show airfreight leading the way with average annual growth of 3%, followed by rail (2.1%), sea cargo (2.0%) and road haulage (1.8%). Supporting our positive view of projected French freight traffic is a perhaps surprisingly favourable assessment of the operating environment. BMI's freight industry business environment rating gives France a score of 40 (out of a theoretical maximum of 70), placing it a short distance behind Anglo-Saxon markets such as the US and UK (each of which score 43).

On the downside, and putting Air France-KLM to one side for a moment, the French freight industry has not yet developed its full international potential. But BMI's conclusion is that the industry as a whole has solid foundations in the domestic market, and may yet be able to build on these to support a bigger global role.