Where is DB Cargo heading – perhaps to the siding? This is a valid question because Deutsche Bahn’s loss-making freight transport division may no longer receive cross-subsidies from its parent company come 2025, following a decision by EU competition watchdogs. In the first half of 2024, the rail freight unit accumulated a deficit of EUR 261 million. It is unclear as to what strategy DB Cargo boss, Sigrid Nikutta has for a financial turnaround. The only thing that is clear is that quick decisions are needed to keep the division, which is highly important for the German economy as a whole, operating beyond 01JAN25.
“Close to collapse”
According to a profit and loss transfer agreement inked in 2012, parent Deutsche Bahn covers annual losses of DB Cargo should they occur. And this has happened, year after year, resulting mainly in lost market shares but also caused by infrastructural deficiencies in the entire railroad system, into which far too little money has been invested by the respective governments in Berlin over the past two decades. In addition to DB Cargo, passenger transport also suffers from this deficiency, as was evident during the recent European Soccer Championship, where trains full of spectators were severely delayed or did not run at all. “We are close to collapse,” as a leading trade union secretary aptly put it.
Growing deficits hamper operations
Asked about the red card shown to DB Cargo by the EU competition commission, Deutsche Bahn did not immediately respond. A DB Cargo spokesperson said that the termination of the profit transfer agreement will be “essential for the conclusion of the (EU) proceedings”. In plain language: if nothing essential happens, the deficits will gradually pile up into a gigantic mountain.
A spokesperson for the European Commission said an investigation is ongoing and that it would not further comment on the outcome or the timing of a final decision at this point. “We are in close and constructive contact with German authorities,” she told news agency Reuters.
Vague transformation plans
Asked about solutions, a spokesperson of Berlin’s transport ministry agreed that the long-lasting crisis at DB Cargo had to be brought to an end – the faster, the better. She indicated, without going into detail, that “a comprehensive transformation program had already been drawn up, which must now also be implemented in accord with the state aid procedure in order to ensure a legally and financially secure future for DB Cargo.”
The German government was probably not really surprised by the decision of the Brussels competition authorities to stop subsidizing DB Cargo. After all, the EU had already launched an investigation into state aid for DB Cargo in 2022, to the detriment of competitors. However, nothing has happened to date. The consequence of this inaction is now the ban on cross-subsidization by Brussels, which has shaken DB Cargo’s management to the core.
Questionable austerity policy
This also applies to political Berlin. After all, DB Cargo is a pillar in the government’s efforts to reduce CO2 emissions by shifting traffic from road to rail. This plan, too, is now being jeopardized as policymakers continue their almost dogmatic course of austerity pursued by various governments for more than a decade. That course still has an impact today – with disastrous results for the country’s rail, road and air traffic infrastructure, harming its competitiveness. Now DB Schenker, the only profitable division of the state-owned rail group, is to be sold. A fatal political mistake, claim critics and experts. It is comparable to an impoverished king selling his crown jewels.In the meantime, Danish logistics giant, DSV, and a financial consortium headed by CVC Capital Partners, have submitted binding offers for DB Schenker, both estimated at totaling EUR 14 billion.
A final sales decision is not expected until summer 2025, at the earliest.
