18 OCTOBER 2004

Lord Berkeley OBE

  Q69  Chairman: Good afternoon, Lord Berkeley. Thank you very much for sparing the time this afternoon and also for the evidence that the European Rail Freight Customers Platform has produced for us. Is there anything you would like to say in advance, before we ask questions of you?

  Lord Berkeley: Thank you, my Lord Chairman. Thank you for inviting me. I think I owe an apology on behalf of the Chairman of the European Rail Freight Customers Platform, Georges Di Lallo, who would have been very good as a witness because he also runs Arcelor, which is the biggest customer of SNCF in France. I will try and answer as best as I can on his behalf and on behalf of the rest of the Platform. I apologise for him not being here.

  Q70  Lord Fearn: Lord Berkeley, what are the principal shortcomings in terms of price and quality of service of rail freight in Europe at the present time, and at the same time to what extent have the reforms of recent years alleviated these shortcomings?

  Lord Berkeley: The real problem with rail freight, as you will have heard, is that rail freight is in competition with road freight, and sometimes water-borne freight; and in some countries rail freight remains the monopoly of a nationalised industry, with all the pretty poor service quality and sudden hikes in price that one has got used to over the years, not just in the railway industry but in many other industries. That is why, of course, it has been privatised in this country and has been very successful. The reform in recent years in Europe of course did include the open access regulations, which helped because people like SNCF were supposed to publish separate accounts for the train operation, for rail and the infrastructure—and in Germany and other countries—but it is nothing like enough. The open access Directives in 2001/12 & 14 have the potential for moving it forward. In the UK, since privatisation, certainly eight, nine or 10 years ago, rail freight volumes have gone up by 50 per cent. Equally important, market share between road and rail has gone up from 7 per cent to 11 per cent; so we have increased our market share. On the continent, figures are quite hard to come by but the best that can be said in most places on the continent is that the overall volumes have remained static, which means that the market share has effectively gone down because the total volume has gone up. This is looked at against the demand for movement of freight, which certainly out of China is expected to be an increase of over 10 per cent every year. The demand is going up! I heard this during our recent visit to Canada. It is quite frightening in some ways, and somehow the industry has got to cope with it. There have been some good new services in the UK. There have been good services in Germany, with the independent operators who have been able to start there. Italy is moving in that direction, especially down Italy, but in other countries—Spain, and France, which is key for UK and Spanish traffic to get to the Continent—France remains a serious problem. There is a great deal more to do.

  Q71  Lord Fearn: In regard to Italy you used phraseology that meant they have gone ahead rather quickly. Have they?

  Lord Berkeley: Ten years ago, if you sent a wagon to Italy, you did not expect to see it come back; it got lost in the system. Now they have split the passenger services from the infrastructure, and there are three freight companies working—not nationwide but they are working. They may be not truly private in our sense and may be owned by Swiss Railways or Austrian Railways or some other companies, but at least there is an element of competition. I think they have increased the traffic across the Brenner Pass, which has been a major bottleneck, very significantly, and this is a step in the right direction. Italy is still pretty chaotic when it comes to sending boxes or receiving boxes, as reflected by the service that some of the customers have got from within the UK to and from Italy. There have been endless delays and problems. This is probably because there is not yet the competition between Italy and France to the UK that there is on the other route. Italy-France is just one operator, and part of it is SNCF, so we have still got a problem there.

  Q72  Lord Haskel: Lord Berkeley, the Minister of the Department of Transport recently said that in the Government's view the rail freight market within the European Union should be fully open access by 2007. Will it?

  Lord Berkeley: That is a good question. The first thing is that international traffic in Europe means traffic between Member States; it does not mean outside the European Union, and that is the definition. Open access for international traffic should have already happened. I think the Minister was talking about domestic traffic within Member States. There should be open access now on international traffic, and I do not see very much of it. Domestically, as I said, there is open access in this country, and it is very successful. There is some in Germany and into Belgium and the Netherlands. There is nothing between Germany and   France. Recently a private operator called Rail4Chem was to be awarded a contract by Eléctricité de France, the French electricity generator that has a lot of power stations along the northern French frontier, to move coal from Rotterdam by rail; they won the contract from EDF, and I understand that the French Government said, "No; you will not get this contract; SNCF will." There is open access across the Brenner Pass, as I said, between Germany, Austria and Italy. The real problem is that there is no particular expectation it will all be there by 2007, although there will be progress in some countries. Until there is uniform progress across all Member States, 2007 will just be another step in the right direction—we hope!

  Q73  Lord Haskel: What are the main obstacles standing in the way? You did say that you do not see this working.

  Lord Berkeley: My Lords, there are lots of main obstacles. The first is implementation of the open access Directives 2001/12 & 14; secondly, making sure that the provisions of those open access Directives are translated into domestic legislation in a fair and proper manner; and, thirdly, enforcing the beastly things! There is no point in having lots of laws if you do not enforce them. It applies just as much  around freight as anything else. France has   implemented all these regulations, but, unfortunately, they have drafted the regulations for safety certificates in such a way that you have to be French to get a certificate; and even SNCF has had a certificate refused quite recently for a new service, even though it wrote the rules. Clearly, the rules need a bit of adjusting! Other countries have not implemented the Directives, like Germany, and neither have we for cross-Channel traffic. All these things need to be implemented, and then new operators must be helped to get started, because the barriers to entry are still huge and are different in each Member State. In regard to getting across the frontier—to give you a quick example—Rail4Chem, or one of the independent German companies, got a licence to operate in Germany and another one in Poland. It was not allowed to operate between Germany and Poland because DB Cargo had a monopoly of getting across the frontier—they have a little deal with the customs people. You frown, but I am afraid it is true. It has been resolved now. Ditto, getting in and out of the port of Hamburg. Until quite recently there has been a ransom strip, as you might call it; the last mile of the track into the port could only be operated by DB Cargo; so if Rail4Chem came in, the customer had to pay for DB to haul it the last kilometre into the port. That is thoroughly anti-competitive, in my view.

  Q74  Lord Haskel: How do you enforce the last mile?

  Lord Berkeley: It would normally be done in the first instance, I think, by the regulatory authority of the Member State concerned. If that did not work, the competition people in the European Commission should be doing it. I am very pleased to say that I had a meeting with one of the people involved from the Competition Directorate a couple of weeks ago, who did say that they were looking into all these issues, and would not hesitate to take action against companies or Member States that contravened it. Competition investigations do take some years, on the whole, but the more pressure that can be put on them and, as I have told my Platform colleagues, the more information we can give them of examples of where it goes wrong, is the only way that it is going to work. It is terribly important that that point is made to all the Member States. However, the Commission needs to indicate that it is not just creating new legislation all the time but making sure the existing legislation works properly.

Chairman: We are going to come to those very points in a moment.

  Q75  Lord St John of Bletso: Lord Berkeley, in response to Lord Fearn's question you mentioned that volumes are going up and by that, obviously, demand will go up. We read in the ERFCP's response that demand for freight will increase by nearly 40 per cent between 1998 and 2010, and that there needs to be more reliable and cost-effective rail freight. Obviously, this goes on to the big question of more competition. In paragraph 15 of the written evidence you say: "For the infrastructure itself, there is of course no point in introducing competition, but there is an ongoing need to ensure that infrastructure managers (IMs) treat all their customers, the train operators, fairly and equally." Do you believe that complete separation of infrastructure from operations is necessary to achieve a competitive rail freight market throughout Europe? Would strong independent regulation suffice?

  Lord Berkeley: First of all, can I make a point to amplify paragraph 15. I said there is no point in introducing competition, but of course between London and Italy there is competition: you either go via France and then straight to Italy, or you go through Switzerland and then you can avoid most of France. To that extent there is competition but, I think, that is not what the real question is about. The infrastructure managers have made a lot of progress in working together, so that when a train is about to arrive at the frontier, the next infrastructure manager knows it is coming. This is not rocket science, but it  is not even commonplace yet; however, it is happening on occasions. You can now book a path all the way through, an infrastructure path from origin to destination, through one organisation; so to that extent it is helping. I think you do need to have complete separation. The reason I say this is that there is separation here, and it works well. A year ago when we were in Germany with an all-party group, we met Rail4Chem and BASF, the big chemical company. They own part of Rail4Chem, an independent company, and they had recently wanted to put on an extra train through Rail4Chem from Ludwigshafen to Berlin, and so they asked Rail4Chem to apply to DB Netz, which is the infrastructure manager, for a pass. Two days later they got a call from DB Cargo, which is Rail4Chem's competitor, saying, "we hear you want to run another train to Berlin". In other words, if there had been a Chinese wall, it did not work at all. There is the big boy, who could easily kill the little fledglings in Germany, still saying, "we can under-price this". The chemical industry is so fed up with the German railway system that they encourage these smaller operators to develop. To me, there has to be total separation, but it has to be also coupled with strong independent regulation; you need them both. They are in the private sector, and there is money at stake, and any secrets put across like that would just drive the small operators away. We were told by the customer that Rail4Chem offered a 25 per cent reduction in price compared with DB Cargo and a much better quality of service. If we want rail freight to survive, these people have got to be encouraged to prosper, and therefore there has to be competition and therefore separation.

  Q76  Lord St John of Bletso: How important therefore is it that rail freight customers have an independent rail freight regulator, and is existing European legislation adequate to achieve this throughout Europe?

  Lord Berkeley: In theory, the regulation is adequate to achieve this, but again it comes back to how each Member State interprets and implements the European legislation as to whether it works. This is the problem. It may be that the Commission would have to come back in the future and say, "this is not working because each Member State is doing it in such a different way that there has to be a better commonality of structures, making them all work together". Perhaps it is early to say that, but I think this is something that should be flagged up for the future if things do not improve soon. There is no regulator in France to speak of. There is one in Germany, but I think they have just restructured and I do not know too much about it. Maybe it will get better—but it is something to watch. It should work, but we will see.

  Q77  Lord Geddes: You have almost answered my question, Lord Berkeley—one regulator or 25?

  Lord Berkeley: I am glad you did not say 27, because Malta and Cyprus do not have railways.

  Q78  Lord Geddes: I was thinking it would be a bit a bit difficult to go across the water to Malta by rail!

  Lord Berkeley: You are aware that they have asked for a seat on the board of the European Railway Agency, along with Cyprus.

  Q79  Lord Geddes: Let us stick to 25 for now. Let us stick to the question, Lord Berkeley.

  Lord Berkeley: Ideally, you would have one regulator throughout Europe. I look at the railway safety regulations that are coming in and it comes back to the question of a combination of political interference and political fear among Member States as well as the Commission. Are you going to get the highest common factor or the lowest common denominator? On railway safety, I have a fear which could run across to rail freight—although it is primarily rail passengers, I suppose, but rail freight has to comply—that they will make everything so safe that the safest railway will have no trains on it, which is not the objective. It has to be reasonably safe, with a risk analysis done in accordance with European rules. Our Regulator does an enormous amount in this country, and has been very helpful in getting into the detail. It has taken eight years to get this far, so if I am critical of some of the other Member States, who started a lot later, it is probably not surprising. I know that our Regulator does meet all the other Regulators, where they exist, for regular meetings. It would be nice to think that they could agree all these things without an enormous bureaucracy in Brussels, which is what I would be worried about. What I would like to see is commonality of rules and purpose. If that has to be achieved through the Commission, I think it is sad, but politics being what they are, it may be necessary for them to go back and re-visit it in more detail. There must be a bottom line below which you could not go at a European level, because freight just wants to run without all these constraints, some of which are totally passenger orientated.