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Matthais Raith is showing Europe that railroads can be a growth industry. The 53-year-old native of Kaiserslautern runs a private German railroad company called Rail4Chem, which specializes in transporting hazardous chemicals, including sulfuric acid and paraffin. At a time when most state-owned rail-freight companies are losing money and customers, Raith's sales have almost tripled in the past two years, to €24 million.

Rail4Chem was founded by the chemical giant BASF in 1999 after it bought a polyurethane and fertilizer plant in eastern Germany, only to find that state-owned Deutsche Bahn (DB) wasn't able to cater to its just-on-time production schedule. At the time Germany, acting ahead of many of its neighbors, had begun allowing private freight operators to move their goods within the nation on state-owned track, so BASF set up Rail4Chem.

The railroad unit was spun off in 2001, and has since been run by Raith, a former state prosecutor who switched to business mid-career and spent years trying to revive industrial companies in eastern Germany. BASF remains an important client, but Rail4Chem also moves chemicals across Europe for other companies. Business is so good, the company has expanded its fleet from four to 14 locomotives. One of its selling points: unlike DB, which still controls more than 90% of the freight market, Rail4Chem guarantees arrival times. Raith says his trains have been late just three or four times since 2001.

Living up to the guarantee is no small achievement. Getting permits to cross borders involves kilometers of red tape; Raith calls it "an unbelievable adventure." For historical reasons, each E.U. nation has different safety requirements, permits, electrical and signaling systems and procedures for licensing drivers. Unlike aviation, international rail does not even have a universal language. The result: "At every border you need to change engines and personnel," Raith says.

Even with challenges like these, Rail4Chem represents a real threat to DB's business. Raith says DB has aggressively cut prices for chemical transport in an effort to compete. A spokeswoman confirms that DB has been "passing on cost reductions to its clients." Responding to the competition, it has also expanded its service of chemical cargo trains, and struck deals with rail-freight operators in France, Austria and Switzerland to offer the sort of international service that Rail4Chem has been fighting to provide. Meanwhile, Raith has no choice but to buy electricity from DB's energy division, which sells it to him at 37% more than DB pays. Raith and others have complained to the nation's cartel office.

Following the tracks laid down by pioneers like Rail4Chem, more than 20 such private operators now run freight services — and some local passenger trains — in Germany, and other companies have sprung up to provide them with services. Included is a company based in Mannheim called MEV which rents out drivers and train personnel — some of whom have been trained to operate in more than one country. Since it started in 1999, MEV's staff has grown from 50 people to 250, and sales have tripled to 325 million. "It's an incredibly exciting market," says Klaus-Peter Häusler, the co-chief executive. Where does he find all those drivers and train staff? Simple: they're people who have been laid off by DB.

• PETER GUMBEL
• Rail4Chem finds the right chemistry