Shape of future franchises affects freight

Rail Freight Group

There are many times when working in the rail freight business feels rather like hard work. Yet, right now, it might well be an easier place to be than franchising! The saga of the East Coast is well discussed on other pages of this issue, and it remains wholly unclear how this will be resolved. There are complex bids underway on South Eastern and in Wales, with East Midlands to follow shortly, and the shape and form of the West Coast Partnership is unclear.

Yet the changing shape of franchising and plans for future development will affect rail freight, particularly where those plans change the nature of infrastructure management. Over the last five or so years this has been an increasing trend, from the South Western Alliance and the ScotRail Alliance to the plans for new partnerships announced by DfT before Christmas. These were described as ‘long-term regional partnership bringing together the operation of track and train under a single leader and a unified brand’. This is over and above Network Rail’s own devolution, which also brings the main passenger operators together with the geographic Routes in route supervisory boards to oversee operations and future developments, including investment.

Freight operators and customers have been queasy about these changes, but so far the development of the Network Rail Freight and National Operators Route and the system operator function has offered comfort that freight needs will be properly considered. Of course, the ‘Freight Route’ does not own or operate any assets, but it is a voice of advocacy within the organisation, and a good focal point for the industry. But the further devolution progresses and the closer the commercial arrangements between Network Rail and franchises are, the more we need more than just advocacy, and must look at both safeguards and incentives.

To fully understand the issue, it is worth looking back to the premise of privatisation and of vertical separation, which was to create an infrastructure manager which was wholly independent of train operations, and who would therefore treat all operators equally. This would enable competition to take place on a fair basis, promoting growth. Each reader will have their own opinions on vertical separation and on the successes or otherwise of the model, but there can be little doubt that the ensuing competition in rail freight has been a major contributor to its success in developing new markets, in reducing costs and in driving change.

The proposed partnership model, building on previous alliancing, fundamentally alters this model; it makes the infrastructure manager partial, giving it a greater interest in the success of some operators over and above others. And it gives that preferred operator access to decisions which could impact adversely on the success of others. This may sound paranoid, and there is no suggestion railway managers would actively go out to act in an anti-competitive way, but the commercial and reputational incentives of a franchise must suggest they will act firstly in the best interests of their own business. Across Europe there have been numerous cases of anti-competitive behaviour taken to the European Commission; it can and does happen in railways.

The system operator function has been established to try and ensure that Network Rail’s core functions do remain impartial. This is a good move and is developing well, but in the long-term, depending on how integrated the Routes become, there will be increasing questions over whether it should remain part of Network Rail or become a separate body. The key test is how Network Rail’s Board will be able to balance the different positions of the Routes and system operator – for example, would the system operator have a veto on certain decisions? This may also depend on the extent that Network Rail is exposed to the commercial targets of the partnerships.

There is also a host of regulatory protections, overseen by the Office of Rail and Road, licence conditions and ultimately the law. These all provide a backstop for freight operators and provide a level of confidence to customers. However, they do not in themselves create a positive culture for freight growth. So the challenge for Government is how to square that circle and ensure the partnerships also have the right incentives to act in the best interests of all users. To use an analogy, the star chart not the naughty step. The Scottish Government’s approach of setting a freight growth target for ScotRail may have something to offer here.

Rail Freight Group was originally founded back in the late 1980s by rail freight customers frustrated at the poor level of service they were getting from a vertically integrated infrastructure manager – British Rail. The new partnerships must learn from this, and ensure they deliver for all network users.

An opinion column of the Rail Freight Group, www.rfg.org.uk

Working across multiple franchises: the North Blyth to Fort William Alcan service uses the East Coast main line and then crosses into ScotRail territory. GBRf loco No 66733 Cambridge PSB leaves the plant at Blyth on 27 January 2018 hauling 24 loaded alumina PCA tanks. Bill Welsh