New charges for rail freight operators

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The Office of Rail Regulation is introducing a new package of charges for freight operators to access the rail network, to be introduced from 2016, saying they would balance freight costs more fairly between businesses, taxpayers and passengers.

ORR estimates that, on average over the period, the increased charges represent between three and five per cent of the price of a trainload.

The Rail Freight Group has expressed disappointment at the ORR’s conclusions. It reckons that the variable access charge, paid by all freight traffic, could increase by up to 23 per cent on today’s level.

Following a consultation and analysis, ORR found that rail freight saved 6.7 million road journeys in 2007-08. However, it creates costs of £280-400 million each year through factors such as the wear and tear on the tracks.

Currently freight companies only pay a small proportion of those costs, around 21-28 per cent, with passengers and taxpayers covering the shortfall. Freight train operators currently pay minimal fixed costs, whereas in 2011-12 passenger train operators paid £887 million in fixed charges to Network Rail.

Following input from the rail industry and its customers, ORR will:

* set a maximum cap of £1.68 per 1000 gross tonne kilometre on the average variable usage charge that freight operators will pay to access the rail network in Control Period 5 (CP5). ORR expects the final charge to be lower than the maximum cap as part of its final assessment for CP5;

* introduce a new freight specific charge, payable for the haulage of coal for the electricity supply industry, spent nuclear fuel, and iron ore – all commodities that cannot easily or economically switch to road. For ESI coal, the charge will be capped at a maximum of £4.04 per 1000 gross tonne mile; for nuclear fuel the charge will be capped at £11.64 per kgtm; and for iron ore at £2.96 per kgtm;

* implement the new charges gradually to enable a smooth transition and to enable businesses to plan accordingly. The freight specific charge will not be introduced at all until 2016-17 and will then be phased in gradually over three years so that the full charge will be payable in 2018-19, allowing businesses time to adjust. ORR estimates that on average the overall price increases a customer will pay for the affected products will be between three and five per cent.

The RFG acknowledges that ORR has pulled some of the proposals in its original consultation, including geographic charging, and even higher possible tariffs.  The decision to phase in the freight specific charge is particularly welcome. 

Maggie Simpson, RFG executive director, said: “The rail freight sector is committed to increasing its efficiency and contributing to a lower cost railway.  But significant increases in access charges – such as the potential 23 per cent rise for all traffic – risks destabilising the sector and forcing business back to road. 

“ORR has made some welcome decisions, but the overall package of conclusions does not give the comfort and confidence necessary for rail freight to fulfil its potential in the next five year period.  We will be pressing ORR and Network Rail to ensure that a more satisfactory position can be reached by the summer.”

Chris MacRae, the Freight Transport Association’s rail freight policy manager,  said: “This is bad news for rail freight, for British industry and for the environment. At a time when the governments in Westminster and Holyrood are investing £200 and £30 millions respectively to enhance their rail networks for freight, it is ironic that ORR is pursuing a policy of increasing the costs for freight to use the rail network. This is in contrast to previous policy that has been to reduce these costs – a policy that helped stimulate rail freight growth.”

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