House of Commons - Transport

Select Committee on Transport Eighth Report

3 Capturing the costs of freight transport and facilitating modal shift

35. Stern and Eddington both emphasise the importance of internalising the external costs of transport. That is, the wider costs of transport, such as congestion and pollution, should be paid for by those who cause them, rather than by society at large. The theory is that, by setting prices to reflect both the congestion and environmental costs of travel, the transport system will be used more efficiently, will support UK competitiveness, and will contribute to reduced emissions.[61]The Government broadly supports this approach:

The fact that people pay at the point of use for each air, bus or rail trip they make, whilst use of the road is seen as a 'free good', has an impact on how they choose to travel. And [...] using pricing signals to improve the way that existing capacity is rationed offers a number of benefits [...][62]

36. Professor McKinnon told us that the market alone would not achieve the necessary conditions to make the freight industry more environmentally sustainable and that Government intervention would be required.[63] The Department is currently undertaking research designed to provide a better understanding of the freight transport sector's potential contribution to reductions in CO₂ emissions and the Minister outlined some of the initiatives of the Freight Best Practice programme that are designed to address climate change issues.[64] However, apart from aviation's inclusion in the EU Emissions Trading Scheme (see below), he was not able to point towards any specific initiatives by Government that are aimed at bringing about appropriate pricing for other modes of freight transport.

37. In 2005 road accounted for 64% of tonnes moved (tonne kilometres) and 82% of tonnes lifted (total weight) in Britain.[65] These proportions for road freight transport have increased from 36% and 72% respectively in 1953. Rail has increased its share of goods in recent years and is still the major mode for the movement of coke and coal. Waterborne modes continue to dominate the movement of petroleum products. The Department considers that the ultimate decision on appropriate modes of transport is made by operators, who consider such factors as access, cost, reliability and time.[66] It lists the following factors that, it believes, encourage rail and water transport and minimise the impacts of the other modes:

the Sustainable Distribution Fund through which, says the Department, "noticeable benefits of reduced CO₂ emissions, noise, pollution, safety and road congestion are secured";
low duty on red diesel and zero duty on bunker fuels (fuels used in shipping);
the Tonnage Tax for shipping companies;
the exclusion of electric rail freight from the climate change levy; and
potentially, a trading scheme for aviation emissions, which could create financial incentives to the freight sector to prioritise the use of air only where there is a genuine need.[67]

38. Factors outside the direct control of the Government—fluctuations in the price of oil, for example—can push up the costs associated with transporting goods by particular modes and so influence the choices of operators.[68] Mr King, of the Road Haulage Association, predicted the total collapse of his industry if the highest predicted oil prices were to be realised:

Yes, it would have a wonderful effect. It would open up our roads, eliminate congestion and I think we would all get around very well but we might be walking.[69]

39. While the Government has some scope to mitigate the effects of rising oil prices by reducing levels of tax on fuel,[70] there is currently no explicit link between fuel taxes and the external costs of freight transport on which to base such a decision.

40. Despite its support in principle for pricing regimes which capture the external costs of transport, the Government does not appear to be taking coherent steps to achieve them. The Government should publish a strategy setting out its approach in relation to capturing the external costs of transport. It should also look to reduce transport's environmental cost by investing more in environmentally beneficial technologies across all modes.

41. The Government should also identify how it will address current anomalies in the costs incurred by UK and Continental hauliers.

Road haulage

42. The Institution of Civil Engineers pointed to recent research that indicates that the cost of operating an HGV is only 59-69% of the full external cost that it imposes on society, as a result of carbon emissions, air pollution, noise, congestion, and collisions.[71] Some of these costs were graphically described to us by representatives of Dover District Council, an area through which 2.5 million heavy goods vehicles are driven through each year:

If we take Dover particularly, the town centre is severed from its seafront communities, maritime community, by the A20 and the effects of that are that we have disparate communities there which are not able to engage. […] The effect of the freight moving through Dover was described by a Regional Agency member as "a moving wall of steel" just passing through the town centre.[72]

43. Many of our witnesses advocated congestion charging or road pricing as the most appropriate measure to increase prices for road users and so encourage a shift by operators away from roads towards other modes.[73] The Institution of Highways and Transportation pointed out that road-based freight operators could benefit particularly from reduced levels of congestion as a result of a road pricing scheme.[74]

44. Sir Rod Eddington and many in the transport sector have called for the introduction of a road pricing scheme because of the potential benefits that such a measure offers. However, road pricing could not be implemented without increased public support and changes to the current system of roads taxation. We have recently announced that we will undertake a new inquiry into taxes and charges on road users in the Autumn.

45. The Secretary of State confirmed on 3 June 2008 that proposals to introduce significantly longer and heavier vehicles onto UK roads would not be taken forward.[75] This announcement followed the publication of a report which found that their introduction could be detrimental on several counts:

it could lead to increased CO2 emissions as a result of freight transferring from rail to road;
it could have implications for road network management problems as the vehicle would be unsuitable for some roads and junctions; and
it could introduce new road safety risks.[76]

46. The report does, however, suggest that increasing the length of current 16.5m, 44-tonne articulated vehicles to 18.75m, the limit for current drawbar combinations, would be likely to represent a "low risk-low reward" option with a benefit to cost ratio of substantially in excess of 1.

47. Professor McKinnon, an author of the report, told the Committee that introduction of some of the very big vehicles that had been looked at could potentially have a "devastating effect on rail."[77] Representatives of the rail freight industry were obviously concerned at this prospect: EWS Railway had calculated that it could lose nearly half of its existing aggregates business and a fifth of its business for the steel industry; Freight on Rail estimated that up to 77% of container moves by rail could be lost to LHVs if they were to be introduced.[78] The Road Haulage Association, on the other hand, believed that trials should go ahead, contending that it would be possible to improve the efficiency of road haulage without holding back the development of rail freight.[79]

48. We welcome the publication of the long-awaited report in relation to the introduction of longer, heavier vehicles and are pleased that the Government has chosen not to pursue their introduction. Options to bring about enhanced efficiency in the road haulage industry should continue to be explored.

Air freight

49. UK air freight increased 70-fold between 1950 and 2005[80] and by 40% in the ten years from 1995.[81] Most of this growth has occurred for freight transported between the UK and locations outside Europe and, while the largest proportion is transported to and from the USA, the biggest increases have been for the United Arab Emirates, India and South Africa.[82] At major airports such as Heathrow, Gatwick and Manchester, freight is predominantly moved in the holds of passenger aircraft (64% of all air freight is moved in this way, 57% through Heathrow[83]), but other airports also cater for dedicated freight aircraft. Stansted and East Midlands are the UK's largest "freighter" airports.[84] Although the volume of freight transported through UK airports is small compared to that carried on other modes, about a quarter of the value of UK freight goes by air.[85]

50. Encouraged by the UK government, in December 2006 the European Commission proposed a new Directive to include air transport in the EU Emissions Trading Scheme. Such a step would introduce permits and allowances governing the emission of CO₂ by airlines, with the total level of allowances limited to the average level of emissions in the period 2004-06. Airlines would be required to purchase credits from other sectors to offset growth in emissions from aviation beyond 2004-06 levels.[86] The Minister informed the Committee that, although the inclusion of aviation in the Emissions Trading Scheme has been agreed in principle, the details had yet to be thrashed out.[87] However, he has confirmed that both passenger and freight aircraft operators would be covered by the proposed scheme.[88]

51. Representatives of both Manchester Airports Group (MAG) and the Civil Aviation Authority expressed their support for aviation's inclusion in the Trading Scheme.[89] MAG did, however, contend that Airport Departure Tax (totalling some £2 billion) already more than covers the cost of aviation's environmental impact and suggested that the tax should be removed if aviation were to be included within the Scheme.[90] It also expressed a general concern that environmental taxation appeared to be being applied to aviation and not to other transport modes, which has an impact on air-freight's competitiveness.[91]

52. We support the Government's efforts to secure the inclusion of aviation in the EU Emissions Trading Scheme, although we are concerned that progress towards finalising a detailed proposal appears to be slow. As well as continuing in its attempts with Member States to achieve a conclusion to this progress, we call on the Government to publish a clear timetable showing when it is anticipated. The Government must have regard for the need for UK airports to remain competitive with European air freight hubs, such as Brussels and Paris.

Rail freight

53. The rail freight industry has grown in the last ten years and now some 20 billion tonne-kilometres of freight are transported annually, including nearly 80 per cent of the coal used by the UK's power stations and over a third of all metal transported for our industries.[92] Recent overall growth has been in two key areas: coal and containerised transport, both of which are predominantly imported and enter the UK through ports.[93] Network Rail expects that there will be a growth of up to 30% in freight lifted over the period from 2004-05 to 2014-15, which equates to up to 240 additional trains per day on weekdays (including return trips running empty). Every freight train takes an estimated minimum of 25 HGV journeys from the road, as much as 60 if the train is carrying aggregates.[94] These additional trains will save around 1.5 million lorry journeys each year.[95]

54. Many of our witnesses welcomed the increases and the potential for further increases in the amount of freight being moved by rail. EWS Railway pointed to growth of 70% since 1997 and described the rail freight industry as one of the success stories of government policy and private sector involvement.[96] It believes that if the Government and Network Rail focus on infrastructure and operators invest in rolling stock and other resources, the environmental advantages associated with rail freight will result in a further 50% increase in freight moved by rail by 2014 with the potential for today's figures to double in the longer term.[97] However, Professor McKinnon considers that the size of rail freight's market is likely to be constrained by the size of the country (and so the average length of haul) and the "inherent inflexibility" of rail. He estimated that rail's share of freight could be increased from 8-9% currently to, at most, 12-13%.[98] He said,

I do not think there is any magic bullet, any revolutionary new measure that the Government are going to find to support rail. I think it is a case of trying to use a bit more intensively some of the tools that they currently have to try and get freight onto rail.[99]

55. While there are examples of freight being transferred to rail,[100] DHL said that the cost of rail is prohibitive.[101] In 2003, Royal Mail withdraw all of its rail services in favour of road transport in order to save £90 million per annum. At the time, the Managing Director said,

There is a marked difference between the price we believe we should be paying for rail services and that which was on the table. Quite simply, other forms of transport can give us the same benefits, in terms of flexibility and quality, but at a lower cost.[102]

56. In any case, we note that rail freight has not achieved the 300% growth that was predicted by the then Chief Executive of EWS to our predecessor committee ten years ago.[103] The Railfreight Interchange Investment Group contends that the "undoubted desire" of freight operators and their customers to increase their use of rail is not constrained by a lack of freight grants, more by a lack of capacity, "whether for freight train paths, train length or loading gauge, or by a lack of suitable interchange facilities." Views on the construction of a new line dedicated to the movement of freight were mixed.[104]

57. In order to address capacity constraints for freight, the Government proposed in its 2007 Rail White Paper the establishment of a Strategic Freight Network, which will be designed to

complement and integrate with the passenger network;
provide an enhanced core trunk network capable of accommodating longer and additional freight trains with both higher axle loads and enhanced loading gauge;
provide appropriate diversionary routes and a seven day railway capable of dealing with disruption;
incorporate 'acceptable freight routing' to help freight avoid congested parts of the network and where possible exploits or develops capacity and capability of alternative routes;
minimise conflicts with passenger services wherever possible and so improve the performance of passenger services; and
give freight operators, customers, port owners and developers a more stable environment for planning freight.[105]

58. Through the Strategic Freight Network, potential gauge enhancement for wider European containers will be identified and disused alignments could be safeguarded.[106]

59. The Government says that it will work with the freight industry to develop and facilitate the delivery of the Strategic Freight Network and that £200 million of Network Rail investment has been identified in the period to 2014. This £200 million will be recovered by Network Rail, first from passenger access charges to the extent that passenger services benefit and then the balance from rail freight operators through Track Access Charges.[107]

60. While witnesses welcomed the "support" shown for rail freight in the White Paper (Freight on Rail says that the commitment of £200 million towards a Strategic Freight Network will give the industry confidence to make long-term investments),[108] the level of funding available for the Strategic Freight Network was criticised by the Railfreight Interchange Investment Group:

the proposed budget of £200 million for creation of a Strategic Freight Network [is] less than the total amount that a developer would typically invest in a single Strategic Rail Freight Interchange. […] the allocation of £200 million to the Department to create a Strategic Freight Network simply will not provide the required network capability required by industry to achieve a step-change in modal shift to rail.[109]

61. An additional concern, that the expansion of the rail freight industry is being constrained by a lack of strategy around the provision of interchanges, was raised. Freight on Rail believes that local authorities do not have the expertise to make appropriate planning decisions in relation to rail freight interchanges and calls for a more "holistic system".

62. Nonetheless, it appears that the Department has a relatively clear idea of the ways in which capacity for rail freight can be increased and, through the Transport Innovation Fund and the Strategic Freight Network, the Government is providing the means to begin to bring such improvements about. We are pleased that the Government is working with the rail freight industry to develop a blueprint for its Strategic Freight Network, but concerned that the money identified so far will not be enough to achieve the kind of improvements that will be required. We shall be interested to examine the finalised list of proposed improvements to be paid for with the £200 million that has so far been committed. We urge the Government to ensure that the Strategic Freight Network provides the impetus and a strategic justification for decisions to be taken in the long term interest of the railway network, such as safeguarding potentially valuable disused routes

Network Rail

63. The Office of Rail Regulation says that Network Rail will play a key role in meeting the challenge of providing extra capacity.[110] However, EWS Railway is unhappy with Network Rail's performance:

In 2006/7 Network Rail missed its freight performance target by 18%. Freight must become as important to Network Rail as passenger services if freight operators are to get the quality of service necessary to achieve the growth potential. Network Rail should have freight performance targets, improve responsiveness and recognise freight's needs in timetable and capacity planning.[111]

64. There are also concerns with Network Rail's costs, which EWS concluded were "more than double those of world best-practice" (which is taken to be North America).[112] EWS was concerned that Track Access Charges, which account for 20% of their costs, were already the second highest in Western Europe and could increase by a further 25% in coming years.[113] Figures from the ORR indicate that annual freight variable usage charges in Control Period 4 (2009-14) will be £41-99 million, compared with £93 million at present (a final determination is expected in October 2008).[114]

65. Network Rail told the Committee that it had identified its performance on behalf of freight operators as an area where it needs to improve.[115] It plans to improve the level of delay to freight trains by around 25% between 2009/10 and 2013/14 (Control Period 4 in Network Rail's Strategic Business Plan).[116] However, it acknowledges that it needs to do a lot more work with the operators in order to determine how exactly such an improvement can be achieved, or indeed whether a 25% reduction in delay is an appropriate target.[117] With respect to costs, although it disputed EWS's figures, Network Rail conceded that there was "a massive need" to improve efficiency. Network Rail also outlined several factors, including previous, long-term underinvestment, which have contributed to higher maintenance costs than those of comparable networks.[118] The Department expressed concern that Network Rail's freight performance target had not been met but noted that primary responsibility for monitoring Network Rail rests with the Office of Rail Regulation.[119]

66. While Network Rail might aspire to improve the service it offers to its freight customers, it does not appear to have much of an idea of how to go about doing so. We recommend that Network Rail, following its discussions with freight operators, publish a strategy for improving performance for freight. This should be given the same urgency as proposals relating to passengers.

67. The Department itself, and not just the ORR, must make an effort to hold Network Rail to account for poor performance and use its influence and expertise in an attempt to improve the situation. We hope that Track Access Charges in Control Period 4 are towards to the lower end of the Office of Rail Regulation's anticipated range of £41 to 99 million. Prohibitive Track Access Charges could seriously hamper the move to shift freight off the roads and onto rail.

Inland waterways and coastal shipping

68. The role of most non-tidal waterways has changed dramatically over the years: having once been used mostly for freight transport, these waterways are now used mainly for leisure.[120] Freight traffic on the inland waterways accounted for less than 1% of domestic freight moved in 2006. Unlike continental Europe, much of the country's inland waterway system is unsuited to carrying significant volumes of freight but the larger river navigations and canals still carry some traffic and could take more. They are particularly suited to bulk cargoes such as coal, fuel oil, aggregates, steel, and timber where their origins and destinations are directly accessible by water.[121]

69. The Port of London Authority reports that interest in using the River Thames for transporting freight is at the highest level it has been in many years and that the 1.8 million tonnes of freight lifted on the river in 2006 represents a 15% increase on the previous year. However, it sums up the strategic situation as follows:

The promotion of freight modal shift from roads to inland waterways has been a recurring political theme over the last ten years. There has however been little systematic analysis at a strategic level of the conditions required to actually implement it and their transferability across the UK.[122]

70. When coastal shipping and one-port traffic (to or from offshore installations, or dredged materials) are included with freight movement on inland waterways, domestic water can be seen to be far more significant, moving 21% of domestic freight (52 billion tonne-kilometres) and lifting 5% of domestic freight by weight (126 million tonnes) in 2006. However, goods moved on domestic water fell by 15% compared with 2005, largely due to a decrease in oil landed from North Sea oil fields and reduced coastwise transport of oil. Over the decade to 2006, goods moved by domestic water fell by 6%, although there have been fluctuations, and now about three quarters of goods moved is accounted for by petroleum products.[123]

71. The Institution of Civil Engineers believes that the UK's 100 or more commercial ports offer a "coastal ring road" for shipping that could, with further port development, transfer domestic freight around the country, providing relief for the road and rail networks.[124] Sea and Water agrees that there is considerable potential to increase the percentage of coastwise freight since the requisite infrastructure, navigation channels and ports, is already available. It told us that, if all the container traffic that passes through Felixstowe destined for the north of England were to be transported by coastal shipping, 2 billion tonne kilometres of freight would be removed from road and rail. It asserted that coastal shipping is both cost effective[125] and environmentally friendly, and presented figures indicating that road freight produced four times the carbon emissions of coastal shipping.[126] Sea and Water believes that making it easier to develop warehousing facilities at ports would improve the economic basis for coastal shipping.[127] The UK Major Ports Group was disappointed that coastal shipping was not clearly recognised as an alternative to road freight transport in the Government's October 2007 transport strategy and believes that it could be encouraged will more support through the Sustainable Distribution Fund.[128]

72. Sea and Water asserted that coastal shipping and inland waterway transport had the potential to move nearly as many tonne-kilometres of freight as the railway network, but that a focus by the Government on rail freight means that domestic water is not fulfilling its potential.[129] It argued that the fact that rail has a single network provider—Network Rail—is a contributing factor.[130] Canals and rivers are managed by British Waterways, which is sponsored by Defra in England and Wales. While British Waterways is aware of calls for more freight to be transferred to inland waterways and says that it is committed to seeing more freight on its waterways where it is economic to do so, it believes that there is not a full understanding of the real costs and benefits:[131]

There is very little consensus on the problems or solutions involved. This tends to dilute the efforts of those who support growth of waterborne freight and results in disparate, uncoordinated calls for more freight but very little inroads in a policy sense or translation into an actual increase in waterborne freight.[132]

73. We have previously recommended that the Department for Transport take over responsibility for inland waterways, giving them a higher priority in its freight strategy.[133] Several contributors to this inquiry agreed[134] and the Port of London Authority bemoaned the "multiplicity of agencies which one has to deal with in order to get freight from the roads onto water". However, British Waterways maintained that, while it is important that there is a specialised unit within government devoted to waterways transport, it matters less which department it reports to.[135]

74. Although the Minister could not imagine that "instinctively one would be satisfied" with the rate at which freight movements were being transferred onto domestic water, he told us that the Government was doing everything it can to encourage it and the industry is not making use of the grants that are available.[136] He anticipated that the new National Planning Policy Statement on ports would contain a target relating to the volume of coastal shipping.[137]

75. We are pleased that the Government intends to include a coastal shipping target in the forthcoming National Planning Policy Statement on ports. But we believe that it could do more to encourage waterborne freight transport, particularly by offering strategic direction similar to that which is developing for rail freight. We are wholly unconvinced by British Waterways' argument that it simply does not matter which Department has responsibility for the inland waterway network; if the inland waterways are to be taken seriously as part of the strategic transport network, then the DfT should have responsibility for them.

76. The Minister also informed us that the Government is in discussions with the European Commission regarding State Aid criteria that currently prohibit the ongoing use of the Sustainable Distribution Fund for coastal shipping.[138] The Government should adopt more urgency in its discussions with the Commission on coastal shipping so that it will be able to offer funding to the short sea operators where there is an environmental benefit as a result of reductions in lorry miles.

61 HMT and the DFT, The Eddington Transport Study: The Case for Action, December 2006, para 1.105 Back

62 DfT, Towards a Sustainable Transport System: Supporting Economic Growth in a Low Carbon World, October 2007, para 2.15 Back

63 Q 3 Back

64 Qq 478 & 480 Back

65 DfT, Focus On Freight, December 2006, para 1.9 Back

66 Ev 77 Back

67 Ev 77 Back

68 The Department currently makes use of projections for the price of oil that project a gradual fall to $50 a barrel (in 2006 prices) by 2015; low and high projections for 2020 are for prices of $25 and $80. These projections are currently being revised by the Department for Business, Enterprise and Regulatory Reform. Alternative projections of $200-250 a barrel by 2020 have been reported (Rail Freight Group, RFG News, February 2008, page 4) Back

69 Q 84 Back

70 Q 85 Back

71 Ev 105 Back

72 Q 427 Back