18 OCTOBER 2004

Mr Graham Smith

  Q95  Chairman: Thank you very much for coming to be with us today and for the evidence that EWS sent us, which naturally we read with interest. We aim to finish at six o'clock, and have many questions, so if you could keep your answers reasonably to the point, that would be helpful. From your point of view, what are the three most significant problems faced by rail  freight operators in international rail freight operations in Europe, particularly if I may say affecting Britain, where it is relevant?

  Mr Smith: Service, service and service! The key for any freight haulier, by whatever mode, is to be able to meet the customer's expectations, and to deliver the goods at the time the customer requires. As Lord Berkeley has referred to, and as we put in our evidence, the quality of service for rail freight for mainland Europe is terrible, for a number of reasons: the priority given to the passenger railway; towards eastern Europe the quality of the infrastructure; the quality of the resources. If a customer is to choose rail, that can sometimes require considerable investment by the customer, and they need to be sure that that investment is going to earn a return, and that they are going to get their goods on time. We find in operating services as far as Calais, where the French railways will pick it up and pass it on to other rail freight operators elsewhere in Europe, that the service quality is not as good as it could be.

Chairman: I am sure we will pick that up during the course of the next 40 minutes or so.

  Q96  Lord Fearn: The Minister for the Department for Transport recently stated the Government view that the rail freight market within the European Union should be fully open access by 2007. This was a question to Lord Berkeley as well: do you think that it will be?

  Mr Smith: The legislation will be in place so that any national operator will be able to operate domestic traffic in any other Member State's railway. The legislation is there, but putting it into practice is another matter. It is arguably an issue across the entirety of Europe, which is that to make something work you have to have an organisation or a company that is willing to invest and take risk, and is willing to make an offer to the customer that they can then meet. The issue is not so much about the legislation, which is what the European Commission has put in place; it is about the willingness of the market and for rail freight operators to respond to that legislation. I do not know whether it will be there in 2007. Certainly, EWS, or strictly speaking EWSI, which is our international division, intends to take advantage of that legislation, both on international and domestic traffic. The extent to which other rail freight operators are in a position to invest and take on both the incumbent state operator and other private sector operators remains to be seen.

  Q97  Lord Fearn: Are there any other obstacles that you can see?

  Mr Smith: Essentially, the obstacle in every country is the state railway and the government that sits behind that state railway. It is probably quite easy to blame the state railways directly, where it is difficult to achieve open access. One has to look behind the state railways and look at the will of the government to open up their railways to on-rail competition. If that will is not there, both in railway legislation as in anywhere else, then it is doubly difficult to achieve.

  Q98  Lord Fearn: How successful has the European Commission been in overturning or overcoming the barriers to a competitive rail freight market?

  Mr Smith: Our view is that the Commission has done what is in its power to do, which is to create the legislative framework. It is not for the European Commission to demand that the railway industry in a certain country changes its ownership or is fragmented; it can merely create the legislation that enables that to happen. Sometimes the European Commission may go too far and create legislation that it believes will be helpful but which would increase cost. Overall, it is EWSI's view that the Commission has created the right framework for a competitive environment.

  Q99  Lord Shutt of Greetland: Mr Smith, in your paper, you say: "Vital to the process of liberalisation is (i) full independence of infrastructure capacity provision and train operation and (ii) the presence of an independent Rail Regulator . . ." You are very clear that there should be this split. Why are you so clear about that?

  Mr Smith: I would be quite clear that different models work in different parts of the world. There is a fully competitive railway operation in North America, where there is a split between operations and infrastructure, and where the operator owns the track and has agreements with other operators to use each other's track. It is a "co-operate and compete" approach. Each player in that market has got market strength. The situation that has been developed in the United Kingdom post privatisation, and the situation that is developing in Europe, is that not all operators and not all markets have the same market strengths. We certainly see in this country that there is a need for independent economic regulation to protect private sector investment in rail freight against government intervention that will prefer the passenger railway for quite recognisable political reasons. Elsewhere in Europe we also see the separation of infrastructure and operations because there is a market imbalance and the market does not work effectively.