Diversity holds the key to freight’s future

“There are a lot of details which are not in the Report, but I didn’t necessarily think there would be. I didn’t expect Annex A to say precisely how a system operator would work, and it would have been beyond what I expected Shaw to do. But she categorically says there should be a strong central system operator and controlled timetabling.

“We have to work out what it all means, but the fact she has said these things is affirmative because there were other models out there that didn’t have them, which other people were talking about. 

“That is the direction of travel, and it could have set a very different one.”

Although broadly optimistic of the trajectory Shaw has set for a decentralised railway, Simpson reserves some scepticism for Shaw’s much publicised recommendation to introduce private capital and investment in infrastructure. While ruling out wholesale privatisation or selling off assets, the report alludes to route-based concessions that would keep infrastructure in public hands, but allow private concerns to operate, maintain and renew assets for a fixed period (of perhaps 20 to 30 years).

Opening up extra income streams from letting assets would seem to be a no-brainer for NR in the current financial climate, but concrete proposals for how third parties would profit from such an arrangement are seriously lacking. 

“If you have £50 million, why would you want to spend it on the railway?” adds Simpson. “That’s the question you’ve got to ask. The railways aren’t a charity, so if someone puts money in they’re going to want something back, which is where it starts to get quite difficult. 

“A local authority might invest for non-cash regional benefits, but a global investor is more likely to ask: ‘where’s my return?’ and ‘what’s the tariff I can get for every extra train that uses it?’. That’s very difficult for freight because under the access charge scheme we only have to pay a mark-up if we can afford to do so. 

“The Shaw Report mentions a potential concession on the Essex Thameslink franchise to renew the signalling. But if that increases capacity, which trains pay? Is it just the c2c passenger trains that pay more? If we run an extra freight train does that service pay more? And if that train paid more just because it tipped the balance and a pre-existing service pays less, it’s probably anti-competitive, so how are we going to deal with those things?” 

Simpson believes that to hold up High Speed 1 as an exemplar of a scalable concession model (as the report does) is problematic, because of the line’s relatively young age compared with the rest of the network. A further problem arises in that most historical examples of private sector investment in freight-only infrastructure do not fit easily into Shaw’s definition of third party investment. 

Incentivising ports and rail-connected distribution centres to increase capacity by investing in infrastructure on their own land will remain difficult if NR chooses to prioritise concessionary arrangements on the assets it holds itself. Effectively, this puts a brake on other privately led schemes to increase freight, says Simpson.  

“If I take a recent example, we’ve had ports that have spent very significant amounts on rail infrastructure within their port estates. That isn’t what Nicola Shaw means by third party investment in the railway yet that action will mean that freight trains can leave the port longer, for example. Longer trains mean more goods on fewer trains. That’s third party investment delivering capacity on the network, but it doesn’t get banked because it is not building tracks, sleepers and signalling. 

“So, if we’re prepared to prioritise investments according to third party contribution, if we want to lengthen a freight loop because that will enable a longer freight train to run, and someone’s built a new port terminal that links to that, does that count? Or does it only count if they chuck in some cash to the loop? There are a lot of things that have to be sorted through for what it means, and what prioritising according to that means. 

“Brand new infrastructure doesn’t need any major investment for some time. It doesn’t need any enhancement, and traffic levels are fairly stable, so you can run a concession that leaves everything the same for 35 years and returns cash straight to an investor. If we take HS1 as the only example we have of a concession, I persistently struggle to see other parts of the network characterised in the same way. 

“I’m not saying we should stand still, but if you think about the detail of what a concession is, in order to get a concession that’s good you have to answer those questions.” 

Away from disseminating the contents of the 130-page Shaw Report and its implications for rail freight, the minds of senior management teams at the freight operating companies (FOCs) will be focused on the replacement of large volumes lost to the shrinkage of the coal market. 

According to the Office of Rail and Road, the amount of coal carried in Q3 2015/16 was 43.9% less than in the corresponding three-month period in the previous year. 

In Scotland the volume of coal carried is predicted to drop from two million tonnes to 0.5 million tonnes annually within the next five years. The end of all indigenous production of coal following the closure of Kellingley Colliery in December 2015, and an accelerated programme of bringing coal-fired power stations offline, sparked a disastrous decline in volume that had been impossible to anticipate in its pace and scale. 

Simpson calls this the “cliff edge”, but standing firmly by the age-old maxim that necessity is the mother of invention, she is confident that there are ample opportunities to pick up new business. This will provide the added bonus of offering a broader range of income streams, reducing the freight sector’s exposure to a similar catastrophic contraction in output from a single source. 

“Nobody expected we’d be carrying coal in 2030 - what’s shaken the market is the rate of that decline,” she says. 

“If you look at what it means for an FOC, you would be looking at issues like how long do you have your wagons on-lease? How many drivers are you planning to recruit? And that was done against a profile of a less dramatic decline. Of course people knew that coal was going to go away, but they’d planned on a decline to 2020 rather than the cliff edge that we’ve seen.

“You can’t begin to underestimate the impact that’s having on the FOCs’ business, by holding resources that are still on-lease but not being used. Any business that loses its customers overnight is going to feel that pinch.

“But it’s not just about that, it’s what you do about it. There’s no point looking back - you have to look forwards and work out what you’re going to do about it. It’s for each individual FOC to decide how they’re going to play that card, and they’ll take different business strategies in how they’re going to do that.

“And it is causing people to start thinking about things they wouldn’t have thought about before - collaboration, technology and joint ventures.”

Facing the parallel threats of a freeze in road duty for road hauliers and of freight flows lost to alternative modes of transport as a result of the disruption caused to cross-Channel rail services by the ongoing migrant crisis at Calais, Simpson identifies the intermodal, automotive and construction sectors as the most promising areas for rail to increase market penetration. 

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