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


Memorandum by the Freight Transport Association (RI 27)

INTRODUCTION

  The availability of a viable rail freight option is important to British industry as one of a number of means to mitigate the impacts on UK supply chain efficiency of increased road traffic. In certain circumstances rail can also provide and equal or better logistics solution to road transport.

  We recognise that the overarching requirement of those involved with the rail industry and the rail network must be to ensure that it operates safely. However, it is also government policy, and the statutory duty of the Office of the Rail Regulator and the (shadow) Strategic Rail Authority to promote rail freight, this recognises the importance of a rail option to the national economy. Properly delivered rail investment, to deliver improved network capacity and capability is an important element in the promotion of rail freight. FTA believes that there are four other key areas where growth in rail freight can be influenced. The most important of these is reliability, which is largely an issue for the providers and Railtrack to improve. There is also a need to reduce the cost of using rail freight, to increase network capacity and capability, to improve means of access to the rail network (eg better ports access and conservation of key railway land) and to ensure fair regulation that protects the interests of end customers. However, without well-targeted investment in the rail network for freight, advances in these other areas will be prevented or even reversed.

  The Ten Year Plan forecasts that the investment of £4 billion public and private money in rail freight will mean that the mode's share of the freight market should increase to 10 percent by 2010, that would mean an increase of 80 percent on today's levels. However, these forecasts under the Ten Year Plan assume that certain enhancements will take place to improve the capability or capacity of the rail network for freight. At the present time the future willingness of Railtrack or other rail industry parties to invest in improving the rail infrastructure for freight remains in doubt. The (s)SRA is still in the process of making decisions over future public funding support for rail freight and the ORR's review of freight track access charges is ongoing which lends further uncertainty to the issue in the short term.

  There could be a difficult choice ahead for the Strategic Rail Authority in spending the money they have been allocated for freight under the Ten Year Plan. Capital investment is needed in order to improve and expand rail freight infrastructure. However, if there were to be higher track access charges in the future as a result of the review of freight charges this could mean a substantial part of the money that the (s)SRA would otherwise have spent on capital projects going towards revenue support of existing services. In effect, we are concerned that there is a risk that rail freight growth, far from being promoted, will at best stand still.

  The Committee will be aware of the case recently made for rail infrastructure investment by "Transport Choices for Industry: the Rail Freight Opportunity." This campaign involved the Freight Transport Association as well as the Confederation of British Industry, Rail Freight Group, English, Welsh and Scottish Railway, Freightliner, GB Railways and Railtrack. The campaign identified a number of infrastructure projects that could be undertaken to expand freight by rail and established a list of priority projects that that could deliver the greatest benefits to industrial users of rail in the fastest time. Now that the government has allocated funding £4 billion in public and private money for rail freight the next step, assuming serious capital funding is possible, is to ensure that the (s)SRA allocates the spending to projects that will quickly benefit industrial efficiency.

THE FREIGHT TRANSPORT ASSOCIATION

  FTA represents the transport interests of 11,000 British businesses, ranging from small family firms to multi-national blue-chip companies. All our members have a common interest in the efficient movement of goods regardless of mode. FTA members are responsible for more than 90 percent of the freight carried on Britain's railways. The Rail Freight Council, our policy forum with responsibility for rail freight issues, comprises end customers, intermodal customers, wagon providers and terminal operators as well as English, Welsh and Scottish Railway, Freightliner and Railtrack. FTA also represents the interests of exporters using deep-sea container shipping and air cargo services.

  FTA recognises that as a representative of end customers it does not have expertise in the area of renewals and maintenance of rail track and that there are many other sources of opinion on this matter in respect of freight. In particular, we are aware of studies commissioned by the freight operating companies and the ORR as well as, of course, the work of the National Audit Office. Our comments are made in the light of our particular concern that the rail network is developed in the future in a way that will allow British industry to make greater use of rail for its transport and that will provide the capability as well as the capacity required by freight. We would like to bring the following comments to the attention of the Committee:

COMMENTS ON RAIL INVESTMENT

1.(a)   Comments on Railtrack's past performance in renewing, maintaining and developing the national rail network.

  We are aware that rail freight operators have raised concerns in the past over the quality and life of materials used for renewal and maintenance by Railtrack. This is a cause for concern to us as more frequent renewals work means more disruption to the network and increased cost to end customers in the long run. One of the principal requirements for maintenance and renewal as a result of freight operations is track work. It is possible that changes in maintenance and renewal practices could result in significant cost savings for freight operators that could in turn be passed on to their customers. For example, recent studies carried out on behalf of English, Welsh and Scottish Railway imply that significant cost savings could be achieved if Railtrack changed their policy on track maintenance and renewal.

  We note that Railtrack has commented that it has spent more than was anticipated at privatisation on maintenance and renewals. We do not find this surprising given that growth in passenger and rail freight has been significantly greater than that anticipated at privatisation.

1.(b)   Comments on the likely impact of Railtrack's plans for the future.

  It is clear that there is a renewals and maintenance backlog and that heightened safety concerns will of necessity lead to an increase in such works. However, this will inevitably lead to increased disruption on the rail network which risks affecting the reliability and flexibility of rail freight services. This factor will in future be combined with the fact that as an outcome of the periodic review of charges for passenger services there will be a new system of compensation payments to passenger operators for disruptive engineering works. No such system is currently envisioned as applying to freight, there is therefore a concern that this will result in considerably more engineering works taking place at times that disrupt freight services than is the case at present.

  The impact of Railtrack's plans for the future will largely depend on the outcome of the periodic review and also upon whether a framework can be created through the freight track access charging regime (combined with Railtrack's Network Licence obligations) to incentivise them to develop their network for freight as passenger services. We believe that there needs to be a fundamental recognition that freight is core to Railtrack's activity and that regardless of the level of profit that they are able to make from freight it is an essential part of their portfolio from which they cannot walk away.

2.(a)   Comments on the adequacy of the oversight exercised in the past by the Office of the Rail Regulator.

  The National Audit Office's report on this subject identifies a number of serious causes for concern. These include the failure of the ORR to identify asset condition at privatisation or to use it to establish an asset base from which to benchmark work undertaken by Railtrack. We are in general deeply concerned at the lack of information that the ORR apparently has about the condition of Railtrack assets and therefore of what they should reasonably be spending and what action they should be taking. However, we also recognise that such information is difficult to obtain without incurring additional expense that will be borne, in the case of freight, by the operators and passed on to end customers. Having said this, we still find it surprising that years after its privatisation, Railtrack has no national overview of the condition of its assets.

  The lack of clarity that is apparent over what constitutes a renewal according to the definitions and what constitutes an enhancement is also of concern. A clear framework is needed on how expenditure on enhancing the network is to be monitored and paid for.

2.(b)   Comments on the Office of the Rail Regulator's contribution to the development of Railtrack's future plans with particular reference to the review of track access charges.

  An important feature of the periodic review, and of the accompanying review of track access charges is the timing of the process. The impact of the periodic review process in holding up developments on rail should not be understated. For some three years or so uncertainty over the outcome of the review has reportedly made Railtrack unwilling to enter into longer term agreements and so has prevented many new rail freight initiatives and contributed to a lack of confidence in the future development of rail freight. We are also concerned at the effect on the clarity of the process of the negotiating positions that the companies involved have, given the process, quite naturally taken. We believe that track access charges for freight services should not be an issue on which there is such major debate and uncertainty on such a regular basis. If the reviews continue on such a regular basis in future one can almost see that it could be the case that no sooner has the outcome of one review been announced than positioning of the commercial parties involved will begin for the next. Real progress in attracting freight to rail is difficult to envisage under such circumstances.

  All these factors reduce confidence in the rail industry and contribute to delaying the development of the right rail infrastructure for freight as well as to reducing the willingness of end customers and rail industry parties to invest in rail freight assets that have a long life.

2.(c)   Comments on the means by which the Office of the Rail Regulator intends to ensure that Railtrack in future honours its commitments.

  In future we understand that Railtrack will have specified outputs from the ORR that will set with greater precision what the company is expected to achieve. We believe that it is reasonable for Railtrack to have a clear indication of the scope and quality of work that is expected from them.

  FTA believes that independent verification of the condition of assets is urgently necessary to ensure that Railtrack is spending "public" funds and apportioning resources in a manner that is in the public interest.

  We also believe that the ORR should keep a public register of the undertakings made by Railtrack and of projects that the company has in hand as a result of agreements with ORR. Such a register would have the benefit of being open to the public, parliament and other regulators to enable Railtrack's progress to be publicly monitored. It would also make the actions of ORR in regulating Railtrack more transparent.

3.   Comments on the role that should be played by the (currently shadow) Strategic Rail Authority in the renewal, maintenance and development of the rail network both directly and by securing investment from sources other than Railtrack, including the train operating companies through the franchise replacement process.

  A key task for the (s)SRA is to ensure that the money they are able to allocate to capital rail infrastructure projects is well spent, both in terms of establishing the right criteria for project selection and in terms of project management which must be overseen in all stages by the (s)SRA. There is a significant opportunity to make a real breakthrough in rail freight growth through the effective use of the funds allocated for rail freight in the Ten Year Plan.

  The (s)SRA has wide ranging powers to fund rail freight projects, many of which are thoroughly explored in their consultation document "Public Support for Rail Freight". However, as we said in the introduction we are concerned at the implications of significantly higher track access charges for freight as the result of the review which could present the (s)SRA from being able to make any meaningful investment in freight capital projects.

  The call for evidence refers to the possibility of funding from sources other than Railtrack or the (s)SRA. We doubt very much whether, on the freight side, the operating companies will be a source of infrastructure funding. The short term nature of their contracts and the economics of rail freight make it unlikely that they will be able to invest significant sums in the network.

October 2000


 
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