Written evidence from Freightliner Group (IRW0038)

 

 

Executive Summary

 

•         Since privatisation a vibrant and competitive rail freight sector has developed and rail freight volumes have grown by 70%.

•         A recent report published by the Rail Delivery Group called “Keeping the Lights on and the traffic moving” concluded that the economic benefits of rail freight are currently worth currently worth £1.5bn a year to the UK economy. Going forward there is an opportunity to considerably increase these benefits through further growth and modal shift from road. Unconstrained forecasts published by Network Rail in the “Freight Market Study” in 2013 indicate a considerable opportunity for further growth, particularly in the intermodal sector.

•         In order to achieve these growth levels and increase these benefits there will need to be further investment in the rail network to increase capacity and capability for rail freight services. This, alongside a stable regulatory and charging environment would create a platform for continued private sector investment by the freight operators and the logistics supply chain, which will drive efficiency and reliability and support future rail freight growth.

•         Rail freight operators have already invested over £2 billion since privatisation, at their own risk and are planning to make hundreds of millions further investments in the future to enhance capacity and improve performance on the network.

•         The investments made under the Strategic Freight Network (SFN) banner in the rail network since 2009 have enabled more rail freight business and have offered high value for money. In CP6 investments should be prioritised where the highest value for money can be achieved and that support the potential growth identified in the Freight Market Study (primarily intermodal growth).

•         In order to achieve the best value for money the whole rail industry needs to build on existing collaboration to ensure projects are designed optimally and delivered efficiently, and implement best practice.

•         Recent extreme weather has shown how susceptible the railway is to changing conditions and suggests greater emphasis is required on improving the railway’s resilience. 

•         Freightliner is unclear what the long-term implications of the reclassification of Network Rail will be. A rail network is a very long-term asset and it is vital that funding is planned and provided over a long-term horizon to enable efficient long-term management of the asset. As a minimum the current 5-year funding process should be maintained, but serious consideration should be given to a 10 year planning timescale to enable the long-term planning of infrastructure and promote private sector investment.

•         Freightliner supports the development of an electrification strategy for rail freight encompassing both the rail network and rolling stock. Over time this could enhance the capability of the network and improve environmental performance.

 

Introduction

 

  1. We are writing to you on behalf of Freightliner Group in response to the Committee’s inquiry into investment in the railway.

 

  1. Freightliner is a logistics operator specialising in rail.  We move over 700,000 containers a year to and from deep sea ports and over 20 million tonnes of bulk goods.  As well as operating in the UK, Freightliner also has subsidiary operations based in Poland, Germany, the Netherlands and Australia. 

 

Q1. What are the main features of the rail investment plan for 2014-19 (Control Period 5)? How will the railway be different in 2019 following delivery of the plan?

 

  1. The Freight Market Study published by Network Rail[1] forecasts that unconstrained demand for rail freight will continue to grow significantly.  As this growth will largely be driven by the intermodal sector the focus for much of the investment in the rail network over the next five years is designed to accommodate future demand by increasing capacity and improving the connectivity with key ports. 

 

  1. The Strategic Freight Network (SFN) is the key fund which provides a programme of investments to improve the capacity and capability of the freight network.  Administered by Network Rail and managed by a governance group, which includes the freight operators, £230m has been allocated to the SFN in Control Period 5 (CP5) - to improve capacity and allow longer, heavier and larger-gauge trains to operate in order to ensure that paths are being used most productively.

 

  1. The fund has a good track record, delivering high value for money and enabling access to a wider market through gauge clearance. The rail freight industry, despite being very competitive, has worked together to prioritise and deliver schemes.

 

  1. Over the next couple of years there is a focus on enabling longer trains out of the ports of Southampton and Felixstowe and the quarries in the Peak District and Midlands. Longer trains not only make rail freight more competitive, but also make more efficient use of the rail network. Already, since 2002/3 the number of freight trains has fallen by a third while tonne mile shave increased by 17%, this is a net increase of 70% in tonnes per train. Including changes in distances travelled, each freight train now covers over 50% more cargo than it did 10 years ago.[2]

 

  1. Going forward into CP5 one of the priorities will be the continued upgrading of the route between Felixstowe and Nuneaton.  With growing congestion on the Great Eastern and West Coast main lines this cross-country route is essential to allow a growing number of container trains to reach destinations in the Midlands, North West and Scotland. As this project presents a number of significant challenges (in effect making a rural route into a strategic freight corridor), in particular separating the east-west and north-south corridors around Leicester, the enhancement programme will continue into CP6.

 

  1. Other priorities for the SFN fund include further enabling of train lengthening and the continuation of a gauge cleared network that connects all the major ports and conurbations that will enable a consistent 6 or 7 day a week service to be offered to customers.

 

  1. Rail freight operators are also planning to make substantial investments themselves over the next five years.  Furthermore many private infrastructure providers will continue to make significant investments to further improve the performance and capability of the rail freight sector.  This is on top of the £250m that has been invested by the ports collectively in rail connected facilities over the past seven years.[3]

 

Q2. What is expected to happen to passenger satisfaction over this period?  Is the rail industry measuring passenger satisfaction in the right way?

 

  1. Freightliner has no response to this question.

 

Q3. Is Network Rail confident that it can deliver its planned investments and meet its targets for efficiency and punctuality?  How should train operators assist in ensuring that Network Rail delivers?  How will the Office for Rail Regulation ensure that planned investments represent value for money?

 

  1. Against the backdrop of an improving economy, where resources will become more expensive, and a railway where passenger and freight demand continues to grow, Network Rail faces a significant challenge to deliver its planned investments within budget while meeting its efficiency and punctuality targets.  Freightliner cannot comment specifically on whether Network Rail is confident in its delivery plan.

 

  1. Engagement between operators and Network Rail can help deliver planned investments more efficiently and is essential to ensure projects are designed once and do not have to be redesigned.  By involving all stakeholders early on in the planning process the correct investment decisions can be made and the right options selected.  Representatives of Freightliner regularly attend Network Rail’s investment stakeholder meetings across the country. There is good practice and we are supporting this being rolled out to all areas.

 

  1. The “McNulty report” published in 2011 highlighted a lack of joined up contractual incentives between operators and Network Rail. In response to this the Freight Alliance (Freight Operating Companies and Network Rail) are working to develop the Freight Efficiency Benefit Sharing (FEBS) scheme to incentivise FOCs to collaborate with Network Rail on efficiency gains throughout CP5.  Freightliner believes that this efficiency benefit sharing scheme has the potential to foster a more collaborative culture and deliver cost savings.

 

Q4. Has Network Rail prioritised the right schemes for the purpose of improving the railway’s resilience?

 

  1. Scientists are in general agreement that climate change is likely to be a contributing factor to the recent extreme weather that has affected much of the United Kingdom.  The rain and high winds over the last year and snow in previous years have shown that the railways are vulnerable to these changing conditions.  This is an important concern for freight operators who must be able to provide a reliable, predictable and consistent service to customers.  If customers are unable to rely on the railway due to regular or prolonged disruption it will impact on their logistics chain and efficiency, and in turn, impact on the UK economy. 

 

  1. Recent events have highlighted how susceptible the railway is to the changing climate but Freightliner recognises that investments must balance cost against the risk of an asset failing. With many scientists agreeing that the weather will get more extreme, it is clear that a greater emphasis is required on improving the railway’s resilience.

 

  1. Freightliner is already engaged with Network Rail to improve the resilience of operations in autumn – traditionally a difficult time for performance on the network.  By ensuring that known problem locations are better understood and that appropriate mitigations, from all parties, are put into place and that pre-emptive actions can be taken to increase the robustness of the operating plan and the resilience of the network.

 

  1. Freightliner welcomes the forthcoming publication of the Route Weather Resilience and Climate Change Adaption study and we are hopeful that by working collaboratively and making the correct investment decisions the railway will be better placed to cope with future ‘extreme’ weather.

 

Q5. How might reclassification of Network Rail as a central government body in September 2014 affect rail investment?

 

  1. Freightliner is unclear what the long-term ramifications of the reclassification of Network Rail will be.  The Memorandum of Understanding agreed between Network Rail and the Department for Transport acknowledged that while Network Rail would maintain ‘business as usual’, some changes could be necessary to satisfy “Government and Parliamentary budgeting and accountability requirements” or where justified “to deliver value for money”.  

 

  1. Long-term planning of infrastructure is essential to ensure that infrastructure can be managed as a whole life asset and investments that take many years to develop and construct can be properly planned. Under British Rail, annual budgets were often changed and/or hastily spent with maintenance holidays that came back to bite in later years — distinctly not conducive to long-term planning or a long-term efficient network.  Network Rail’s 5-year funding cycle and a regulated environment has helped to ensure that long term asset policies are in place and that better investment decisions are made to position the railway to meet future demand; this has been hugely beneficial to the success of the industry and freight and passenger growth.

 

  1. The five-year funding and review process has also been essential in promoting confidence and stability in the sector, which has enabled private sector investment.  In particular having a regime where access charges are set for 5 years, rather than reviewed annually has given confidence to customers. However, given that typical railway assets have a 30 year lifespan, it is challenging to make private sector investment with only 5 years of certainty. A longer period would have multiplier benefits in enabling more modal shift to rail as it would increase customer confidence and investment throughout the supply chain, for no change in government funding.

 

  1. Freightliner believes that it is essential that at least a 5-year funding process is maintained, and serious consideration should be given to extending the planning process to a 10 year cycle to recognise that major infrastructure upgrades take many years to develop and implement.

 

Q6. Is the balance between passenger and freight investment right?  What additional demand for freight movements might be released with a different balance of investment?

 

Value of Rail Freight

 

  1. The value to the UK economy of delivering freight by rail is clear with productivity, environmental and congestion benefits currently worth £1.5bn a year to the UK economy.[4]  Estimates suggest that if freight volumes grow in line with forecasts these benefits could increase to over £4bn in the next 30 years.  Ensuring that appropriate investments are made in the network will be crucial in achieving this growth and realising these benefits.

 

Comparison of Passenger and Freight Investment

 

  1. While freight-specific investments to enhance the network over the last 5 years have been welcomed investment is still small in comparison to passenger investment.  In 2012 Network Rail commissioned consultants at LEK to estimate the costs attributable to freight services on the network.  In relation to spending on enhancement schemes LEK estimated that the annualised cost of investments associated with the SFN as well as other enhancement schemes with freight components were worth £82m per annum[5].   

 

  1. Using the ‘high-end’ estimate of enhancement costs attributable to freight it represents just 3.2% of the £12.76bn allocated to Network Rail’s CP5 Enhancements Delivery Plan for England & Wales and Scotland, whilst freight trains account for 7.5%[6] of all train miles on the network.

 

  1. Going forward most investments will focus on increasing capacity for more services, whether these are passenger or freight and there is less likely to be schemes that are particularly labelled as freight or passenger. The focus must be on the schemes that deliver the highest cost to benefit ratio and deliver the highest economic and social benefits. We do not support investment for the sake of itself but want to be part of an industry that creates real value for the UK.

 

 

Private Sector Investment

 

  1. Investment has been crucial in growing rail freight volumes by 70% since privatisation.  Much of this investment has been made by the private sector with the rail freight operators alone investing over £2bn in locomotives, wagons and other capital equipment since the mid-1990s.  As well as improving rail freight performance these investments have helped drive capacity and capability improvements allowing freight operators to reduce their footprint on the network; running longer and heavier trains to utilise paths more productively. Over CP5 rail freight operators are planning to make several hundreds of millions additional investment to further enhance capacity and improve performance on the network.[7]

 

  1. Many infrastructure providers that rely on the rail network have themselves made investments to improve the performance and capability of rail freight.  Ports, power stations and distribution centres have all made significant investments in infrastructure; for example in the last seven years over £250m has been invested by Britain’s ports in rail connected facilities to handle container and bulk traffic (at Felixstowe, Southampton, London Gateway, Hull and Immingham) with further investment expected across the UK.[8]

 

  1. The Freight Market Study published by Network Rail suggests unconstrained rail freight volumes could double by 2043[9].  In order to meet this demand and achieve this growth sufficient on-going investment by Network Rail and the private sector will be required.  With potential economic benefits of over £4bn per year to the UK economy the rationale behind making the investments necessary to deliver the growth is compelling.  For freight operators, and other private sector companies, to be able to secure the necessary funding as stable an environment as possible is important.

 

HS2 and Released Capacity on the Classic Network

 

  1. While the right environment will help rail freight to grow and deliver increased economic benefits to the UK it is important that Network Rail’s investments are properly targeted and aligned to growth forecasts and offer high value for money.  These forecasts are clear – the growth of rail freight will largely be driven by an increase in intermodal traffic.  The West Coast Main Line is the key route connecting major ports to distribution centres in the West Midlands, North-West and Scotland and therefore securing additional capacity on this north-south axis will be essential to grow rail freight volumes.

 

  1. The forecasts suggest that an extra three paths per hour in both directions will be required by 2033 to meet rail freight demand along this key artery (see Appendix A).  While it is important that investments allow rail freight to continue to incrementally grow on this busy, mixed-use line, it is HS2 that will provide the once in a generation step-change in capacity needed to meet future demand.  Freightliner is therefore concerned that the current Hybrid Bill makes no provision for capacity released on the classic network to be allocated to freight services. 

 

  1. The capacity released on the classic network by HS2 needs to be considered carefully with adequate capacity reserved for freight.  While Freightliner recognise the importance of providing sufficient peak passenger capacity, particularly into London because of the strong economic case for doing so, during off-peak hours the economic case for additional services is less clear. A full economic assessment should be completed to understand the relative benefits of additional freight versus passenger traffic during the off-peak in order to ensure that the released capacity offers the highest economic value.

 

Q7. What will be the railway’s demand for new rolling stock over the next decade and how will this demand be met?

 

  1. Rail freight is a capital-intensive industry and unlike passenger operators, freight operating companies invest in and lease their own rolling stock.  Freight operators are therefore exposed to changes in the charging regime, fluctuations in demand and the natural economic cycle, fully assuming the risks associated with rolling stock and other infrastructure investments.  With forecasts suggesting rail freight volumes will grow substantially over the next decade, investments in rolling stock will be required to meet this demand and grow the economic benefits to the UK economy.  For freight operators to secure the funding to make these investments, as stable an environment as possible is important.

 

  1. The growth in demand for rail freight and the natural life-cycle of assets will drive demand for new rolling stock over the next decade. The existing locomotives and in particular the rail freight work horse locomotive, the class 66, is only at about half of its life so it is not due to be replaced for around 15 years.

 

 

Q8. How will electrification affect the passenger experience of the railway, rolling stock requirements and rail freight?

 

  1. Freightliner supports the development of an electrification strategy for rail freight that incorporates both the rail network and locomotives. Over time, electrification should enhance the capability of the network and improve environmental performance. Work is already underway in developing such a strategy, led by Network Rail with the support of the freight operators and other industry bodies. The rail freight sector is different to the franchised passenger sector in that the locomotives will be purchased in the private sector rather than supported by the government.

 

  1. The strategy that is being developed will take into account many factors such as the age of the existing diesel fleet, the need for freight locomotives to be flexible to react to customer demand, the availability of electric locomotives on the market, the concentration of business on certain routes (predominantly from major ports), requirement for diversionary routes to enable a consistent customer offering during engineering work and how terminals, yards and freight facilities, many of which are owned by third parties, will be accessed. This is a complicated piece of work and will take some time to develop.

 

  1. Currently there is no design of electric freight locomotive on the market suitable for the UK.  Therefore the costs associated with designing and testing of new electric locomotives will have to be borne by any operator(s) making investments in electric rolling stock.  In order to ensure that these costs are not prohibitively expensive a large quantity of locomotives would need to be ordered.  This would require a step change in the electrification of the UK network to either be in place or committed. This is being considered as part of the developing strategy.

 

Q9. What should be the priorities for investment after 2019 (Control Period 6), particularly in relation to connecting the classic railway with High Speed 2?

 

  1. The forecasts are clear – future rail freight growth will be driven by the intermodal sector.  It is therefore vital that Network Rail’s Long-Term Planning Process prioritises the appropriate investments to facilitate the growth of intermodal traffic.
  2. Investments to increase the capacity and improve the capability of the Felixstowe to Nuneaton line will not be completed by the end of CP5 and will therefore continue to be a key priority in CP6.  This cross-country route is being upgraded to allow growth from Felixstowe port to by-pass the busy sections of track on the Great-Eastern Main Line, through London and along the southern part of the West Coast Main Line, enabling this capacity to be used by trains from London Gateway port and for other predicted demand. This is a complex project but the additional capacity provided by the upgraded Felixstowe to Nuneaton line will be vital to accommodate increased freight demand from the ports to the distribution centres in the Midlands, North West and Scotland.  Without this project even more capacity would be required on the West Coast Main Line.

 

  1. The port of Southampton is also growing and it is likely that in order to accommodate future increased demand a grade separation scheme will be required at Basingstoke.

 

 

HS2 Connections to Classic Network

 

  1. The released capacity delivered by HS2 could provide a once in a generation opportunity to grow rail freight volumes, however in the short term it will pose a number of challenges, particularly where the high-speed line joins the classic network.  This will be particularly notable following the opening of Phase 1 to Handsacre Junction (near Lichfield). 

 

  1. Freightliner is  concerned that prior to the introduction of Phase 2 to Crewe there will be insufficient capacity on the West Coast Main Line north of Handsacre Junction to meet demand for new HS2 services, classic passenger services and freight services.  This interaction between the high-speed line and the classic network therefore needs to be carefully managed to ensure that freight growth is not constrained.  We therefore support Phase 2 being expedited, as recommended by Sir David Higgins, and completed at the earliest possible opportunity so that the period during which trains join and leave the West Coast Main Line at Handsacre is at best eliminated or at least minimised.  

 

  1. Following the completion of Phase 2 to Crewe a similar capacity constraint may develop on the West Coast Main Line north of Crewe.  The Freight Market Study published by Network Rail indicates that an additional path per hour in both directions will be required to meet demand by 2033 north of Crewe (see Appendix B)[10].  This is already a busy, mixed-use line, and there is a risk that HS2 will constrain future growth. 

 

  1. As the requirements for the northern section of the West Coast Main Line will be strongly influenced by any future phase of HS2 linking Scotland it is important that the plans for the high-speed network are formalised so that the capacity and capability considerations on the classic network can be addressed.  While the topography along this stretch of line will present challenges it is an essential route for Anglo-Scottish intermodal traffic and we consider it to be a key area of consideration for future investments.

 

 

Please contact me at the above address if you require clarification or further information on the issues raised in this response. 

 

 

 

 

Peter Graham

Rail Strategy Manager

Freightliner Group Limited

June 2014

 

 

 

 

Appendix A: Demand Forecasts

 

The MDS Transmodal rail freight forecasts which were commissioned by Network Rail to develop the forecasts in the Freight Market Study are copied below. Key sections of the West Coast Main Line, East Coast Main Line and Midland Main Line are highlighted below and show unconstrained forecasts of freight demand in 2033 against the 2012 base. The map show the average number of hourly weekday paths required to meet predicted demand and are a sum of demand in both directions.

 

West Coast Main Line: Crewe to Stafford – 2012 Base and 2033 Freight Demand Forecast

 


Appendix B: Demand Forecasts

 

West Coast Main Line: Penrith to Carlisle – 2012 Base and 2033 Freight Demand Forecast

 

 

[1] Freight Market Study, Network Rail, October 2013

[2] Keeping the lights on and the traffic moving, 2014, Rail Delivery Group

 

[3] Keeping the lights on and the traffic moving, 2014, Rail Delivery Group

[4] Keeping the lights on and the traffic moving, 2014, Rail Delivery Group

[5] Estimating Freight Avoidable Costs, 2012, LEK

[6] Train mileage for Freight and Passenger Operators – table, Data Portal, ORR, 2013

[7] Keeping the lights on and the traffic moving, 2014, Rail Delivery Group

[8] Keeping the lights on and the traffic moving, 2014, Rail Delivery Group

[9] Freight Market Study, Network Rail, October 2013

[10] Freight Market Study, Network Rail, October 2013