The European Commission is set to ban Deutsche Bahn’s (DB) subsidies for its freight subsidiary DB Cargo. The freight operator’s losses are sky-high, and the EU considers the financial support for the loss-making state-owned operator to be market distortion.

From next year onwards, DB Cargo will have to make do with its own financial resources. It can no longer count on support from its state-owned parent company Deutsche Bahn. Süddeutsche Zeitung reports that the EU ban on the support scheme is an “expected result of a procedure at the EU Commission”, based on company sources. The publication says that DB’s supervisory board has been notified of the decision. DB did not comment on the issue.

As a state-owned operator, DB Cargo receives financial support from Germany’s federal government through parent company DB. Part of its losses are therefore compensated with state money. They reached nearly 500 million euros in 2023, and compensation for those losses gives DB Cargo an unfair advantage over private competitors who cannot count on such support, considers the EU.

An opportunity for private operators?

DB Cargo will have to find a different way to turn its negative balance around. Süddeutsche Zeitung writes that unnecessary administrative processes had to be stopped and “duplicate structures” had to be eliminated, as per last year’s internal documents at DB Cargo. The company also said it needed to streamline management. Lastly, it is going to adopt a new internal business structure with a division into two units.

Whether or not this will be enough to raise 500 million euros remains to be seen. Meanwhile, the company has already been ceding market territory to private operators, who took 59 per cent of the market share in 2022. The lack of financial support may allow private operators in Germany to take an even bigger market share.

Moreover, track access charges in Germany stand to grow significantly, which adds extra fuel to the fire for DB Cargo as financial pressure grows. According to Süddeutsche Zeitung, the company was supposed to reach a positive annual balance this year with increasing sales. However, sales have fallen rather than risen, putting its aim of profitability into question.

DB Cargo in the footsteps of Fret SNCF

Much like the EU’s inquiry into DB Cargo, it also launched an investigation into its French counterpart Fret SNCF for the same reason of excessive state support. As a consequence of that investigation, Fret SNCF is being broken up into two companies and has to cede up to 20 of its best-performing routes to competitors, including DB Cargo France.