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INFORMED SOURCES July 2003

Freight – less can be more?

Rail freight is carrying fewer tonnes further. Does it matter?

Any statistic preceded with the qualification ‘since privatisation' sets alarm bells ringing in this column. While the dogmatists in the Department for Transport, the Strategic Rail Authority and the Office of the Rail Regulator are Pol Pots to a man, to me 1996 is not year zero, but another year in a long war.

In any case, as Professor Joad might have remarked, ‘it all depends on what you mean by “since privatisation”'?. The last time SRA Chairman Richard Bowker referred to SP he said that ‘rail freight has risen by a half'. Since tonne kilometres in 2001/02 were 48% up on 1995/96 and since the three freight companies were sold in that year it seems we can take it that 1996/7 was year one SP.

A 48% increase is pretty impressive if your world started on 1 April 1996 . But if you go back to the peak of the previous economic cycle in 1989, the increase is only 9%. Still, in a road dominated market, 9% over 14 years with a recession and a distracting privatesation in between ain't bad.

Market share

In parallel with the growth in rail's tonne km SP there has been an increase in its share of the ‘wheeled freight' market. At privatisation, rail's share of this market was 8.9%: by 2001/02 it had risen to 11.3%. But once again the long term is enlightening.

Market share in 1989 was 11.2%, but the total road/rail market was only 155 billion tonne km. Road tonne km increased from 137.8 billion to 157billion in 2001 – up 6.7%. Over the same period rail carryings increased from 17.4bn to 20billion – a 15% increase.

So overall, rail freight has competed well and is undoubtedly one of privatisation's successes. But tonne-km is only one parameter. If you look at tonnes lifted a slightly different picture emerges.

Obviously there are tonnes and tonnes. A tonne of computers is worth more than a tonne of aggregates. Railways have traditionally dominated the heavy-end of freight where road simply couldn't move the volumes involved.

Graph 8 shows road and rail tonnages plus rail's market share. Because of the disparity in carryings I have published the table too.

You will note that tonnes lifted by rail dropped sharply between 1990-93 and then stabilised. Road tonnes peaked at the end of the last boom and dipped, but then recovered in a classic sine wave and are now on the way down again.

In recent years, rail's tonnage has been pretty constant around 95 million tonnes a year, but note how the share of the tonnes lifted has dropped. This looks to me like road benefiting from growth in the service sector.

Chart 6 would seem to confirm this. The drivers for the growth in rail tonne km are the classic commodities for which railways were built – coal (above all) steel and aggregates.

And these increases here are more to do with kilometres than tonnes. In the case of steel, for example, the industry depends on rail's ability to link processes at dispersed sites. Without rail's ability to shift coils and billets around the country plants might have closed.

But it is when you look at coal, that the much vaunted ‘growth' statistics come into question. Going back to 1986/87 coal has represented half the tonnes lifted by rail – give or take a few percentage points either way.

And coal tonne miles SP have represented around 25% of the total rail freight traffic – a similar proportion to that achieved during the economic boom in the second half of the 1980s. But in 2001/02 the proportion went up to 31% of the total, a figure last seen in the 1990s recession.

As Chart 4 shows, while coal tonnes lifted have remained on a plateau, tonne kilometres have gone through the ceiling. This is nothing to do with rail privatisation and everything to do with the Governments' energy policies – the collapse of the UK deep mining industry, the dash for gas in generation and the opening up of the market to imported coal.

Future

Quite simply, rail is still majoring on what it has always done best - heavy haul and maritime containers. But there is growing activity at the margins where the steel wheel competes head-to-head with rubber tyre. And, intuitively, you would expect this to be for premium time-critical consignments.

In this lorry-dominated logistics market you would also expect the first inroads to be made over the longest distances. Such traffic will show up initally as growth in tonne km rather than raw tonnes.

So where does this analysis leave us? Well, despite the freight competition, piggyback and intermodal razzmatazz, fresh from a Class 66 footplate (page x) I reckon heavy haul is the new rock and roll.

Continues.........

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