18 OCTOBER 2004

Mr Graham Smith

  Q100  Lord Shutt of Greetland: You do not think that just regulation can cope with this?

  Mr Smith: The problem with regulation is that regulator's powers can be changed by government and by Act of Parliament. One cannot always rely on the fact that the regulator will remain independent of political influence. That has always been a concern that we have had in the United Kingdom and we certainly welcome the fact that the regulator's independence in the UK was reinforced by the White Paper. But in Europe where the regulator can be part of the Ministry of Transport, can be part of government, then that genuine independence does not exist.

  Q101  Lord Geddes: Could I ask you exactly the same question that I asked Lord Berkeley: one regulator or 25?

  Mr Smith: The Regulator has a number of powers in the United Kingdom, not just relating to rail freight, and those powers are shortly to be increased by becoming the safety regulator as well. My view is that if the European Union has produced a common framework to which everybody works, I think the practical reality is that you will probably need a separate regulator for each country. I do not think the European Union has yet got the depth and breadth of knowledge to be able to regulate as a single regulator across the entirety of Europe.

  Q102  Chairman: In the area of financial services regulation across Europe, they have a lot of complicated regulations for directors to implement and so on. The device that was adopted was for all aspects of the industry to get together and to talk through the guidelines as to how to make this actually work and the Commission then fairly quickly proposed, and was successful, taking those kinds of voluntary agreements and making them subject to comitology and they were implemented. Is anything like that feasible for rail freight in Europe? What you have described is a situation where the legislative framework is in place but the actual way in which it operates is so different in various countries that anyone who wants to operate across Europe cannot easily do it. How can you move to break this stalemate across Europe?

  Mr Smith: I think the difference is that the financial services sector, along with other modes of transport, is not hidebound by a national state boundary, it will work across not only states in Europe but is a worldwide activity. Railways, by nature of their geographical existence and the way in which they have been developed since the 1850s, are very much a national activity tied to a national economy and in the past have been used to promote national interests. It is not many years since national railways were forced to purchase from manufacturers within that country rather than purchasing at best possible price. I do not think that the railway industry throughout Europe is yet mature enough to regard itself as a cross-border pan-European activity. I believe the legislation that the European Commission have put in place will lead us towards that, but I think it has a few years to go yet.

  Q103  Lord Swinfen: Mr Smith, we heard from Lord Berkeley that he thought that the potential for rail freight through the Channel Tunnel was not being reached. I wonder what is your view on this is and, if you think it can be increased, what can our Government do to help secure this?

  Mr Smith: Rail freight through the Tunnel is about 3 per cent of the cross-Channel market and it is a growing market as well, so there is—

  Q104  Lord Geddes: Three per cent of the cross-Channel freight market?

  Mr Smith: That is correct, yes. Clearly there is huge potential. There is a constraint, which is the physical capacity of the Channel Tunnel but, of course, that is not the only way to get to Europe and perhaps in years to come we will see a second tunnel built—that would be unlikely—or maybe the reintroduction of  train ferries. There is a capacity limitation but certainly we are nowhere near that at the moment. Prior to the problem with the asylum seekers that we faced two years ago when most of the international rail freight just stopped because of the incursion of asylum seekers at the SNCF yard at Fréthun, we were moving about three million tonnes a year. In the last full year we moved 1.7 million tonnes and we expect just over two million tonnes this year. I go back to my answer to the first question: one has to improve the service quality and to be able to offer that at a price which is competitive with an alternative load, but the potential is significant. It is not just in what people might think of as traditional Channel Tunnel traffic, the containers and swap bodies that have been referred to, but in the areas where rail freight is competitive across the world you can move more goods and heavier goods by rail more efficiently than one can do by road. It is a matter of rail freight, either individual companies or across Europe, finding the  markets—be it chemical, steel, construction materials—and moving those between countries in Europe. Elsewhere in Europe the manufacturing industry moving from western Europe to eastern Europe and the construction industry will go to the lowest priced supplier. What the transport industry has to do is to ensure that the lowest priced supplier can access the markets where there is demand.

  Q105  Lord Swinfen: You said that a couple of years ago we were at three million tonnes freight a year.

  Mr Smith: Yes.

  Q106  Lord Swinfen: You did not actually suggest what it might rise to if properly managed.

  Mr Smith: The forecast put in place at the time when the Channel Tunnel was built was for six million tonnes. One could certainly get higher than six million tonnes, it would depend on other users of the Tunnel as to whether the capacity was available and it would depend on the nature of the goods. Clearly a wagon can move very light goods, a wagon can move very heavy goods, so the absolute volumes I would not want to be drawn on because it depends how the market evolves. Certainly one can move significantly more than is being moved at the moment.

  Q107  Lord Swinfen: You could significantly remove the freight traffic off the M2 and M20?

  Mr Smith: Certainly we could make a dent in that. No-one in the rail freight industry has ever said that it is the sole solution to congestion on the motorway network in the UK but we can certainly have a go at it.

  Q108  Chairman: At the moment you say that rail freight through the Tunnel is 3 per cent of all cross-Channel freight?

  Mr Smith: Yes.

  Q109  Chairman: At an optimistic level of growth, if all conditions are right, what proportion of that movement do you think could go through the Tunnel economically?

  Mr Smith: I believe you could move up to 10 per cent of that before you ran out of capacity. That would be the limiting factor, not the market, because the market is huge.

  Q110  Chairman: That is helpful to the Sub-Committee to know, that at capacity for rail freight purposes it would still only take 10 per cent of the freight movement.

  Mr Smith: If one presumes that the use of the Tunnel remained for lorry shuttles, car shuttles and capacity for Eurostars. Clearly it is possible to change the proportion of the capacity of the Tunnel and were the entirety of the capacity of the Tunnel handed over to rail freight we could probably move significantly more, but I suspect that is unlikely.

  Chairman: That sounds like an opening gambit.

  Q111  Lord Geddes: Mr Smith, presumably that aspiration would also require open access through France?

  Mr Smith: Yes.

  Q112  Lord Geddes: You came up with a perfectly wonderful expression about 10 minutes ago, that such open access was "not as good as it could be". How masterly an understatement would you say that was and would you like to expand?

  Mr Smith: Certainly I stand by that comment, Lord Geddes.

  Q113  Lord Geddes: You have not answered my question. How masterly an understatement was that?

  Mr Smith: Open access in France does not exist at the moment but I am aware of four rail freight operators who are applying for safety certificates in France, and my company is also looking seriously at becoming an operator in France. There are three essential prerequisites. The first is to have an international operating licence, which we do have. The second is to have a safety certificate, which has to be applied for in triplicate, in French, to French Network Rail (RFF) for approval. Thirdly, to apply for access rights relating to particular traffic. It is not a simple process but nor is the process in the United Kingdom, so perhaps one should not be too critical about it. My view is that the French government is starting to realise that it will have to allow the French railways to accept open access, if nothing else but to help the French railways themselves become more efficient. The French railways do have financial problems as well as service problems and the ability to have open access operators to demonstrate a low cost operation will help them hugely. If we were to sit here in a year's time I think you would see four or five open access operators with access rights in France operating open access services.

  Q114  Lord Geddes: Is there anything that this Government, our Government, can do to accelerate that process?

  Mr Smith: It has a multiplicity of relationships with the French government on a number of issues, only a few of which relate to rail freight. I would suggest that through the European Council of Ministers a little pressure could be exerted to make sure that the processes in France are perhaps speeded up slightly. Certainly I am aware of a French company that applied for open access 10 months ago and is still waiting to get its approvals. The European Commission, the UK Government, I am sure could give a little nudge in the right direction.

  Q115  Lord Geddes: I feel sure that in a previous incarnation you must have been in the diplomatic corps.

  Mr Smith: Thank you.

  Q116  Lord Swinfen: Mr Smith, I am just wondering, will EWS and the other four companies have to use SNCF locomotives and drivers?

  Mr Smith: No, we do not have to. What we would like to use are the Class 66 General Motors locomotives that we use in the United Kingdom. That locomotive has been approved for operation in Holland, Belgium, Germany, Sweden and Poland; the French have not quite got round to approving its use yet. It is probably that General Motors have to provide them with a little more evidence as to why it is suitable. The French tend not to like diesel locomotives; their preference is for electric traction. In terms of drivers, we have drivers employed by EWS who could drive in France and whom we might use in the first instance. It would be good to have a market to hire in locomotives and drivers from SNCF, as we have in the United Kingdom, but certainly if we were to develop our own operation there we would want to recruit our own drivers and supply our own locomotives.

  Q117  Lord Swinfen: To what extent are capacity constraints in terms of infrastructure and terminals a constraint on the growth of international rail freight in this country? Again, what can our Government do about it?

  Mr Smith: I think there are two elements of constraint. The first is the capacity of the network generally, which in most areas is uncongested but there are very congested parts of the network, particularly in the primary routes, and that is why with the recent upgrade of the West Coast Main Line the railway industry has committed to providing 70 per cent more paths for freight trains. International freight trains are some of the biggest users of the West Coast Main Line because of the connection between London, the West Midlands, the North-West and Scotland, so ensuring there is sufficient track capacity for freight throughout 24 hours a day as well. Freight is always at risk of being pushed aside for Network Rail to gain engineering access to the network. If one is going to meet customers' aspirations, to pick their goods up at close of work and deliver the next morning then, by definition, we have to move at night. The other area is gauge, where the continental loading gauge, for reasons of history, is higher than in the United Kingdom. Our plan is to run high gauge trains through the Channel Tunnel and on the Channel Tunnel Rail Link as far as the freight connection just north of the River Thames at a place called Ripple Lane near Barking, so we can get high gauge European wagons there. What we would like to do in the long-term is to be able to move those high gauge wagons further into London and ideally further north. That is a not insignificant task; it is not a cheap task. At the moment the focus on gauge enhancement in the United Kingdom is to permit the movement of nine foot six inch deep-sea boxes from the deep-sea ports at Felixstowe and Southampton, but if we are going to be truly united with continental Europe through rail freight then the ability to move high gauge continental wagons elsewhere in the UK is essential.

  Q118  Lord Swinfen: That means possible major structural changes to stations, bridges and tunnels, does it not?

  Mr Smith: There are a variety of ways of increasing gauge. Recently there was the track lowering in the Ipswich Tunnel which allowed the nine foot six inch gauge containers to go through there. It is possible to interlace track so that the wagon passes underneath the bridge or the tunnel arch, which needs signalling, but there are many examples around the world of gauge enhancement being achieved in that way.

  Q119  Lord Swinfen: Would it affect the platforms at stations or not?

  Mr Smith: It can do, but it depends on the route that one goes on and the amount at which the throw or the kinematic envelope of the wagon would conflict with the platform edge. For example, on the West Coast Main Line, platform edges were shaved back quite considerably, not actually shaved but taken back quite considerably, to allow the passing of the tilting Pendolino train as part of the West Coast Main Line upgrade. It is not an impossible task and in some places it is already in place.