Memorandum by the Freight Transport Association
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
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.
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:
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
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
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
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
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.