Monday 24th Oct 2016 - Logistics Manager

Uncertainty and confusion continues

How things can change from one of optimism to one of pessimism and uncertainty in such a short space of time. Recent official announcements concerning rail freight and its future priority in transport policy, which many find complicated and confusing, has been responsible for generating bad feeling – a sense of betrayal and mistrust in some quarters.

At the heart of the matter is a loss of confidence in the Government not delivering on its promises for rail freight and the thought that the private sector may have been led up the garden path. In reporting the events most of the national press and TV coverage focused on passenger rail, with scant attention given to the rail freight sector.

It all sounded so simple back in 1998, when the Government launched its transport white paper, A New Deal: Better For Everyone. The Government declared a strategy for delivering a modern, safe and reliable transport system. Back then there was general consensus that alternative transport modes, especially rail, needed to be promoted and supported to relieve the ever-worsening congested roads. So far as freight was concerned the buzzwords were sustainable distribution.

Significantly, rail was to play a major role towards the achievement of that objective. A few years later the Government launched its Ten-Year Transport Plan, setting out a £180Bn investment programme covering all forms of land transport. Specifically, the rail freight sector was set the task of achieving an 80% growth rate in the coming decade.

As for the future of rail freight, there was a high degree of optimism. The private sector, which included train operators,developers and users, responded in a positive manner towards the Government’s transport policy on rail freight. For example, operators such as English, Welsh & Scottish Railway (EWS) and Freightliner, invested more than £1Bn in modern locomotives, wagons, terminals and state-of-the-art systems.

Additionally, third-party logistics providers and users attempted to re-engineer their supply chains to ensure greater sustainability in the future. Large high street companies, such as Asda, Safeway, Superdrug and Marks & Spencer, were newcomers to the industry and demonstrated how rail freight could provide just-in-time (JIT) logistics solutions for the fast-moving consumer goods market. Logistics company Exel committed to investment, time and effort in developing a mini-modal freight train to operate between large distribution hubs.

Furthermore, for rail freight to be successful it was essential that a network of new generation rail-linked freight interchanges be developed. This meant further millions of investment in submitting planning applications for the London International Freight Exchange (LIFE), London Gateway, Trafford Interchange and Dibben Bay. According to the Railfreight Interchange Investment Group (RIIG), an organisation headed by the five leading UK developers, these large-scale freight interchanges, if given the go ahead, are worth more than £2Bn to the UK economy.

For some, the first crack in the Government’s commitment towards rail freight appeared last year when LIFE’s planning proposal was rejected (see Logistics Manager November 2002). LIFE’s project was to be located to the west of Heathrow Airport, providing a major rail freight interchange for the South-east and direct pan-European links. While LIFE was rejected the go-ahead was given for the building of Terminal Five, which raised some questions about priorities in transport policy.

Last year, the Government also announced a £5.5Bn funding package for the roads building programme and acceptance that road congestion levels would continue to increase. This was despite the massive planned extra expenditure. This was not good news for the rail sector, and seen as further evidence that the Government was abandoning its committee-men to rail.

However, a more serious crack has appeared recently in the commitment towards rail freight, this time leading to the current heated debate and controversy throughout the industry. The subject concerned the non-ending saga of funding for the rail network. A key player is the Strategic Rail Authority (SRA), the Government’s organisation that serves as the paymaster for the railways, and which formally came into being in 2001.

Originally, it was estimated that around £3Bn per year would be required to fund the railways, passenger and freight. However, following the Hatfield derailment in 2000 this figure was urgently revised. Hatfield also lead to the demise of Railtrack, which was replaced by the non-profit organisation Network Rail.

In March 2003 Network Rail announced that the cost (to taxpayers) of running the railways would double to £6Bn per year. To cover the ten years up to 2010, the SRA had budgeted for £33Bn to fund the railways. But in September 2003 Network Rail indicated that it would require £35Bn to cover the next five years, a figure later reduced to £25Bn, in service levels, maintenance and performance standards were to be met. In short, a funding crisis was in the making.

Various solutions and options were proposed to the funding issues. For example, there could be an increase in track access charges, fares could be raised (strictly limited), seek higher subsidies or introduce cutbacks. From a freight perspective it was the last point that sparked the row with the rail freight industry. In September the SRA’s draft Network Output Statement called for reduced maintenance on freight and secondary rail lines.

If implemented this action could potentially reduce freight capacity, reliability and lower performance levels. There were suggestions from the SRA that around £700M a year could be saved from the maintenance budget by closing lines for weeks, while tracks and signals were replaced, and by spending less on secondary and rural lines and to ban freight trains from using parts of the passenger network. In short, priority would be given to maintaining rail passengers, and a much lower priority given to rail freight.

The leading rail freight organisations were not slow in responding with their concerns and criticism. The reasons were simple. If implemented, the SRA’s proposals would have massive repercussions on the rail freight sector – and possibly destroy future confidence in rail fright capabilities.

Initial responses from rail freight users varied from incredulity and betrayal, to threats of unprecedented legal action against the SRA. For example, the Rail Freight Group (RFG), the rail freight industry representative body, complained that the SRA had not taken proper account of the views of the industry. According to the RFG, rail freight is essential for the economy and a vital part of environmental policy. It has recently launched Freight on Track, a campaign programme designed to inform opinion and decision makers and seeks greater support for rail freight for the following reasons: –

  • Rail freight keeps power stations supplied with coal, supports the important steel and automotive industries, takes exports form the regions to market and supplies cities with material and goods.
  • It is essential to the efficiency of ports, which without good rail links would become backwaters losing their direct calls on the global circuit and being supplied only by feeders, while ports such as Rotterdam and Hamburg capture the global market.
  • The rail freight industry helps reduce the number of lorries on the road network, making a positive contribution on congestion for other road users.
  • Freight by rail has lower harmful emissions per tonne/km than the cleanest lorry, reducing global warming and other environmental impacts.

The Freight Transport Association (FTA) has also been critical of the SRA’s latest proposals, maintaining that the rail network must support industry’s logistics requirements, now and in the future. Indeed, it is widely acknowledged that the industry had already been shaken following the rejection of the LIFE proposal earlier in the year. The fear of downgrading rail freight has only fuelled the uncertainty and confusion felt by many in the industry.

The result was that in October 2003 a consortium of freight interests, which included the RFG, FTA and Confederation of British Industry (CBI), joined forces and adopted a focused approach to the issue. The first measure was an agreement on a five-point declaration which would be sent to the SRA.The declaration set out the information required to allow customers to understand the implications of the SRA’s proposals. The declaration pointed out the degree of frustration among customers and operators in the way the SRA has consulted the industry over its proposals to re-categorise the national railways network, resulting in freight-only lines and rural lines being down-graded for investment and maintenance.

The consortium, in its five-point message to the SRA and Government, wanted: –

  • Detailed justification of the costs and benefits quoted by the SRA alongside publication of its freight models and planning assumptions.
  • Urgent clarity on which routes could be affected and the scale of downgrading which could occur.
  • Urged the SRA to meet with rail freight customers and operators to discuss concerns with them before the end of October.
  • Called upon the Government to confirm continuing support for a growing rail freight industry and reassurance on the security of existing investments made by operators and their customers in rail freight assets.
  • Sought reassurance that unpopular decisions are not being rushed through without proper engagement with the industry.

In October, more fuel was added to the flames when the Rail Regulator, Tom Winsor, sent a letter to the SRA about its strategy and demanded it supply him with information for the review of how much Network Rail can charge the train operators. Furthermore, his letter pointed out that the SRA has no powers to determine the manner in which Network Rail carries outs its maintenance and renewal activity. The Rail Regulator not only rejected the SRA proposals on cost-cutting measures regarding the freight sector, but also called for an extra £1.5Bn a year from the Government to fund the rail networks.

Needless to say many involved in the logistics industry will find the recent controversy surrounding rail freight both complicated and confusing. If so, there is the risk of customer confidence being eroded. Also, there is the danger that rail freight may be eliminated from future strategic supply chain plans, especially among the larger logistics users. There is also a risk that developers may begin to revise their plans for the building of new rail-linked freight interchanges. Equally, those industry sectors which have already committed to rail freight, may feel somewhat uneasy about further commitment.

Those parties with an interest and involvement in rail freight are anxious and keen to see a continuing Government commitment towards a consistent, coherent and sustainable rail freight policy. This is necessary to maintain private sector involvement. It is for this and other reasons that the key industry organisations are seeking full clarification of official transport measures to ensure confidence in the future of rail freight is fully restored.

Frank Worsford works in the transport studies group at the University of Westminster.