Memorandum from the Office of Rail Regulation
(ORR) (FT 28)
INTRODUCTION
1. We are submitting evidence as the independent
safety and economic regulator for railways in Great Britain. The
committee's specific questions cover a number of freight modes.
This evidence provides some general background on the challenges
faced by rail freight and our role in the regulation of rail freight.
ORR'S ROLE
2. Our key roles in the industry are
— Monitoring and enforcing compliance
with domestic and European health and safety law, and promoting
health and safety more generally, in the rail sector. For instance
we monitor, through our railway inspectorate, the health and safety
performance of freight operators, and encourage or require necessary
improvements;
— Setting Network Rail's funding and
output requirements. This includes setting access charges payable
by freight operators to use the network and the outputs Network
Rail is required to deliver for freight;
— Monitoring Network Rail and industry
performance and taking appropriate action;
— Setting the terms of key industry
contracts and incentives, including the access contracts under
which freight operators use Network Rail's network—we have
for instance directed that these should be ten year contracts,
thus creating a greater degree of certainty for freight operators
to plan;
— Enforcing domestic and European competition
law in the rail sector. We have strongly encouraged the development
of competition within the rail freight sector.
3. As economic regulator we are required
to balance a range of public interest objectives set out in Section
4 of the Railways Act 1993 and amended in subsequent legislation.
These include promoting the use and development of the rail network
for the carriage of goods to the extent we consider economically
practicable. As health and safety regulator and as competition
authority we are bound by health and safety and competition legislation
respectively.
MARKET AND
POLICY BACKGROUND
4. Rail freight has seen significant growth
in recent years after a long period of decline in carryings. The
graphs annexed to this evidence show recent trends. The industry
is now forecasting continued growth—as set out in Network
Rail's recent freight utilisation strategy and in the government's
white paper "Developing a Sustainable Railway".
The white paper emphasised the importance government attaches
to rail freight as an environmentally friendly and economically
efficient mode of transport. This has been reinforced by similar
statements from other public sector funders—Transport for
London and Transport Scotland.
5. The rail freight industry is in the private
sector. We believe it is better placed than in the past to meet
the challenge of growth. Our access charging policy, consistent
with European directives, means that rail freight does not have
to contribute to the fixed costs of the network. Competition between
rail freight operators is more intense, and this is driving improvement.
6. The Eddington report highlighted the
importance of efficient freight transport to the UK economy and
the role rail freight could play. Government has recognised the
importance of rail freight with its funding for the strategic
freight network, and the funding of freight projects through the
Transport Innovation Fund.
7. Rail freight has also been a major focus
of European Union rail policy aiming to tackle the long-term decline
in carryings. To do this EU rail policy aims to:
— Ensure non-discriminatory market
access and transparent market structures.
— Provide incentives for an efficient
infrastructure use.
— Contribute to a sustainable financial
restructuring of railway undertakings and infrastructure managers.
— Promote greater interoperability
of national networks through harmonised technical standards and
procedures to reduce costs and improve efficiency.
— Develop a common rail safety approach
to facilitate market access.
8. The European transport approach is substantially
in line that in the UK, promoting market opening, creating a competitive
environment and encouraging the development of a sustainable,
well-integrated rail system. In addition, if implemented effectively,
European rail transport legislation has the potential to benefit
both industry and regulator through simpler processes and economies
of scale from standardised components.
THE CHALLENGE
FOR THE
INDUSTRY
9. Despite this favourable policy background,
the industry faces considerable challenges if it is to meet the
forecasts set out in the white paper. These require significant
growth in traffic where rail is most competitive with road (intermodal
and similar traffic). Coal movements are less likely to be a significant
element in growth than they have been (particularly in terms of
freight tonne-kilometres moved) in recent years.
10. In order to meet this challenge:
— It will be important for customers
to have confidence in the reliability and customer responsiveness
of rail freight;
— continued development of a more competitive
supply market should benefit rail freight customers; and
— Network Rail will play a key role,
with specific schemes to improve capacity, but also taking a more
proactive approach to meeting the needs of freight customers.
We expect the strategic business plan to be published at the beginning
of November to set out how it is going to do this.
11. In terms of the committee's inquiry,
we believe that meeting the expectations set out in the white
paper on rail freight is also a challenge to government. It needs
to build on the approach set out in the white paper and in particular
— develop policies for freight across
all modes which ensure the most efficient contribution to increased
productivity and sustainable development;
— continue to support investment in
rail freight to achieve objectives that go wider than the commercial
interests of freight companies; and
— ensure that the planning regime for
new terminals works efficiently and effectively.
12. ORR will continue to contribute to the
development of rail freight, and in particular, we will
— continue to report and comment on
industry performance, both safety and other aspects, and press
for improvement;
— set freight access charges designed
to encourage use of the network for freight and consistent with
EU directives;
— define outputs for Network Rail which
reflect the needs of the freight market, and encourage partnership
between freight operators and Network Rail;
— ensure the interests of freight and
other uses of the network are properly balanced;
— ensure that Network Rail responds
in an efficient and timely way to funded requirements to enhance
the network for freight; and
— encourage development of a more competitive
market in the provision of rail freight services.
October 2007
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