Decline of heavy industry
What makes rail freight so interesting is the various commodities we deal with. Each is different. Each is driven by economics that are both unique and fascinating.
Understanding the commodity markets is one of the more challenging things for a hardened railwayman to become familiar with. No longer is it just about trains - it’s about energy, it’s about construction, and it’s about manufacturing. Understand the interfaces that rail freight offers to these commodities, and you begin to understand how the industry can be exploited to efficiently support more than £1.5bn of UK benefits.
This interface is one of dependence, and we have little control over the markets of the commodities we deal with. If a market is in serious trouble, the logistics systems supporting that market are affected. For example, anybody following the news over the past couple of months will be aware of the steel crisis. Cheap steel flooding the market from China has resulted in one in six UK steel workers’ jobs being at risk. Tata has said that it will cut 1,200 jobs in the UK, and the closure of Redcar will result in 1,700 workers losing their jobs.
GBRf has been affected by the closure of the iron and steel-making facility at Redcar, where we have been operating a 24/7/365 service for Sahaviriya Steel Industries (SSI UK). The ten-year contract provided a service involving the daily transportation of 10,000 tonnes of molten iron from the blast furnace to the steel plant and then delivering the finished steel slabs to the dock for export. Our partnership with SSI has now sadly ceased as a result of global economics.
The recent spate of proposed power station closures at Eggborough and Ferrybridge (to name a couple) showcases another market that is in decline and which subsequently has an impact upon our business. Carbon emission tax increases have brought down the curtain on the ‘age of coal’ in the UK, followed by the Government’s announcement in November of its intention to close all Britain’s coal-fired power stations by 2025 and restrict their use by 2023. Unlike steel, this decline has been brought about by political intervention.
Coal used to comprise about 15% of the industry’s business. Following carbon emission tax increases, services were reduced from around 650 per week to 150 per week over a two-week period. Absorbing this has been a challenge for all freight operators. I acknowledge that the reduction was always expected, but a softer landing could be managed by Government, along with encouragement of generation at biomass facilities.
Coal and steel reflect some of the core dependable commodities of the rail freight industry, but they are now diminishing. It has been our efficient and productive operations in these dependable commodities that has driven our success, allowing for speculation in less efficient markets and enabling us to borrow money in order to invest millions of pounds of private sector money in new equipment. Without these foundations, our industry begins to lose its viability.
Rail freight needs to find and develop new and existing foundations. But these foundations require Government support, investment and long-term certainty.
Intermodal and aggregates
The intermodal and aggregates markets are two commodity areas that could provide the long-term foundations for the rail freight industry, moving forward.
In Network Rail’s 2013 Freight Market Study, intermodal was portrayed as the saviour for operators, with forecasts showing overall growth of over 700% by 2043, in terms of tonne kilometres (see graph 2).
And the Government’s commitment to £100bn of infrastructure spending to 2020, coupled with the creation of the National Infrastructure Commission, points to increased construction and house building opportunities across the UK, which means a boost to aggregates haulage in the short and long term.
However, the current stagnation of deep sea, domestic and international intermodal haulage highlights a problem that lies at the heart of all three markets - intelligent and integrated infrastructural investment that keeps pace with the demand freight operators are creating.
The Government has highlighted its desire to shift freight from road to rail. One of the quickest and easiest methods of doing this is via intermodal, specifically deep sea intermodal. But at the moment, only about 25% of deep sea traffic is on rail.
Freight operators have worked closely with port operators and Network Rail over the past decade, to drive as much of this traffic onto rail as possible. Looking at GBRf’s own private investment, we have introduced longer trains out of the Port of Felixstowe. In July 2013, an eight-road, 750-metre deep sea intermodal terminal opened at the Port of Felixstowe, allowing us to operate 32 platform trains from the port. The recent procurement of a further 15 ecofret triple-platform wagons means our trains will now be 45 wagons in length, better serving the demand for 40ft containers.
Market competition in deep sea intermodal has delivered growth, but it has also led to constrained capacity on the network. In order for continued growth to take place, the Government needs to support (and facilitate support of) key infrastructure schemes on the rail network.
There are two initiatives that would offer more immediate benefits to the wider industry, and help the Government move lorries off roads and onto rail. With deep sea boxes, we are simply talking about Felixstowe, Southampton and (in time) London Gateway to the Midlands, North West, Scotland and the North East (although northern ports may argue differently):
- Double-tracking into Felixstowe. At present, the Port has 50 trains of capacity, following construction of the new terminal. But the route between the Port and Ipswich can only accommodate 31 trains because of the single-track ten-mile branch line serving the Port. Plans were originally proposed to double-track some of the line, but these have fallen by the wayside and must be quickly resurrected.
- Build or increase capacity at the Port of Southampton. Available capacity into/out of the Port is controlled by a dominant operator, resulting in ineffective use of the terminal capacity for existing services. This leads to the stifling of competition, innovation and growth for a facility, and damages operations on core intermodal routes between Southampton, the West Midlands and the North West.
