ORR’s proposals include a freight specific charge, variable usage charge and ‘geographic’ charging – all of which could see the charges freight operators pay to use the network increase, which will inevitably be passed to the end customer sooner or later.
The changes represent a clear shift in ORR policy, which up until now has been to reduce freight Track Access Charges (TAC), leading to freight growth. ORR has a statutory duty to promote rail freight as well as having regards to the funds available to the Secretary of State for Transport and Scottish Ministers. It now seems that the latter is taking precedence over the former.
However, if you were to assume that all freight TAC will go up, the fact is it’s not as simple as that. Actually it won’t necessarily – at least not yet, and not for all sectors… confused? Yes you should be! ORR is seeking to maximise recovery of ‘freight avoidable costs’ and it also wants to look at putting mark-ups on the TAC charged to rail freight sectors where the market can bear this, which EU law allows.
The ORR has therefore chosen the electricity supply industry (ESI) coal, spent nuclear fuel and also iron ore to bear this. Leaving aside whether or not they can bear this (and the first and last of these sectors certainly say they can’t), the situation is confusing for those in, say, the intermodal or retail traffic sectors, who might think it applies to them, or possibly will at the next five year Control Period.
The ORR’s definition of a freight market segment that is inelastic and can bear these additional charges is if no more than 10 per cent of rail traffic in that sector were to move back to road as a result of the increases. So, in an age of EU modal shift targets as highlighted in the White Paper on transport, it’s OK to shove 10 per cent of ESI coal traffic to power stations off rail and onto Britain’s road network?!
At the same time, ORR wants to introduce ‘geographic’ track access charging, or in its economists’ jargon; ‘cost reflective geographic disaggregation of charging’. In plain speak, this means a route that is hillier or curvier with more bridges and structures, tunnels, embankments, cuttings etc. will cost more to use. This could seriously skew the market in terms of routes to ports. It also adds so much more complexity to rail freight operations. How do you account for diversionary routes during engineering work for example?
For rail to win more business, it has to offer a seamless service more akin to road freight logistics. A criticism often voiced by those who have considered but not pursued rail freight is that it is more complex to price and use than road – this will make it even more so.
Overall, this is seriously spooking the rail freight market, not just operators and logistics service providers, but also terminal owners, developers and end customers. Investment in rail freight assets has an investment pay-back period beyond that of the ORR’s five year Control Periods.
As well as that, boards of European and global plc’s are just not going to sign off such long-term investments when their financial basis can be destroyed by ORR changes. This affects operations and jobs in Britain; in a globalised economy steel makers and aggregates companies will take their investment abroad and source their products there. But such concerns are not part of ORR’s duties. A specific concern is the Scottish ESI coal supply industry, which could be wiped out by this. Scottish Government is concerned.
FTA has lobbied ORR on all these issues, helped its members in one to one meetings with ORR, lobbied MPs and MSPs in Westminster and Holyrood, while trying not to put shippers off considering rail freight as we develop our Mode Shift Centre. But now we do need to signal such alarm in public.
It’s also ironic that the Westminster and Scottish Governments are investing £230m between them in Britain’s rail network to enhance it for freight in 2014 – 2019 while at the same time ORR is threatening to wipe out the benefit of that investment.
Come on ORR, get out of the economists’ text book and realise how real businesses have to operate and compete in a global economy!
Chris MacRae is rail freight policy manager at the Freight Transport Association.