Memorandum by Tibbett & Britten Group
plc (CHT 06)
THE DIFFICULTIES EXPERIENCED BY THE GROUP
RESULTING FROM THE DISRUPTION OF CHANNEL TUNNEL RAIL FREIGHT SERVICES
INTRODUCTION
1. Tibbett & Britten Group plc (TBG)
is a UK-based international logistics service provider. The FTSE
250 company has 36,000 employees in 34 countries; around half
of them in the UK. It provides supply chain management for many
of the world's leading retailers and manufacturers.
2. TBG offers a full range of logistics
services. In 1996 it added rail freight to its portfolio through
the acquisition of the Daventry and Doncaster rail terminals,
then owned by Applied Distribution Limited. Rail was seen by TBG
as an area of great potential for shipments between mainland Europe
and the UK (and vice-versa) and as an opportunity to meet both
its own environmental responsibilities and those of its clients.
3. The Group was recently awarded a Queens
Award for Enterprise: International Trade-but is seriously having
to question the role that rail can play in supporting international
trade in the light of the current state of Channel Tunnel rail
freight. While reluctant to withdraw from the market it has to
recognise that with accumulated losses approaching £2 million
there is now considerable and increasing commercial and shareholder
pressure to withdraw.
4. Had it not been for the disruption to
Channel Tunnel traffic that began in the autumn of 2001 the Group's
view of rail freight would be more optimistic. By the middle of
2001, and largely as a result of the improved service levels of
the trains entering the UK and the decision by EWS to transfer
much of its Channel Tunnel freight from Wembley to Daventry, there
was every reason to expect that the Group's rail activities would
be in profit for the first time. In such circumstances the losses
that had been borne in the previous years might have been justified.
This is no longer the case. The losses being
endured as a result of the current disruption could well prove
to be the death knell for rail freight at Tibbett & Britten.
RAIL OPERATIONS
AT TIBBETT
& BRITTEN
5. TBG operates two intermodal rail freight
terminals in the UK-Doncaster and Daventry.
6. Doncaster handles mainly port traffic
from Felixstowe. It does not currently handle any Channel Tunnel
trains, even though it is certified by Transec under the 1994
Channel Tunnel Security Act.
7. Daventry is one of the largest privately
constructed and owned rail freight terminals in the UK and handles
more Channel Tunnel intermodal freight traffic than any other
terminal in the country. Prior to the current disruption the terminal
was handling the equivalent of one six-mile long train every day.
During 2001 it is estimated that the terminal handled in excess
of 600,000 tonnes of rail-borne freight. The majority of that
freight is now back on the roads and will be difficult to win-back
to rail. (See 9.1 below for annual volume comparison 1997-2001).
8. The Group also owns the intermodal freight
company "Haulmark". This company is currently not trading,
however, having incurred losses in excess of £500,000 as
a result of the difficulty of competing with continental road
hauliers operating on the same routes, and the poor service levels
provided by the French and Italian railways.
THE IMPACT
OF THE
CURRENT DISRUPTION
9. To demonstrate to the Committee the impact
of the current disruption we have set out below a number of charts
relating to the Daventry Railport.
9.1 Activity Levels-Containers Handled
Since 1997 there has been a steady growth in
the number of intermodal containers handled by the terminal each
year, rising from 6,000 in 1997 to 23,000 in 2001 (despite the
problems in the latter months). A 35% reduction in traffic is
anticipated for 2002, but this assumes something approaching a
resumption of "normal service" by the middle of the
year.
Channel Tunnel Activity Growth 1997-2002
| 1997 |
1998 | 1999 | 2000
| 2001 | 2002 |
| Actuals 000's | 6 | 11
| 16 | 20 | 23 |
15 |
The spectacular decline in activity levels as a result of
the current disruption since October 2001 is shown in the chart
below:
Channel Tunnel Activity Growth September 2001-April 2002
| Sep-01 |
Oct-01 | Nov-01 |
Dec-01 | Jan-02 |
Feb-02 | Mar-02 |
Apr-02 |
| Actuals 000's | 2,021 | 2,360
| 1,348 | 1,180 | 1,241
| 968 | 907 | 939
|
9.2 Channel tunnel Generated Revenue
The two charts below show the steady increase in revenue
generated by Channel Tunnel intermodal activity between 1997 and
2001 and the downturn since October 2001, together with the detailed
position (monthly) since September 2001. As can be clearly seen
the current monthly revenue is significantly below the levels
that were beginning to be achieved in October 2001 when it appeared
that the operation was moving towards profitability.
Total Channel Tunnel Revenue 1997-2002
| 1997 | 1998
| 1999 | 2000 |
2001 | 2002 |
| Actuals £000's | 153 |
292 | 513 | 628 |
722 | 542 |
Total Channel Tunnel Revenue September 2001—April 2002
| Sep-2001 | Oct-01
| Nov-01 | Dec-01
| Jan-02 | Feb-02
| Mar-02 | Apr-02
|
| Actuals £000's | 58 |
66 | 25 | 28 | 41
| 37 | 24 | 39 |
9.3 Profitability (Lack Of)
As stated earlier, TBG made a commitment to rail freight
in 1996 in the knowledge that in the early years there would be
a need for considerable investment and an absence of profit. But
there was the expectation, endorsed indirectly over time by Government
strategy and the pronouncements of the SRA, that the medium to
long-term prospects would be good.
The chart below demonstrates how, between 1997 and 2001,
as a result of the steady growth in activity levels and close
attention to operating costs, Daventry Railport was moving towards
profitability. The trend was such that the draft budget for 2002
showed an annual operating profit for the first time.
This optimism has been dashed by the enduring events since
Autumn 2001, and the latest estimate is that in 2002 Daventry
Railport will lose more than £300,000—the biggest annual
loss since the terminal was opened.
Daventry Railport Costs v's Revenue 1997-2002
| 1997 | 1998
| 1999 | 2000 |
2001 | 2002 |
| Costs £000's | 851
| 891 | 1,009 | 1,177
| 1,250 | 1,376 |
| Revenue £000's | 553
| 651 | 827 | 1,102
| 1,189 | 1,088 |
| Contribution/Loss | -299 |
-240 | -182 | -75 |
-61 | -288 |
To try to minimise its losses TBG has done all that it can
to cut costs without destroying its experienced skills base. Members
of staff have been seconded to other parts of the business to
retain their skills (a new staff member takes a minimum of 16
weeks to train in all the appropriate duties) and keep them motivated.
But with costs now at an effective minimum the only means of making
further cuts would be to close the railport.
9.4. Damage
In addition to the problems associated with the loss of traffic
and revenue, there is the added problem of damage suffered by
the intermodal units and their contents when illegal immigrants
gain access to them. As can be seen from the chart below, since
February 2002 the level of damage has increase 15-fold over the
comparable period in 2001:
Damage to Containers/Contents Caused by Stowaways 1997-2002
| Sept | Oct
| Nov | Dec |
Jan | Feb | Mar
| Apr | May |
| 2000-01 | 1 | 3
| 2 | 1 | 2 |
4 | 2 | 1 | 3
|
| 2001-02 | 3 | 5
| 20 | 7 | 2 |
12 | 35 | 49 | 52
|
In many respects this is having a greater effect on potential
clients than the delays in service. Whereas clients will perhaps
accept a delay in delivery as part of the price of using rail
they will never accept their cargo being damaged or contaminated.
Much traffic (existing and potential) has been lost for this reason
alone, and as a result we know of one major user of rail freight
which is planning to withdraw from the market and move to short
sea freight.
THE CURRENT
POSITION
10. At the present time TBG finds that its commitment
to rail freight is being severely challenged. As a provider of
quality logistics services we consider ourselves currently unable
to advise prospective clients to use rail for transferring goods
from and to mainland Europe. This is despite the fact that we
know that there are thousands of loads-such as the transfer of
fresh produce from Spain-that could be taken off the road.
11. Whereas clients would, in less turbulent times, return
to rail after (say) one of the annual strikes by SNCF staff, the
current circumstances surrounding illegal immigrants are likely
to have a more far-reaching effect on the use of rail for freight
transfer. It is not simply the issue of Sangatte, but of the resolve/ability
of the appropriate national authorities to prevent illegal immigrants
gaining access to UK-bound freight trains anywhere in mainland
Europe. Until freight trains can enter the UK on time and immigrant-free
there will continue to be considerable reluctance on the part
of prospective and former clients to use rail freight when road
freight is demonstrably more reliable and secure.
12. TBG's ability to continue our rail terminal operations
is also being compromised by the difficulty of retaining skilled
staff as a result of the crisis. Because it has gone on for so
long staff are worried about their future and are leaving the
industry as their confidence in the sector declines. Without knowledgeable
and experienced staff we will have no terminals.
13. TBG, along with many others in the industry, have
lobbied for Government intervention in this crisis. Meetings have
been held with John Spellar MP, letters have been sent, and the
implications for our Daventry railport have been well rehearsed
in the local and national media.
All so far to no avail. There appears to be a reluctance
(inability ?) on the part of Government to intervene in any meaningful
or effective manner. This is a crisis that affects an industry
employing many thousands, has the ability to make a significant
impact on road congestion and is said to form a key part of the
Government's 10-Year Transport Strategy. Yet seven months after
problems first arose nothing substantive has been achieved.
CONCLUSION AND
RECOMMENDATIONS
14. As committed as Tibbett & Britten is to the development
of rail freight it has to be recognised that unless there is a
speedy resolution of the current crisis and a rapid return of
intermodal traffic to rail the company will have no option but
to close its rail operations and withdraw from the sector. That
decision could be made within weeks.
15. The industry is in urgent need of financial support
if businesses are not to close and services be withdrawn. What
applied to the airline industry post 11 September is equally applicable
to Channel Tunnel freight in the current crisis. It is easier
to support an existing business today than to build a replacement
one sometime in the future.
16. The demanding requirements of the 1994 Channel Tunnel
Security Act on UK rail freight and terminals need to be applied
across mainland Europe. Only by this means will the flow of illegal
immigrants be staunched and the resumption of normal services
be made possible.
17. Channel Tunnel rail freight needs to become fully
part of the Government's strategy for rail with the objective
of improving co-operation with our European counterparts, encouraging
the use of rail freight, and actively discouraging road freight
over long distances.
Michael Sweet and Steve Blencowe
May 2002
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