The Scottish rail freight market is shrinking, when it should be growing

David Leeder & Guy Houston, TIL 11 March 2024

www.transportinvestment.co.uk

In 2017, the Scottish Government set a target for a 7.5% increase in rail freight from 2019 to 2024, but research by TIL shows that, in fact, the number of trains has declined by 25% (comparing January 2024 traffic vs. January 2023).

Recent traffic losses have included:

? Deep sea container traffic from Scotland to the English ports

? Daventry to Scotland “M74 / M6” general container traffic

? IKEA container traffic from Yorkshire

? Tesco and Asda traffic to Aberdeen and

? China clay slurry from Scotland to Antwerp

This is all despite the Scottish Government, through its Transport Scotland agency investing over ￡40 million in rail freight-specific projects, and over ￡400 million in broader rail infrastructure projects which include benefits for rail freight.

So, why has all this “good news” and investment resulted in a 25% fall in traffic? The reality is that rail freight is more heavily impacted by wider economic issues (recession, Ukraine, the rise of China and USA, growing demand for certain goods and supply of others to the rest of the world), than any intervention by the Scottish Government: as often, the economics have swamped the transport policy.

In Scotland, freight traffic is concentrated in the ‘Central Belt’ between and around the Glasgow and Edinburgh city regions, and in the corridors linking the Central Belt with North West England. One of the main challenges and opportunities for rail freight is to secure modal shift to rail for goods travelling on the busy M74 / M6 corridor from Scotland to and through the North East and North West of England. There is also a (smaller) opportunity to connect the central belt with Inverness and Aberdeen where established terminals are located. There are four fairly new rail freight terminals in Aberdeen - two are mothballed and two are underused.

Scottish internal traffic will always be limited by the geographic concentration of the central belt, the disappearance of heavy industry, and the small size of the northern Scottish cities compared to the English conurbations. Scotland is also peripheral to the European ‘single market’ centred on Germany, and is more easily linked by sea.

The state of the market as of January 2024

There are currently 248 commercial freight trains** operating each week within Scotland, or crossing the border into England - equivalent to 40 trains per day. To put this into context, on Wednesday 28th February 2024 there were 4,874 freight trains in Germany, 998 in Switzerland, 621 in Sweden, 116 in Norway, 101 in Denmark and 99 in Portugal. Even with a change in gauge with the rest of Europe, a mid-sized country like Portugal is still able to produce double the number of freight trains that Scotland can produce, as do Denmark and Norway, which, like Scotland lie at the outer edges of the European rail network.

When we look at traffic carried in Scotland, over half the trains are container and curtain-sider van traffic, principally on Anglo-Scottish flows.

Scottish rail freight by commodity carried - January 2024

NB: GBRf market share does not include the high level of loco and driver requirements to fulfil their other big Scottish contracts - The Caledonian Sleeper and Royal Scotsman passenger services. Hence why GBRf are sometimes called the biggest railfreight operator in Scotland

There has been some positive development of Anglo-Scottish long distance ‘retail’ traffic, by the likes of Tesco, Highland Spring and Coca Cola, and some resurgence in long distance mail traffic (large letters and parcels). This makes sense, as the Scottish central belt sits 200 miles north of the Pennine conurbations, and 400 miles north of London – precisely the kind of distances for which rail should be able to develop some competitive advantage.

Steel, petrochemicals (“tanks”) and coal – once the backbone of the Scottish industrial economy – have almost entirely disappeared. The remaining traffic is Network Rail (NR) infrastructure related (regular timetabled trains of ballast etc), plus cement from the rail served loading facility at Oxwellmains for use in the construction industry. The remaining traffic sources can be counted on the fingers of one hand, and includes nuclear waste from Hunterston and Dounreay, MOD traffic to Glen Douglas, and Ford cars from Dagenham.

The operator split is surprisingly even, and highlights the long-term, slow decline of DB Cargo (previously EWS and originally British Rail), and once the monopoly operator, and the corresponding growth in the newer, more “nimble” operators like Colas and GB Railfreight (GBRf).

Scottish rail freight operator market share - January 2024

What accounts for this pattern ?

Since the decline of heavy industry from the 1960s, the challenge facing UK rail freight has always been rail’s weak competitiveness for ‘general’ freight traffic – everything from car parts to potatoes to iPads. Various attempts at reviving the ‘wagonload’ market have been tried without much success, focusing hopes of growth towards container traffic.

For over 150 years, coal (sometimes moved over very short distances) was the backbone of UK rail freight, whilst the general freight market, characterised by ‘wagon load’ traffic declined rapidly from the 1950s, as road freight became faster and more efficient.

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1.???? Most of the UK population lives within 150- 250 miles of each other, in a ‘box’ defined by London, Bristol, Liverpool and Leeds. Given the need for final distribution by road, the distances are generally too short for rail to be competitive at rail’s very high costs

2.???? This situation is made even more challenging in Scotland, where c 4 million of the country’s 5.2 million population lives within the central belt around the Glasgow and Edinburgh conurbations – an east-west distance of no more than about 80 miles (and that’s stretching it from Gourock to Musselburgh!): far too short for rail to be cost or time competitive for purely local traffic, now that coal and heavy minerals have contracted.

3.???? To put things in perspective, the entire population of Scotland is something like half the population of Greater London

4.???? The Channel Tunnel was expected to massively increase rail’s market opportunity by connecting Great Britain to mainland Europe, and creating many longer, and therefore rail-competitive flows. But the high costs of rail, and the slow average journey times on the mainland, and within GB, have led to 25 years of disappointment, and traffic through the tunnel remains little more than a niche.

5.???? Scotland has a generally excellent domestic road network, and limited urban congestion, which means that rail offers little speed advantage

6.???? Scotland’s last coal-fired power station, Longannet closed in 2016. By 2020 renewable electricity generation was 97% of Scotland’s domestic electricity consumption and petrochemicals are in decline due to ‘net zero’ targets

Anyone who has seen the endless flow of road trucks, each with their own driver, on the A1 or M6/M74 will be surprised that rail has struggled to grow, given the huge market and difficult topography and weather conditions.

Given the high degree of economic integration between Scotland and England, and the greater distance between the Scottish central belt and the English ports and conurbations, it is disappointing that rail has not gained more market share on Anglo Scottish traffic.

?What could change the trends and how could Government help?

·??????????? Net zero targets will require mode-shift from road to rail, as well as decarbonisation of road freight itself. To date, batteries are not practical for the kinds of long-haul road freight that dominates Anglo Scottish trucking, and hydrogen fuel cells are expensive and somewhat experimental. Higher carbon taxes on trucks might help rail gain share in container traffic, but either way, the use of electric trucks for local shuttles connecting with a trunk hauled diesel or electric freight train has to be one of the ways forward

·??????????? One freight train can remove up to 129 HGVs from our roads and an average diesel-hauled freight service produces 76% less CO2 per tonne than road transport and it emits less than one tenth of the nitrogen oxide and fine particulates of road haulage

·??????????? The growth story of the Scottish economy is poor in recent decades, with a decline in both the finance and energy sectors (although Scotland remains one of the more prosperous UK regions). But there is little sign of pro-growth policies on either side of the border. It is well proven that Governments are likely to generate more taxable income from a growing economy, than raising taxes on a static economy, which appears to be the current consensus amongst the Scottish (and English) political parties

·??????????? The differential safety regime between road and rail exerts a heavy cost burden on rail freight. In effect, rail now targets ‘zero accidents’, whilst public policy tolerates much higher accident rates on the roads. This ‘risk elimination’ target, whilst laudable, drives up every aspect of rail costs, including rolling stock, staff deployment, training and infrastructure, so Governments really need to think about levelling the playing field

·??????????? Rail continues to suffer from escalating costs, driven by high and rising wages, spiralling infrastructure costs, and restrictive working practices. Rail freight is one of the more dynamic and competitive parts of the UK rail industry, but is exposed to the overspill of cost inflation from the subsidised and regulated passenger and infrastructure activities. It is a measure of rail’s cost problem (and introspection) that 50 road trucks, each with their own driver, can be more cost effective than one locomotive hauling 50 containers.

·??????????? There are opportunities for ‘express’ rail freight where multiple-unit passenger trains are converted to carry small freight, targeting the intra-UK parcel market.? This would get rail back into the ‘general’ freight market that evaporated from the 1950s, and would be new business to rail and has the potential for considerable modal shift from road.? A new kid on the railfreight block - Varamis Rail - recently started an express rail logistics service between Birmingham and Mossend (five nights a week using converted passenger rolling stock), and is looking to expand its operations in Scotland having recently acquired a fleet of converted passenger trains. It is understood that Amazon are looking at the same idea. But, other than the dedicated Royal Mail terminal at Shieldmuir, there is currently only one loading bay at Mossend capable of dealing with this traffic. There is no other station in Scotland these days capable of allowing a road truck alongside a train platform. The days of road parcel truck driving onto?the platforms in Glasgow Queen St, Glasgow Central and Edinburgh Waverley loading directly onto rail vans are a distant memory. The costs to retrofit these stations to allow road vehicles onto the platforms is likely to be prohibitive, never mind the reversal in the H&S mentality required to allow this to happen

·??????????? The high costs and leisurely timescales to build rail infrastructure is deeply prohibitive. As an example, the industry expects at least ten years and ￡16 million, to reconnect and rebuild a disused set of sidings and put down some hard standing in Blackford for Highland Spring traffic. This kind of thing will put off most of the potential railfreight customers. Similarly, the forest will be long gone and long since turned into paper, if it takes that long to build a simple loading facility in the Highlands to move the vast quantities of timber traffic that is currently available.?

·??????????? Lack of critical mass – the small number of trains itself creates cost problems, leading to inefficient use of locos, wagons, terminals and crew, and working timetables that are uncompetitive with road transport.

Anglo-Scottish railfreight remains a significant opportunity, because the trip distance is long enough to overcome rail’s cost handicaps and the route already has existing terminals at each end. The Scottish Government, Transport Scotland, Network Rail and the rail freight operators need to figure out what are the traffics and flows where rail can be truly competitive with road, and how cost-effective terminals and operating practices can be developed. Maybe then the Scottish Government can set targets that are based on funding interventions that will actually make a difference.

*When was the last time the likes of Tillicoultry Quarries, Diageo in Leven, Nordbord in Inverness, James Jones in Lockerbie, Asda in Grangemouth, Amazon in Dunfermline and the large Scottish airports (aviation fuel) were asked what support they would need from Government to allow a greater share of their vast tonnages of goods to be moved by rail?

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*Just a few of the potential customers who have a major facility next to a railway or have recently looked into using or did use railfreight