Rail Freight Group - Lord Berkeley

When Rail Freight Group, with the Freight Transport Association, produced freight forecasts back in 2006, many were surprised to see the predicted growth in intermodal traffic, coupled with a gradual decline in coal. For many, rail freight would only ever prosper in bulk sectors, with non-bulk remaining a niche event.

Indeed, in the preceding years, growth in power station coal had dominated the rail freight sector, with new operators entering the market and significant investment in port facilities and rail equipment.  Then came the recession and, for many, the expectation was that the newer non-bulk sectors would be the first to suffer against a fiercely competitive road sector.  So, the recently released rail freight statistics for 2008/10 are perhaps something of a surprise to many commentators.

The results for 2009/10 show that, compared to the previous year, there was an overall reduction of some 7.6%.  Dominating this is a massive 21% fall in the movement of coal, principally to power stations.  Other sectors though have fared much better.  Construction materials are back to their pre-recessionary levels, growing 3%, metals grew by almost 7% and international by over 5%.  And intermodal traffic has continued its success, recording 6.5% growth and the 7th consecutive year of growth in a row.  Indeed, in quarter 3, volumes of intermodal traffic on rail exceeded those of coal, making it the largest sector of the UK rail network.

So, what has been driving these results?  During the recession, ports have recorded a serious downturn in business, and DfT’s port statistics show that unitised traffic overall was down some 9% between 2008 and 2009.  Even more remarkable then that rail has grown its share of the business.  High service quality, the increased efficiency generated by gauge enhancement on key routes out of Felixstowe (with Southampton to follow soon) and the competitive services provided by the rail operators and inland terminals are building customer confidence in the sector and enabling cost competitive services.

For coal traffic however, the story is somewhat different.  Whilst overall electricity demand did fall slightly during the recession, the root cause lies in the generation mix.  As the graph shows clearly, coal generation has fluctuated wildly over recent months, whilst nuclear has levelled and gas has dominated.  New gas supply lines have opened from Scandinavia and the gas price has been highly favourable as a result.  The power generators also stockpiled coal significantly during 2008-09 and still have far greater levels of stock than they historically would.  It is easy to see why rail volumes have fallen so dramatically.

Source Coalimp – The Association of UK Coal Importers

This is a major headache for the rail freight operators who have invested so heavily in the sector in the expectation that the drop-off in coal burn would not come towards the end of the decade as emissions standards forced the closure of many existing power stations.  Even the best estimates suggest that it might take 18 months to 2 years to return to a stable position, and even then at lower level than before.  DB Schenker has responded by reorganising, and merging its coal division into a new industrial sector and by strengthening its logistics operation, and others will no doubt be assessing their strategies.

The early results for 2010-11 show these overall trends continuing, and ports and terminals are recording ‘record weeks’ for intermodal movements on rail.  We must hope that actions to reduce rail’s costs do not undermine this economic and environmental success story.

Lord Berkeley is Chairman of the Rail Freight Group.  For further information, visit: www.rfg.org.uk

Published: 06/08/2010