Let railfreight play to its strengths
28 November 2016 | Author: Jim Steer,  Director, Steer Davies Gleave

When you lose 78% of your prime market in a single year, you have to make cuts. For DB Cargo (formerly known as EWS), the UK's largest railfreight operator, 30% of its workforce will go, as coal traffic (and to a lesser extent, steel) has disappeared.

Freight train movements in Britain have almost halved over the last ten years. True, intermodal (container) traffic continues to do well. But this level of market volatility – lying beyond the control of operators – will reduce confidence in projects designed to help secure railfreight on a congested national network dominated by passenger traffic.

It makes the DfT's Rail Freight Strategy, published a month before the DB Cargo announcement, an important summary of the state of play. It wrote about railfreight's 12% market share nationally in 2015, and an estimated £1.6bn of productivity and decongestion benefits it brings.

Reactions to DB Cargo's plight have been muted, with union leaders suggesting the company should have seen it coming (it did, but thought the decline in coal-fired power station traffic would be more gradual) and rail lobby groups saying it is time to get the road haulage sector to pay its full costs through additional carbon taxes. There is surely slim chance of an additional tax burden on road haulage given the fragile state of the economy. Instead we need to consider railfreight's surviving strengths.

The largest railfreight markets are intermodal – both international (largely via the major ports in south east England) and the smaller domestic segment – and aggregates/construction, where the prospects of minimising lorry movements play in rail's favour for the infrastructure programme that lies ahead (Hinkley, HS2, Heathrow and so on). To strengthen rail's role in these still growing and highly predictable markets requires investment to secure the necessary capacity, including for instance on the connections to Felixstowe and Liverpool.

What could emerge is a national network of prioritised freight routes.

For intermodal traffic, modest schemes exist that would allow direct flows from the expanding intermodal hub at Daventry (DIRFT) to Yorkshire and the North East as well as to the South West and Southampton, to create a genuinely national rail-based distribution network. HS2 would be used to create the necessary capacity on the southern part of the West Coast main line. North of Crewe, the already strong Anglo-Scottish intermodal railfreight flows will need another package of measures – as Network Rail has already identified in its Freight Network Study consultation draft in July.

Much will depend on the influence of the new post-Shaw virtual freight "route" at Network Rail when decisions are made on budget allocations for the CP6 and CP7 investment periods. But it is hard not to sense a struggle ahead. Ministers will no longer be able to speak of the huge growth in freight on the "fully privatised" part of the rail sector. Political support could wither, despite the enthusiasm of new rail minister Paul Maynard. If ministers want to provide a stimulus, they can. The DfT, in its recent strategy, recognises that the environmental benefits of railfreight are not reflected in track access charges, yet it cautions against changes that would "distort the market". The mistake is to think that the question of how to capture the full benefits of railfreight (in reduced carbon emissions, better air quality and less road congestion) can be addressed through the level of access charges.

Since railfreight brings wider benefits worth £1.6bn a year, it is quite unhelpful to look to the ORR to reflect them in railfreight track access charges that total only £100m a year. Instead, these wider benefits should be reflected in a new grant regime to provide a stimulus for railfreight without market distortion. This could be a big scale-up of the existing "mode shift revenue support" (available for rail freight and water transport), which has an estimated benefit-cost ratio of over 4:1, from its existing paltry level of around £20m a year. A less restrictive application of the grant could easily balance out today's level of track fees paid by railfreight.

And how should this be paid for? Two changes would bring real cash savings to the rail sector. One is ending rail-freight's "right to roam". Freight would be carried on a designated network – although freight rights on other sections of line could be obtained, provided they were paid for. This would prove to be a major financial saving.

And the second change – one that would strengthen the environmental credentials of an extended grant – would be an obligation to use electric traction on long hauls of freight on electrified lines, saving some of the capacity enhancement expenditure ahead. Diesel-hauled freight trains are much slower than electric-hauled and eat up much more of the potential capacity for passenger trains. In other words, this would be a railfreight stimulus grant that will pay for itself in cash terms.

Reference: Transport Times November 2016 Issue

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