Freight movement within Western Europe has been a growing market for many years. Despite a substantial decline in traditional rail freight markets, especially the movement of heavy goods such as coal and steel, the overall growth of freight markets has enabled the rail freight market to maintain its volume in recent years. But rail freight has lost market share to other modes and not least to road.

A competitive and efficient rail freight industry is important for the competitive position of industry and commerce. This coupled with the fact that rail freight is more environmentally friendly than road freight, has led the European Commission to believe that measures are required to stimulate further growth in the movement of freight by rail.

In 2001 the European Commission's First Railway Package was adopted. It sought to introduce open access for new international rail freight operators and to ensure accounting separation of rail infrastructure management and freight and passenger operations. The Second Railway Package, to be implemented in 2005, set up the European Rail Agency and brought forward the date of opening of the complete rail network for European freight services to 2006.The Third Railway Package has not yet been adopted. It seeks to introduce compulsory compensation to be paid to customers when rail freight operators do not meet stipulated quality standards. It also proposes an international rail drivers' licence.

This Report reviews the background to the Railway Packages, considers why they were introduced and offers a provisional analysis of their effect thus far. The quality of service offered to customers of rail freight movement in Europe falls seriously short of standards required in a competitive environment. Liberalisation of the United Kingdom freight market since 1994 has however resulted in better performance and a growing market share for rail freight.

We welcome the Commission's drive to improve the performance of the rail freight industry but some parts of the Third Railway Package cause us concern. We believe that it is wrong to impose an international rail driving licence on all train drivers and that the proposal for compulsory compensation to rail freight customers for poor quality service should permit an opt-out from this scheme.

The Channel Tunnel is the only direct rail link between the United Kingdom and mainland Europe. There are particular issues relating to the operation of the Channel Tunnel which are quite separate from the wider issues raised by the Rail Packages. These issues were not the specific focus of our inquiry but we examine some of them because witnesses frequently referred to them and because they pose major constraints on the ability of the United Kingdom to benefit from rail freight liberalisation.