European railway freight transportation and adaptation to demand decline Efficiency and partial productivity analysis from period of 1980-2003

Purpose - Railway freight transportation in Europe is in a state of change. The system has been freed from protection from the beginning of 2007 and market forces will start to act. Demand for, and the market share of, this form of transportation has been declining for decades. Therefore, there is a need to know more about the efficiency and productivity of this sector, in order to understand the nature and magnitude of potential restructuring changes. This paper aims to address this issue. Design/methodology/approach - Data envelopment analysis (DEA) is used to analyze different European countries throughout the longitudinal observation period of 1980 to 2003. Also partial productivity analysis is used to support DEA evaluation. Findings - Based on DEA results, it is found that those countries that were showing the highest efficiency levels in the 1980s, without exception, experienced an efficiency collapse in the 1990s. These include both former Eastern Bloc and West European countries. Based on partial productivity analysis, it is proposed that productivity of locomotives and railway tracks should be the primary target of productivity improvement in these formerly highly efficient countries. The efficiency analysis shows also that currently the most efficient railway freight transportation is located in the Baltic States, namely Estonia and Latvia. If one does not include data from Estonia and Latvia in the overall analysis, in a European context the only truly improving performance indicators are partial productivities of freight wagons, and staff. Research limitations/implications - In contrast to previous efficiency studies in this sector, railway freight transportation shows high differences between European countries; it is necessary to address further research in the efficiency and productivity area in this respect to identify ongoing structural change. Practical implications - Restructuring in European railways is just taking its first steps, and a combination of downsizing and greater freight volumes is needed if this mode of transportation is going to prosper in the future, and take market share back from others. Restructuring within this sector will most probably result in increased internationalization, mergers and acquisitions, and intermodal transportation solutions. These all represent new avenues for research. Originality/value - This article helps to advise clear remedies for European railways and suggests interesting avenues for further research.