Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence


APPENDICES TO THE MINUTES OF EVIDENCE


Memorandum by Freightliner Ltd (RI 01)

1.  BACKGROUND

  Freightliner is the UK's largest intermodal freight operator, and has increased the volume of its traffic by more than 30 per cent since privatisation in 1996. The business is predominantly intercontinental containers carried by rail from the major container ports to a network of inland terminals in the principal centres of population throughout Britain. In the year ending March 2000 some 650,000 containers were transported, and the company is also diversifying into other areas of the rail freight business.

  Freightliner operates about 20 per cent of the freight tonne miles on the Railtrack network; since the business is almost entirely long distance, this is achieved by running approximately 10 per cent of the freight trains on the network.

  The company is owned by two investment banks, its management and its staff.

2.  RENEWAL AND MAINTENANCE OF THE NETWORK

  As a relatively small company operating mostly on the main passenger routes of the country. Freightliner is not able to keep detailed information about Railtrack's renewal and maintenance of the network, however, it is our experience that current Railtrack performance as it affects our trains is on a slowly improving trend. The figure below illustrates the relative performance improvements of Railtrack and Freightliner in terms of Freightliner train punctuality.

  Subjectively, however, there seems to be an alarming increase in the length of "roaring rail" (rail head corrugation), which increases external and internal noise when trains run on it, and is believe to be a possible precursor of metallurgical failure


3.  DEVELOPMENT OF THE NETWORK

  With the notable exception of the line between Ipswich and Felixstowe, where a most successful renewal-based scheme has modernised signalling and improved line capacity, there has been no route development to date which has benefited Freightliner. The Railtrack Network Management Statement contains significant aspirations for the development of the main routes and improvements in capability—particularly loading gauge and train length—which may benefit Freightliner provided that the funding arrangements ensure that appropriate provision is made. The unhappy story of the West Coast Main Line, where Railtrack sold capacity to Virgin Trains without adequately considering the rights, needs and aspirations of other operators on the route, demonstrates the care which is needed in major route development if an equitable solution is to be achieved. There is no doubt that providing additional capacity for all who may wish to use it can be expensive, although discrete investment at key bottlenecks can contribute much to the problem.

  However, it remains the case that virtually all the development schemes in the Network Management Statement are explicitly dependent on the provision of funds from parties other than Railtrack.

4.  OVERSIGHT BY THE OFFICE OF THE RAIL REGULATOR

  There are a number of factors to consider when looking at the performance of the Rail Regulator in overseeing Railtrack's performance, its development of future plans and the honouring of future commitments. These are:

    —  the physical and legal structure of the industry;

    —  the mechanisms for establishing strategic direction in development;

    —  the competence and performance of the parties.

4.1  THE PHYSICAL AND LEGAL STRUCTURE OF THE INDUSTRY

  The privatised rail industry consists of many parts, and there is no reason why any of these parts should share the same objectives, or that they will attach the same priority to any objectives which may be shared. It would be surprising if the industry were able to act with unanimity and consistency unless there were overwhelming inducements so to do. Despite the public anxiety triggered by recent accidents, the record shows that the prime importance of safety is recognised, and acted upon, in the industry, which may not always be the case in competitive modes; equally, the public pressure on current performance issues is achieving measurable results, although there is a considerable degree of variability between different companies.

  In other areas, however, there will be conflicts of interest between parties and conflicts between, for instance, the interests of shareholders in private companies and the public objectives of a utility industry. Regulation is seen as the way of resolving these conflicts, although the British model personalises this in an individual Regulator rather than a more corporate body; this inevitably puts considerable focus and stress on an individual to a greater extent than may be desirable where long term consistency and strategic development are seen as important. The Report by the Comptroller and Auditor General (Ensuring that Railtrack maintain and renew the rail network) describes the powers of the Rail Regulator and puts its finger on a key weakness when it says (1.25) "Although the ORR set the level of access charges payable by operators to Railtrack for their use of the network, they cannot direct how Railtrack should spend the money. Nonetheless, they can make it clear what they expect Railtrack to achieve from the charges they have set, and can take account of their actual achievements when next they set the charges". Using enforcement orders to compel Railtrack's compliance is a legalistic and time-consuming business and may lead to elaborate gaming, delay, and expenditure on legal expenses which would in an ideal world be spent on the industry. However, all this may be unavoidable in the structure we have; from our point of view it would be better to have proper formulation of and commitment to the objectives so that costly conflict is avoided. The sub-committee may like to consider whether consensual objective formulation and commitment might be more effective than the traditional British personalised and confrontational approach.

4.2  The mechanisms for establishing strategic direction in development

  There are a number of parties entitled to hold views about the development of the rail industry in Britain; these include customers (both passenger and freight); operators, Railtrack; the shadow Strategic Rail Authority, other funders (eg P.T.Es); Government; and the Rail Regulator. In the Network Management Statement (NMS), which the Regulator compels Railtrack to produce, Railtrack attempts to set out a synthesis of its views and those of operators (presumably as a proxy for their customers)[1], and other funders. The NMS is notoriously free of commitments from Railtrack, which appears to see it as a statement of what might be done if someone else pays. It is, therefore, not an enforceable statement of what should happen to develop the network, and not readily amenable to Regulatory action.

  It is to be hoped that the strategic development issues will become clearer when the Government's Ten Year Transport Plan and the Strategic Rail Authority's strategic plans are announced. The Sub-committee may like to consider whether Regulatory enforcement is the appropriate route for delivery of these plans; from our point of view, they stand the greatest chance of success if being implemented by willing players.

4.3  The competence and performance of the parties

  It is taking a long time for the industry to mature and there is too much reliance on the performance of individuals in key posts. Major issues such as passenger re-franchising add to the potential for conflict and uncertainty. The National Audit Office report, in our view, gives a fair description of the situation to date. We believe that the sub-committee should consider alternative structures and mechanisms for achieving future progress. These should include:

    —  transfer of regulatory powers to a corporate body;

    —  establishment of a statutory framework to circumscribe with a public interest duty the rights and expectations of Railtrack's shareholders; and

    —  clarification of the status of the SRA in determining priorities for investment.

5.  THE PERIODIC REVIEW OF ACCESS CHARGES

  From Freightliner's point of view the periodic review has been a disaster. Track access charges are our single largest cost, but the review has for the best part of two years made it impossible to estimate what they might be after April 2001. This in turn has prevented us from creating the investment in traction, rolling stock and terminals which would be, in our view, a significant contribution to the development of the national rail network. It may well be that other investment has been similarly deterred.

  In his recently-published Review of Freight Charging Policy: A Consultation Document the Regulator has asked whether freight charges should be set for longer periods than those determined by the quinquennial review process; we regard this as essential if a stable investment regime is to be established.

  Insofar as we understand the wider industry process, it seems that the periodic review has to estimate what Railtrack should spend on renewal and development of the network so as to determine the appropriate rates of payment to be obtained from operators. Although at the same time there is an attempt to isolate network enhancements from the process so that their costs can be separately recovered from the apparent beneficiaries, the outcome may be complex and capable of creating unintended and harmful consequences.

  Network benefits come from both specific enhancement projects and from the renewal of assets in modern form, where modernisation of track and signalling, for instance, may produce a better railway in terms of capability for speeds and loads as a byproduct of essential replacement work. Many of these benefits will be small but applicable to all users of the network; although an attempt is being made to identify what they are through the "Incremental Outputs" process being run by the SSRA, the reality is that the party best placed to identify the opportunities is Railtrack itself; a means needs to be found of getting them to manage the process of renewal in a constructive manner.

  It is here that the confrontational mechanisms built into the industry produce great difficulty in seeing how the best outcome is to be achieved. On the one hand, operators (particularly freight operators, who have no recourse to the franchising director if access charges rise) need to have the lowest possible charges set for the longest possible period; on the other. Railtrack may strive to obtain the most generous settlement it can without undertaking to commit the relatively minor expenditures which may be required to produce incremental network benefit. Even major enhancement schemes may suffer if either the Regulator or Railtrack take the wrong view as to the remuneration to be earned from them.

  We believe the Sub-committee should consider this issue, even though we can see no way of improving matters without radical reform of the industry structure.

6.  THE ROLE OF THE STRATEGIC RAIL AUTHORITY

  As stated above, there seems to be potential for conflict and/or confusion between the SRA and the Regulator when looking at future development of the network and methods of financing it. There needs to be an agreed strategy for network development, and this needs to take into account the public interest in more effective, efficient and environmentally acceptable transport systems. In our view, the Sub-committee should consider depersonalising and combining the roles so that there can be long run consistency in the determination and delivery of the strategic objectives. Given the economic life of railway assets and their specificity to the British network this seems to us to be the only way in which a sound investment framework can be created.

June 2000


1   Passengers' views are also represented by the Rail Users Consultative Committee and freight users through campaigning bodies such as Transport Choices for Industry, which brings together the Confederation of British Industry, the Freight Transport Association, the Rail Freight Group and the Operators. Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 27 April 2001