HOUSE OF LORDS European Union Committee 4th Report of Session 2004-05 Liberalising Rail Freight Movement in the EU Report with Evidence Ordered to be printed 22 February 2005 and published 4 March 2005 Published by the Authority of the House of Lords London : The Stationery Office Limited £20.00 HL Paper 52 The European Union Committee The European Union Committee is appointed by the House of Lords “to consider European Union documents and other matters relating to the European Union”. The Committee has seven Sub-Committees which are: Economic and Financial Affairs, and International Trade (Sub-Committee A) Internal Market (Sub-Committee B) Foreign Affairs, Defence and Development Policy (Sub-Committee C) Agriculture and Environment (Sub-Committee D) Law and Institutions (Sub-Committee E) Home Affairs (Sub-Committee F) Social and Consumer Affairs (Sub-Committee G) (established in December 2003) Our Membership The Members of the European Union Committee are: Lord Blackwell Lord Neill of Bladen Lord Bowness Lord Radice Lord Dubs Lord Renton of Mount Harry Lord Geddes Lord Scott of Foscote Lord Grenfell (Chairman) Lord Shutt of Greetland Lord Hannay of Chiswick Baroness Thomas of Walliswood Lord Harrison Lord Tomlinson Baroness Maddock Lord Woolmer of Leeds Lord Marlesford Lord Wright of Richmond The Members of the Sub-Committee which conducted the inquiry are listed in Appendix 1. 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CONTENTS Paragraph Page Abstract 6 Chapter 1: What this report is about 1 7 Acknowledgement 5 7 Recommendation to the House 6 8 Chapter 2: Past trends and The Current Position of Rail Freight in the European Union 7 9 Figure 1: Market Shares of Freight Transport 10 Figure 2: Rail Freight Traffic 11 Figure 3: Rail Freight Traffic (m. tonnes) 1982-2002 11 Figure 4: Rail Freight Traffic in Great Britain since 1990 11 Existing and proposed European legislation 13 12 Chapter 3: Current Position of European Rail Freight 19 14 Continued Domination by Large, Publicly-owned Operators 20 14 Quality of Service 26 14 Figure 5: Delays to the freight trains of members of International Union of Combined Road-Rail Transport Companies 15 Continuing Barriers to Open Access 34 16 (a) Safety certificates and operating licences 35 16 (b) Access charges 39 17 Physical barriers to interoperability 41 18 Competition from Road Freight and Water-Borne Freight 46 19 Competition from Passenger Trains for Access to the Network 49 19 Risk of Over-Regulation 51 20 International train drivers’ licence 53 21 Chapter 4: Problems with the Channel Tunnel 55 21 Channel Tunnel access charges 60 22 Safety requirements 64 23 Chapter 5: Problems and Solutions at European Level 67 23 European Union action 67 23 Chapter 6: Action for the United Kingdom Government 85 26 Chapter 7: Recommendations 93 28 Appendix 1: Sub-Committee B (Internal Market) 30 Appendix 2: Call for Evidence 31 Appendix 3: List of Witnesses 32 ORAL EVIDENCE Ford Motor Company Written evidence 1 Oral evidence 11 October 2004 4 Transportes Ferroviarios Especiales SA (Transfesa), Madrid Written evidence 10 Oral evidence, 11 October 2004 12 Supplementary written evidence 19 European Rail Freight Customers Platform Written evidence 23 Oral evidence, 18 October 2004 26 English Welsh & Scottish Railway Ltd Written evidence 32 Oral evidence, 18 October 2004 37 European Rail Infrastructure Managers (EIM) Written evidence 44 Oral evidence, 25 October 2004 46 Community of European Railway and Infrastructure Companies (CER) Written evidence 52 Oral evidence, 25 October 2004 60 European Rail Freight Association Written evidence 66 Oral evidence, 1 November 2004 69 Supplementary written evidence 76 Freightliner Group Written evidence 68 Oral evidence, 1 November 2004 69 Office of Rail Regulation Written evidence 77 Oral evidence, 1 November 2004 81 Director, Directorate-General for Energy and Transport, European Commission Written evidence 90 Oral evidence, 8 November 2004 93 Mr Tony McNulty MP, Minister of State, Department for Transport Written evidence 101 Oral evidence, 8 November 2004 106 Supplementary written evidence 114 Additional supplementary written evidence 114 Network Rail Written evidence 116 Oral evidence, 15 November 2004 118 Supplementary written evidence 127 WRITTEN EVIDENCE Central Railway 130 Deutsche Bahn AG 132 Environmental Freight Services Ltd 134 Eurotunnel 136 GB Railfreight Ltd 138 Mr Kelvin Hopkins MP, The Rail Freight Group 141 KĦhn & Nagel Management AG 143 Rail Freight Group 147 Réseau ferré de France 150 Swiss federal railways SBB 152 Union of Industrial and Employers Confederations of Europe (UNICE) 153 European Rail Freight Customers Platform, Supplementary written evidence 154 Note: Pages of the report are numbered in bold type; pages of evidence are numbered in ordinary type. References in the text of the report are as follows: (Q) refers to a question in oral evidence (p) refers to a page of written evidence ABSTRACT ___________________________________________________________________________________________________________________________________________________________________________________________________________________ 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. Liberalising Rail Freight Movement in the EU CHAPTER 1: WHAT THIS REPORT IS ABOUT 1. For many decades, European rail transport was dominated by nationally based vertically integrated state monopolies, which dealt with international traffic through cooperation rather than competition. It is the aim of the European Commission to liberalise the market, so that incumbents are encouraged to compete with each other, and new entrants attracted in. This is widely thought to be particularly important in seeking to raise