Market Developments

Figures from Network Rail for its billing of track access charges to Foc’s (freight train operating companies) shows that seven periods into the financial year, bulk traffics are keeping volumes up, including aggregates that have now recovered from the recession double dip. While there have been well-publicised problems with the UK steel industry which have affected its volumes by rail, intermodal traffic (while down this month) is now the biggest commodity on rail, having overtaken coal – largely as a result of changes in UK energy generation policy and carbon taxation.

The new £0.5 billion port and logistics centre at London Gateway has opened and the first train has run from it. This has great potential, especially as it has a new rail linked distribution park – something of a novelty given the recent and well- publicised difficulties in getting planning permission for such facilities in the south-east! Overall the rail freight market is 3.5 per cent up on last year.

The aggregates sector reports that it is flat out and would run more trains if it could: the key issues there are wagons, locos and drivers, and the need for weekend availability of the network at a time when engineering takes place.

Great potential of London Gateway

The developments at London Gateway offer great potential. While Felixstowe may be the port of choice for the logistics distribution centres in Daventry, it has comparatively little capacity to expand compared with what London Gateway has on tap. More rail freight train paths may be available out of London Gateway which could lead to modal shift. Important to this is that while trains outbound from Felixstowe are full, inbound is only around one third loaded. Arguably because of London Gateway’s location it has potential for more balanced loadings and filling trains on the return back leg, leading to better economics and less empty running that helps logistics triangulation. This all potentially helps return rates and makes more Trafford Park to London Gateway traffic possible even with the end road shunt leg. The retail sector in particular is interested in opportunities here.

Freight charges are going up

But perhaps now some not so good news… as FTA has commented (see Delivering the goods page 47 this month for the technical detail), rail freight track access charges are to go up for Control Period 5 (CP5) 2014 – 2019. While the increases imposed are towards the bottom end of the scale that ORR (the Office of Rail Regulation) consulted upon, and are to be heavily back-ended in their application toward the end of CP5, with some deferred in their application till CP6, the fact is that track access charges for freight are going up. This is in contrast to previous control periods where freight track access charges came down.

Two aspects are really disturbing here. Firstly that the principle of ‘marginal’ freight track access charging for the directly imposed wear and tear cost imposed on the infrastructure by freight trains is being increasingly abandoned in favour of targeting market segments deemed ‘inelastic’ and therefore able to bear mark ups in charging. This is allowed under the EC Directive that governs this area, but sends very negative signals to shippers contemplating investment in rail freight usage or modal switch.

The second disturbing aspect of this is the process itself. The consultation process by ORR has been inclusive and transparent…very transparent, very open, drawn out and very worrying for those involved. While the actual increases imposed are at the lower end of the scale consulted upon and back ended in application or even deferred, the higher end scale and other potential charges that were consulted on sent alarm bells ringing and have seriously damaged customer confidence. When rail freight assets have an economic life of 25 – 30 years with a business economic payback model of at least ten, then potential changes by ORR to the access charge costings of these at five-yearly periods can wreck the business case of this investment.

So the process clearly needs to change. There is an argument perhaps for a ten year control period rather than a five yearly one. Also while the regulatory independence from government of ORR is a wonderful thing, when as in this periodic review process it appears to have crossed the line into regulatory arrogance it is very dangerous and without democratic accountability. Until this Periodic Review the independent economic regulation delivered by ORR unlocked lots of investment for rail freight. This time ORR sets its face against advice from the industry and has damaged confidence in rail freight.

Channel Tunnel freight access charges

FTA has (see Delivering the goods July page 43) repeatedly called for Channel Tunnel freight track access charges to come down to facilitate usage of the tunnel at a scale of traffic that was originally envisaged at its construction. Currently it is under utilised and the significantly higher (than Network Rail’s) access charges for freight trains are the main reason. This is frustrating cross Channel rail freight to and from France, Germany and Northern Italy.

FTA has previously commissioned independent economic research into the effects of the current levels of charges and this demonstrated that if they were reduced then consequent increases in traffic would ensue. We shared this work with the European Commission, and earlier this year the EC sent a letter of reasoned opinion to the UK and French governments in respect of the Channel Tunnel, including on charging issues. FTA awaits the outcome of UK’s response with interest.

Mode shift grants

The UK’s state aid permissions for its mode shift grants regimes runs out in 2015 and the DfT is currently consulting with industry on the shape of the replacement regimes. There is little doubt that as a form of pump priming funding the mode shift revenue support scheme (MSRS) has been successful in getting new services started. MSRS ‘buys’ the environmental benefit of taking lorry loads off road and putting onto rail instead with consequent road congestion and traffic accident reduction etc benefits allocated a financial modelled cost. While Scotland retains a freight facilities grant for development of associated facilities, this was ended in England (it was temporarily ended in Scotland too but FTA managed to get it back).

Perhaps the question going forward is where and how can grant money be spent to best deliver the benefits of modal shift? One area that could be looked at is the provision of suitable container wagons, particularly for the increasingly popular 45’ domestic intermodal containers, as otherwise with them carried on 60’ platforms train length capacity is underutilised which skews the economics away from rail and in favour of road.

The Agenda for More Rail Freight

Retailers contributing to the On Track! report on retailer use of rail freight identified a familiar but solvable list of factors that will help continue the growth in domestic inter-modal freight services.

  • increased service frequency to match product lead times
  • more flexible timetables and service versatility
  • the ability to expand train capacity when needed
  • seven-day a week service to avoid spot road freight costs at weekends
  • more rail freight terminals
  • temperature controlled containers, particularly for frozen food
  • pooling of loads to create viable train loads
  • faster processing of new train paths
  • continuous improvement to reduce costs and maintain competitiveness
  • improved visibility of costs to assist partnership working
  • continued government funding and grant support
  • consistent measure of environmental benefits of rail

FTA wants to work with shippers to expand the above into a list of outputs necessary for increased retailer and shipper use of rail freight. This will form the agenda for FTA’s policy work on rail going forwards. This was agreed at FTA’s July Rail Freight Council that focused upon market developments in rail freight over the next 12 – 24 months of interest to shippers.


With all of the very public debate surrounding the value for money and business case of HS2, FTA wants there to be certainty that the released capacity on the network gained by taking higher speed intercity trains off and putting them on HS2 will actually translate into usable freight train paths. And that’s not counting the pathing issues with more passenger trains on WCML north going to and from the junction with HS2 and over Shap and Beattock given that HS2 will not be going to Scotland (at least not initially).

Freight Transport Association

Further information on FTA, its membership and its policy work can be found at FTA’s Rail Freight Council, which drives FTA’s rail freight policy agenda and comprises all parties to the rail freight supply chain: shippers (bulk, retail and manufacturing), logistics service providers, rail freight operating companies, wagon builders, ports, infrastructure operators and Network Rail.

Chris MacRae is secretary to the FTA Rail Freight Council. He can be contacted at