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Improving Incentives on Network Rail and Train Operators

A Consultation on Changes to Charges and Contractual Incentives.
 

  1. Freight on Rail, which is a partnership of the transport trade unions, the rail freight industry and Campaign for Better Transport, thanks the ORR for the opportunity to comment on this consultation.
     
  2. The ORR consultation includes detailed questions on specific charges and incentives. We expect that some Freight on Rail members will respond to these in their own responses.  This response therefore highlights areas which we consider ORR must include in their impact assessment on any increases in the total level of charges and incentives which will apply to the freight sector.
     
  3. The PR18 review of charges is a critical process which will determine how ORR can also help to promote rail freight, in accordance with its statutory duties and current Government Guidance (see annex A)
     
  4. We believe that the ORR must take into account what the DFT Rail Freight Strategy of September 2016 said in relation to the ORR review of Track Access Charges, ( See Annex B)
     
  5. We also believe that account must be taken of the Scottish Ministers’ Guidance to the ORR. (Annex C)
     
  6. Furthermore we ask the ORR to take into account what the DfT Freight Carbon Review of February 2017 said about the role of rail freight when assessing charges -
    shifting freight from road to rail can result in significant CHG emission savings as well as economic and safety co-benefits’. 
     
  7. The Prime Minister, Theresa May MP, confirmed the Government’s support for rail freight at Prime Minister’s Question Time on January 25th. Her commitment now needs affordable freight access charges.
     
  8. For PR18 to deliver a successful outcome for freight, it will therefore need to provide a fair and pragmatic framework for operators and customers.  This should include;

    1. Ensuring that the total cost exposure for freight operators and customers is affordable, and does not lead to price shocks;

    2. Recognising Government’s ambitions for modal shift, and enabling this through recognition of competing road costs and incentives;

    3. Maintaining customer and investor confidence through a stable cost framework;

    4. Ensuring that any incentives are simple and effective, and work in both directions, so that operator and customer action is rewarded in the short and medium term, and that Network Rail can clearly identify the benefits achieved from freight actions.

  9. Need for holistic assessment of charges and costs
    Freight on Rail believes that the Government needs to have a holistic approach and treat all modes equally to achieve its economic, social and environmental goals. The new role of ORR monitoring how well Highways England (HE) is delivering against the performance specification represents a key opportunity to improve integration between the different freight modes.  ORR which says cost transparency is necessary to support effective decision making, already has core skills in assessing performance which it can use to analyse outcomes on HE projects, set benchmarking and monitor expenditure against budgets to allow more scrutiny. The ability to compare costs and subsidies across both modes is valuable as it will enable Government to fully compare the costs and benefits of different modes, social outcomes and opportunities for efficiency. The Government can therefore deliver its policy on a balanced playing field recognising the value equation between freight subsidy and the direct and indirect benefits to the UK economy.Decisions that influence modal shift and modal share will have an impact on actual costs of that provision. In previous Periodic Reviews, the potential for traffic to convert from rail to road has only been assessed as part of the economic analysis yet the impact on the road network of such a move has been limited only to social benefits.

    It would be counter-productive to price rail freight out of the market as it would force trainloads of freight back onto the road network where the Government and society would have to pay the higher external costs as highlighted in the DfT Rail Freight Strategy of September 2016. Paragraph 135 P42 - A significant increase in track access charges could result in some freight moving from rail to road, resulting in the associated economic and environmental benefits to the UK being lost.
     
  10. Lack of Internalisation of HGV costs
    Lack of parity makes it difficult for rail to compete on price and that is why the DfT awards Mode Shift Benefits grants in recognition of reducing freight’s external costs. Because HGVs are heavily subsidised and pay less than a third of the costs associated with their activities, it is difficult for rail to compete, especially in the consumer market, unless it is similarly compensated. We therefore believe that the Government needs to recognise road costs, such as road congestion, road collisions, road damage and pollution in any discussion about rail freight costs. The latest research commissioned by Campaign for Better Transport 1 , which used DfT Mode Shift Benefit values, found a high level of distortion of the market across modes - which equates to an annual subsidy of around £6.5 billion. The latest revelations show that there is a strong case for equivalently supporting rail through lower rail freight access charges and continued upgrades to the Strategic Rail Freight Network and other key routes in order to allow rail to compete more fairly with HGVs. Otherwise, HGVs’ external costs 2 will continue to be a huge problem to society and the economy. These conclusions are in line with two separate pieces of research
    a) MDS Transmodal study in 2007 which found a very similar amount of underpayment: £6billion.
    b) Transport & Environment Research April 2016 which also found that HGVs across the EU were only internalising around 30 per cent of their costs .
    Whilst we recognise that road and rail freight must work together to deliver efficient logistics for the UK, we do believe that all HGV’s external costs must be taken into account when examining options for rail freight costs and charges, and decisions around capacity. Therefore, we urge the Government to provide longer-term affordable track access charges for Control Period 6 (2019-2024 and beyond to give operators and customers certainty to invest.
     
  11. The rail freight industry has invested over £3 billion over the past ten years. In order for it to continue investing it needs to have confidence in the viability of the industry which fair and affordable access charges would provide.
     
  12. Latest rail freight growth figures show potential of industry as it adapts to steep losses in coal traffic.
    As your figures show, consumer traffic¸ which has increased all year, grew over five per cent in quarter three compared to last year, setting a new record for the highest amount of freight moved per quarter since quarterly figures were issued in 1998/99.  Similar positive results for the construction sector which has also expanded all year grew by almost seven per cent in quarter three.
     
  13. The socio economic benefits of rail freight
    Safety
    In 2015 HGVs were involved in almost six times more fatal collisions than cars on local roads with similar figures for the previous 2 years. Source: Traffic statistics table TRA0104, Accident statistics Table RAS 30017, both DfT

    Congestion
    An consumer freight train can remove 75 HGVs and an aggregates train can remove up to 160 HGVs – Network Rail Value of Freight 2013

    Road infrastructure Damage
    A six axle 44 tonne HGV are up to 138,000 times more damaging to road surfaces than a ford Focus – 4th power law

    Environment
    HGVs account for around 21% of road transport NOx emissions while making up just 5% of vehicle miles – DfT Freight Carbon Review February 2017- Page 7 paragraph 3

    Rail freight produces 90 per cent less PM10 particulates and up to 15 times less nitrogen dioxide emissions than HGVs for the equivalent journey. Highways England figures show that HGVs are producing around 50 per cent of the nitrogen oxide pollution from road pollution on the strategic road network even though they only make up 5 per cent of road miles driven in the UK.

    Rail freight produces 76 per cent less CO2 emissions than the equivalent HGV journey- Network Rail Value of Freight 2013

Annex A

Extract of Current Guidance to ORR from Secretary of State for Transport. http://www.railwaysarchive.co.uk/documents/DfT_HLOSGuidance2012.pdf

Rail Freight
32. The Government recognises the important role that rail freight plays in the nation’s logistics and in the achievement of the Government’s sustainable distribution objectives. The Government wishes to facilitate the continuing development of a competitive, efficient and dynamic private sector rail freight industry and is committed to ensuring that policies and regulations should work to this end and should not create unnecessary transactional costs or other obstacles to the achievement of these objectives and future growth.

33. In an industry where planning and operational decision-making are increasingly devolved, the Secretary of State wishes ORR to have regard, in exercising its statutory functions, to the importance of sustaining efficient and commercially predictable network-wide freight operations, including in decisions about access rights and charging structures.

34. The Secretary of State wishes the ORR, in developing any proposals, and in making decisions in relation to rail freight, to note particularly the Government's rail freight policy2. The Secretary of State wishes to be advised by the ORR of, and to discuss with the ORR, any material measure which the ORR proposes to take or policy which it proposes to pursue which would adversely affect the competitiveness of rail freight compared to other modes.

Annex B

DFT Rail Freight Strategy of September 2016 said in relation to the ORR review of Track Access Charges, the following extracts P10 Paragraphs 26/27, P42 paragraph 135 in italics-

26 At the same time, we recognise the positive benefits of rail freight for the UK- including its environmental and air quality benefits relative to road freight and its impact on reducing road congestion. These benefits are not currently recognised in the track access charging regime.

27 We will continue to support ORR’s work to develop appropriate track access charges for freight from CP6, including by understanding the overall impacts on the rail freight industry of any changes. Alongside this we are considering whether further support may be needed from Government in future in recognition of the benefits to the UK economy and society of modal shift to rail which incurs far lower congestion and pollution costs and helps to improve road safety. Any new support would be subject to the identification of future funding and would need to be designed in a way that would avoid distorting the market.

P42

Paragraph 135 - At the same time, we recognise the positive benefits of rail freight for the UK- including its environmental and air quality benefits relative to road freight and its impact on reducing road congestion. These benefits are not currently recognised in the track access charging regime.

A significant increase in track access charges could result in some freight moving from rail to road, resulting in the associated economic and environmental benefits to the UK being lost.
paragraph 136 -As set out in the Secretary of State For Transport’s guidance to ORR in July 2012, in setting track access charges we would expect ORR to note the government’s rail freight policy, including the importance of sustaining efficient and commercially predictable network-wide freight operations. The guidance to ORR also notes that the Secretary of State wishes to be advised by ORR of, and to discuss with ORR, any changes to the charges which ORR proposes to pursue which would adversely affect the competitiveness of rail freight compared to other modes.

Actions P43 paragraph 139 -DfT will continue to support ORR’s work to develop appropriate track access charges for freight from CP6, including the overall impacts on the rail freight industry of any changes. In particular, DfT is keen to support ORR’s work to ensure that decisions about track access charges levied on rail freight reflects the cumulative impacts of different charges on the rail freight industry and are joined up with Government decisions on wider support and funding to freight.

Paragraph 140 – DfT will continue to co-ordinate the work of the Freight Investability and Sustainability Group (FISG) to develop thinking on the potential for wider changes to funding alongside more cost-reflective track access charges for rail freight, including whether further support may be needed from Government in future to retain the economic and environmental benefits of rail freight. Any new support would be subject to future funding being identified and would need to be designed in a way that would avoid distorting the market.

Annex C

Extract of Scottish Ministers’ Guidance to ORR

Rail Freight

21. Scotland’s rail freight network is important to Scotland’s economy. Accordingly, the Scottish Ministers expect the ORR to pay due consideration to any changes to policy which may impact that network.

22. In developing the track access charges arrangements for freight operators, the Scottish Ministers expect the ORR to use a mechanism which recognises the impact that freight operators have on the network but maintains the attractiveness of rail to freight customers, and which is adaptable to prevent the outputs of businesses in Scotland from becoming uncompetitive in their key markets.

Philippa Edmunds, Freight on Rail Manager, Campaign for Better Transport March 2017

http://orr.gov.uk/consultations/pr18-consultations/consultation-on-changes-to-charges-and-contractual-incentives

 

  1. Addendum to Metropolitan Transport Research Unit MTRU 2014 report February 2015. Heavy Goods Vehicles – do they pay for the damage they cause 2014
  2. i.e. those that HGVs impose on others that are not included (internalised) in their normal operating costs
  3. page 22 of The impact of road pricing on freight transport in Great Britain A study for Transport 2000 by MDS Transmodal, June 2007
  4. Are Trucks Taking Their Toll

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