After a glut of traction and rolling stock items in recent columns, I spread the net wider this month.
Thameslink - and then there were three
I have just realised that we are in the last year of John Prescott’s 10 year Transport plan. Have the Great Western and East Coast main lines been upgraded? Apparently not. But what about freight?
Well in 1999-00 the railway carried 18.2 billion tonne km and according to the 10 year Plan should have increased by 15 billion tonne km by now.
What did the HLOS White Paper said in July 2007? ‘After a long period of decline, the amount of freight carried by the railway started to grow in the mid-1990s at the same time as passenger numbers began to rise. The Government is confident that rail freight will continue to grow over the next 10 years’.
All right, joke over. After 10 years of sustained economic growth, non-coal freight traffic generated almost exactly the same tonne km as British Rail in 1989-90. So where has all that ‘growth’ talk come from?
A helpful chart in the article provides the answer.
At the depth of the recession (1994-95) the railway carried 42.5 million tonnes of coal. In 2007-08 it was 43.3 million. But the average length of haul had increased by 100km to 179km. For non-coal traffic tonnage was up over the same period by 5 million tonnes to 59 million tonnes, with the length of haul increasing by 50km to 177km. Since 1999-00, coal has gone from 26% to 36% of freight tonne km
So, rail freight’s ‘growth’ since privatisation was initially driven by a traditional recovery from a recession. But having recovered , freight did not go on to ride the sustained ensuing economic boom in the way that the passenger business has achieved. Traffic growth was largely dependent on changes in the coal market.
And now, while coal is holding up pretty well, other traffic is suffering. Carrying for Quarter 3 is the lowest quarterly figure since Quarter 1 of 2004-05. Even Domestic Intermodal, which really has grown is now falling.
One thing seems certain. Having failed to break out of its historic traffic levels during an unprecedented period of prosperity, what is touted as the coming period of unprecedented economic retrenchment is going to test the freight company’s survival skills.
As an example of how this column relies on its readers, consider the case of NR’s ‘modular signalling’ project. No one could work out what this involved since signalling is inherently modular.
At the Institution of Railway Signal Engineers conference ‘Signalling projects in the
Fortunately one of my signalling gurus was at the conference and, as he told me afterwards, ‘the penny suddenly dropped’. What Network Rail is proposing is a ‘modular railway’.
With modular signalling instead of designing bespoke track layouts with interlockings programmed to suit, you draw on a ‘library’ of stock signalled track configurations which can be put together to make a complete line of route.
A standard track layout would be controlled by a Computer Based Interlocking pre-programmed and validated for a limited number of layouts and movements. The interlockings would use standard signalling data and, perhaps, a reduced set of signalling principles. As my guru put it modular signalling is really about ‘standard bits of layout, signalled in a standard way with functionally standard kit and signalling data’.
Anyway, Signalling Solutions Ltd and Westinghouse have been selected for pilot schemes on Norwich-Ely and Crewe-Shrewsbury respectively. Contract award is pending.
With ridership and revenue growth slowing, TOCs who won franchises with aggressive growth-based premium/subsidy profiles are starting to hurt - none more so than National Express East Coast where the first quarter of the year saw revenue growth at 0.3% compared with the 10% needed to pay the premium to DfT Rail. And it’s three years before ‘cap & collar’ revenue support comes to the rescue.
I’ve been getting my brain round cap and collar which normally come into effect at Year 5 of a franchise. First Group drove a hard bargain to get it in place in Year 3 at Great Western and Year 4 at FCC and SWT is trying to get some early relief by exploiting a possible loophole in the standard franchise terms.
Meanwhile DfT Rail sticks to its mantra that it does not renegotiate franchises, while hinting that if East Coast goes down, cross-default could see National Express lose
Cap and collar will be increasingly expensive for DfT the longer the recession goes on and revenue stays flat. But collapsing franchises could be even more costly. More on this next month.
In the bad old days, when BR would be ordered by Government to implement immediate savings, the infrastructure took the largest hit. But the Periodic Review process assures Network Rail’s revenue for the next five years – no more instructions to cut back expenditure. This is all very welcome, but could any government tolerate a situation where railway infrastructure expenditure was immune while major cut backs were being applied to other, higher profile spending departments such as health, education and defence?
Any reduction in Network Rail’s direct Government grant, (£3.76 billion in the current year) would have to come from cutting back on outputs specified in the HLOS, which would require an Interim Review. And there is provision for just such a thing in the Final Determination for CP4, known as a ‘re-opener’. According to the Final Determination, ‘if the cost of debt that an efficient Network Rail faces moves materially higher, this could clearly be grounds for triggering a reopener of the price control and a possible change to Network Rail’s revenues and/or outputs’.
The Government could increase thee cost of Network Rail’s debt by withdrawing its guarantee, known as the Financial Indemnity Mechanism. If this triggered a re-opener, ORR would launch an interim review which would require requiring DfT and Transport
Whether such a restatement would produce significant savings is an issue for another column. Network Rail is already tasked with efficiency savings it cannot yet be sure of delivering.
Of course, there is also expenditure within the HLOS for which DfT Rail is directly responsible. Thameslink infrastructure is funded through Network Rail but the trains and finance are being procured by DfT Rail. Similarly the Intercity Express Programme and the 975 new HLOS vehicles.
DfT Rail has published amendments to the bidding instructions for the new Thameslink fleet covering the proposal to ‘slice’ it into a ‘minimum’ of two batches. Batch 1 will cover the two depots and around 40 vehicles’. There’s a Table showing their allocation in the column.
Now for the worrying bit. DfT Rail concedes that slicing ‘introduces new risks’ into the Thameslink ‘transaction’. For example finance for Batch 2, ‘or any subsequent Batch’, might not available ‘on terms acceptable to the Department’.
Bidders are asked to detail the cancellation costs if only Batch 1 went ahead. DfT gives this eventuality ‘a probability of 20%’.
On April 20,
But I think there is more to it than simply avoiding overstretch.
Under this new ‘old guard’ management team the performance of each business sector has been reviewed, including exports. I would expect the immediate emphasis to be on winning work for Japanese factories rather than exporting added value to plants overseas. Combine a more conservative pricing policy with the relative strengths of the Yen and the pound and the price of imported trains would have made the Thameslink bid less competitive.
Bidding soaks up engineering resources, which are always finite. Viewed from
I also suspect that a lot of people were taken aback by the reaction to the IEP preferred bidder announcement. Awarding a second contract to
Stagecoach has taken a dispute with DfT Rail over future franchise support payments to arbitration. The dispute centres on when the South West Trains franchise becomes eligible for ‘cap & collar’ revenue support.
Stagecoach accepts that SWT should receive revenue support from February 2011 – the start of the fifth year of the franchise. but it is arguing that the assessment of revenue shortfall should start in April 2010, not February 2011.
I reckon that this claim is based on the wording of a Paragraph in The National Rail Franchise Terms, and quote my interpretation of the cunning plan.
Stagecoach is also arguing that the revenue figures used to calculate any shortfall should exclude all car park revenue. DfT Rail believes that most car park revenue should be included.
So the financial situation is clearly pretty dire. If the dispute is not resolved satisfactorily the Stagecoach UK Rail Division is likely to incur ‘a significant operating loss’ in the year ending
Time to revisit those Informed Sources analyses of bid profiles when the franchises were let in 2006.
Mike Storey’s presentation on rail’s role in the London 2012 Olympics was a useful reminder of just how much the capital relies on what steel wheel on steel rail does uniquely well – moving large numbers of people quickly and efficiently. For my five minute warm up I outlined the effect of the recession on the various parts of the industry. I haven’t had such a rapt audience for a long time.
Last week I gave a lunchtime talk to a local retired businessmen’s club in Radlett. I chose Thameslink as the title, only to find when I arrived that a former Thameslink Managing Director had driven his father (a long term MR reader) to the event. Thanks for being gentle with me Mark!
This coming week I’m having a session with HSBC Rail, my first meeting with a ROSCO since the Competition Commission threw out DfT Rail’s claim of profiteering. More importantly it will provide an insight into how the leasing industry is facing the recession.
The following week is the Stagecoach annual reception where there is always serious discussion to be had behind the social chit chat. Judging by the last item above, it will be even more serious than usual.
Next month starts with the Rail Freight Group annual conference, by which time my ‘growth’ analysis will have been published. It’s gong to be interesting to see how it is received by the professionals and whether key-note speaker Transport Minister lord Adonis sticks to the old script.
In mid-June the IMechE has a one day conference on the theme of ‘future energy supplies’. First up after the keynote address is Modern Railways’ own imp of mischief Ian Walmsley with a presentation on Future diesel trains. I think I will dare him to say ‘Don’t build any’ and sit down.
And then at the end of the month is the final meeting of the this year’s Fourth Friday Club session. Guest speaker is Lord Adonis who will also present the 2009 Innovation Awards.
Meanwhile Network Rail’s electrification
Roger