Peer review: Philippa Edmunds
Freight on Rail Manager,
Campaign for Better Transport
N
ick Gallop takes a humorous and vivacious look at some of the challenges and opportunities facing the rail freight. sector.
Rail freight is successful. In her speech at the Railway Engineers Forum conference in June, Rail Minister Claire Perry not only applauded the remarkable success of rail freight, she also stated that she wants to know what rail freight needs from the Government. Given that the attitude of Government to rail freight is so crucial to the industry - it controls policy that dictates whether there is open access to the network, whether major infrastructure upgrades are funded, and whether there is a level playing field with road freight in transport policy - this request for information is most welcome.
I would start by saying that the Government needs to provide a stable and consistent framework so that the industry has the confidence to continue to invest (the rail freight industry has invested over £2 billion in equipment since 1994). This means stable access charges and a consistent and positive approach to infrastructure investment.
Freight needs must be considered in any Network Rail restructuring, including regional devolution. National commercial and competitive freight services need national access, timetabling and possession planning. The vast majority of rail freight flows cross regional boundaries, so any restructuring and devolution should take freight’s needs into account.
The latest Rail Delivery Group (RDG) figures show that rail freight generates £1.6bn in economic benefits to the UK economy and carries goods worth over £30bn, ranging from high-end whiskies and luxury cars to supermarket products, steel, cement and coal.
Drilling down into more detailed figures, consumer freight has increased by 30% in the past ten years - it grew 5% last year and is forecast to grow four or five-fold in the next 20 years with supportive Government policies.
Rail freight, which offers a key service to the construction industry, has experienced an upsurge in rail-borne demand for aggregates and cement to supply building materials for infrastructure and housing. Construction traffic increased by 10% last year and is forecast to grow at 2.5% per annum - 40% of London’s raw materials are transported by rail.
Nick alludes to the “spectacularly bullish forecasts” contained in Network Rail’s Freight Market Study. It should be recognised that these industry-agreed forecasts reflect an unconstrained network, and highlight the significant opportunity that exists to grow rail freight volumes.
Analysis by KPMG for the RDG suggests that if rail freight grows in line with forecasts, the benefits to the UK economy will be significant - potentially delivering over £4bn per year in environmental, congestion and productivity benefits. However, for rail to grow in line with these forecasts further significant investments will be required from all parties - freight operators, government and end-users. Stability in the industry is required to create an environment that supports this investment.
The Government also needs to adopt a holistic approach and treat all modes equally if society and the economy are to get a fair deal. Because HGVs are so heavily subsidised and pay less than a third of the costs associated with their activities, it is difficult for rail to compete, especially in the consumer market, unless it is similarly compensated. We therefore believe that the Government needs to recognise road costs - such as road congestion, road collisions, road damage and pollution - in any discussion about rail freight costs.
The latest research commissioned by Campaign for Better Transport (Addendum to Metropolitan Transport Research Unit 2014 report, Heavy Goods Vehicles - do they pay for the damage they cause? February 2015), and which used Government values, found a high level of distortion of the market across modes , equating to an annual subsidy of around £6.5bn.
The latest revelations show that there is a strong case for equivalently supporting rail through lower rail freight access charges and continued upgrades to the Strategic Rail Freight Network and other key routes, in order to allow rail to compete more fairly with HGVs.
Otherwise, HGVs’ external costs - those that HGVs impose on others that are not included (internalised) in their normal operating costs - will continue to be a huge problem to society and the economy. These conclusions are in line with an MDS Transmodal study that found a very similar amount (£6bn) of underpayment (page 22 of The impact of road pricing on freight transport in Great Britain: A study for Transport 2000 by MDS Transmodal, June 2007).
This is where the current grants regime, Mode Shift Revenue Support (MSRS), has been very successful. Rather than being, as Nick states, a “pointless merry-go-round”, it is a means of supporting targeted rail freight flows that would otherwise not be viable, recognising the unpaid external costs of road and the environmental benefits of reducing lorry movements.
At a benefit:cost ratio of 5:1, the scheme buys the net externalities of that traffic had it gone by road, although the externalities of HGVs remain unpaid. And the scheme is perfectly risk-adjusted, as it is paid only on actual containers removed from roads.
MSRS offers real value for money - it receives annual funding of around £19 million, which buys externality benefits of about £100m.
The new role of the Office of Rail and Road in monitoring how well Highways England (HE) is delivering against the performance specification represents a key opportunity to improve integration between the different freight modes. ORR, which says cost transparency is necessary to support effective decision-making, already has core skills in assessing performance that it can use to analyse outcomes on HE projects, set benchmarking, and monitor expenditure against budgets to allow more scrutiny.
The ability to compare costs and subsidies across both modes would be very valuable, as it would enable the Government to fully compare the costs and benefits of different modes, social outcomes and opportunities for efficiency. The Government could deliver its policy on a balanced playing field recognising the value equation between freight subsidy and the direct and indirect benefits to the UK economy. Decisions that influence modal shift and modal share will have an impact on actual costs of that provision. In previous Periodic Reviews, the potential for traffic to convert from rail to road has only been assessed as part of the economic analysis, yet the impact on the road network of such a move has been limited only to social benefits.
The importance of supportive spatial planning at national, regional and local levels cannot be overstated. The strengthened SRFI policy in the NN NPS should enable applications for Strategic Rail Freight Interchanges (SRFIs) to obtain planning permission, as rail freight volumes cannot be significantly increased without more terminals in the right locations with good rail and road connections.
SRFIs are so important because they reduce the costs of transhipment, thereby making rail more cost-effective compared with road. They also provide added value with warehousing and consolidation facilities.
As well as investigating the options to bring trainloads of freight into rail terminals (as the Euston trial showed), developing rail-connected consolidation centres on the edge of conurbations, with the last-mile deliveries being provided in low-emission (ideally electric) vehicles, is the way to reduce carbon dioxide and nitrogen oxide emissions in cities.
Nick’s dig at drivers, saying that they might want to put their feet up in a passing loop, is unfair. But he does touch on one of the key challenges facing the sector. Journey times are recognised by both customers and operators as being an important issue for the industry. Not only do low average speeds reduce productivity and increase rail freight costs, they are also seen as a key barrier to increasing rail’s modal share and growing rail freight volumes.
Rail is a more complex mode than road, and in order to grow rail freight volumes and develop new business to rail we need to make it simpler. We therefore support Nick’s aspirations to see interactive mapping of network capabilities and greater transparency of timetables. We hope that the continued development of the Digital Railway will enable more funding to be allocated to freight schemes, to ultimately help drive business onto the railways.
Nick also rightly trumpets the importance of the Strategic Freight Network in delivering improvements in the capacity and capability of the rail freight network through a series of gauge enhancements and train lengthening schemes. Targeted rail freight upgrades work - for example, rail’s market share out of Southampton port increased from 29% to 36% within a year of completion of the gauge upgrade (Financial analysis - £70.7m project having a Net Present value of £376m).
However, in the meantime, recognising that rail upgrades are expensive and take time, all parts of the industry should be working together to achieve better overall optimisation of the current timetables to include capacity for freight and passenger services.
An example of this is Network Rail’s Nodal Yards initiative, which provides critical recessing capacity for multiple rail freight services - effectively performing a ‘path buffering’ function at the intersection of key route sections. Featuring a timetabled ‘yard plan’ (akin to a platform occupancy plan for a major station), they enable the realisation of additional staged paths for freight flows that typically traverse multiple route sections.
Additionally they offer an off-main line location to effect crew relief or locomotive changes, and have a role to play in more effectively managing freight traffic circulation during network perturbation. Network Rail’s newly remodelled Ipswich nodal yard is already fully operational, with a site at Wembley recently established and further sites planned nationwide.
Nick discusses the option of using Network Rail infrastructure services to develop new wagonload traffic. While it should be noted that this traffic is operated by the freight operators on behalf of Network Rail, the merits of doing this are open to question. Many of these services deliver material to Network Rail infrastructure depots away from large conurbations, which might make the commercial viability of doing this doubtful. Instead, all stakeholders need to focus on their strengths, work together and build a stronger and more efficient sector. Road and rail can complement each other - rail is well placed to offer long -distance trunk haul with far less adverse impacts on society, the environment and economy.
While we recognise that road and rail freight must work together to deliver efficient logistics for the UK, all HGVs’ external costs must be taken into account when examining options for rail freight costs and charges, and decisions around capacity. Therefore, we urge the Government to provide longer-term affordable track access charges for Control Period 6 (2019-2024) and beyond, to give operators and customers certainty to invest.
