The possibility of a strike on the French railways has re-emerged as the new President Nicholas Sarkozy, seeks to embark on his reform of the public sector.

Mr Sarkozy is about to launch his campaign to reform the pensions and other benefits of government employees. Central to this is the early retirement package that the employees of the French railways have enjoyed for many decades. Not only do they enjoy large pensions, but the retirement age is 50.

Railways workers have been staunch in their defence of these privileges. In 1995 the rail workers union brought the country to a halt, stopping the Paris Metro as well as the railway. They did so again in 2003, breaking the previous government's reform policy.

However Sarkozy knows that walking away from the problem, as the last government did, is not much of an option. Nothing typifies the issue as much as SNCF and its freight transport arm, SNCF Fret. SNCF Fret is in poor shape, losing money and market share. Although the world regards French railways as a triumph, its commercial state is parlous. Freight volumes have fallen over the past five years by over 25% as road and short sea shipping take market share. In addition EU reforms on deregulation of markets have opened the French rail market to private sector freight companies, which are also taking market-share.

Key freight customers have sought to reduce their dependence on SNCF Fret and one of the key reasons for this is their unreliability. Fundamental to this problem is 'demarcation' between drivers on the passenger's services and those on SNCF Fret. Too often Fret services are cancelled either to divert drivers to passenger services or because staff do not turn-up for work. Strikes simply compound the problem.

To survive as a viable enterprise SNCF Fret has to change its working practices and transform its competitive position. Succeed or fail SNCF and other state organisations in France face a critical few months.