INTRO: After a year that combined massive rail disruption with lower taxes on heavier lorries, Richard Hope asked the Strategic Rail Authority’s Executive Director, Freight, Julia Clarke, to assess prospects for hitting the government’s target of 80% more tonne-km by 2010
BYLINE: Julia Clarke
Executive Director, Freight, Strategic Rail Authority
DESPITE MOUNTING evidence that the structure chosen for privatising British Rail in the mid-1990s was seriously flawed, almost everyone agrees that selling off BR’s freight business to English Welsh & Scottish Railway and Freightliner Ltd has been a success in terms of volume growth. Adequate profits for shareholders are another matter.
On an island where only a small proportion of freight moves more than 400 km, BR had lost business steadily. In 1954, rail and road each carried some 35 billion tonne-km. By 1994, rail had slumped to 13 billion with road shifting more than 144 billion tonne-km.
Due to a breakdown in the collection of rail freight statistics, no official net tonne-km figure is available for the year ended March 31 2001, but it is expected to be close to the 18·4 billion net tonne-km achieved in 1999-2000. This was the highest level for 20 years, and all the more remarkable for representing a modest increase in market share compared to road.
Then came the Hatfield derailment in October 2000. During the weeks of disruption that followed, EWS and Freightliner saw up to 20% of their business switch to road. EWS has recovered most of its traffic since then.
Freightliner is still carrying fewer boxes than a year ago, but this is partly because there are not as many passing through the ports. However, the company has moved into the bulk market within the last year and is thus generating more tonne-km than pre-Hatfield, much of it diverted from EWS.
There is no hard evidence as yet that the remarkable 40% growth in net tonne-km achieved in the four years to 1999-2000 will resume quickly. Indeed, prior to Hatfield there had been several indications that all was not well, and that growth was in danger of stalling.
Since then, taxes on diesel fuel and annual licences for heavy lorries have been reduced, and from February 1 the maximum gross lorry weight increased from 41 to 44 tonnes, significantly worsening rail’s competitive position. Previously, 44 tonnes had been a concession restricted to intermodal traffic to and from rail terminals.
Why did it go right?
Julia Clarke was appointed Freight Director at the Strategic Rail Authority in 1999 after a career in freight. She has no doubt that after decades of decline ’the private sector brought in energy, flair and enthusiasm.’
EWS was essentially the creation of Ed Burkhardt, former President & CEO of the US regional railway Wisconsin Central. Clarke acknowledges that ’the Burkhardt effect was a force in its own right. People had the belief that things could change, so customers were therefore willing to consider rail freight as something that was going to grow and get better.’
And in terms of raw tonnage, it was EWS that counted. Under BR, the Freightliner business hauled nothing but containers, and only recently has expanded into bulk commodities. EWS also inherited Channel Tunnel freight, which had started in June 1994 and at last provided rail with long hauls. For a number of complex reasons, this promise remains unfulfilled with traffic stagnant at barely 3 million tonnes a year.
Clarke says that in those early years ’quite a lot of discounting of prices went on’, particularly for coal going to power stations. Also, ’there was visible major investment’, especially by EWS in 280 locomotives and a commitment to acquire wagons from Thrall if it set up a production line in York. And at that stage, ’there was spare capacity on the railway - we weren’t running up against bottlenecks.’
But she points out that the seeds of future conflict were already being sown. EWS had negotiated an access agreement that provided Railtrack with declining revenue almost regardless of what tonnage was being moved, or where. ’That deal ran for about two years without much complaint from Railtrack’, Clarke recalls, and it ’enabled EWS to market at the margin.’
So what went wrong?
Clarke says that after the appointment of Gerald Corbett as Chief Executive in September 1997, ’there was a growing view at Railtrack that this track access deal with EWS was not as sensible as they thought when they entered into it.’
Railtrack stated in May that the average track access revenue per 1000 gross tonne-km that it received from freight operators had dropped by 47% from £6·04 in 1994-95 to £3·22 in 2000-01. Over the same period, gross tonne-km increased by 40% (Table I).
This issue was brought into sharp focus by an EWS contract to haul imported coal from a former iron ore terminal at Hunterston in Scotland to power stations in Yorkshire, using secondary routes to avoid conflict with inter-city trains on the electrified East and West Coast main lines. The long-neglected track quickly deteriorated, forcing Railtrack to undertake costly renewals on the Settle & Carlisle line, which had narrowly escaped closure in the 1980s.
The outcome is that EWS and Freightliner now claim that they can only remain competitive with road if their access charges are less than half what Railtrack says it needs to compensate for freight wear and tear. And this calculation takes no account of infrastructure enhancements, such as a higher loading gauge to accommodate 9ft 6in containers.
Another indication to Clarke of problems ahead was that ’EWS went through a difficult time on performance, and perhaps took their eye off the ball a bit. Ed Burkhardt left the company in July 1999, I think partly because of shareholders viewing what had happened in those early years in terms of profitability and return on the investment.
’Commitments had been made to investment and growth was following, but profitability wasn’t due to downward pressure on prices as much as anything. So things started to go sour, and operators began to run up against various resource constraints such as line capacity as well.’
Strategy for 80% growth
One of Clarke’s notable achievements was to publish a Freight Strategy in May (RG 6.01 p369) at a time when the ability of Railtrack and the passenger operators to fund and carry out a major expansion of network capacity and quality was seriously in doubt. This made it impossible for the SRA to publish an overall strategy, now expected in November.
Turnover of the passenger business (including subsidy) is around 10 times greater than freight, and it has a far higher political profile. Nonetheless, the government published in July 2000 a 10-year transport plan that allocated £3.4bn in public funding to support rail freight. Matched by a notional £600m of private investment, this is supposed to deliver the official target of 80% growth in net tonne-km by 2010.
Clarke explains that about £1·5bn is for infrastructure enhancement, while the balance of £1·9bn would be paid to operators or their customers as grants. In addition, the Rail Regulator is expected to set freight access charges well below the level of freight costs previously claimed by Railtrack.
This greatly-increased taxpayer support recognises the social benefits of rail, notably in reducing road congestion, maintenance and casualties. Prior to privatisation, overt freight grants averaged £3m/year although there was some cross-subsidy within BR. The current level is around £30m/year, and this is set to become £190m/year under the 10-year plan.
The infrastructure fund will mainly be used to increase the loading gauge to W12 on key routes, allowing 9ft 6in high containers to be carried on wagons with 1m deck height. Connecting the major ports of Southampton and Felixstowe to the West Midlands and the West Coast Main Line is top priority here.
At the same time, overtaking loops and other features that currently restrict train length to around 550m will be altered to permit 750m trailing loads, matching the Channel Tunnel, and 25·5 tonne axleloads will be permitted on some routes currently barred.
A particularly important objective is to create a network of routes rebuilt to the new standards, so that freight can continue to run overnight when closures for engineering work occur. Segregation of freight from fast inter-city trains is driving the planned provision of extra tracks on part of the WCML, and the upgrade of secondary lines parallel to the East Coast Main Line. However, the virtual collapse of ECML upgrade plans (RG 8.01 p491) has put the latter in doubt, and unless freight growth resumes, Railtrack is certain to challenge the need for extra tracks on the WCML.
Competition challenged
Perhaps the most serious criticism by operators of the SRA’s Freight Strategy is that it promotes on-rail competition in a market dominated by road haulage.
For example, instead of paying grants to operators to cover part of their track charges, Clarke is proposing to introduce ’company neutral’ grants. These will be paid to the company (which may not be a licensed train operator) that takes the commercial risk of providing a train.
In the first five years since privatisation, no significant third force has emerged to challenge EWS and Freightliner. Direct Rail Services was set up by British Nuclear Fuels essentially to protect itself against monopoly pricing by EWS of flasks carrying radioactive materials. GB Railfreight was launched in March as a potential freight operator, but at the moment is confined to hauling infrastructure materials for Railtrack.
Freightliner is particularly worried about competition reducing volumes on its intermodal trains, thus undermining its carefully constructed network of connecting services. EWS says the SRA’s strategy should be geared to helping existing operators compete with road, where unit costs are not significantly affected by the volume moved on a particular route.
Clarke believes that ’the most serious weakness [in Freight Strategy] is in our strategy for promoting international business. That’s not because we haven’t given it a lot of thought, but it’s a very complex problem. I am coming to the view that the solution will lie in a significant number of small initiatives rather than any big bang solution.’
Other important features of the strategy that Clarke sees as requiring further attention are information technology where ’we are behind the times’, and the development of markets in wagon and locomotive hire. She says a wagon hire market ’used to be there but it seems to have contracted. If we’re going to get more short term opportunities and fluidity in the market we need to try and do something about that, and about locomotives as well.’
Land for terminals
Another important strategic issue for freight is land for terminals. Sites that can readily be rail-connected, and at the same time link into the highway network without arousing local opposition, are precious because Clarke says they ’constrain how the market can develop.’
Some sites deemed surplus to operational needs in 1994 remained with the BR Board on privatisation, but many of these were sold subsequently to the highest bidder. Those that remain passed into SRA ownership on February 1 and are now safeguarded. In contrast, Railtrack acquired all of BR’s operational land in 1994, and Freight Strategy states that ’the SRA has currently no control over Railtrack’s property activities and this resource is therefore potentially vulnerable to erosion.’
The 80% growth target adopted by the government was based on demand modelling undertaken for the SRA by consultants. This showed that only one-third of the increase would come from ’traditional’ rail traffic, so ’two-thirds must come from unit loads, premium logistics and other new markets’, according to Freight Strategy.
Hence Clarke’s concern about terminal sites, especially around London and particularly at Cricklewood where Railtrack Property plans a mixed development that would eliminate a possible location for rail-served warehousing and distribution: ’I’m quite prepared to say that we regard Cricklewood as a site of strategic importance for freight activity in the future.’
She agrees with people who say Cricklewood is not ideal, ’but you show me the alternatives. The answer is there aren’t any, and we do need sites within that sort of distance of central London. That makes it an essential site. The Railtrack proposals currently aren’t acceptable to us, and we are in discussion on this. It could be that this site becomes caught up in the Regulator’s proposal for modifying Railtrack’s licence, which would mean that Railtrack couldn’t dispose of it without the Regulator’s approval.’
But even where land is available, planning permission is still required for a new terminal. Despite planning guidance issued by the government, which requires local authorities to take the strategic benefits of rail freight into account, protests by people living around the site and on access roads tend to take precedence. Clarke says ’it’s still a serious problem and I haven’t to be honest perceived any improvement.’
Obstacles to expansion
Clarke is confident that the 80% growth target is achievable, given the rising levels of trunk road congestion which are pushing up costs and eroding the reliability of road haulage. But it can only happen if the main elements of Freight Strategy can be delivered by the rail industry - backed by government.
Clearly, the freight operators have to provide their customers with a more reliable service than they have been getting in the last year. But they cannot possibly do this without additional capacity on a network where passenger-km are already at the highest level since 1946, and are expected to increase by a further 50% by 2010 under the government’s plan.
A more specific worry is that Railtrack simply won’t have the resources to deliver freight upgrades, starting with the routes to Felixstowe and Southampton, even if the SRA has the money to pay for them. Aside from funding issues, this could happen simply because the WCML upgrade, train protection, and other passenger-based projects are outstripping the industry’s resources, not just of money but of skills.
Clarke is prepared to tackle the freight work in stages. On Felixstowe - Nuneaton, for example, ’once we are satisfied that it is the right route, and that we will be dealing with capacity issues although we can’t define them today, I will be pushing for the higher gauge even though capacity will be constrained initially.’
That said, she warns that ’everything in Freight Strategy is predicated on solving the bigger industry questions surrounding the cost of enhancement, the project management of enhancement, Railtrack’s role going forward - all of these huge questions. Because without solutions to those we won’t be able to deliver.’
TABLE: Table I. How the 40% growth breaks down
Freight volume is normally expressed in net tonne-km of commercial cargo excluding infrastructure materials such as ballast, this being the best available measure of rail’s contribution to the national freight task. Since privatisation, the government’s statisticians have had difficulty in obtaining consistent figures from operators.
However, Railtrack collects data on gross tonne-km for track access charging purposes, since this is a useful measure of wear on the track. The figures below show in million gross tonne-km the breakdown by commodity group and the way they have changed since Railtrack took over the network on April 1 1994.
TABLE: 1994-95 2000-01 Change
Coal 6.9 10.6 +53%
Metals 3.6 4.6 +26%
Construction 3.7 4.6 +24%
Oil products 3.5 2.8 -19%
Channel Tunnel 1.2 2.4 +99%
Domestic intermodal 5.0 8.1 +62%
Other 7.7 10.9 +41%
Total 31.6 44.0 +40%
CAPTION: Top: One of Freightliner’s remanufactured Class 57 diesels leaves Felixstowe with a deep-sea container train; public funds will be used to provide W12 loading gauge from Felixstowe to the West Midlands
CAPTION: Freightliner is worried about competition cutting volumes on its intermodal services. EWS is handling this Hoyer Intermodal chemicals train near Newcastle
Photo: EWS
CAPTION: EWS has invested heavily in locos and rolling stock; a Class 66 heads new HTA coal wagons near Rugeley
Photo: EWS
CAPTION: Freightliner is increasingly challenging EWS for non-intermodal traffic including bulk coal, cement, and infrastructure materials
Photo: Brian Morrison
