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Freight on Rail response to the Transport Select Committee inquiry on Brexit.

June 2018

Thank you for the opportunity to comment.

Freight on Rail, a partnership of the rail freight industry, the transport trade unions and Campaign for Better Transport, works to promote the economic, social and environmental benefits of rail freight to local, devolved and central Government.

Question 1 the adequacy of steps being taken by freight companies, their representatives bodies, their customers and the Government in preparation for the challenges and opportunities of Brexit;

  1. The ongoing lack of clarity makes it hard for the sector to plan for the future. The precise terms of the new deal may not be known until quite close to the end of the two year period since Article 50 was invoked leaving little time for business to prepare and avoid the perils of customs procedures. Business may have to accept that much EU legislation will continue to apply domestically as the price of securing good access to the European single market.
     
  2. Question 2 The scale and nature of the challenges and opportunities Brexit presents to UK freight companies and their customers;

    Background
     
  3. The latest KPMG analysis for 2016 showed rail freight generated economic benefits for UK Plc of £1.73bn, which included productivity benefits of £1.17bn for Britain’s businesses and externality benefits of £0.56bn, through lower road congestion and environmental gains.

    There is an opportunity to put rail freight, of which two thirds is port related, at the heart of post Brexit trade links as long as the Government sets up the right regulatory framework and infrastructure upgrades to allow as frictionless trade as possible. Trade is at the core of the economy, and as Brexit forges new global trading arrangements, we need efficient freight and logistics links to deliver exports to market and imports to our consumers and manufacturers. Rail freight is a key part of this, with strong links to ports and Chanel Tunnel. Government needs to support these links, through streamlined customs procedures, investment in infrastructure and ensuring seamless international journeys by rail can continue.
     
  4. The EU Single Market has enabled British and European railway operating and manufacturing companies to set up complex supply chains and services that benefit competitiveness, growth and employment in both economies. With much at stake, rail freight industry urges the Government to take into account the needs of the industry in its negotiations between the UK and the EU27.
     
  5. Significant legislation regarding international and domestic rail travel originates in the EU. The rail freight industry welcomed the agreement in principle of an implementation or transition period as all the risk mitigation measures arising from Brexit require time to either put in place procedurally or build infrastructure for operationally.
     
  6. The least favourable outcome for business would be a no-deal Brexit. A no deal scenario would mean that as of 29 March 2019, the UK would not only cease to be a member of the European Union, it would also leave its Single Market and its Customs Union without any new agreement in place. The rail industry wants to avoid this and will cooperate with government to find suitable outcomes and secure transitional arrangements.
     
  7. Rail freight services commenced operation through the Channel Tunnel in 1994 as a collaborative effort between British Rail (Railfreight Distribution division) and SNCF Fret. Since the commercial opening, the tonnage of freight carried by rail through the Tunnel steadily increased from just below 0.5 million tonnes in 1994 to a peak of 3.14 million tonnes in 1998.1 During this time over 40 trains per day were using the route.2
     
    Since the traffic peak, cross-Channel rail freight traffic has faced a number of issues which have had a negative impact on the volume of traffic. A combination of issues including security concerns initially raised by the migrant crisis and major strikes by railway staff in France created a decline in users of the route. However, with renewed efforts by the parties involved, there are signs that traffic is returning to the route, with new flows being won by rail freight operators in 2018. There is potential to increase this traffic, moving freight onto rail from other modes with the associated environmental and social benefits.
     
    In 2017 1.22 million tonnes of freight were moved by 2,012 trains, predominantly as import flows into the UK reflecting the balance of trade between the UK and the EU. 3 Rail freight traffic represents 6% of the total freight tonnage conveyed through the Channel Tunnel.4
     
  8. Currently two freight Railway Undertakings (RUs), DB Cargo and GB Railfreight (GBRf), are licensed and hold Safety Certification to operate through the Channel Tunnel. These companies are the only ones in the UK and France that operate the Channel Tunnel compatible Class 92 locomotives.
     
  9. In the UK, DB Cargo and GB Railfreight are the main operators of services to/from Dollands Moor and through the Channel Tunnel to France. Rail Operations Group and Colas also operate occasional trains to/from Dollands Moor for onward movement through the Tunnel. In France services to/from Calais Fréthun may be provided by Euro Cargo Rail, SNCF Logistics or LINEAS (B-Cargo).
     
  10. International freight is key to keeping a viable economy. The core commodities still require shifting and to an extent UK might look a little more to world trade links with more port focused intermodal trade.
     
  11. Rail freight is dependent on a viable economy requiring the supply of products and goods. 40% of our UK trade is with mainland Europe and that is not going to change.
     
  12. Government policy across departments supports expanding rail freight
    The Department for Transport rail freight strategy of September 2016, supported by the industry, makes the case for rail freight which is very important at this juncture as it will give the industry and its customers the confidence to carry on investing in the sector.
     
    DfT Ports Connectivity Study, published in late April, stated that upgrading the rail freight connections to our ports is critical to providing sustainable efficient freight distribution. The study identifies key routes which need enhancing so we urge the Government to commit funding to these projects to make them happen.  It also calls for a more holistic, multi-modal approach to freight infrastructure planning as the UK prepares to leave the EU. 
     
    A number of infrastructure enhancements have already been delivered through the Strategic Freight Network which has been instrumental in expanding the consumer market. Further but as yet unfunded enhancements are planned in the industry’s next funding period, Control Period 6, to create much needed capacity and improve efficiency.
     
    We would urge the Government to ensure there is alignment in the potential benefits identified in this study and other freight studies being undertaken across government, most notably the National Infrastructure Commission Freight Study which will inform Government freight policy. Freight on Rail responded to the consultation and is engaging with the NIC team. 

    Defra Clean Air Strategy supports modal shift to rail.
    The strategy states that the Government will support industry research into rail freight emissions and air quality to enable better comparisons with HGV emissions, to understand how a shift from road to rail can best be used to deliver a reduction in emissions of air pollutants. 
    It commits to Developing and deploying cost-effective options for shifting more freight from road to rail, including low emission rail freight for delivery into urban areas with zero emission last mile deliveries
     
  13. As the committee knows, rail freight has a key role in servicing the economy in a safer, less polluting way which reduces road congestion and road damage. http://www.freightonrail.org.uk/FactsFigures.htm
     
  14. Road and rail freight complement each other and it is crucial that both modes play to their strengths to offer an integrated supply chain to customers who are largely mode agnostic.  In particular, rail freight is best placed to provide long-haul trunk services for consumer products (container traffic) as well as the traditional bulk services.
     
  15. Environmental social and economic benefits of rail freight – it imposes much lower external costs on society than HGVs as stated in the DfT Carbon Review of February 2017 Shifting freight from road to rail can result in significant CHG emission savings as well as economic and safety co-benefits.
     
  16. However, it remains difficult for rail to compete with HGVs on consumer traffic because the latter only pays for around a third of its congestion, social and environmental impacts.
     
  17. There is considerable suppressed demand for both construction and consumer services, because of the limitations of the rail network. Therefore, it is key that the Government funds rail freight upgrades on the network to reduce freight’s external costs to society by removing HGVs from our roads. Our latest research,which uses DfT values, shows the extent to which hgvs are not paying for their external costs.
    http://www.freightonrail.org.uk/PressRelease20-03-2018-Flawed-report-uses-out-of-date-figures-to-falsely-claim-HGVs-pay-for-the-damage-they-cause.htm
     
  18. The strong benefit cost ratios for freight enhancements, typically in the range of 4:1 to 8:1, highlighted in the latest Network Rail Route Strategic Plan, should be factored into investment planning. Targeted rail freight upgrades work; the gauge upgrades out of Southampton Port increased rail’s market share from 29 to 36 per cent within a year and had a benefit-cost ratio of five to one.
     
  19. We are not expecting a substantial change in the current Government’s approach to rail regulations in relationship to Brexit.
     
  20. Separate challenge to rail freight from Government re-organisation of rail policy introducing partnerships  as announced in DfT Rail Strategy in November 2017
     
    The structural changes to integrate track and train introducing vertical integration, under the current privatised model could have detrimental impacts on freight and other open access operators unless their interests are protected.
     
    However, the partnership agreements being rolled out between Network Rail and the leading Toc, under the current privatised model, present uncertainty for freight and other open access operators who could be penalised unless the governance is strong with clearly defined obligations. The lead TOC must be incentivised to support and promote more rail freight. It will be paramount that the Network Rail system operator function sits above these partnership and controls timetabling. There will need to be ‘Chinese walls’ between Network Rail system operator and NR departments involved in the emerging partnership. The Focs must not be disadvantaged in getting additional capacity for new flows or getting workable diversionary routes during possessions. It should be noted that Transport Scotland has included rail freight growth targets in its Rail Strategy which is helpful for incentivising growth.
     
  21. Whilst the UK has its own regulations on the environment and habitats the interpretation of these regulations has been fundamentally shaped by EU jurisprudence.
     
  22. We would not expect the UK to move to an entirely unregulated planning position as the consenting framework is established in the English Scots and most recently Welsh planning systems, however it may be that the approach to environmental considerations becomes less rigid and starts to diverge from the EU position which could be a threat to the environment and well-being of citizens. The recent revision of the NPPF was an example of were environmental and social protections were weakened.
     
  23. Funding for the next control period is tight. This could affect the scale and rapidity of capacity improvements which are key as there is pent-up demand for rail freight services, especially in the consumer sector.
     
  24. What happens to mega projects like third runway and HS2 will be important- rail freight was key in supplying materials and removing spoil for Crossrail, the Olympics and Terminal 5.
     
  25. Since EU railway reform legislation was introduced in the early 1990s, the EU has had a significant impact on the structure, funding, regulation and standards applied to Europe’s railways. EU controls how the UK track access charges are set, freight pays marginal costs.  Unclear what impacts Brexit will have at this stage on freight access charges longer term. The ORR is issuing its draft determination of freight access charges on 12th June with final determination due in November.
     
  26. We summarise the following key requirements:
     
    • Smooth cross border transport: Passenger and freight train operators need to access rail infrastructure without undue cost, delay or operational boundaries;
       
    • Reciprocal market access: The rail industry needs an agreement which allows reciprocal market access to both EU and UK railway;
       
    • Access to skills: The industry relies on continued access to skilled workers to continue operating and upgrading, to support economic growth. Government and the industry must work together to ensure the industry can have access to a sufficient number of skilled workers to either train domestically or from the EU;
       
    • Clear application of railway standards: The sector needs continued influence over EU standard design by maintaining influence in the design of European standards and continued recognition of EU standards by the UK government;
       
    • Greater clarity on customs controls and a risk-based approach using digital processes to mitigate against risks imported by Brexit;
       
    • Alignment in approaches to future infrastructure planning across government;
       
    • Clarity about the level of funding of freight enhancements in the industry’s next funding period;
       
    • Certainty about the level of regulated track access charges in the industry’s next funding period;
       
    • Sufficient time via an implementation period and certainty of the legal and regulatory framework after Brexit.
       
  27. Brexit Challenges

    Experience shows that freight movements are strongly driven by national and international distribution patterns and by appropriate cost criteria. Companies will therefore only use ports that fit, operationally and financially, with their logistics and distribution networks and plans.

    In order to not only preserve the existing freight flows but also grow the market, regulatory and infrastructure modifications will have to be made. It should also be noted that provisions will not only have to be made in the UK but also in France as any delay or issues on mainland Europe will create knock-on impacts for the GB rail network.
     
  28. Question 3 mode and/or sector-specific requirements for additional Government funding, or other changes to Government funding plans, particularly in relation to transport infrastructure, to support the needs of freight; and

    Investment will be required to allow rail to play a full role in serving increased traffic through the ports As mentioned before, there is suppressed demand for services.  Further investment in the provision of enhanced capacity and  loading gauge capability is required.
     
  29. So, in the context of Brexit, there is a strong case for upgrading rail freight links to ports and conurbations in the near future to build effective trade links in order to shift traffic from HGVs to rail to relieve congestion at ports.
     
  30. The effects of Brexit on the British economy remain uncertain but, whatever the outcome, the UK will continue trading with other countries and so the ports, will remain a vital link in the trade routes, whatever changed or new patterns of movement emerge.
     
  31. Also unclear at the moment is the impact of any new customs clearance processes and procedures introduced as a result of Brexit. It is essential these are “frictionless” to enable the ports to continue to operate efficiently and not be the cause of delays that would adversely affect the transport operators, including rail freight, serving the ports.
     
  32. While the effects of Brexit on Anglo-Irish trade including the mechanisms adopted for the border between Northern Ireland and the Irish Republic remain uncertain, EU-Irish trade will remain hugely important. Currently this moves by a combination of direct sea shipments between Irish ports and mainland European short-sea ports and of “landbridge” movements involving two short-sea crossings (Ireland – UK, including Welsh ports, and UK-Europe, including the Channel Tunnel) and a land transit of the UK. Frictionless customs procedures will be essential if the latter flows are to remain a major part of overall movements between Ireland and the rest of the EU.
     
  33. Government’s ports’ policy will therefore need to be geared towards a flexible approach to an evolving situation. The major risk is clearly a further diminution of trade if UK plc’s economy shrinks post Brexit, but there are additional risks if effective arrangements for handling Irish “landbridge” traffic are not put in place to ensure its movement remains both cost and time effective.
     
  34. Current EU position offers various options for potential customs and regulatory solutions but anticipates that controls and checks on both sides of the border between the UK and EU will be unavoidable.  Businesses need re-assurance on future trading arrangements, the outcome could be damaging to deeply integrated supply chains, which often rely on just-in time production processes; during the manufacturing process, automobile parts commonly cross between the UK and different EU member states several times.
     
  35. The reality is that goods move seamlessly across our borders today with only minimal customs checks and no need for lengthy inspections at the borders that can delay the process. In many cases documentation for a trainload can be sorted at the origin with no further paperwork throughout the journey to destination. Getting more freight can help alleviate the congestion at ports by reducing the number of HGVs. FTA say that a small delay of two additional minutes per truck could result in tailbacks of 29 miles at the borders during peak houses as demonstrated by Imperial College research.
     
  36. The rail freight industry has been very clear on the need to ensure no barriers to trade with the European Union, and this includes checks imposed on trade at the border, as well as non-tariff barriers and red tape for traders and logistics companies alike. Exports to the EU from the UK are currently worth more than £240 billion, and imports exceed £320 billion – delays experienced by logistics operators while transiting between countries will increase costs, making goods and services more expensive to the end user, and this is something which FOCs have been lobbying hard to avoid.
     
  37. As it stands, checks and controls will be unavoidable; cumbersome rules of origins fall short of giving guarantees to traders. To protect trading relationships and deeply connected supply chains, the rail freight industry is urging both negotiating teams to bear in mind the effect of potential delays on economies on the two sides, and to prioritise the scrapping of potential barriers as negotiations on the future relationship develop.
     
  38. Question 4 -any new arrangements needed for the licencing, regulation and training of operators and workers in the freight sector after Brexit (including the adequacy of measures set out in the Haulage Permits and Trailer Registration Bill).
     
  39. Establishing additional related activities on the port estates can significantly increase their attractiveness to shipping lines and ferry operators. Changes in supply chain patterns, including the establishment of regional and national distribution centres at ports, (“Port-Centric Logistics”) are already occurring elsewhere in the UK and could form the basis for developments at ports. Such developments require both investment, including the provision of effective rail and road connections, and an appropriate policy framework.
     
  40. DfT has long pursued a policy that, in general, the sponsor of a port development should also contribute to the costs of any enhanced inland links required. While there is a role for developer contributions to local requirements, which can be closely linked to the specific growth arising from the development, it does question whether this principle should extend, for example, to the strategic rail and road networks. The costs of rail enhancement schemes are significant and, if the port developer is expected to fund in full the capacity it will use, it is likely that the level of costs could become a barrier to the port investment itself.  Care must be taken to balance the expected contributions against the need for developments to proceed and, where such developments are expected to provide wider economic benefits, we would expect this to be taken into account.
     
  41. Until there is clarity on the terms of the UK’s exit from the EU, the UK legal and regulatory framework remains the same.  The industry will be providing re-assurance to customers.

    Tariffs
     
  42. Structures should not impose extra charges which make business unprofitable. We are press for tariff-free trade and need to make the movement of goods as easy as possible.
     
  43. At the moment, the EU minimises the tariffs and paperwork on goods movement but requires unfettered movement of people across borders as an essential pre-condition.
     
  44. British business will still be able to sell to European customers and buy from European suppliers but there is a risk that this will come at additional costs and with strings attached that will make goods less competitive than they are now. Additional costs could come from new customs tariffs that the EU impose on British exports which could add up to 20% to the price of british goods in Europe and so-called non-tariff barriers like new documentation required to prove where goods were made and that other standards have been met for customs purposes. Producing them for inspection at border crossings also introduces delays and uncertainties on shipments.
     
  45. New trade arrangements should not add red tape or make British goods more expensive. Cross channel and cross – border security could be most effectively maintained by retaining borders checks in Calais.
     
    Brexit impacts
     
  46. Leaving the customs union is highly likely to cause congestion at ports which might affect rail freight through general pressure on all port services.  The Focs said this would affect train filling and loading surpluses. The original Channel Tunnel legislation allowed for all inland terminal destinations to be customs controlled but not all terminals kept this facility. Trafford Park does.  It proved very useful for rail freight from Italy so providing customs clearance function to all inland rail freight terminals would be a  positive move for rail freight from Brexit.

    Legal or regulatory requirements
    Two examples of legal or regulatory requirements for smooth cross border transport post-Brexit are outlined below.
     
  47. Train driver licences
    The Train Driving Licences and Certificates Regulations 2010 implementing 2007/59/EC facilitate the mobility of EU train drivers by specifying common conditions and procedures for certification on rolling stock. These regulations provide assurance for international freight train drivers that they are authorised to operate in the EU.
     
  48. In order to maintain smooth cross border transport for freight there must be mutual recognition of these licences between the EU and UK. Without this, train drivers may have to change in the Channel Tunnel or carry two licenses. Either of these scenarios will incur costs and potentially create delays.
     
  49. Operational licences
     
  50. The Railway (Licensing of Railway Undertakings) Regulations 2005, implementing 2004/49/EC require most freight operators to hold an appropriate European licence – in freight’s case, this is a European freight licence issued by the ORR. However, post-Brexit there would be a need for mutual recognition of licences in order to operate between countries in an efficient and cost-effective manner.
     
    As with the train driver licensing issue, mutual recognition of licenses is the most elegant solution, minimising costs and delay.
     
    Infrastructure or operational requirements
     
  51. Interoperability
    In order for a train to run across the border between the UK and France, and indeed beyond, both the rolling stock and the infrastructure must be interoperable. This means that certain basic standards must be respected so that the train can travel seamlessly. This is usually achieved by the application of technical specifications for interoperability, or TSIs. These are explained in more detail in section 3.1.3 including the GB industry position on their application both to domestic and international routes and how the UK can go about influencing them.
     
    Any international routes, including where necessary beyond the Channel Tunnel, and rolling stock that crosses borders must be interoperable otherwise international rail freight would have to cease.
     
  52. Customs
    As a consequence of the UK joining the Single Market in 1994, the need for full customs clearance facilities diminished. Therefore, after several years of operation of the Willesden facility, HM Revenue and Customs (HMRC) de-staffed the facilities and maintained surveillance of Channel Tunnel rail freight based on an intelligence approach. This more pragmatic approach resulted in fewer physical inspections being carried out.
     
  53. If the UK leaves the Customs Union not only is it highly likely that border checks will increase, slowing down goods, but additional facilities will have to be provided if freight is not to be queued on the network, disrupting other traffic.
     
    Greater clarity on customs controls is needed and  the Government needs to implement a risk-based approach using modern digital processes in order to mitigate risks imported by Brexit. However, the industry is also taking action to investigate the possibility of ‘inland customs clearance facilities’ in order to move potential congestion away from the border.
     
  54. Infrastructure requirements
    The rail freight sector is very interested in the ports’ ability to cope with any new legal or regulatory regimes that increase the dwell times at port rail terminals. Additional infrastructure may be required to manage trains in depots for longer periods or to store goods. On a network that is the second most intensively used in Europe, any delays could have an impact on domestic freight services.
     
  55. Government must also provide clarity on the funding of rail freight enhancements in the industry’s next, funding period to enable freight operators and customers to plan their businesses with certainty.
     
  56. Rail Freight Corridors
    The European Commission sought to support the rail freight market through the establishment of rail freight corridors. By virtue of Regulation 913/2010 concerning a European Rail Network for Competitive Freight, the UK is a member of Rail Freight Corridor 2 (RFCNSM). Once the UK leaves the EU, this regulation, unless appropriately incorporated into UK law under the European Union (Withdrawal) Bill will mean the British rail industry will no longer have elements of the framework to be a member of RFCNSM. Whilst this may not prevent membership of RFC the rail freight industry proposes ‘transposition’ via the Withdrawal Bill.

    The rail freight industry has identified a number of strengths of the Regulation and opportunities if it remains a member of the corridor. As such the industry would like to become an associated member of RFCNSM. The FOCS believe that RFCs are a good basis on which to build a competitive and attractive rail freight sector helping to overcome operational barriers such as national rules and procedures. Furthermore, the corridor concept is important and developing cross-border traffic. Although traffic is currently at relatively low levels the corridor is essential to increase competitiveness of rail freight and achieving modal shift. Benefits include (but are not limited to):

    Consistency for applicants with clear access and certainty;
    Greater certainty for British operators going into mainland Europe and vice-versa;

    The Corridor Information Document (CID) is a useful and comprehensive source of information;

    The Corridor One Stop Shop (C-OSS) provides a collaborative framework; and clear and targeted route of collaboration with Eurotunnel.

    In addition, the corridor will provide an invaluable platform for exchange post-Brexit. Where the UK will not be integral to the EU, remaining inside an organisation such as RFCNSM, will provide a forum for the industry to maintain relationships. Furthermore, it will be powerfully symbolic. If the industry demonstrates its commitment to such a European project, it may buy us political capital in other areas.

  57. Standardisation

    The railway standards framework is formed at all levels; International, European and National. Some standards are mandated through legislation (approximately 20% of all EU standards 5), whilst other standards are left for the rail industry to adopt either through contractual arrangements or adoption through a company’s own management system.

    At a European level, there are mandatory requirements contained in European Regulations called Technical Specifications for Interoperability (TSIs) developed by the European Union Agency for Railways (The Agency). The primary purpose of the TSIs is to harmonise requirements across Europe to the extent necessary to meet objectives of European legislation; namely to open up and grow the European rail market for products and services and facilitate cross-border traffic with the aim of effectively making the key aspects of the whole EU railway network ‘technically the same’ so that, in theory, any TSI compliant European train could operate anywhere on the whole EU rail network. As such, the TSIs are essential smooth for cross-border transport as outlined in section 2.1.3.

    Many of the TSIs have an impact on rail freight including:
    Locomotives and passenger rolling stock, LOC & PAS TSI
    Noise, NOI TSI
    Wagons, WAG TSI
    Infrastructure, INF TSI
    Energy, ENE TSI
    Control and Command Signalling (including ERTMS), CCS TSI
    Safety in railway tunnels, SRT TSI
    Operations and traffic management, OPE TSI
    Telematics applications for freight service, TAF TSI
    The rail industry is currently leading two pieces of work in relation to TSIs, influencing their formulation and application.

  58. The UK’s membership of the Agency will cease on ‘Brexit Day’ and the Government has indicated that it is not seeking bilateral membership as currently enjoyed by Switzerland or Norway. This means that government and the industry will lose their opportunity to influence the TSIs in their development; something it has done very successfully in the past.

  59. Conclusion

  60. The ideal solution is a workable agreement between the UK and the EU which benefits both parties. Frictionless trade needs to be at the centre of negotiations for the future relationship between the UK and the EU.

  61. On the one hand there is UK’s potential for forging new trade relationships around the world after exiting the EU. On the other, the need to achieve new customs arrangements that facilities the freest and most frictionless trade possible in goods between the UK and EU. There is a recognition that whilst there is the potential for trade outside the EU, the Customs code has had a benefit in supporting trade with both the EU and countries outside the EU. 
     
      

1. Analysis by SNC Lavalin.
2. Ibid.
3. Ibid.
4. Ibid.
5. British Standards Institute (BSI)


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