Sunday 23rd Oct 2016 - Logistics Manager

Off the rails

The increase of 9.5 per cent means that rail freight has grown by 60 per cent since 1995, and that the amount of freight moved, measured by billion net tonne kilometres, is at its highest level since 1977.

All that sounds like very good news. After all a huge amount of work has gone into developing rail freight from its low point in the 1990s.

However, it still only represented 13.6 per cent of the amount of freight carried by road in 2004. Lorry traffic in 2004 amounted to 152 billion tonne kilometres. It has only grown by 5.5 per cent since 1995 but that equates to eight billion tonne kilometres.

Clearly rail is still very much the poor relation. Despite all the fine talk of boosting rail freight and the huge amounts of money being shovelled into the rail industry, it is the passenger side that, overwhelmingly, is benefiting.

In July last year, transport secretary Alistair Darling set out the government’s objectives for freight. He started by saying that the 80 per cent growth target set out in the 10 year transport plan five years ago was never actually meant to be a target but a “potential” growth forecast.

“In fact, although it is now recognised that the 80 per cent forecast is unlikely to be met, growth in the rail freight market has been impressive. Rail freight is a thriving and competitive private sector industry, and since privatisation (1995), levels of freight moved have increased by 55 per cent (measured in tonne km). Rail freight’s market share also increased over the same period from 8.5 per cent to 11.5 per cent,” he said.

“Rail freight companies run on the same tracks as the publicly-specified passenger railway – therefore, government has to be mindful of their needs. And government recognises and wishes to encourage the important environmental and economic benefits that rail freight can bring.”

However, there was little in the way of new concrete initiatives. Darling said the government would ensure track access charges were affordable for freight; ensure grant funding was targeted to deliver the maximum benefits for reducing congestion, pollution and accidents; and work with the industry and Network Rail to establish how freight growth could be accommodated on the network.

In fact, it appears that the government is now dependent on the industry for forecasts future rail freight levels. It used to be the SRA to do this work but since that was abolished it has been left to the Freight Transport Association to step in. The government, it seems, is too busy worrying about all the money it is spending on passenger services (although, say industry sources, it is willing to listen to the industry case for rail freight growth).

The FTA has joined forces with the Rail Freight Group and is using MDS Transmodal GB freight model to produce its forecasts. Andrew Traill of the FTA says the benefit of this is that it is rooted in the methodology adopted by the Department for Transport in its 10 year plan for transport. In addition, it allows new factors to be included such as the development of new port facilities.

The FTA/RFG forecasts for future demand for 2014 for rail freight are 144.7 m net tonnes lifted, compared with 113.1 m net tonnes lifted in 2003. The results show an overall increase in net tonnes moving by rail from 2003 figures of 28 per cent by 2014, representing 145 million net tonnes.

The most notable increases are seen in maritime containers moving by rail (up 90 per cent to 21 million net tonnes), and domestic intermodal/wagonload traffic increasing from 900,000 net tonnes to 4.7 million net tonnes. Most sectors are forecast to grow in the coming years with the exception of ore traffic, waste and automotive rail freight which would generally remain at 2003 levels.

The aim of this work is to influence Network Rail which is currently working on a study on utilisation strategies for the rail network. Transport secretary Alistair Darling is expected to announce the results of this work in the late spring.

Traill points out that there are debates now going on over priorities and there is a need for more work how to assess the value of each passenger using the rail network as opposed to each piece of freight. The work also feeds into the regional freight strategies that regional assemblies have to produce.

However, proposals to put more freight trains on the tracks inevitably run into conflicts with the passenger train operators who are not at all pleased at having slow freight trains getting in the way of their shiny new expresses.

Where there are competing interests, government focus is more likely to be on the passengers therefore the rail freight industry has to make the strongest possible case just to get heard.

It is clear that the growth in the market is being driven by industry with the government adopting an attitude that amounts to little more than benevolent neglect.

It’s about time it took on a more proactive stance in developing freight on rail.

As a history graduate, I’m maybe more aware than most of the adage that to understand the present it’s often first necessary to examine the past. It certainly holds true with this particular subject for a number of reasons, so, with a passing nod to my tutors, I’ll attempt to enlighten.

Robbie Burns, in the days before he spent his time distributing rhetorical questions in the form of a survey, was credited (certainly by himself and maybe also by a few others.) with inventing the term “contract distribution.” In the mid/late 1980s many of the UK’s leading manufacturing companies were contracting out their transport and warehousing for the first time, and accordingly the roots of the huge 4PLs of today can be found in the merger and acquisition trails that began to the sounds of Duran Duran and Spandau Ballet in their heyday.

From a transport perspective this was a major revolution – bridging the gap between traditional general haulage and own account operators. These were halcyon days for those of us fortunate enough to be within the transport contract distribution marketplace. Your average own account operator (and therefore sales target) ran liveried vehicles with overpaid, heavily unionised drivers, on a single shift basis, often from one depot location and with no thought of filling empty return legs.

It therefore wasn’t difficult to sell the benefits of double shifting equipment, outbasing at depots within an existing national network, and earning backload revenue. This was also in the days before TUPE – so ensuring drivers were fairly but not excessively remunerated was extremely straightforward. Most importantly, nervous virgin outsourcers generally wanted very little if anything subcontracted, and their name to stay on the side of the truck – so most of these deals were done on an open book, cost plus management fee basis.

As the Stone Roses and the Happy Mondays hit the charts in the early/mid 90’s, Robbie’s revolution had morphed into “Contract Logistics.” Unfortunately the customers were also wising up ! Open book became increasingly identified as “open cheque book” where regardless of how badly an operation was run, the service providers margin was secure. Increasingly, therefore as contracts were re-tendered they became closed book – reverting in the process to a more traditional haulage rate formula. Further, the customers no longer saw value in liveried equipment, and they became much more focused on cost, as the delivery of service about which they had previously worried, was now historically proven and hence viewed as being a given.

By the time of the arrival of late ’90s Britpop, the trickle of changes evident in the early ’90s had evolved into a flood. The jargonbusters were getting to grips with the phrase 3PL, and the 3PLs had a major issue with their UK transport operations. Simply put, closed book meant that all the risk involved in using the equipment properly, and hence making a margin, had transferred to the Logistics Provider, and matters were made even worse because the rates available for taking this risk had by now been suppressed through several competitive tenders. What was more, the customers’ customer – the retail giants – were piling on the pressure, fast turning every 3PL money making avenue into a cul de sac.

Incredibly, by the time we first heard Coldplay, the 3PLs were back having to think like hauliers – and it wasn’t happening ! One by one the major players curtailed or simply stopped operating their domestic ambient transport network businesses. Quite rightly, they recognised that there was less risk and hence more profit in the temperature controlled market, in warehousing and in expanding their core products into other added value arenas. At the same time globalisation had arrived – facilitated by the internet, and we saw the establishment in all sectors of a growing number of massive world-wide businesses. The big players were quick to capitalise on they once again rebranded – this time as 4PLs.

So now we had a market in which 4PLs could service a global supply chain using their management expertise, proven IT and where appropriate some of their own assets. This concept was a major departure for them – and one where massive value was provided to their huge multi-national customers. However, where this left the big players in the domestic UK transport market was much less clear – as their networks were by now at best greatly reduced, and at worst non-existent. This situation was, of course, a considered response on their behalf to the financial losses they had previously suffered, however it was also incumbent upon them to find an alternative domestic transport solution, since anyone who didn’t would otherwise effectively exclude themselves from domestic new business opportunities that required both transport and warehousing capabilities. Their solution was to extend the 4PL concept into the UK.

So how does this work? Effectively, the 4PL becomes a management and IT service provider, and through a combination of personal contacts, the internet and pot luck subcontracts traffic on behalf of their customer. Clearly they also take a fee for providing the service and to support their substantial levels of corporate overhead. As a result of the fact that they are usually filling backhaul capacity, however, they generally buy the haulage very cheaply, and within the right environment (ie non time sensitive, with an undemanding customer base and few administrative requirements for things like pallets, PODs and returns control) it can be an effective proposition.

As can be seen above, however, for the 4PLs to be positioning this as being a viable product in their traditional FMCG market, is little short of laughable. The lack of operational reliability and control, the massive administrative shortcomings, the absence of legal, health & safety and hygiene controls, and the concept’s total reliance on assets that the 4PL do not own will simply not cut it with manufacturers who are now under remorseless pressure from their retail customers.

So the next time you read or hear about one of the big 4PLs offering a domestic ambient transport product ask yourself whether any sane logistics director would commit his business to a transport solution that is provided by a high tech clearing house? Presumably only when he doesn’t get past the smoke and mirrors provided by the latest generation of sharp suited business development managers, who by now have the Arctic Monkeys on the IPOD!