Rail reform – What does it mean for freight and open access operations?

Rail reform – What does it mean for freight and open access operations?

Top 10 takeaways from our top table dinner

Freight and open access in the future GBR-led railway was the topic for the latest in our series of top table dinners, co-hosted with Atkins, on 14 March 2023. We were delighted to be joined by Maggie Simpson OBE, Director General of the Rail Freight Group, who spoke about some of the freight-specific issues in implementing rail reform. Our second guest speaker was Richard McClean, Transition Director for Arriva, who focusses on rail reform and was previously Managing Director of Grand Central, highlighting implications for open access operators and broader issues relevant to all users of the railway. Thank you to our speakers and to everyone who joined us and engaged in the debate that followed.

Here are our top 10 takeaways from the evening:

  1. Seize the (freight) opportunity: There is a big opportunity for rail freight in the United Kingdom. The pandemic showed that rail freight could deliver for the end-customer, with resilience. Whilst passenger rail journeys represent less than 10% of all passenger journeys made in the UK across all transport modes, rail freight impacts everyone – such as ensuring goods are available to buy in supermarkets. The demand for rail freight is only set to increase as government pursues net zero – and there is increasing pressure on businesses and supply chains to decarbonise their logistics operations and distribution networks. Government clearly sees the potential of encouraging rail freight operations and the Plan for Rail was keen to promote freight use, including by establishing a freight unit within GB Rail and setting a growth target for freight. Scotland is ahead of the game and has recently set a freight growth target of 8.7% but, that aside, none of the recommendations have been delivered so far. The Department for Transport consultation on legislation for GBR last summer failed to include freight within GBR's proposed core functions and so there seems to be mixed signals. GBR needs to have a culture that cares about both freight and open access operators given that it will have responsibility for both passenger revenue and network infrastructure. Much like Bryan Adams' famous song, GBR needs to have the mantra that Everything it does, it does it for "you" – a fully inclusive "you" that delivers access for all users of the railway. 
     
  2. Culture and trust: Culture was a word on the lips of many attendees. Despite assurances from key industry players, there was a general disbelief that GBR won't simply be a Network Rail 2.0. The reality seems stark: if GBR will be 90% Network Rail, 5% DfT and 5% operator, then without careful management the prevailing GBR culture is already set. There was some criticism about existing Network Rail cultures which seem to cause delay, increase prices and put obstacles in place for doing the right thing for the railway. There was some criticism of the dislike of open access services by the DfT. There was some worry about future GBR culture with the bringing together of revenue and cost in one place. If GBR has a choice to invest in rail freight enhancements – from which it will only receive track access revenue – or passenger rail enhancements – from which it will receive additional passenger revenue, the business case and decision seems clear. Freight – and open access – must not lose out given the wider economic, environmental and customer benefits generated. This is why it is essential to get the governance arrangements right – and that starts with the legislation. We cannot just rely on having good people in place. People will come and go; those who follow may not be so supportive of what went before. As a result, there is an imperative to have good laws, which will also drive investor certainty and, as a result, investment into the industry.
     
  3. Open (access) for business: Open access operators were left to carry the risk and damage caused by the pandemic. As the industry recovers, open access is well placed to help the rail industry take market share from long distance coach operators and airlines (in relation to domestic travel) and has already been doing a great job, often in the lead in getting its customers back post-pandemic. Open access improves service quality, prices, ticketing options and customer service and also increases passenger usage. To do so, open access operators need to be allowed to focus on those routes where they can see an opportunity to generate the most revenue, even if this means potentially competing with established franchise routes and potentially 'cannibalising' intercity rotes. To this end, given the existing reforms – including the anticipated introduction of Passenger Service Contracts – the DfT should consider re-drawing concession areas so that they focus on regional and local services rather than intercity services, which could be left to open access operators. Alternatively, the DfT could specify the basic service requirements for a region but leave the operators to determine how those requirements are met. There was some appetite in the room for a slots-based approach to longer distance services previously advocated by the Competition and Markets Authority and being used in other countries, where operators compete for slots or packages of slots on the network to operate their services.
     
  4. Centralisation vs devolution: A key question is where are the best decisions made? Should it be centrally? Or should there be devolution closer to those who use the services? Here there is – perhaps – a tension between the needs of freight and open access. For freight, which crosses large parts of the network to transport goods to where they're needed, a more centralised approach may be better. This ensures a joined up approach is taken to delivery of services and coordination of investment to deliver the needs of the freight market. For open access operators, decisions taken closer to the markets serviced, whilst ensuring there is a systems operator with access to all relevant data for overall centralised coordination may be more appropriate to ensure customers receive the right proposition. Of course, open access operators may cross multiple Network Rail or GBR routes and so a "whole-network" approach and single guiding mind will still be important for those services. The prevailing view was that GBR seems to be heading for centralising decision-making, but actually there should be a focus on empowering local decision makers. For example, devolved regional transport bodies so that they have power over determining regional and local rail service needs, leaving the market to focus on intercity passengers and markets and thereby generating a better customer experience and revenue. The whole room agreed that whichever approach is adopted, the current trend of micromanagement must go in the GBR world and any decision-making should be transparent and evidence-led.
     
  5. Modernisation: "You can't have a 21st century railway with 19th century systems." There are many examples where investment and modernisation is needed to bring industry systems up to date and make better use of the data that is being collected. There needs to be a network operator who takes responsibility for making the investment and co-ordinating the activity needed to change the industry systems and data collection and management so that it can achieve better train planning and traffic management. Better data collection and analysis of network use would allow for more efficient use of capacity and allow for more flexible availability for both freight and passenger services. It was interesting to have a representative from Google in the room who had some great ideas as to how the rail industry could deliver a step change in its operating systems and data management capability but the question remained, who would be the customer for such a system or "app"?
      
  6. Legislation: Not every change that needs to happen in the rail industry requires new legislation. We can push forward with change now and should stop "blue sky thinking" and start doing. Certain improvements, such as fares, driver training/licensing and ECTS systems can be made without new laws. The relevant decision makers should get on and introduce those changes. Although this may need tough political decisions, the government should stand up and take charge to get them done. And GBR needs to start delivering and stop talking. We need to be careful to make sure that in the government's efforts to remove legislation originating from the EU from our statute books, important protections are not lost. Our railway asset is used fairly, and not monopolised by one or two parties, avoiding protectionist practices – meaning the role of the regulator in future could be even more important. With limited capacity available, transparent processes are needed to ensure it is allocated fairly. Where we are making legislation, we need to ensure that freight and open access operators are not forgotten – a duty to facilitate freight for example could be a very powerful tool to making change and transforming that industry.
     
  7. Innovation and accepting failure: Our industry needs to be more innovative. For freight, there needs to be a shift in focus to meeting business needs, rather than expecting businesses to meet the rail freight industry's needs. For example, if supplies are needed at the logistics centre at 2pm, it isn't good enough to say that we can deliver them overnight. This may include looking at rail freight moving into 'last mile' delivery services and developing warehousing and delivery sites itself. For passenger operators, a fundamental question is whether we want entrepreneurialism in our industry. The view from the room was a resounding yes, but if we want that we have to accept that sometimes good ideas simply won't work in practice. The consequences of failure shouldn't be so penal as that disincentivises doing things different and realising benefits. Failure should be accepted as a positive thing because it encourages risk taking and innovation. This needs to be allowed for both within operators and within government and GBR. Too often failure feeds into a 'blame culture' that can result in organisational paralysis and a loss of focus.
     
  8. Generating additional revenue: With the balance between the cost of the railway and the revenue it generates being an area of focus, now may be the time to draw on experience from other industries to show that the railway really can deliver. What can we learn from airlines, which are more adept than rail at managing revenue and demand to generate better returns? Why don't passenger operators sell combined travel and hotel packages? There are opportunities available and we need to be open to doing things differently. An example was given of a recent trial in Germany where 49 euros bought you a one-month "go anywhere" rail ticket. Whilst the trial caused difficulties for the railway as a result of the huge demand created, if only a few of those new customers continue to travel by rail after the offer ended, it will still be a big benefit for the industry. HM Treasury needs to let the industry get on, be innovative and deliver – and sometimes a small amount of extra cost delivers a huge amount of revenue, so there shouldn't be blockers to delivering.
      
  9. The money: Facilitating innovation on asset funding, including for rolling stock, together with changes to accountancy rules to make innovation and funding assets more beneficial to freight companies could help to foster more private investment into the industry. The government and GBR might also like to consider whether there is a place for concession agreements on certain freight routes to encourage and foster freight usage. Much like the "passenger service obligation" for services that need government subsidy to operate, in the move to net zero the same could well apply for freight. This would be particularly beneficial on routes to more remote areas that would otherwise be dependent on road transportation and where freight operators may be reluctant to invest until there is a proven market. Above all, though, operators need certainty so government and GBR efforts should be on creating an environment that fosters market certainty, including for potential funders. And certainty can come if there is a "vision" guiding the rail reform agenda that is then flowed down into the detailed arrangements.
     
  10. Plan for Rail: What does all of this mean for delivering the Plan for Rail? A one size fits all approach to a mixed use railway would clearly be a disaster. Operators – whether freight, open access or GBR – need to be rewarded for doing the right thing – whether that is attracting people back to rail or attracting more goods onto the railway to deliver decarbonisation. A vision is needed for the railway that is customer-focussed – whether that be passenger or freight customer – and a vision which is clear, understandable and deliverable. Working in silos must be avoided to ensure a common approach and common voice for the industry – and the use of data will help support this. Rail Reform is a once in a generation opportunity to get things right – the opportunity to reshape the industry for the next 20-30 years, reform fares, eliminate waste, steal market share from other modes, boost local authority public service operations, streamline regulation, decarbonise the economy, leverage third party investment, and create a vibrant multi-user network. There are quite a few asks for freight and open access, but the key messages were absolutely clear.

One final rhetorical question noted the high degree of consensus within the room and asked, if the industry is agreed on the way forward, why the DfT and GBR didn't seem to be listening. It currently isn't clear who is in the lead on rail reform and there is perhaps a need for a face engaged with the industry and keeping it updated on what is happening and engaging the industry as a collective. That currently faceless person may be from the DfT, Network Rail, GBR transition team or somewhere else. But there is a need to bring the industry together to deliver meaningful reform in the right way. Whether you joined us or not, it's a good question: What can each of us do to deliver the future success of the railway?