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Transport CommitteeWritten evidence from DB Schenker (PA 17)

1. DB Schenker is pleased to submit evidence to the Transport Committee’s Inquiry into Access to Ports.

2. DB Schenker is the largest UK rail freight operator. DB Schenker moves around 70 million tonnes/10 billion tonne kilometres of freight a year and employs over 3,000 staff in Great Britain. Besides transporting coal for electricity generation, steel and petroleum, we move stone, deep-sea containers and operate international freight services through the Channel Tunnel in connection with the European Network of DB Schenker. DB Schenker is wholly owned by Deutsche Bahn AG, the second largest logistics provider in the world.

3. Rail freight and ports are inextricably linked, with over two thirds of all UK rail freight having some relationship to ports (and for the purpose of this evidence, we will treat the Channel Tunnel as a port of entry to the UK). This includes:

(a)Intermodal traffic to and from the major deep sea ports.

(b)Intermodal and general cargo via the Channel Tunnel.

(c)Bulk products such as coal, steel and grain imported to, and exported from, the UK. This includes raw materials as well as finished products.

(d)Marine dredged aggregates being landed at wharfs, and coastal shipping of aggregates from remote superquarries.

(e)Petroleum products being brought ashore by pipeline for refining and subsequent movement by other and also the more traditional bulk traffics, operating from a wide range of ports to inland destinations across the country.

4. Historically ports have had extensive rail infrastructure, although in many cases this has become run down or disused except for specific cargoes or sections of ports. However In recent years there has been some reversal of this trend with significant investment in:

(a)port rail infrastructure and equipment, for example at ABP Immingham; and

(b)the UK rail network in relationship to ports with the Government’s investment in a Strategic Railfreight Network. The continued further investment from Government in last summer’s High Level Output Specification is also welcome.

5. However, as the development of the Strategic Freight Network shows, there remains a major task to ensure that appropriate rail infrastructure (in terms of capacity, capability in terms of gauge clearance and diversionary routes) is in place to and from ports and as efficient as necessary to deliver for UK economic needs.

What should be the priorities for improved access to ports, and why?

6. Further development of the capacity and capability of rail routes from ports—and the links with the major UK rail network—to provide network capability:

Continued development of the Strategic Freight Network with a particular focus on:

(a)Main rail routes to ports to improve loading gauge and enhance capacity.

(b)Diversionary rail routes to facilitate 24/7 access between ports and destinations.

(c)Protection of rail freight capacity, especially to cater for future growth. This should also include capacity freed up by the development of HS2, which could be used by freight.

7. Further investment in rail connected facilities on ports, to provide appropriate connectivity:

(a)Warehouses.

(b)Terminals and loading/unloading facilities.

(c)Yards and wagon storage sidings.

(d)Roads and other connecting infrastructure to assist modal transfer.

8. Electrification of rail freight facilities in the longer term, to allow electric haulage of freight trains to realise environmental and capacity benefits:

(a)Main and diversionary network routes.

(b)Yards and lines within port complexes where practicable.

(c)Shunting capability to move wagons from electrified exchange sidings to and from loading/unloading facilities.

9. Developing the supply chain for the movement of biomass:

With the Energy Bill set to become statute later this year, many electricity generators are looking to biomass as a way of substituting for coal fired generation. Drax and Eggborough are among sites looking to convert some, or all, of their units, once the precise details of the Renewable Obligations Certificates (ROCs) tariffs are confirmed. Biomass will need to move by rail from the ports to the power stations, and there are some challenges to be overcome to establish this.

10. Biomass can be moved in existing rail wagons but they need to be converted to ensure that the product stays dry. There is also a need to invest in loading and handling facilities at the ports and power stations. Although the majority of this could be funded in the private sector, this must be supported by a stable framework from Government, both in confirming the ROCs and also in setting freight access charges. ORR are proposing to consult on charges for biomass shortly, following their recent conclusions on freight specific access charges. It is important that rail access charges do not act against developing this market, either by their actual level, or by the risk of future increases which could act against the case for investment.

11. Biomass trains will also need to be managed carefully on the network, as, unlike coal, it is not suitable for stockpiling and services will be more akin to “just in time” deliveries. Biomass is less dense than coal; as a result trains may need to be longer and more trains may be needed and further investment in the rail network may become necessary.

12. Channel Tunnel:

The reasons for the chequered history of rail freight volumes through the Channel Tunnel are well known, but the level of tolls and other Channel Tunnel charges remain a major impediment to the development of Channel Tunnel volumes.

13. Establishing the necessary inland terminals to handle intermodal and retail sector commodities:

Rail freight cannot grow and drive modal shift from road unless there are sufficient and suitable inland terminals for onward distribution of goods. Private sector funding is readily available to develop these, but such developments are complex and require support in the planning system.

Is the delay in producing a National Policy Statement for National Road and Rail Networks creating problems for improving access to ports? If so, in what ways and where?

14. The National Policy Statement for National Networks (NPS), which is required under the Planning Act 2008 underpins the planning regime for nationally important infrastructure. Specifically, and most importantly it should provide the national justification and need for infrastructure, leaving developers to justify only why their specific development is appropriate under that framework.

15. This NPS is particularly relevant for the development of strategic rail freight interchanges. DfT and DCLG did issue helpful guidance in November 2011, but this has no statutory weight and, in a planning application, would command less weight than documents such as local plans. Developers are therefore in a difficult position if proceeding with applications under the Planning Act without the underpinning documents.

16. Whilst it is possible to proceed without the NPS, the additional uncertainty is unhelpful. The Planning Act regime whilst an improvement on the previous regime, is expensive particularly up front, and requires significant time and investment, and developers need to consider the risks against other potential investments in the UK and elsewhere. We would therefore support the publication of the NPS at the soonest opportunity.

17. The NPS might also be expected to be relevant to certain rail upgrades, although the majority can be completed under permitted development rights.

How satisfactory are the current and proposed decision-making structures, including Local Transport Boards?

18. Historically regional structures could and did play a significant role in helping to develop links to and from ports. SEEDA, in the south east, were heavily involved as a funding partner in making the case for gauge clearance from Southampton, and there are similar examples elsewhere.

Funding from One North East, which has now been abolished, is being used to part fund gauge clearance to Teesport with the remainder being funded by the Strategic Freight Network Steering Group.

19. There is little evidence of LEP’s engaging on rail freight or on the development of transport links spanning regions and we have had virtually no engagement. This is not surprising given their lack of funding, powers and knowledge about rail freight.

20. For a national operator such as DB Schenker, it is simply not practicable to establish a meaningful relationship with all LEPs or Local Transport Boards.

21. It was easier, but still a considerable challenge, to establish and maintain relationships with (eg) RDAs.

22. We note that DfT have consulted on how funding, and decision making for sub national transport schemes might be devolved to new Local Transport Bodies. So far, we are not clear how such a move might take place, and what accountability and responsibility such bodies might have. Certainly, the need to consider regional and national links must be a requirement if suitable linkages to ports are to be progressed.

23. DfT are also considering devolution of rail franchises, eg to regional and local bodies. Such organisations could play a role in promoting rail freight and links to ports, if their remit and constitution covered this. Indeed Centro, the West Midlands PTE, has been pro-active in developing a rail freight policy.

24. However it would be important that any devolved body was able to put the requirements for rail freight into a national/international as well as local context. It is not clear to DB Schenker how readily achievable this would be. It is this balance between local impact and interest (which is real and readily apparent) and national/international interest (which is often less apparent) that is at the heart of why local authorities and bodies support rail freight in principle until some development in their area is required.

25. The fact that many of the benefits of rail freight lie outside the railway balance sheet and are not always tangible, is a further complication.

To what extent can investment in road and rail infrastructure influence the market and regional decision-making on port development?

26. Experience of developing services from regional ports demonstrates that a critical factor is ensuring that there is sufficient suitable volume to justify trainload services. There is very limited scope within the UK for less than trainload rail volumes, so historically a key determinant has been the ability of a port to justify daily rail services. The need for sufficient volumes applies to both containerised and bulk traffics.

27. Investment in suitable loading and unloading facilities, and the development of rail connected warehouses by major retailers, are all essential prerequisites for further rail growth and modal shift from road. This means that ports have to continue to invest, and the private sector needs confidence to provide the inland terminal capacity. In principle there is no shortage of private sector investment funding for such schemes.

28. Government is effectively giving a lead to this process by the SFN investment. This is only available over five year periods giving the Railway’s funding cycle, but represents a major improvement for rail freight funding from the historical position.

How realistic are current assumptions about rail’s modal share of ports traffic? Under what circumstances could rail freight or inland shipping play a greater role in reducing port-related road freight?

29. Rail currently has a market share of c25% from Felixstowe, and closer to 40% from Southampton. The market share at Southampton has increased significantly since the opening of the gauge cleared route, which has improved train utilisation and loading. There is no reason to suppose that market share from Felixstowe should not achieve comparable levels, particularly given the investment which is expected during the next control period. Equally there is no reason why the port at London Gateway, set to open during Q4 2013, should not achieve a similar rail market share.

30. Bulk market shares for commodities such as coal and iron ore can be much higher, as the significant volumes involved make rail the favoured mode of transport. In general there are fewer growth opportunities in bulk as rail is already heavily involved.

31. In other sectors, such as steel, there are opportunities for rail growth dependent on volume throughput and the availability of suitable rail loading points.

Are there any regulatory barriers to investment in ports? What could and should be done about them?

32. The development of Biomass is the significant bulk opportunity at ports. Development of appropriate loading equipment at ports and unloading equipment at power stations, as well as supporting infrastructure and equipment such as wagons will be needed. Provided that the commercial environment established by Government is sufficient, private sector funding could be forthcoming for this.

33. The recent announcement by the Office of Rail Regulation that they intend to introduce new Freight Specific Charges from 2016 for rail freight traffics that the ORR has decided can afford them, has raised potential regulatory issues.

34. Rail freight customers, especially those who are effectively dependent on rail freight, remember with apprehension the similar pricing policy adopted by British Rail in the lead-up to privatisation in the early 1990s. Customers felt then that they were being exploited because they were seen as captive and the result was a negative environment that mitigated against growth and investment.

35. It will be important that the ORR’s charges do not lead to a repeat of this environment, especially if the ORR decides to introduce a Freight Specific Charge for the key growth market of Biomass.

36. The evidence of the early 1990s was that the impact on the sector was much wider than the specific customers and commodities targeted. Customers in other sectors were apprehensive that they might be subject to future price increases that in turn might negate the anticipated return on any investments.

37. In an environment of new Freight Specific Charges, it will be important for customers in other sectors to be given the confidence that they will not be treated as captive in future Periodic Reviews. ORR has to find a mechanism to give such assurance for a sufficient period into the future that private sector investment can still be confidently made.

January 2013

Prepared 25th November 2013