The European Transportation Industry

Abstract

The European transportation industry has been evolving for the last century but the pace of change accelerated in the recent years with the deregulation and intensification of competition between different modes of transport. The new agenda of the European Commission for the future of the industry after 2010 comprises of policies that try to establish sustainable transport that will meet the challenges of the current market environment - the growing concern on gas emission, lack of funding as a result of the financial crisis, increasing oil prices and aging population in continental Europe. This paper analyses the current situation in the transport industry in Europe and the expected change in the competition between different modes with particular focus on the rail and road passenger transportation as a result of the policies for creating a fully integrated European transport network. Using the scenario analysis three possible outcomes have been identified as a result of the anticipated developments in regulations as well as feasibility of implementing those measures. Most reasonable of the three scenarios is the one where implementation will be taking place with mixed rigor in different member states, in addition the expected shift in passenger transport from road to rail will commence but at relatively slow pace. The result of the successful implementation of the new regulatory developments will be increased competitiveness between rail operators as new entrants will come to the market, increased efficiencies in the ex-monopolistic companies, and better service for the end-consumer both quality and price. The above scenarios provide a long-term perspective on the development of the intermodal competition in the passenger transport in Europe, since the time horizon for assessing the effect of a particular regulatory takes at least 10 years. The starting point is the current situation on the market which unfortunately has to go a significant change before the head-to-head competition between rail and road starts. The implications from the current study can be used as the basis for future research and scenario development with more sophistication. Regulations will definitely be in the core of transport industry development and the future trends as discussed in Chapter 3 will influence those policies with different degree. It is worth trying to understand and better prepare for the future both from business and social perspective. Thus the current study tries to bring the reader one step closer to that point.

1. Introduction

Transport network is considered the backbone of the economy. It is a complex system that is influenced by multiple variables like population consumption, settlement patterns, organization of the production processes and the capacity of the infrastructure. As a major sector of the European economy transport has a top priority in the strategic agenda for building the single European Union market. The history of the sector is characterized with the key features of network industries - natural monopolies, vertically integrated players, heavy investments in infrastructure, public subsidies, regulated prices. The globalization of economic activities and the gradual liberalization of the transport market, had led to changes in the business dynamics and structure of the sector. The environmental impact of transport became a priority in the development of policies and regulations for the industry. One push in the direction of more environmentally sustainable solutions is seen in promoting rail transport as a substitute for road transportation. The existing literature gives strong case in support for this scenario. This paper tries to explore the future scenarios in Europe and analyze the expected effect from the introduction of the new transport policy on the intermodal competition of passenger transport between rail and road. Chapter 2 presents the basic characteristics, development trends and economics in the network industries. Giving a starting point for understanding what has shaped the transport industry so far. In Chapter 3 are discussed the trends and challenges in the development and implementation of regulations in the transport industry in Europe. The focus here is on to rail and road passenger transport and the existing intermodal competition between the two modes. The following Chapter 4 includes analysis of the current competitive landscape of passenger transport in Europe. The market subject to analysis is defined as “transportation of passengers in the geographical boundaries of Europe” and it does explicitly exclude the transportation of freight which is characterized with different product/service specifications. The players who compete in this market are assumed to be only the providers of land transport - rail and road operators. In addition the road mode comprises of bus and coach, while the rail mode includes railways, metro and tram. The purpose of the analysis is to give possible answers to the questions:

• Is rail the future transportation mode for passengers in Europe?
• Are regulatory policies the main tool for introducing intermodal competition?

As a tool for conducting the analysis is used the traditional Porter's five forces framework with a main focus on the barriers of entry representing the main competition force looking from the current market perspective into future scenarios. Using the results of the competitive advantage/disadvantage of each mode further scenario building is conducted applying a framework on industry scenarios and competitive strategy under uncertainty (Michal Porter). The results of the scenario analysis are taken in light of potential recommendations to both regulatory bodies and the providers of land passenger transport in Europe. Finally the conclusions derived are summarized in Chapter 5, including the possible implications, future research areas and limitations of the current study.

2. Characteristics of network industries

One of the simplest ways to describe a network industry is by picturing good or services delivered through a set network both physical and virtual to an end customer. The network is established through the connection of numerous nodes which subsequently define the character of commerce in the industry. What is common in these types of industries is that the infrastructure which is comprised of many different elements links upstream supply units with the customers who are downstream. The basic components of a typical network industry comprise of:

2.1. Common structure in the network industries

Although the industry structure varies across countries and different industries, the following cases are considered the most common ones:

1. Vertical integration and monopoly - in this case a single company operates the network infrastructure and both upstream and downstream components.
2. Vertical integration with competition in the downstream or the upstream components -this case is similar to 1 but the company faces competition in the downstream and/or upstream components.
3. Vertical separation with upstream and/or downstream competition, but the company that operates the network infrastructure does not operate in either the upstream or downstream components.
4. Joint ownership - in this case the infrastructure is owned jointly by companies competing in the upstream and/or downstream components.
5. Infrastructure (facility-based) competition means competition among vertically integrated firms.

2.1.1. Historical background of the network industries in Western Europe

In order to gain better understanding of the current developments in the network industries a short historic flashback is presented. The period of the 19th century Even in early 19th century when the free trade was dominant philosophy the government involvement was visible especially in the network industries. The triggering factor was the rights of way for railway tracks, gas and water, telegraph lines. After expropriation of the rights governments ease their way in establishing control over prices and profits by monitoring the engineering and financial stance of the respective companies. Overall the intervention of the government was limited more to arm's length regulations and subsidies. The end of the 19th century is characterized with developed networks in telecommunication, rail, electricity supply which calls for more market opportunities and new entrants in the sectors. But the collapse of capitalism in 1930s brought distrust in governments' ability to control private monopolies only through arm's length regulations and subsidies. Thus alternative model was sought especially in network industries like telecommunication, railways and electricity. The time of the public ownership has come with the classic example of nationalization of the railways in France, Sweden, Spain and the UK in the period from 1937 to 1947. The period of the 20th century The main goals of the new state-owned enterprises were to provide service in the public interest along with break-even financially.

The big challenge came from defining what is “public interest”. Eventually the solution was found, particularly for the network industries, in the so called “universal service” which comprises of standardized prices and service quality in the whole country. As a result of this approach the price of a product was fixed regardless of its point of distribution or delivery location for example electricity tariffs per kilowatt hour in different parts of the country were the same irrespective of the varying costs of supply. The second objective for the state enterprise was to break-even financially. The goal turned to be more difficult to achieve than initially planned having no clear guidance or support from the respective government authority. The “universal service” approach was not able to provide enough profits from areas of growth so as to compensate for the unprofitable ones. The period after 1960s is characterized with growing pressure on managers to meet the financial targets of “break-even” and beyond. The hope that the “universal services” will be able to cope with the unprofitable sectors by sustaining the profitable ones proved unsuccessful. Further, competition was growing and state owned enterprises were not flexible enough to respond adequately. Governments were worried with increased budget deficits coming from the rising public sector borrowing requirements. All of these contributed to the wave of privatization in Europe which had different timing across countries. In summary, the era of state owned enterprises was coming to its end. Its primary goal was to secure social and political unification and by the time of the second half of the 20th century much of this has been achieved. The technological developments changed much of the industries.

New means of communication sprang apart from the traditional railways - road, airlines, telecommunications. Although the strategic significance of a particular recourse was still the same, there was no need to keep it monopolized, for example one national air carrier. Financial returns from national resources like oil and gas were put into different legal forms thus allowing for concessions and tax schemes to be more profitable in the long-term. The Western European network industries had gone through tremendous changes for the last two centuries. The heritage left is the current surge for establishing more competitive regimes by allowing customer to benefit from improved quality and higher security standards.

2.2. The liberalized landscape in the network industries

Coming from the state-owned natural monopolistic regime, the companies in the network industries had a structure where a non-competitive component of the industry was vertically integrated with a potential competitive component or activity. The separation of the two components by main sectors is summaries in a report by the Organization for Economic Cooperation and Development as illustrated in the

Table 1.

Sector	Activities which are usually non-competitive	Activities which are potentially competitive
Railways	Track and signaling infrastructure	Operation of trains Maintenance facilities
Electricity	High-voltage transmission of electricity Local electricity distribution	Electricity “retailing” or “marketing” activities Electricity market trading activities
Postal services	Door-to-door delivery of nonurgent mail in residential areas	Transportation of mail Delivery of urgent mail or packages Delivery of mail to high-volume business customers, especially in high-density areas
Telecommunications	The provision of a ubiquitous network Local residential telephony in rural areas	Long-distance services Mobile services Value-added services Local loop services to high-volume business customers, especially in high-density areas served by broad band (e.g. cable TV) networks
Gas	High-pressure transmission of gas Local gas distribution	Gas production Gas storage (in some countries) Gas “retailing” and “marketing” activities
Air services	Airport services such as takeoff and landing slots	Aircraft operation Maintenance facilities Catering services
Maritime transport	Port facilities (in certain cities)	Pilot services, port services

• Scope for competition varies depending on geography and nature of demand, amongst other things.
• Services in lower-density, lower volume residential areas are less likely to be competitive than services to high-density, higher volume commercial areas.

Source: OECD report “Restructuring Public Utilities for competition”, 2001, p.9 The natural monopolistic structure has evolved both as a result of the deregulation and the innovation that came with technology development. Once non-competitive components started being replaced by new components competition was spread in a broader sense. An example of such change in the competitive landscape of an industry is the break-through in mobile technology. The new mobile vs fixed communication has brought competing models in the same market segment. The European Union experience in liberalization of network industries continues with the enforcement of Community law; different directives and specific regulations designed to harmonize the newly liberalized markets in member states. The expectations for the future are to have one unified market which promotes rivalry among companies that deliver better choice for customers both in quality and price.

2.3. Overview of the economics of network industries

The basic features used to describe the specifics of the economics in the network industries are investments, production, pricing and regulations.

2.3.1. Investments

Compared to other types of industries in this case the initial investment is higher as the infrastructure costs are significant but necessary requirement for the successful delivery of the product to the customer. In addition the structure of the existing network influences its modification or extension thus allowing for extra costs compared to green field investments in other industries. For example in the railway transportation building the network meaning tracks is both expensive as an initial investment and subsequent maintenance costs. First, the main condition for laying the tracks is to have property right on the land which might be expensive to obtain, or to regulate. Second, the track technical execution is costly and third the future maintenance requires long-term commitments and highest quality of service provides which again is at a significant cost.

2.3.2. Production

Economies of scale are realized when a product becomes standardized and an addition unit produce reduces the average cost of production. The complexity of network industries allows in certain businesses for such economies to be achieved but the variable cost component is less obvious than in other industries. The more popular concept in the network industries is the so called “surface/volume effect” in which case the available infrastructure provides for lower unit cost when output is increasing with the plant production. For example, when there is a large scale industrial or transportation equipment the costs for manufacturing are related to the surface of the equipment while the output from it is function of the volume to be transported (cases of oil, gas etc.). As a result the surface increases with the square of the equipment scale while on the other hand the volume increases with its cube. The ratio of surface/volume representing the average cost is a decreasing function of the scale. In practice, this leads to very large equipment being built. Economies of scope exist when a company is able to produce several goods at a total cost smaller than the sum of the costs of these activities when they are isolated one from the other. A business in a network industry might own a piece of equipment and the workforce that can produce large quantities of goods/services with similar specifications. For example, the building of information database which subsequently can be used for various activities without additional costs.

Vertical integration exists in the case when a single company performs a number of successive distinct operations in the production process of a particular good or the provision of a service. In the context of network industries, especially those involved in the so called “public service”, the vertically integrated structure of a company can be justified if it manages to provide cost reduction in the service/product. Some sources of these cost benefits can come from technical complementarities, like better co-ordination between successive stages in the production process, also another social benefit might come from the removal of successive private profit-margins that are realized by intermediaries. On the other hand, the vertical integration in an upstream direction can be used by a company as a control mechanism on its customers, suppliers and competitors. The risk in this scenario comes from the fact that by controlling the delivery of certain strategic inputs, the company can gain dominant position on the end market. Example from the network industry is when a company owns both the control of the access to transport infrastructure and at the same time is a user of the infrastructure.

2.3.3. Competition

The network industries are characterized with strong externalities which result from the interdependence of the agents. The interdependence is described with the effect that the level of satisfaction of one member has on other members in the network. These externalities are both positive and negative. The case of positive externalities is when particular action of a member increases the utility of the others or the so called “club externalities”. The spill-over effect is another positive externality, when the existence of a network in a certain area “spills” its benefits outside of its boundaries. In the case of negative externalities called “congestion externalities” the entrance of a new user in the network affects negatively the existing users. In practice the size and composition of a network are the result of a trade-off between club benefits and congestion costs. The composition and size of the network might change and the set access price would make some members to leave and other to join. This means that the number of those who wish to be in the network depend on the number of those who are already in the network. In this case equilibrium is reached when demand is compatible with itself, namely when the number of the members is exactly the same as the number of the candidates. But because of the earlier described club effect, at the given price would exist several equilibriums.

The competition discussed here is ex post, meaning actual competition between two or more companies in the market. As already described, the competition in network industries is characterized with multiple equilibrium configurations for a given set of competing companies which implies that the quality of the service provided by the companies is endogenously determined by the participation of the clients. Here, the expected quality not the actual one is what matters. Another key feature of the competition in a network industry is that it can evolve into some kind of co-operation by decisions of compatibility. Compatibility can be achieved through standardization and the reason for companies to resist it is that it leads to more homogenous products. As a consequence of the standardization, the competition is enhances and loss of profit margins for the incumbent players. For example, in the electricity industry, there is a long tradition of co-operation at both national and international levels for the frequent power exchanges through interconnections. The usual dynamics of competition between companies are modified in a network environment as a result of the endogenous quality of the network and the necessity to reach a critical size in order to survive. So competition at the initial stage is considerably fierce.

Companies have to make significant investment to capture the critical customer mass then sustain the image of better than the competitor quality of service / goods which subsequently will enhance the quality of the network. Later, switching costs create a lock-in effect and competition between those companies that managed to get through the initial phase is softer. Because of these companies have an incentive to heavily invest in infrastructure at the entry aiming to create a momentum and realize higher profits on next stage. Competition becomes weaker with the maturity of the industry, companies with existing installed base have less incentives to invest in quality and the only factor that triggers competition may come from break-through in the technology. If, no such happens then new entrants will be hard to overcome the competitive advantage of the incumbents. Still in some network industries certain elements like infrastructure remain natural monopolies as a result of the strong economics of scale and scope and relatively high degree of lumpy capital investments.

2.3.4.Regulation of network industries

The liberalization process in the network industries brought the co-existence of monopolistic and competition elements in most industries. The change in the market structure requires new developments in the regulatory regimes in those industries but the transition phase as illustrated in Figure 1 is pursued with various conflicting priorities in the sole task to establish competition on the market. Currently, the European Union agenda is to have a set of regulations that will facilitate and speed-up this process. The ultimate goal is to increase efficiency in the performance of the industries and promote higher quality with the introduction of new products thus providing for lower consumer prices. Still the liberalizing policies face certain constraints coming from: the monopoly control legacy in the network industries, the common state aid subsidies, the institutional diversity in various countries, private vs public services objective; the existence of bottlenecks in the network infrastructure and the need for establishing interconnections between rival networks.

Figure 1:

The evolution of regulation over the three phases of market structure. Source: Lars Bergman, Chris Doyle, Jordi Gual, Lars Hultranz, Damien Neven, Lars-Hendrik Roller “Characteristics of network industries in Europe's Network Industries: Conflicting priorities” - published in 1998 by Center for Economic Policy Research.” The next chapter focuses on the current and future regulations in the European transport sector. It emphasizes some of the implications from the development and implementation of the regulations on two specific modes of passenger transport - rail and road and the effects on the intermodal competition between them.

3. The regulatory framework in the European transport system

“Transport is the backbone of the European economy, accounting for about 7 % of GDP and more than 5 % of total employment in the EU. As a network industry, transport requires elements such as infrastructures, vehicles, equipment, ICT applications and operational procedures to interact smoothly in order to move people and goods efficiently.” 1

Figure 2: Transport growth compared to GDP growthEU-27

Source: European Commission: “EU Energy and Transport figures” statistic book 2009 As one of the main sectors in the economy of a unified European market, transport is subject to continuous efforts from regulatory bodies to bring efficiencies and better product/service to customers. The framework for strategic development of the sector is set in the White Paper issued by the European Commission for a period of ten years and mid-term review is conducted which gives up-dates on the progress and recommendations for future developments. In 2010 the current strategy is to be reviewed and next decade program will be set forth in a new White Paper incorporating the new policies in light of the future trends in transport sector development. _________________________________________________________________________________________ 1 Antonio Tajani, Vice-President of the European Commission, Commissioner for Transport. Report “A sustainable future for transport”.

3.1. Trends influencing the European transport policy

The EU White Paper 2001 and the mid-term review in 2006 drew key conclusions and set the directions for continual work on the EU sustainable transport policy. The key conclusions to be put forward in the new paper include optimization of each transport mode to bring competitiveness and propensity, transition of all modes to more environmental solutions both resource consumption and external costs. In addition each mode should be used efficiently on its own and in combination with all other modes so as to achieve sustainable utilization of resources. Looking at the future prospects of the industry and its development the following trends will have a significant influence on shaping the regulatory regime of the transport sector in EU.

3.1.1. Environmental challenges

Transport is one of the sectors that have a tremendous impact on the environment. It is the only sector that has constantly increased its GHG emissions in the recent decade as illustrated in Figure 1. The growing concern on the global climate change has led to the adoption of climate and energy package by EU with a target to cut GHG emissions by 20% compared to levels in 1990. The environment aspect will be the main external factor influencing all modes of transportation and the respective players in the market.

3.1.2. Urbanization

There has been a clear trend in the growth of urban population which is predicted by 2050 to be 84% of total European population2. This trend increases the challenges on the transportation sector as more density is brought in the urban networks accordingly with more environmental issues and congestion problems. The costs of both environmental and structural problems increase with the growth of cities' density as longer delays in traffic jams incur larger fuel costs respectively emissions of CO2 are higher. One of the greatest challenges in this context is the building of additional infrastructure within the cities while bringing collective modes of transportation in resolving the congestion problems.

3.1.3. Migration and mobility

According to the data provided by Eurostat 3 in the next decade EU is expected to add another 56 million people to its population as a result of a migration trend. This could be a positive trend for aging Europe as usually migrants are relatively young and settle in the developed urban regions that mainly contribute for the economic development. Another factor affecting the structural change in the population density is the internal mobility of workers between member states. This would be more visible with the removal of certain administrative and legal barriers in the labour market.

3.1.4. Ageing of population

As mentioned in the previous paragraph one of the challenges in the coming future of Europe is the aging population. Compared to the world trend over the next 50 years, the annual average growth rate in the EU-27 population will be constantly declining as shown in Figure 4: Source: Eurostat (demo_plan), United Nations, Population Division of the Department of Economic and Social Affairs 2. United Nations, Department of Economic and Social Affairs/Population Division (2008), ‘World urbanisation prospects — The 2007 revision'. 3. Eurostat (population and social conditions), Statistics in Focus No 72/2008; and European Commission, ‘Demography report 2008: Meeting social needs in an ageing society'. SEC(2008) 2911. This particular phenomena has a very deep impact on the transport sector on few dimensions. First the availability of resources (human capital) will diminish. According to the EC “2009 ageing report” in 2060 there will be only two active workers for every pensioner. In the long-term this requires more contributions for pension funds thus limiting public finances for the supply and maintenance of the transport infrastructure.

Overall, the end result might be more costly transportation products/services for the society as a whole. Second, the elder members of the society although much more flexible than a decade ago do travel less than younger population. This has a direct effect on the demand side for transport services both regional and long-distance. Another characteristic of an elder customer is that he/she puts high priority on factors like safety and comfort which in its turn requires different focus on the future specifications of the products/services provided in the transpiration industry - mainly safety and reliability which pushes further the quality standards in the sector.

3.1.5. The financial crisis and global trends

It is hard to ignore the current and future impact of the recently started economic crisis. The economic growth as forecasted few years ago had dramatically slowed down and this has led to major restructuring in all sectors of the economy. Still the continual globalization trend serves positively the transport sector, with the increasing need for integration and deepening of the single European market. The growing world population expected to reach 9 billion in 20505 is seen as the main challenge for all sectors of the economy, including transport. The scares resources that should provide for the growth in consumers, requires better model for creating sustainable transport system that will be able to meet those challenges. On the positive side, more people mean more need to move which increases the competition within different modes of transport depending on the external environment as discussed in the earlier sections.

The European transport regulatory framework, aims at addressing all the challenges described above and adequately prepare for the future trends in order to build a sustainable transport system. One of the main trends identified is the growing urbanization and the need to provide more environmental means of transportation. This in turn is characterized with the expected shift in modes of transport, namely from road to rail. The next chapter will examine the specifics of the passenger transport and in particular the attempt of the regulatory measures to introduce an intermodal competition between rail and road. 4. European Commission, Directorate-General for Economic and Financial Affairs, ‘2009 ageing report', European Economy, 2/2009. 5. United Nations Population Division (2009), ‘World population prospects — The 2008 revision'.

3.2. The effect of the Common Transport Policies on rail and road transport modes

The current competition between passenger transport in the two modes rail and road could be better understood by giving some of the economic objectives of the CTP and how they have influenced the two segments.

3.2.1. Development of a competitive internal market for transport

The liberalization process was first introduced in the road mode in 1990s with both freight and passenger transport. The most important measure for the inter-urban road passenger transport was regulation 12/98 which introduced “cabotage” meaning the ability of an operator in one EU country to ply for trade in other EU countries. This regulation though was applicable for regular coach services from June 1999 while earlier in 1996 and 1992 it was introduced for non-regular tourist services. The market of rail transport services had undergone a different liberalization path. Directive 91/440 introduced a limited form of open access of international rail services and required the separation of rail operators and rail infrastructure. This was followed by Directive 95/18 dealing with rail operator licensing and Directive 95/19 with a focus on rail infrastructure access and pricing. All of these directives were considered to serve as a preparation stage for the further expansion of the open access envisaged in the European Commission Railway White Paper 1996.

The same paper states the limited application of Directive 91/440. Using a reference to the Rail Liberalization Index 2007 a study from IBM Global Business Services, the successful application of the policies was not the same in all member EU countries and the overall observation is that the rail passenger transport is still not fully liberalized in order to provide for efficient competition. The LIB Index 2007 is comprised of sub-indices called LEX and ACCESS. The third index COM is not included in the overall index. The COM Index represents the so called market test. The content of the sub-indices is shown in the table below: Source: Summary of the Study Rail Liberalisation Index 2007 “Market Opening: Rail Markets of the Member States of the European Union, Switzerland and Norway in comparison”. A framework for analyzing the impact of regulatory changes is devised by Hartley et. al. (1991). Applied to the domestic European transport for rail and road modes the results are summaries in

Table 2

. It illustrates the development of the competition/product/market in the European domestic market for passenger transport in the period 1980 to 1997 and their ownership structure:

Table 2: “Location of Domestic European Transport Sub-Sectors in 1980 and 1997”

	CAPITAL MARKET (OWNERSHIP)
		Government Department	Government Agency	Public Sector	Mixed ownership	Private Stock Exchange	Private Manager
PRODUCT MARKET COMPETITION	Monopoly	Road I ‘80 Rail I ‘80 Road OU ‘80 Rail O ‘80		Road I ‘97 Rail I ‘97 Road OU ‘97 Rail O ‘97
	Duopoly
	Oligopoly
	Monopolistic Competition				Road OIU ‘80 Road OIU ‘97
	Perfect Competition

Road andRail sub-sectors:

I = Infrastructure, O = Operations, IU = Inter Urban, U=Urban Source: “Regulation policy in Land Passenger Transportation in Europe”, Dr. John Preston, Transport Studies Unit, University of Oxford Historically both rail and road were state-owned structures but eventually with the effective implementation of the regulatory measures (Directive 91/440) a public sector structures were created. Although the ownership status had changed there were limited developments with respect to the competitive landscape, especially in rail infrastructure and operations. The inter-urban road transport was the only segment that evolved into a monopolistic competition, having a large number of providers of regular and irregular services. Series of studies in different member states try to assess the impact on the competition in individual markets as a result of the liberalization in both rail and road. While for road mode there are some clear indicators for competitive behavior like in Great Britain and Sweden, for rail the effects are only measured through simulation models.

Key facts from both approaches revealed that: unbundling and privatization in the road mode (bus and coach services) can lead to cost reductions and deregulation can lead to increase in demand. Deregulation in road had also influenced the level of rail fares which are lowered in response to the competing service. The actual competition between rail and road is in the urban transportation market. Head-on competition between rail transport turned out not to be feasible as both parties make losses but in the case of high-density routes limited entry in the form of cream skimming was possible.

3.2.2. Easing investments in prioritized transport infrastructure

The main goal of the European policies was to remove the bottleneck in the network. This is only feasible if all national networks are connected in one unified structure forming a single internal market. The biggest project launched to resolve this limitation is the policy for the development of a Trans European Network (TEN-T). The implementation of the project has been slower and only 20% of the infrastructure planned in 1996 representing 3 projects out of 14 was complete by 2001. To foster the speed-up of the project implementation a call for private intervention was made with increasing Public Private Partnership initiatives. Still the TEN-T has managed to improve interconnection of both rail and road networks, also to facilitate interoperability and to stimulate the development of an intelligent transportation system (the project Galileo). Bottleneck is still an existing problem and the imbalance of projects in building TEN-T more in rail than road contributes to it. On the other hand the existing infrastructure (the distribution channel for a network industry like transportation) for road is significantly larger than rail. Data provided by the European Environmental Agency on the investments made by mode of transport shows that the highest share of infrastructure investments are in roads, followed by rail.

Figure 5: Investment in Infrastructure (mil EUR) in EEA member countries

Source: Eurostat data, OECD report, available on https://www.eea.europa.eu The complexity and significant financial resources that are required for the success of the TEN-T project put additional uncertainty on the future of the single European network.

3.2.3. The promotion of innovative technologies

As described in the previous paragraph the successful implementation of TEN-T requires unification of operational, technical, safety and other standards across member states. Besides Galileo program that aims at developing a European-controlled global satellite navigation system, which could replace the current international systems and guarantee a reliable service for Europe, there are two specific programs for rail and road. For rail it is the European Rail Traffic Management Systems (ERTMS) and for road is the EU Intelligent Car Initiative. ERTMS will bring standardization in the different rail signalling and speed control systems operating in different European countries. The main final goal is to reduce the barriers to entry into the market and the movement between Member States. The EU provides financial support for the implementation of the project and plans to allocate major part of the TEN-T funds for this specific program. The road initiative which started in 2006 was focused on the safety and environmental impact of road transportation. The goal is to reduce road accidents, fuel consumption and CO2 emission as well as congestion. The long-term horizon for the finalization of these projects put another uncertain variable in the current analysis for assessing the potential shift in the competition of rail and road as a result of the future regulatory policies. Although the level of uncertainty here is lower as both programs have already commenced and the pioneers in the market are trying to gain first mover advantage in technology innovations.

3.2.4. Development of logistics and promotion of inter and co-modality

The regulatory incentives here were led by the growing congestion problem in the road network as well as the environmental impact from the transport industry. The initial focus was on freight and the push for shifting freight from road to other modes of transport like rail, sea. The two main funding programs are Marco Polo I (2003 - 2006) and Marco Polo II (2007-2013). The later program also encompasses larger geographic span including Iceland, Norway and Croatia, as well as additional modes such as motorways of the sea and projects for traffic avoidance. Still the passenger transport segment is lacking behind in these initiatives and it has become subject to more discussions recently, for promoting inter-modal shift and competition.

3.2.5. The reforms in infrastructure pricing and taxation

As already discussed in Chapter 1 network industries usually create externalities that are not accounted for in the end consumer price. The case of passenger transport also falls in this category coming from the specifics of the two transport modes - rail and road. The prices in both cases do not provided for externalities like congestion, environmental pollution, noise which calls for the need to adequately incorporate these costs in the final price of the service. The aim of the EU policies is to overcome these issues by introducing measures for efficient network usage. Some of the key measures are:

• Directive for guarantee of the interoperability of the tolling systems;
• Directive for partial harmonization of the level of fuel taxation and exemption of the hydrogen and biofuels from energy taxation;
• “The Greening Transportation Package” which includes common methodology for the assessment of external costs that should be used in the calculation of charges as well as revision of the “Eurovignette Directive” which allows for variation in the charges based on local air and noise pollution and congestion.

Still experts could not state that there has been a significant effect from those pricing and taxation measures on European level. The main reason is seen in the fact that policies are still very much implemented on national level and the integration pace varies across countries. Figure 6 gives a clear picture on the current distribution of passenger transport in the EU-27 countries by mode.

Figure 6: EU-27 Performance by Mode: Passenger transport

Source: Statistical Pocketbook 2008 - European Commission, Directorate-General for energy and transport Cars are still the dominant means of transport for people in Europe. This mode also competes with the other modes within the context of land transportation of passengers. The current paper does not consider this mode for comparison since its characteristics as a product/service are not identical and the degree of purchasing power of the population, the freedom of choice and many other factors play a significant role in determining its use. In the context of the influence from the regulations in the transport sector, of course passenger cars are not left out of scope, the fuel prices, the environmental taxes, as well as road tax regimes all have impact on the personal usage of cars as a means of transportation. If, the shift from passenger cars to rail and road modes of transport is to be done solely through regulatory measures, then a complete change of the landscape not only of the transport industry is required but also the automotive industry.

As such event is far from realistic, the focus of the current study is only narrowed to rail (comprising of Tram&Metro and Railway) and road (comprising of Bus&Coach). In Figure 7 the comparison is only done for the two modes subject of the analysis in order to give a better illustration of the developments of the measures over time. Source: Statistical Pocketbook 2008 - European Commission, Directorate-General for energy and transport As a result of the liberalization of the market and the additional regulatory incentives given to rail transport, the impact on the intermodal competition in road and rail passenger transport is still at its early stage. The legislation by itself is not enough to ensure that the market is open and competition is effectively taking place. Factors like customer profile, geographical specifics of the landscape, as well as the historical heritage of the particular mode have significant effect on the market structure and the success of the liberalization process. Although in the recent years there is a slightly growing trend in rail passenger transportation compared to road it still lacks behind with about 1/3 of the passengers' volume. Would it be feasible to achieve this shift? Are the new developments in the transport sector regulations enough to push for the shift? A humble attempt to answer these and related questions is made in the next chapter.

4. Analysis of intermodal competition between rail and road passenger transport

4.1. Porter's five forces framework - barriers of entry in the two modes

The standard framework for industry analysis is used but with certain elements being fixed for simplicity of the analysis. Industry competition - only road and rail operators are competing in the European market. Threat of substitutes - the two modes are considered to provide the same product- passenger transport as a perfect substitute. Service perceived by the customer as same quality of safety, convenience, speed and value for money. Bargaining power of suppliers - the only suppliers are road and rail operators with the current ownership structure as described in Chapter 3 Bargaining power of buyers - considered limited as being the individual passenger with equal purchasing power throughout Europe. From this starting point, the analysis is conducted for the fifth variable being the major one influencing the competition on the market - barriers of entry for road and rail passenger transport in Europe. The analysis tries to evaluate the level of severity comparing each mode for each source of barriers of entry6.

4.1.1. Capital requirements

High investments are required for both rail and road operators. First the transport equipment such as rolling stock, busses and other vehicles is expensive. Second, the access to the network is related to substantial costs. Depending on the size of the fleet though it can be argued which mode is more capital intensive, but on equal unit terms it is definitely rail.

4.1.1. Economies of scale

The average service costs (cost per passenger kilometer) declines with the number of units produced (in batch size). Such economies are realized with larger transport vehicles being fully utilized thus reducing the cost per unit. In the case of rail transport - trains, trams and for road - buses and coaches. The technical capabilities with regards to load factor are in favor of trains but also the higher fixed costs require significantly higher utilization of the capacity so as to be profitable. The comparison between rail and road again is in favor of road being less capital intensive and having higher chance for economies of scale for the operational fleet.

6. Robert M. Grant “Contemporary Strategy Analysis” 6th edition.

4.1.2. Absolute cost advantage

In the case of rail and road operators this can be applicable for the technology expertise since the operators should be qualified and certified in accordance with the industry standards. Also the experience in the operations brings additional disadvantage for new entrants compared to incumbents. On the other hand if the incumbent is a heavily regulated public company then the profit-maximization might not be its objective function. Compared to new entrant with private ownership structure the incumbent will be at disadvantage in terms of efficiencies and costs. As already illustrated in Table 2, the rail operators have changed their ownership structure from the ex state-owned enterprises to public ventures. But still there are heavy regulations imposed on them compared to road operators.

4.1.3. Product differentiation

The case in the passenger transport either by rail or road mode, provides one type of service - transporting a passenger from A location to B. In order to differentiate the product - service so as to put additional barrier for an entrant the incumbent can build customer loyalty through different programs like frequent travelers, classes of travel sections (first class, second class), special discounts on unattractive routes and etc. Surely, this poses a potential barrier for new entrants in both rail and road transport. It is hard to judge on the severity of the entry comparing the two modes as the applicable means of differentiation are the same for both modes.

4.1.4. Access to distribution channels

In the context of passenger transport the network infrastructure is the distribution channel through which the services are provided to the end customer. Both rail and road need license to conduct services as transport operators but for railway network the license regime is more rigid for obtaining a safety certificate. Also every network has a limited capacity and the access to the existing network is more beneficial for incumbents than for new entrants because apart from the initial costs for acquiring the license, the new entrants will add to the capacity limitations of the network which results in congestions, delays and more costs.

4.1.5. Regulatory barriers

Although as discussed in Chapter 3, the liberalization of the rail transport has commenced there are still a lot of complex regulations related to it. It is costly for new entrants to obtain all necessary licenses, high safety and technical standards have to be met which also comes at a cost. In the road transport, the unification and operability on European level is more advanced from a regulatory perspective. Once again, rail transport has higher barriers from existing regulations compared to road transport.

4.1.6. Retaliation by established providers

In this category it is possible for incumbents to push out new entrants through some advertising campaigns or giving promotional packages for loyal customers and discounts. Predatory pricing is less feasible taking into consideration the fact that most companies already compete with the main transport mode for passengers - cars. One possible scenario for offering lower than market prices would be in case of state subsidies, which is still possible for those rail companies that have a significant state participation. The overall assessment is that this is not a very sever barrier for new entrants although it is feasible in practice.

Table 3:

Summary of severity of entry barriers comparison rail to road transport

Barriers of entry	Severity of entry - Rail > ; =; < Road
1. Capital requirements	Rail > Road
2. Economies of scale	Rail > Road
3. Absolute cost advantage	Rail < Road
4. Product differentiation	Road = Rail
5. Access to distribution channels	Road = Rail
6. Regulatory barriers	Road > Rail
7. Retaliation by established providers	Road > Rail

Using the seven major sources of barriers to entry in the rail and road passenger transport market, one can easily spot the overwhelming precedence of road over rail to allow new entrants. The severity of different barriers was assessed using own analytical process as well as supporting research in the field as indicated in the reference sections. Albeit the introduced regulatory incentives for rail segment, it still has to undergo some changes in the competitive landscape in order to allow for easier entry. From a short-term perspective the development of the intermodal competition between rail and road modes looks unlikely because of the above severity in entry barriers and the slow change in the incumbents integration and re-organization. In mid-term aspect, the shift could be achieved only if the incumbents are restructured (dissolve the vertical integrated structures, introduce efficient pricing and improved services) and new entrants are allowed in the rail passenger transport market. Another factor, to facilitate the intermodal competition is the successful implementation of the European policies for creating a sustainable transport network. The long-term view requires more sophisticated tool for analysis and one chosen in this paper is scenario planning due to numerous variables that influence the anticipated end result, namely the shift.

4.2. Scenarios for development of intermodal competition as a result of implementing European transport policies

The analysis of the future effect on intermodal competition in passenger transport is dependent on number of variables with different degree of uncertainty as well as complex relationships with other industries. Taking into account these limitations, the current study uses the „scenario planning“ approach as a tool to give some possible future outcomes from the implementation of the new regulations influenced by the main trends as described in Chapter 3. The adopted approach for scenario planning uses the framework set by Michel Godet in “Long range planning, 1996” following the process described by the author. First, the process starts with identifying the key variables that will influence the change in the market structure of passenger transportation in Europe currently predominant road mode compared to rail. For the purposes of this study these key variable are considered to be the four main trends that will significantly impact the regulations in the CTP in EU and in particular the passenger transport segment. Michel Godet suggest the application of the so called “cross impact matrix” to be devised on this stage that represents the interdependency of each variable on the other variables. The nature of the variables used in this study is hard to quantify so the matrix is not applied.

Second, the critical actions/initiatives from key actors are defined with respect to the relationship with the key variables as stated earlier. In the case of building the scenarios for the passenger transport the two main actors are considered to be the regulatory body setters EU Commission and National bodies and the operators of road and rail passenger transportation services in Europe. The key actions that the regulatory body setters will undertake represent incorporating the new trends in the future policies while the actions on the side of the transport operators will be the direct effect from change in regulations and the potential response - the anticipated shift in the intermodal competition. Third, the model presented by Michel Godet requires the collection of experts' opinion in order to assess the degree of uncertainty in the particular scenarios and the key issues. For the purposes of the current study, those experts' opinions are taken from the outline of the EU Commission Directorate General for Energy and Transport paper on “A sustainable future for transport” and conducted interview with industry experts as part of the practice projected assignment.

Fourth, the actual scenario formulation is done. Here the approach followed is to present three scenarios, that are the outcome from the events combination resulting from the actions of the key actors. The alternative scenarios developed share one common trend and this is the change in the regulations but the outcome from the implementations is uncertain and this is used as formulating the possible futures for the shift in the passenger transport from rail to road. Scenario planning is widely used tool by decision makers in all aspect of business activities. Its application allows for building and planning for alternative strategies that help those involved in the activities to benefit from the future. On the other hand, the approach has its limitations and these are the main constrains coming from predicting actions and the behavior of numerous players, the combinations and definition of relationships for key variables as well as projecting current trends to the future.

4.2.1. Scenario 1 - Successful implementation of the developments in the regulations

The current scenario looks into the successful implementation of the regulatory developments which encompasses the integration of the five main trends in the European transport landscape and their effect on the competition between rail and road passenger transport. Future trends in policy development The new policies manage to incorporate all aspects of the global developments and their effect on transport. The conflicting priorities as discussed in Chapter 3 are eliminated and common understanding from all regulatory setters is established. Key decision makers The EU current directives for the promotion of sustainable integrated European transport continue to be implemented by all member states and national regulatory bodies work in agreement towards successful implementation. End consumer rights are enhanced by more competitive pricing of products both road and rail transport services. Decisions about type of mode of transport are made not only based on price but also from the perspective of more environmental aware consumer. Competition between rail and road As a result of the successful policies developments and implementation occurs a shift from road to rail passenger transport. The shift will be possible only after change in the current competitive landscape as discussed in sections above.

Figure 8: Optimistic scenario

Trends in new Transport policies	Policy impact	Rail passenger transport	Road passenger transport
Environmental focus	Restrictions on GHG emissions; effective policies to measure externalities
Urbanization	Urban rail transport ease of congestion in city areas; high-speed trains for long distance transport
Migration and mobility	Incentives for immigrants to settle in Europe;
Limited financial resources	State aid on rail development; price structure of service provide including cost of externalities

Likelihood The above scenario suggests that rail passenger transport has managed to evolve into a competitive structure where rail operators are independent from infrastructure operators, also new entrants are present as a result of ease in barriers of entry. The shift from road to rail is taking place as a result of policies implementation but also as a result of development in the capabilities of the market players - rail management is more efficient, driven by profit oriented targets. The likelihood of this scenario though is quite low, the dynamics and uncertainties on the way are too many in order to conclude that the future will evolve in such a perfect combination of those.

4.2.2.Scenario 2 - Failure to implement the developments in the regulations

The current distribution and market conditions for rail and road passenger transport give sufficient doubts about the successful development and implementation of an integrated sustainable transport policy for all European states. Here time is a major factor as well as global economic trends which have a significant impact on the transport industry as a whole. Although, no one hopes for the worse, this scenario is given as an illustration of a possible outcome if all parties involved in the process fail to provide for the goals set for European transport. Future trends in policy development The prevalence of national interests continues. The effects from the financial crises are long-lasting and the economic conditions are not as favorable as anticipated. Although initial trends in policy development are still applicable, the focus is shifted to bring first stability on the market and then revitalize the process. Key decision makers The implementation of the EU common transport policies is postponed. End consumer is under pressure to cope with worsen economic conditions and access to transport services at the lowest price. Competition between rail and road “Business as usual” even sharpened competition between modes in favor of road as a cheaper solution in times of crisis.

Figure 9: Pessimistic scenario

Trends in new Transport policies	Policy impact	Rail passenger transport	Road passenger transport
Environmental focus	Restrictions on GHG emissions exist but not all modes are compliant; costs from externalities are not included
Urbanization	Bottlenecks still exist but policies are postponed
Migration and mobility	Local protection, no incentives for migration.
Limited financial resources	Focus is on national level and subsequently on European level. Establishment of integrated market is postponed.

Likelihood Despite the bleak aspects of this scenario it is still possible though the likelihood is not high. Given the no change situation road will continue to be the dominant mode for passenger transport and rail will struggle with its existing monopolistic features making it unattractive from an end-customers perspective.

4.2.3. Scenario 3 - Mixed implementation of the developments in the regulations

This scenario tries to give more realistic picture about the future development of the intermodal competition as a result of the policy developments in the European transport industry. Future trends in policy development The trends in the policy development process will be followed but their combined implementation will be at different pace in different countries. This has already been the case with the liberalization process in the industry and most likely it will continue as the complexity of the task is vast. Priorities in certain areas will prevail because of their significant level of urgency like environmental measure and the bottleneck in the network infrastructure.

Key decision makers

The EU current directives for the promotion of sustainable integrated European transport continue to be implemented by all member states but with different pace. Cooperation from national regulatory bodies is at place but also pressure from national champions is existent. End consumer rights are enhanced by more competitive pricing of products both road and rail transport services. Still decisions about type of means of transport are made primary based on price.

Competition between rail and road

As a result of the successful policies developments and ongoing implementation of those regulations a smooth shift arises in the passenger transport market. The shift will be possible only after change in the current competitive landscape as discussed in sections above.

Likelihood

The third scenario as the name suggests is considered to be the most feasible one. The long-term effect of the new policy developments will definitely trigger a positive effect for the more sustainable modes like rail but on the hand the processes and the complexity of the environment hinder this rapid shift.

Figure 10: Close to reality scenario

Trends in new Transport policies	Policy impact	Rail passenger transport	Road passenger transport
Environmental focus	Restrictions on GHG emissions; effective policies to measure externalities
Urbanization	Urban rail transport ease of congestion in city areas; high-speed trains for long distance transport
Migration and mobility	Migration policies very flexible allow for easy transfer of human resources
Limited financial resources	Partial unification in cost provision for externalities mainly ecological impact; state intervention is limited;

5. CONCLUSION:

5.1. Summary and implications

The complexity of the transport industry and how to establish effective and efficient regulatory measures on European level is subject to constant debate. There is vast literature to explore on the topic but all conclusions and recommendations are broad and to some extend very theoretical brought from a best practice perspective. The scope of the current paper tries to simplify the analysis in order to provide reasonable assessment about the future of the competition between rail and road that has been subject to regulations and efforts from EU perspective in the recent decade. Using the scenario analysis three possible outcomes have been identified as a result of the anticipated developments in regulations as well as feasibility of implementing those measures. Most reasonable of the three scenarios is the one where implementation will be taking place with mixed rigor in different member states, in addition the expected shift in passenger transport from road to rail will commence but at relatively slow pace. The result of the successful implementation of the new regulatory developments will be increased competitiveness between rail operators as new entrants will come to the market, increased efficiencies in the ex-monopolistic companies, and better service for the end-consumer both quality and price.

The above scenarios provide a long-term perspective on the development of the intermodal competition in the passenger transport in Europe, since the time horizon for assessing the effect of a particular regulatory takes at least 10 years. The starting point is the current situation on the market which unfortunately has to go a significant change before the head-to-head competition between rail and road starts. The implications from the current study can be used as the basis for future research and scenario development with more sophistication. Regulations will definitely be in the core of transport industry development and the future trends as discussed in Chapter 3 will influence those policies with different degree. It is worth trying to understand and better prepare for the future both from business and social perspective. Thus the current study tries to bring the reader one step closer to that point.

5.2. Limitations and further research

The scenario analysis incorporates a lot of assumptions and simplifications of variables that affect the end result. There are a lot of forces that shape market structures and competition but this paper tries to focus on the regulations as a main driver in the network industries. Other equally important determinants are: key competitor in passenger transport mode - private cars; the economic development of each member state directly affecting the purchasing power of end-consumers of transport services; industry lobbying which is significant part of the regulatory process development; as well as pressure from international players and the overall global economic climate. Given the above limitations, further research might enhance the current topic adding points like:

• How strong is the effect from regulations in other modes of transport especially in passenger segment both urban and long-distance?
• The sustainability agenda in the context of the existing rail / road infrastructure - the downside from the shift to rail transport?
• Full liberalization in the rail passenger transport - is it really feasible in the context of the whole European market?
• Future of rail passenger transport marker in case of break-through in the electric car concept?

Appendices

Appendix 1: Summaries of EU regulation on Carriage of passengers: international carriage by coach and bus

Act: Council Regulation (EEC) No 684/92 of 16 March 1992 on common rules for the international carriage of passengers by coach and bus.

SUMMARY

This Regulation repeals Council Regulations (EEC) Nos 117/66, 516/72 and 517/72. It applies to the international carriage of passengers by road, for any portion of the journey within the Community, using vehicles registered in a Member State. Definitions of "regular services", "shuttle services", "occasional services" and "own-account transport operations" are given. Community carriers are free to operate passenger transport services between any Member States without discrimination on the grounds of nationality or place of establishment. The procedures for applying for and issuing authorisations for regular services and shuttle services without accommodation are laid down. Occasional services, shuttle services with accommodation and special regular services covered by a contract are exempt from authorisation. Transport undertakings operating occasional services and shuttle services with accommodation are required to produce control documents. Similarly, a certificate is required for own-account transport operations. Control procedures and penalties are provided for in this Regulation: travel documents must be supplied to passengers, transport operators must allow inspections, authorisation may be withdrawn for breaches of the Regulation, etc.

A Community licence system

Regulation (EC) 11/98 subsequently amended 684/92, introducing a system of Community licences for own-account transport operators who are entitled, in their State of establishment, to carry passengers by coach and bus and who meet the conditions for admission to the occupation and the road safety criteria. This licence, which is renewable every five years, is issued by the competent authorities of the Member State of establishment. It is issued in the name of the carrier. Simplification of definitions: shuttle services are removed, occasional services are defined as services which do not meet the definition of regular services, including special regular services, and which are characterised above all by the fact that they carry groups of passengers assembled on the initiative of the customer or the carrier himself. The market access rules are amended. The following are exempt from any authorisation:

• occasional services;
• special regular services covered by a contract between the organiser and the carrier;
• unladen journeys.

The following are subject to authorisation:

• regular services;
• special regular services not covered by a contract between the organiser and the carrier.
• The Regulation lays down the procedure for authorising regular services.

Occasional services exempt from authorisation must be carried out under cover of a journey form stating:

• the type of service;
• the main route;
• the carrier(s) concerned.

The Commission is to be assisted by the advisory committee set up under Regulation (EC) No12/98.

SUMMARY

This proposal for a Regulation is intended to replace Regulation (EEC) No 2454/92 of 23 July 1992, which was annulled by the Court of Justice by judgement of 1 June 1994 on the grounds that the Council had misunderstood Parliament's prerogatives. This Regulation first and foremost defines the principle of cabotage. It provides that any carrier who operates road passenger transport services for hire or reward, and who holds the Community licence provided for in Regulation (EEC) No. 684/92, is permitted, under the conditions laid down in the Regulation and without discrimination on grounds of the carrier's nationality or place of establishment, temporarily to operate national road passenger services for hire or reward in another Member State (host Member State), without being required to have a registered office or other establishment in that State. Cabotage transport operations are authorised for the following services:

• special regular services covered by a contract between the organiser and the carrier;
• occasional services;
• regular services performed in the course of an international regular service in accordance with the provisions of Regulation (EEC) No 684/92;
• regular services in the strict sense are excluded from cabotage operations.

The Regulation lays down the legal system applicable to cabotage transport operations as regards regular or occasional transport services where these services are operated by an undertaking not established in the host Member State in the course of a regular international service in accordance with the provisions of Regulation (EEC) No 684/92. The performance of cabotage transport operations is subject, in respect of all the services covered by the Regulation, to the provisions in force in the host Member State in the following areas:

• rates and conditions governing the transport contract;
• weights and dimensions of road vehicles;
• requirements relating to the carriage of schoolchildren, children and persons with reduced mobility;
• driving and rest time;
• VAT on transport services.

Moreover, the performance of cabotage transport operations for the regular services covered by this Regulation is subject to additional requirements concerning authorisations, tendering procedures, the services to be operated, regularity, continuity, frequency and routes. These provisions must be applied by the Member States to non-resident carriers under the same conditions as are applied to their own nationals so as to prevent any discrimination on the grounds of nationality or place of establishment. The Community licence must be kept on board the vehicle and produced when requested by an authorised inspecting officer. Cabotage transport operations in the form of occasional services must be carried out under cover of a control document (waybill) which must be kept on board the vehicle and produced when requested by an authorised inspecting officer. It must state:

• the places of departure and destination of the service;
• the dates of departure and termination of the service.

The Regulation requires the competent authority or agency in each Member State to send the Commission, every quarter, data concerning the cabotage transport operations carried out during that quarter by resident carriers. Furthermore, once a year, the competent authorities of the host Member State must send the Commission statistics on the number of authorisations for cabotage operations carried out in the form of regular services. The Commission is assisted by an Advisory Committee composed of representatives of the Member States and chaired by a representative of the Commission. The Committee advises the Commission on the steps to be taken in the event of a serious disturbance of the market, as referred to in Article 9. It assists the Commission in drawing up the models of waybills, the book of waybills and the table of quarterly information on special regular services or occasional services. The Regulation lays down the rules and procedure to be followed in the event of serious disturbance of the internal transport market in a given geographical area due to or aggravated by cabotage. Sanctions and appeals are provided for in the event of an infringement of the provisions of the Regulation. The Regulation provides that the Commission is to report to Parliament and the Council: before 31 December 1999, on the application of the Regulation and, in particular, on the impact of cabotage transport operations on national transport markets. The Regulation is applicable from 11.06.1999.

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