Towards rail-related multimodal freight exchange platforms: Exploring regulatory topics at EU level

Strategic market management

Energy exchanges align their strategic goals and operational processes consequently to the legislation and regulation regarding harmonization of rules and creation of internal market integration. By doing so, they improve liquidity through cross-border flows and reduce prices by accepting competition and complying with a high level of system security. They organize an easy market access, attracting new participants. For example the Energy Exchange group (EEX) has taken over several other exchanges (EPEX SPOT, PXE, Gaspoint Nordic (in Denmark) and some other exchanges (Members of EEX Group, n.d.). Further, the power derivatives operated by PXE are run on the EEX trading system (Power Exchange Central Europe, 2017). Exchanges are integrated and commoditization enables optimization over different products. Further, the EEX Group organizes compliance with regulations (‘One Platform – Three Regulations’, n.d.) for its exchanges. Overall, we consider such energy exchanges on the aspect of market management at maturity level 3.

In contrast, the implementation of MaaS in UPT is mainly in a stage of pilot projects, at a local level. Exchanges in this field have not matured yet. The practices relating to automation and using commoditization over different transport modes to organize multimodality may be in place in the pilots, but since structural, large-scale, policies are not yet in place, we consider them to be at maturity level 1.

In LPT industries, multimodal and door-to-door service is an unmet challenge (Montero & Finger, 2017). GoEuro and Trainline are now working on multimodal transport through commoditization and improved automation to optimize network benefits for their customers. For example, GoEuro sees extraordinary potential to transform travel booking by expanding their platform to the fragmented, mostly offline systems for managing transport globally (GoEuro, 2018, para 6). Trainline has also been expanding its business in Europe for train and bus travel. Further automation is being used for expanding market access between different exchanges (e.g. GoEuro with booking.com). Overall, we associate the selected transport exchanges with maturity level 3. This level may, however, be lower for other long-distance passenger exchanges, not addressed in this analysis.

Road FTEs show different maturity levels in regards to the practices of strategic market management. Goals for the top 10 exchanges appear to be aligned with customer benefits and societal goals related to carbon dioxide (CO₂) emission. With a takeover of the Wtransnet exchange, the Alpega group (which also owns Teleroute and 123cargo.eu) chooses a strategy comparable to energy exchanges. However, a certain level of ad hoc management is needed (e.g. Terms and Conditions, 2019). Thus, there is still much room for improvement of automation. Timocom, on the other hand, expands its market reach by organizing tracking of transport orders through strategic cooperation with 245 telematics operators in Europe. Also, the multimodal freight exchange, VIIA+, increases its network services for rail and road transport by ‘putting all parties into contact, connecting them via a simple, safe solution’ (Multimodal Will Also Have Its Freight Exchange’, 2015, para 7). Consequently, multimodal services become possible through commoditization (e.g. intermodal transport units) and automation. These practices increase the market access. The maturity of the top four FTEs and multimodal FTE therefore is at level 3. Exchanges that cannot organize security but are ready to connect to other exchanges and have a strategy for market growth (e.g. the other six exchanges) are considered at maturity level 2. We recall that the majority of road FTE do not appear to have practices in place to expand their market access to ensure higher liquidity on the exchanges. They may succeed through individual (ad hoc) efforts (maturity level 1).

The rail FTE, XRAIL is restricted to the network of six partner railways. It aims to enhance the international wagonload with the implementation of international capacity booking (XRAIL Alliance, 2015). Since no further information regarding liquidity could be found, we consider its maturity to be at level 1.

The lesson to be learned for the freight transport industry concerns the setting of concrete goals regarding the market strategy (notably improving access to different markets) and developing multimodal transport services through the organization of a structural cooperation of involved freight transport companies. This should be supported by freight transport regulators. The alignment of organizations to the EU modal shift goals must accordingly be monitored and enforced (as in the energy industry). In this regard, interviewees emphasized the need for a political willingness to achieve such a state and that regulators both at state and EU levels must be able to function independently.

Integration of adjacent markets

Energy exchanges regularly focus on, for example, bilateral (over the counter) markets for identifying, developing and organizing new products and services on exchange to improve the efficiency for their existing and potential participants. For example, in the German market, a new product in the renewable energy market offers contracts on a 15-min basis instead of hourly basis (EPEX SPOT Intraday, 2014). In doing so, they improve liquidity and positive network effects for their participants. They do so by using a standardized project-oriented approach, for example, with the engagement of an exchange council (‘Role of the Exchange Council’, 2018). Once launched, the product is continuously optimized like all other products. This equals a maturity level 3.

Exchanges in UPT and LPT appear to be at a stage of organizing liquidity, working on the understanding of the changing needs of their customers. Increasingly, links to adjacent markets are pursued, for example in hotel booking, but such links are not yet made systematically. The sector starts bundling of online ticket booking over various transport modes and additional services for billing and payments. Maturity level in this aspect is hence assessed at level 2.

Some road FTEs appear to be understanding the changing needs of their customers and therefore have started to offer solutions like route exchange (Wtransnet) and warehouse exchange (Timocom) to identify and optimize efficient solutions for participants (maturity level 3). However, this practice is not standardized in all FTEs, like it is in energy exchanges. Overall, this practice for the top 10 exchanges matches maturity level 2 but is almost ready to move to level 3. Such a process is however absent, or ad hoc organized, in the majority of road FTEs (maturity level 1).

No mention of similar practices were found regarding XRAIL and VIIA+ (maturity level 1).

The lesson to be learned for rail freight is that it is extremely relevant to improve the understanding of the needs of customers, both in the core and adjacent markets, to make these needs leading in service provision. Further, to look for adjacent markets to increase the rail market share, an update in policies to stimulate multimodal transport is required. Finally, this might also be linked to other markets, for example, in warehousing or distribution. In terms of regulatory control, an (transport mode-) independent body for solving multimodal transport issues presently lacks.

Product and service design

All exchange experts stressed that a mature exchange standardizes the products and the contracts. Energy exchanges differ in that the products and commodities are clearly defined for long-term and short-term markets. Further, the contracts, which are organized by the exchange (except for bilateral contracts), are highly standardized and the practices are related to quantitatively optimizing the processes and profits through continuous improvement (as seen in the case of integration of adjacent markets) of the product (or product mix) to maximize the liquidity (volume or number of transactions) on the exchange (maturity level 3).

In UPT and LPT industry, the product is generally related to a free seat and the ticket as a contract is often standardized over all modes, therefore optimization on products (or product mix) takes place. Since high competition exists in the market for LPT, we associate these exchanges with maturity level 3. UPT is, in most cases, focused on societal goals, and therefore profit maximization is not the main focus. In particular, MaaS aims to provide an exchange with maturity level 3.

Most road FTEs appear to be load boards for road transport. Very few of them are involved in the finalization of contracts. The road haulage orders usually lead to spot or short-term deals and not often to long-term contracts (Nandiraju & Regan, 2008). For the top 10 exchanges, the products like less than a truckload (LTL) or full truck load (FTL) are well defined. Therefore, standards for defining products/commodities appear to exist to establish liquidity on exchanges. However, clear strategies for the optimization of LTLs to FTLs (i.e. optimization over multiple products) could not be found. At this point, an answer regarding contracting on exchanges cannot be fully provided. Further research is required in this area. We currently associate such exchanges with maturity level 2. Moreover, of the many hundred FTEs, many may not have a standardized product definition and they allow for all types of requests and ad hoc agreements (maturity level 1).

Regarding to rail freight transport, 19 wagon types with different characteristics were identified as a basis for the containerization of transport (Bruckmann, 2006), indicating a lack of standardized products. New customers also face obstacles when approaching the rail freight company for services since a customer-specific contract must exist before any transport takes place (Jain & Bruckmann, 2017). The related transaction costs create resistance to become an active partner in an exchange that should aim to easily match demand and supply of multimodal services. Therefore, we associate rail FTEs with a maturity of level 1. However, VIIA+ offers products like semitrailers, containers and swap bodies that are compatible to all modes. The focus on multimodality is evident in their mission statement to become ‘a neutral intermodal operator working for the road and with the road to provide a joint service suited to market needs’ (The Main Raison d’être of VIIA, 2016, para 6). This strategy should be associated with maturity at level 2.

Learning from energy exchanges, regulation at EU level regarding contract standardization (including enforcement and monitoring through regulators) for rail freight and multimodal transports could act as an enabler for an increased participation on FTEs and improve the potential for a modal shift. It is expected to lead to significant improvements in organizing transparency and multimodality of services offered by the exchanges. The example of VIIA+ illustrates this.

Design of auction algorithm

Energy exchanges involve shareholders and participants in the design of auctions and price building to meet the interests of both sides on exchange. Price coupling of regions is a crucial contribution to a harmonized European electricity market. The integrated European electricity market, enforced by Commission Regulation EU 2015/1222, is improving liquidity, efficiency and social welfare (PCR & EUPHEMIA Algorithm, 2017). Further, the auctioning focuses on price building and optimized matching of aggregated supply and demand. In this regard, energy exchanges are governed by regulatory requirements and ensure neutrality through anonymity of all participants during auctioning. Moreover, the prices on these exchanges (once finalized) are publicly communicated, therefore serving as a reference for price in bilateral markets. We therefore associate energy exchanges in this respect with a maturity of level 3.

In UPT and LPT, the matching of demand to supply is in the hand of the ticket buyer. Regarding MaaS, a pilot project Ubigo, a transport broker service in Gothenburg (Sweden), showed a reduction of the participants’ car use. Unfortunately, the revenues of the platform remained low because it was unable to increase the prices for public transport (Jittrapirom et al., 2017). So, although the MaaS platform provides a virtual matching mechanism, it is still tied to public policy influences on pricing and cannot enable a fully open and dynamic price discovery process. Hence, we consider them to be at maturity level 2. In regards to long-distance transport, Morris (2017, para 2) states: ‘Though a third party app allowing users to bid for upgrades (in rail) is new, a number of airlines already offer similar services’. Seatfrog, the exchange referred to here, plans to expand to the European rail network, Trainline and GoEuro do not yet provide this facility, but standards and strategies are in place to achieve a maturity level comparable to the air transport industry (maturity level 2).

Road FTEs mostly facilitate information exchange related to services and (negotiation for) contracting which then takes place outside the exchange. Hence, if standards and procedures are defined for auctioning, they are manually applied. In some interviews, it was mentioned that such mechanisms are relevant only when participants from both sides see the added value of, and hence desire for, such a functionality. In case of Wtransnet, offering route exchange services for regular routes, some automation of matching is possible (Route Exchange, 2019). Timocom, since 2017, also allows participants to electronically document their transport orders. Currently, very few of them publicly give information about organizing prices and capacity (Jain and Bruckmann, 2017): suppliers make different price offers during tendering procedures. More research is required regarding which information on prices the exchanges provide to the clients. Other interviewees stated that FTEs do not send price signals in the market since they do not have transparent price information (especially in case of spot markets). Therefore, we associate the current maturity of road FTEs with level 1.

In rail freight transport, the prices are non-transparent and get complicated for cross-border shipments (Endemann, 2016). Xrail does not organize the prices due to anti-trust regulations. We understand that XRAIL offers a capacity search service for single wagon loads triggered by specific demands. However, no fixed and transparent price component is involved (maturity level 1) and here also, more research is required. No information regarding price discovery was found for VIIA+ (as per general terms and conditions, this possibly takes place bilaterally). Thus, we associate the rail and multimodal FTE practices with maturity at level 1.

The lesson learned is that price transparency, price harmonization and a higher level of automation of contracting incentivize all stakeholders for cooperation. Regarding rail freight transport, it would contribute to more multimodal services and a better organization of risk and revenue sharing for such services. Independent regulatory bodies could contribute to the establishment of such transparency and harmonization.

Market rules

Energy exchanges perform regular analysis and reporting on conformance to market rules (behavioural rules). For example, REMIT introduces a legal framework for identifying and penalizing insider trading and market manipulation in wholesale energy markets across Europe (REMIT, 2017). Stringent quality checks support companies to achieve the highest data quality to the benefit of regulatory compliance (One Platform – Three Regulations, n.d.), the results of which are publicly reported. Both regulators and market participants benefit from this reporting. For example, extension of the VAT Directive recommended by the energy industry to protect energy and emission markets from VAT Frauds (Common Energy Sector Statement, 2018). The downside, according to the interviewees, is that the administrative tasks due to regulation have increased. Nevertheless, the maturity of the energy industry in this respect is perceived to be at level 3.

The UPT and LPT also have to comply with certain market rules especially if they want to provide international services. However, the research did not find coordinated practices related to standardization of rules in the industry to optimize the conformance to market rules (maturity level 2).

Regarding FTEs, the practices appear to be similar to passenger transport. Thus, each exchange defines its own market rules that evidently are in line with EU regulation. This implies that various sets of standards and market policies are applied. It was further observed that verification on conformance to regulation regarding minimum wage or working condition differs significantly between the top four (or even top ten) road FTEs and the rest. The top-level exchanges put higher effort in standardization of exchanges, since much problems result from different implementation of EU regulations in the member states and additional national regulations (CLECAT, 2017). Thus, we associate maturity of the road industry in this respect with level 1 for the majority of exchanges, where no standardization practice exists, and for top 10 exchanges at level 2. Practices in this respect for rail FTEs could not be found. In VIIA+, terms and conditions along with market rules for exchange exist, indicating standards and policies exist (maturity level 2).

The learnings from energy exchanges deal with standardization of market rules and public reporting of compliance to these rules. These practices can ensure better monitoring of unwanted actions that might jeopardize the business of exchange participants. Further, since regulators in the energy industry can mandate direct actions to companies, this may also be relevant for the multimodal freight transport industry. It is therefore concluded that additional market rules, possibly at EU level, will be required for multimodal freight exchanges.

Registration

Energy exchanges follow a strict registration procedure for their participants, including services to protect from frauds. Hence such practices (including charging registration fees) and verification procedures enable safe registration: they help to select only the serious customers to join the exchange. The operational efficiency of the registration process also facilitates the management of changes in the market access (e.g. when one exchange takes over the other) and compliance to regulatory requirements. We perceive this to be at maturity level 3.

In case of UPT (including MaaS) and LPT, standard processes and policies exist for registration using social media accounts, credit cards or other digital payment methods. These may be susceptible to possible frauds. We consider such practices related to maturity level 1.

In road FTEs, apart from the selected top four exchanges, most road FTEs offer simplified registration procedures for potential participants. Some FTEs offer the possibility of registration with an initial trial period for free or a lower price. The downside of these approaches is the relative lack of quality control and the possibility of fraud and offering of insufficient service levels. These processes are therefore associated with a maturity level 1. The selected top FTEs, in contrast, have started to introduce more checks and rules for registration. For example, Wtransnet’s quality assurance procedures filter new companies and continuously monitor their behaviour in accordance with the standards accepted at the time of their registration (The QAP System, n.d.). Thus, such exchanges exhibit a maturity at level 3. Such standards also include compliance to minimum wage policies under EU regulations for working conditions. In collaboration with the Romanian Road Authority, 123 cargo recently started the online service to verify the Transport and Forwarding license of all Romanian members (Real Time Check, 2018). Further, some of the top 10 FTEs adopted clear standards and policies regarding registration, however, do not yet perform similar quality assurance services like Wtransnet or 123cargo (maturity level 2). Again, such practices are not typical for a majority of FTES. Some interviewees emphasize that mature exchanges should handle such quality assurances during registration themselves, for which no regulations are required. Moreover, no knowledge of any reporting requirements surfaced in the interviews. We associate an absence of such practice to level 1. Finally, details regarding both VIIA+ and XRAIL could not be found. We, however, assume that some kind of registration process is in place. Further research is required in this regard.

Learning for freight transport focuses on the monitoring of the adherence to policies regulatory requirements in a standardized form at EU level. Due to international transport, more shared knowledge on fraudulent companies and practices can improve operational efficiency of all freight organizations. Building and sharing databases in this respect can help to track fraudulent companies and practices.

Clearing and settlement

Energy exchanges ensure that the trades are also delivered and paid via clearing agencies. Thus, European Commodity Clearing (ECC), a recognized partner of TSOs in many European countries (About ECC AG, 2019), ensures physical settlement of power, natural gas and emission allowances. It assumes that the counter party complies with regulatory standards (e.g. EMIR) thereby ensuring security of participants and improving efficiency (maturity level 3).

In MaaS and LPT, clear standards and policies are defined, for example, payments generally organized via credit cards or apps (maturity level 2).

Practices of road FTEs regarding clearance appear to be often organized by the exchanges individually. Research regarding risk management indicates that some mechanism of debt recovery on various road freight exchanges exists. For example, Timocom successfully helped 89% of all creditors to successfully recover their claims (Debt Collection International, n.d., para 1). Wtransnet guarantees the recovery of 90% of the invoice amount in trade relations established between companies from a European country it covers, whether EU or not (With a 90% Coverage, 2012, para 1). For this, it collaborates with the multinational company Coface, thus also indicating a focus on operational efficiency. This information indicates that such exchanges are themselves acting as regulators aimed at improving the operational efficiency. Further market efficiency through standardized policies and use of a central clearing agency (e.g. for Alpega) could be a possible next step for such exchanges. We assess the maturity of current practices in this respect at level 2. In the other top 10 road FTEs, the maturity level of this practice differs with the particular exchange. Some apply a mechanism for risk management, and others do not have such practices. Thus, whereas some exchanges can be associated with reaching level 2, the rest perform at level 1.

For VIIA+ general terms and conditions exist, however, no evidence of a clearing agency could be found. Similarly, details to XRAIL could not be found. Therefore, we associate both with maturity level 1.

The lesson learned is that if initial registration is strict, many risks may be reduced for consecutive processes on online exchanges. Further, a higher maturity stage of an exchange requires that insurance or prepayments are applied to reduce risks of counter parties. However, this is not a regulatory requirement. What, however, can be explored is how clearing agencies and standardizing reporting policies can improve the efficiency of freight exchanges in this respect by applying regulatory requirements uniformly, weeding out unserious participants.

Data analytics and information sharing

As mentioned earlier, practices in energy exchanges related to reporting on performance indicators are standardized and automated on all exchanges, including those for regulatory requirements. By doing this, they aim at achieving transparency. Results of auctioning of each product, including timings of process execution, price information, trends and so on, are transparently and publicly communicated. Processes and products can therefore be continuously optimized to organize liquidity and trust in exchange (maturity level 3).

Practices regarding data analytics in MaaS (dashboard on hubs and user requests) and LPT exchanges (e.g. most popular trains in each country) can be observed indicating that processes and policies exist for measuring and publishing operational efficiency. However, a standardized reporting of key performance indicators related to promised benefits especially regarding societal goals is not yet a common practice. The growth in user-related and other operational data is also not conclusive (maturity level 2).

In road FTEs, information on growth of users, improvements regarding CO₂ emission and reduction in return trips is present, which indicates that some processes and policies for measuring (e.g. Timocom’s transport barometer) and publishing on performance exist; however, it is not conclusive. For example, 123cargo.eu states: ‘based on an algorithm that considers your (participants) scoring and activity on the platform, an indicator is calculated to help you better understand the type of activity of the collaborator you are consulting’ (Company Activity indicator, 2018). Hence, we associate such practices for top 10 exchanges with maturity level 2. Some interviewees also mention that the exchange participants should become more willing to understand the gains through data sharing in a relevant and secure fashion. No indication regarding the use of performance indicators for many other road FTEs and XRAIL was found (maturity level 1). VIIA+ shows scattered information which like the top 10 road FTEs shows information regarding the performance of the exchange; however, it is also not conclusive. It may be possible that these analytics are exclusively available to participants of the exchange (maturity level 2). More research is required in this regard for road FTE, rail and multimodal FTEs. It does appear though that when they function only as load boards, operational efficiency can be difficult to measure.

The learning for the freight transport industry is that some kind of regulation for freight exchanges at EU level to report on their contribution to the reduction of CO₂ emissions can be helpful. Further, this information should be standardized to support comparison on service efficiency and relevant information should be publicly available, both at national and EU levels. This contributes to market efficiency enabling dispatchers and forwarders to better make trade-offs between two or three exchanges in their search for transport services. Also, standardization of freight papers and customs clearance can enhance process efficiency and improve the basis for data analytics.