Data of the week: How much is DAC really going to cost?

The Digital Automatic Coupler (DAC) is probably the most controversial new technology in European rail freight. It is hailed by some as the saviour of the sector, and criticised by others as certain bankruptcy for the industry. The key point of contention is the question of costs: What does Europe need to spend for DAC’s full-scale implementation?
The European DAC Delivery Programme (EDDP), a coordinated effort to implement DAC all across Europe, is clear: shippers, manufacturers, wagon keepers, railway undertakings and infrastructure managers all stand to gain in various ways from a full implementation of the technology. As its name suggests, DAC is mostly known for automating the coupling of wagons and locomotives.

Yet, EDDP does hint at some requirements to make DAC a success, which is not a priori guaranteed. Among those requirements are coordinated migration plans, funding and financing models. It is exactly the issue of money where controversy is abundant.

For the rail freight sector, a key priority in the coming years will be to reduce costs and improve profitability. As it currently stands, the industry is barely profitable (if at all). The introduction of new technologies causes some anxiety among companies, who are afraid that higher costs will force them to charge higher prices, ultimately making them lose valuable customers. For this reason, the cost of DAC is a vital factor determining the support of the rail freight sector for the technology.

Existing estimates

There are various sums of money circulating as regards to the cost of DAC. Those range from several billion euros to a couple of dozens of billions. What sets the cost pictures apart is how much of the likely expenditures they incorporate in their estimates, as well as the base version of DAC to be implemented.

According to EDDP’s DAC factsheet, a total of 8,5 billion euros would be needed to migrate Europe’s 500,000 freight wagons to DAC. That means that the cost per locomotive would amount to some 17,000 euros. This number does not yet include the retrofitting cost for locomotives, which is expected to also comprise a significant part of the total required investment. That cost estimate is on the low end.

The versions of DAC

That has to do with the base scenario that EDDP envisions: the implementation of DAC type 4 (DAC4). DAC4 includes automatic air pipe, power and data coupling, ECP brakes and partially automated uncoupling. By contrast, DAC3 does not yet include data coupling, whereas DAC5 adds full-fledged remote uncoupling. The higher the DAC version, the more technologically advanced and therefore expensive.

An early study by EY and Ineco (2023) estimated the cost for DAC migration to be around 10 to 11 billion euros. In the short term (first ten years of DAC use), DAC would cost 10,9 billion euros and accrue 8,4 billion euros in benefit. This would apply in the case of an implementation of DAC5 in combination with an automated brake test device.

EY and Ineco did concede that there was still much unclear about the cost of the coupling device, locomotive installation cost and maintenance cost – leaving uncertainty about potential expenditure increases.

It must be noted that the EY/Ineco study foresees substantial benefits in the long term, were DAC5 to be implemented in combination with the automated brake test device, automated wagon inspection and an automated parking brake. The rail freight sector would incur more costs on the short term, but in the long term, benefits greatly outpace costs.

Swiss DAC estimates

The numbers mentioned by EY/Ineco and EDDP could be said to be on the lower side of expectations. According to market sources, Swiss rail freight operator SBB Cargo has said that the cost for a single wagon conversion was around 40,000 to 50,000 euros. When taking into account German rail analyst SCI Verkehr’s estimate of 460,000 necessary wagon conversions, that would already lead to more than 20 billion euros in expenditures for wagons alone. It must be pointed out, however, that it is unclear if SBB Cargo’s estimate envisions DAC4, DAC5 or any other additional investments.

The Federal Office for Transport (FOT) of Switzerland (known to be a very pro-DAC country) in 2023 came out with its own assessment of DAC costs. In one of its CBA scenarios, the implementation of DAC4 would go hand-in-hand with the automated brake test, automated technical wagon inspection, an electrical energy system and communication system. In another scenario, DAC5 would be implemented, together with all of the above, plus an Ep-brake system, a video stream from the last vehicle, automated train integrity control and condition-based maintenance.

Market sources tell RailFreight.com that, in their view, the DAC5 scenario is the most likely cost picture. There would be “no point to implement any lower level”. DAC5 and additional functionalities would yield the highest total benefits, which is also underscored by the EY/Ineco study. During a timeframe of 30 years, it would provide 67 billion euros in benefits, as opposed to 24 billion in costs. Implementation of DAC4 would mean that wagons would need to go back to the workshops again in a number of years for further upgrades, market sources say.

A worst case scenario for DAC costs?

What’s more, FOT’s scenario for “difficult” retrofits (at least for locomotives) will likely come true, according to market sources. That is due to differences in locomotives built in the west and the east, the need for extra power generation on-board, as well as the extra weight that needs to be spread out over the axles locomotives axles, for example.

The result, according to FOT, would be a locomotive retrofitting cost of around 2,7 million euros per unit. In a more favourable scenario, it would only cost around 100,000 euros. These factors have led skeptical rail freight experts to expect a 20-30 billion euro cost picture for a Europe-wide implementation of DAC5.

In short, there is no clear-cut answer as to how much DAC is going to cost in reality. It highly depends on the version of DAC to be implemented. What’s more, the initial capital expenditure is high – meaning that benefits will only accrue over time. That is an obstacle for rail freight companies, which cannot carry that burden on the short term. It seems that DAC can only become a reality with significant, if not complete, EU funding. The fate of DAC and the extent of its implementation likely depend on the vision of EU politicians.